Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
During the 20th Philippine Business Conference of the Philippine Chamber of Commerce and Industry

[Delivered at the Hotel Nikko Manila Garden, Makati, Metro Manila, November 24, 1994]

Ratifying the Uruguay Round
The world will not
wait for us

THE URUGUAY ROUND (UR) of the General Agreement on Tariffs and Trade (GATT), which awaits ratification by the parliaments and legislatures of the world—including our own—is an issue worthy of our undivided attention and urgent deliberation.

On the first day of 1995, depending on the decision of the members of the GATT, the world will enter into a new trade order or remain moored to the system of closed-door trading blocs and economically inefficient commerce that it has today.

Unless the Uruguay Round agreement is ratified this year, the World Trade Organization (WTO), which will oversee the new trade order, cannot open for business as planned next year. Worse, if the agreement is not ratified this year, it could mean, as many have suggested, the closing of this window of opportunity for the world economy.

A critical time for GATT

Let us be clear about what is at stake—for our country and for the world—in this great issue. When GATT members signed the Uruguay Round agreement in Marrakesh last April, they ended seven and a half years of difficult negotiations. The length of the negotiations suggests the complexity and import of the agreement. It is nothing less than a great landmark in the world’s journey toward freer and more open trade among nations.

Reduced to its essentials, the Uruguay Round aspires to improve and stabilize international regulations for the exchange of goods and services among countries, making world trade transactions more transparent and efficient. The 118 countries that negotiated this agreement are the movers of more than 90 percent of world trade.

Under the agreement, trading uncertainties in the form of arbitrary tariff rates, unduly protective or even unnecessary quotas, and other nontariff barriers are reduced. World trade then becomes more predictable and transparent for those countries that abide by GATT rules. Member-countries could then efficiently plan and implement policies and programs to rationalize their marketing and investment activities.

Second, the Uruguay Round provides for in the World Trade Organization a fitting successor to GATT. The WTO will have the mandate to face the challenge of ensuring a predictable, fair and growth-inducing multilateral trading system for many years to come, and minimize, if not eliminate, bilateral and unilateral trade action, which smaller nations can and do encounter from their richer trading partners.

Benefits of GATT

In deciding whether to ratify the new agreement or not, I fully agree that we must examine carefully the implications on our economy of joining this new trade order. This Administration, in collaboration with the leaders of Congress and the business sector, has been doing that since the conclusion of the Uruguay Round. And we are totally convinced that the Philippines must ratify this agreement because of the benefits and advantages that it confers upon our endeavors to achieve growth and development.

The most conservative estimate of the gain from the proposed new trade order puts it initially at $200 billion, or roughly 1 percent of gross world product.

This would not be enormously significant in itself, were it not that in a developing country like the Philippines, we stand specifically to increase our exports as we are given more access to international markets. This will trigger a cycle of increase in demand leading to higher incomes and expanded employment—two objectives that have been difficult to achieve without greater and freer trade.

We see here a once-in-a-lifetime opportunity in which our determined push toward modernization will be matched by a comprehensive lowering of trade barriers in the global trading community.

The Uruguay Round achieved a global lowering of tariffs of at least 33 percent, for certain products of particular interest to the Philippines. The reductions are even greater—with as much as 50 percent to 100 percent cuts in the tariff barriers of our major trading partners like the United States, the European Union and Japan in such Philippine products as toys, furniture and electronics.

Effects for the Philippines

We have already been able to determine that the tariff reductions pledged by our trading partners will practically apply to the full array of Philippine export products, which in 1993 amounted to almost $12 billion.

Upon the full implementation of the Uruguay Round results by the year 2000, our exports can increase by an additional $2.2 billion to $42.7 billion every year. That would be on top of the natural increase in exports that we experience through time. In terms of money alone, these gains are enormous. In terms of helping to develop our country, they are even more significant. We cannot allow this opportunity to pass us by.

There are some among us who spread fear that under this new GATT, our country will be deluged by cheap imports, resulting in the death of our agriculture and industries.

They see the agreement as a plot of the developed nations to keep the developing nations forever poor and dependent.

They still fancy that we can develop without integrating ourselves to the global economy, without opening our doors to foreign investment. In their fantasy, the Philippines can industrialize by itself, with the State as the engine of development.

The ideology that spreads this fear has long been discredited because it has proved bankrupt and unworkable. You cannot imagine a starker illustration of Socialism’s failure than the spectacle of former Communist countries trying to erect market economies. Neither do we need further proof of the poverty of economic ultranationalism and protectionism than our so-called infant industries that have remained infants after 40 years of protection.

Dealing with the challenge

That there are some sectors in our country that will be adversely affected by the new GATT is of course true. Though their difficulties are no argument against trade reform, we, the leaders, have a clear duty to ease their plight and help them attain more secure positions in our economic life.

We can deal with this challenge so long as we do not transform it into what it is not. To begin with, our country did not commit to reduce tariffs in the Uruguay Round, except in the case of 66 products which at present have high tariffs of 30 percent to 50 percent. These 66 products constitute less than one percent of the almost 5,600 products that we import. The reductions in the 66 products, which cover agricultural and textile products, will be at the rate of 10 percent to 60 percent spread out over ten years.

The Philippines only committed not to raise the tariffs on 2,800 products, or half of the 5,600 products that we import beyond a level that is 10-percentage points higher than the currently applied tariff.

Quantitative import restrictions on agricultural products, like corn and meat products, will be lifted and replaced by very high tariffs. This is the process called tariffication. The Uruguay Round allows us to continue importing what we have normally imported in the past, and permits us to levy a much higher tariff in case we need to import more than historical imports. The process will therefore not be destabilizing for our farmers.

Let us take the case of corn. If there is demand, we can import the 130,000 metric tons a year we imported in the past at a tariff of 35 percent. Anything beyond that volume, we import at 100 percent. Over ten years, we increase the volume to 217,000 metric tons, and reduce the high tariff of 100 percent to 50 percent by the year 2004.

This method not only gradually liberalizes our corn market but also introduces predictability, and therefore sound decision-making in the corn-using sector such as hogs and poultry producers, and even the corn industry itself. Where under the old system our hogs and poultry raisers did not know if there would be any importation of corn, now they will know that there should be at least 130,000 metric tons at 35 percent, and anything beyond that at 100 percent. The corn industry as well can make its calculations—it will know just how much landed imports will cost and decide on investments and expansion programs in a more scientific way.

Rice, the most important agricultural crop, will be temporarily exempt from tariffication. The Philippines will be able to continue the restriction on rice imports, but we will have to lift these restrictions by the year 2005. In exchange for this flexibility, however, we should allow minimum importations during the ten-year interim period of around 59,000 metric tons in 1995 if there is demand, rising to 236,000 metric tons by the year 2003, at a tariff rate of 50 percent. These volumes represent 1 percent and 4 percent of domestic consumption, respectively, which are lower than the 3 percent and 5 percent of domestic consumption we would have been required to commit had we opted to tariffy rice. We have no obligation to import rice beyond the minimum volume.

The Department of Agriculture, in coordination with the legislature, is about to complete the mechanism for the importation of these minimum volumes with a view to plowing back the proceeds to the farm sector through the putting up of additional infrastructure and postharvest facilities.

The garment industry will continue to benefit from expanding quotas for the next ten years. Both Government and the private sector should use this long transition period to put in place adjustment measures that would improve the competitiveness of Philippine garments in terms of price, quality and turnaround time.

Spurring us to do better

The textile industry will also undergo a modernization program to improve its competitiveness and provide the foundation for the garment industry. That is the rationale for Executive Order 204, which I signed in September. It intends to bring down tariffs on the industry’s inputs, raw materials, capital equipment, and even finished goods, to levels that would be low enough to get the modernization program started, and to discourage smuggling.

Without doubt, the Uruguay Round is bound to impact on our country’s protection structure—but the process would be over time and not be immediate.

Fears that the agreement will kill domestic industries and agriculture are totally unfounded. The process allows our industries and farm sector adequate time to adjust and develop their capabilities and improve efficiency.

Thus we can be competitive in the global trading game. Confidence and hard work will see us through. Protection did nothing to raise our productivity as a nation. I firmly believe that the challenge of economic survival in a competitive global economy can only spur us to do better.

The issue of subsidies

The agriculture agreement of the Uruguay Round signals the beginning of the end to rampant subsidies for agricultural products. Subsidies give undue advantage to foreign products that, on one hand, cannot compete with products the Philippines exports to the world market, and on the other, compete unfairly with Filipino farmers in the domestic market.

In the developed countries, domestic agriculture subsidies shall be reduced by 20 percent over six years; export subsidies shall be reduced by 36 percent in volume trends and by 21 percent in value terms over six years. These reduction rates actually become deeper when one takes into account that the subsidy cuts will be applied on 1986-88 subsidy levels and not on 1994 figures.

Even our richer ASEAN neighbors will have to effect some reductions in their domestic agricultural subsidies. This should be a boon to our farm sector.

In the area of industrial subsidies, until our per capita GNP reaches $1,000, the Philippines will be one of the few remaining countries in East Asia that can continue to use subsidies and incentives that are based on export performance. Once that threshold income level is reached, we would still have eight years to phase out such subsidies. In contrast, our neighbors in East Asia and most of our ASEAN neighbors are already phasing out such subsidies.

Subsidies and incentives that require the use of local inputs over imported ones (or local content requirements), however, will have to be phased out by the year 1999. This may have an impact on say, the vehicle manufacturing programs. But here, as in the other areas, what will be lost over time will be of benefit to Filipino consumers.

The Philippines also stands to gain from the multilateral trading rules that were agreed on in the Uruguay Round, because we can use them to protect our legitimate trading interests.

These rules include safeguards to allow us to protect our domestic industries against a surge in imports. Antidumping and countervailing duties to neutralize unfair imports, and those that harmonize trade measures which in the absence of harmonization can become trade barriers, such as technical barriers to trade, sanitary and phytosanitary measures, rules of origin and customs valuation.

The agreement on trade-related aspects of intellectual property rights will require us to improve existing rules to protect intellectual property rights (IPRs) and to ensure their effective enforcement. The Philippines, however, when compared to other countries in Asia, already has a fairly well-developed legislative structure for IPR protection; hence the adjustments will not be substantial.

The IPR agreement can benefit the Philippines insofar as it will encourage the inflow of foreign investment into the country, and we will no longer be vulnerable to unilateral pressure from certain countries.

The First World’s fears

It is one of the ironies of the GATT debate that while some of us here are fantasizing that the agreement is a Western conspiracy to keep poor nations poor and dependent, there are those in the West who believe that it will siphon off output and jobs from them to the poor nations.

The truth is the rich countries have more anxiety problems about the new agreement than the developing countries. Developing nations have been quicker to get on board than the developed nations.

What is happening is that people in rich countries are now fretting about the success of developing countries, and no longer about their poverty. Manufactured goods now account for almost 60 percent of developing-country exports, up from 5 percent in 1955. The Third World’s share of world exports of manufactures jumped from 5 percent in 1970 to 22 percent in 1993.

Many politicians and businessmen in America and Europe fear that the success of these new competitors in the world economy will come at their expense. They contend that the lowering of trade barriers under the Uruguay Round will just feed this process. They spread the fear that the rich world’s workers will be ruthlessly undercut if its markets are opened to goods from developing countries.

They are wrong, just as our ultranationalists are wrong. Trade is not a zero-sum game where any increase in one country’s output must be at the expense of another’s.

Turning opportunity into reality

Put at the simplest level, greater access to rich countries will enable poor countries to export and develop faster. But increased exports enable developing countries to spend more on imports such as capital equipment and branded consumer goods from developed economies. An increase in output in a poor country is likely to increase output in rich countries and vice-versa. They can feed each other under a regime of freer trade.

Moreover, freer trade is not just beneficial on its own terms: it also binds countries’ interests together. On the other hand, trade barriers keep markets and nations apart.

This finally is what the new GATT is all about. And this is why virtually all economists believe that it will sharply increase world domestic product and create jobs in millions.

This is not to say that everybody will automatically be a winner under the envisioned new trade order or that everyone will be a winner in the same way.

The greatest rewards will still belong to those countries that are quick to adjust and seize the opportunities. In our case, we must see this as an opportunity to double export revenues and industrialize by the turn of the century.

Thus we must ensure that the economic environment in the Philippines will be favorable for meeting this challenge. We must achieve greater competitiveness not only in the world market but also in the domestic market. For this to be possible, the costs of doing business have to be brought down.

Measures to further bring down inflation and the interest rate to levels prevailing among our ASEAN neighbors must be implemented. We need a policy that promotes a competitive peso. Infrastructure must be put in place to reliably support the energy, transport and communication needs of industry and agriculture. The education system and science and technology-oriented programs have to be pushed to assure that we will have the human resources to match the growing global need for innovative and efficiently produced goods.

These policy reform imperatives and support measures are in the Ramos Administration’s action plan for gait adjustment measures and budgetary support so that they can catch up with and share in the future benefits of the accord. The proposed 1995 General Appropriations Act has been tailored to support UR-GATT requirements for the immediate future.

The writing on the wall

You of the private sector in turn must hold up your end of the sky. Philippine corporate culture, or enterprise if you prefer, must take to heart that to survive, one must be competitive. The private sector must operate under the assumption that protection accorded by Government through trade barriers will increasingly diminish in the years to come especially in light of developments in the ASEAN Free Trade Area and the Asia-Pacific Economic Cooperation.

The writing, as they say, is on the wall. But it is the writing that will end our “sick man” status—it is the writing that offers enormous rewards to the resourceful, the imaginative and the enterprising.