FREE TRADE: Difficulty in its Enforcement
Overview Free trade is a policy followed by some international
markets in which countries' governments do not restrict imports
from, or exports to, other countries. A free trade area is the
region assining a trade bloc whose member countries have signed a
free trade agreement (FTA). Such agreements involve cooperation
between at least two countries to reduce trade barriersimport
quotas and tariffs and to increase tradeof goods and services with
each other. 1https://en.wikipedia.org/wiki/Free_trade
, In other words, free trade is viewed as a hands-off policy by
government in a region involving its commercial activities with the
end goal of a smooth trade flow supposedly beneficial to
participating international business communities and consequently,
its corresponding countries' economies in terms of improved market
access through reciprocal agreements.
In the Philippines, Free Trade Agreements established with
international partners are listed in the table below:PartnersTrade
Agreements
Japan Japan-Philipines Economic Partnership Agreement
(JPEPA)
ASEANASEAN Free Trade Agreement (AFTA)
ASEAN, Australia, New ZealandASEAN-Australia-New Zealand Free
Trade Agreement (AANZFTA)
ASEAN, ChinaASEAN-China Free Trade Agreement (ACFTA)
ASEAN, IndiaASEAN-India Free Trade Agreement (AIFTA)
ASEAN, JapanASEAN-Japan Comprehensive Economic Partnership
Agreement (AJCEPA)
ASEAN, KoreaASEAN-Korea Free Trade Agreement (AKFTA)
*Source: dti.gov.ph
Advantages of Free TradeFree Trade as mentioned in the
preceeding has flourished for its ease of access to international
markets, specifically:
1. Comparative cost advantageWith comparative advantage,
international companies are able to produce and sell their products
at a cheaper cost, opening itself up to a wider international
market.
2. More factor earningsFactors of production like wages, rents
ans interest are utilized more in free trade, thus the more they
are utilized, the higher its earnings are.
3. Cheaper importsSince there is ease of market access, more
product competitiors for import are readily available and present
themselves better by its cheap costs.
4. Enlarged marketFree trade essentially involves minimal to
non-interference by the governments. As such, trade barriers are
lesser and trade flow becomes easier.
5. CompetitionFree trade is a way of showcasing international
communities of what they have to offer to its partners. More often
than not, goods and services are not unique though they are
distinct. As such, they provide healthy competition in the markets
participated in which also in turn urge companies to produce better
goods ans/or services in order to emerge a better sources for
such.
6. Resrticted exploitationFree trade is a good deterrent of
monopolies in the local scene because of availability of other
sources abroad.
7. Greater WelfareFree trade presents with a huge ptential for
consumption and supply of goodsand services. This is also one of
the avenues where poor countriesare noticed of what they can offer
in terms of natural ans labour resources.
Disadvatages of Free TradeHowever good and promising Free Trade
seems, it is not without its pitfalls. Some of them are:1. Unequal
subscriptionFree trade policy runs smoothly if all the countries
follow the same. If some countries do not adopt it, the system
cannot work gainfully.2. Discrination against edeveloping
countriesFree trade may prove advantageous to developed and
technologically advanced nations, but less developed countries are
certainly at a disadvantage on account of unfavourable terms of
trade.3. Unfair and unhealthy competionCompetition induced under
free trade is unfair and unhealthy. Backward countries cannot
compete with advanced countries.4. Unequal distribution of
gainsGains of trade are not equally distributed under free trade
due to unequal state of development of different countries.5.
Difficulty of paymentA country with unfavourable balance of
payments finds it difficult to overcome this situation under free
trade policy.6. The enabling costFree trade may encourage
interdependence and discourage self-sufficiency. But, in the matter
of defense each country should have self-reliance and
self-sufficiency as far as possible.Despite the clamour of the
classical economists about the advantages of the free trade, the
policy has either not been adopted by many countries or abandoned
by those who had already adopted it. Economic history indicates
that for the last two centuries, international trade has developed
with
protection.2http://www.yourarticlelibrary.com/trade-2/free-trade-policy-its-advantages-with-disadvantages-trade-policies/26245/.
Difficulties of Enforcing Free Trade in the Philippines
With the above-mentined advantages and disadvantages of Free
Trade, it can be easily inferred why the Philippines has not
completely responded to FTAs as expected with that of its
neighboring developing countries. Previous studies indicated a
relatively low utilisation of FTAs in the Philippines. There is
just hesistancy in how our local firms are responding to the trend
of FTAs:1. Lack of information2. Delays in administrative costs3.
Use of Export Porcessing Zones (EPZ) and/or Information Technology
Agreement(ITA)4. Arbitrary classification of origin5. Too many
exclusions6. Confidentiality of information required7. Small margin
of preference8. Non-tariff measures used by FTA partners3Factors
Affecting Use or Nonuse of Free Trade Agreements in the
Philippines, Ganeshan Wignaraja, Dorothea Lazaro, and Genevieve De
Guzman, Philippine Journal of Development Number 67, Second
Semester 2009 Volume XXXVI, No. 2.
Lack of information on the use of FTAs is evident on small and
medium-sized businesses, while large firms that dont avial of FTAs
even if kowledgeable simply opt not to. Information dissemination
is therefore largely incumbent upon the government to to educate on
the benefits and guide these firms on the use of FTAs.
Delays in admisitrative costs is another difficulty to be
addressed if FTA is to be encouraged. Procedural lapses in
obtaining Certificates of Orgin (COO) have porved to be tedious and
painstaking that local firms are discouraged to venture into an FTA
and instead concetrate on the local market.
Use of EPZ and ITAs are prefered by local firms especially the
ones in the Philippines Economic Zone Authority (PEZA) over the
FTAs as export incentives are more attractive to them. Firms
located in any of the 111 PEZA economic zones are exempt from
import and other such tariffs and are entitled to other benefits
such as income tax holidays, simplified export-import procedures,
domestic sales allowance, and employment of foreign nationals.
Other firms that are not located in economic zones may avail
themselves of suspended payment of duties and local taxes within
the customs manufacturing bonded warehouse.4Supra.
Products involved in FTAs are classified according to orgin.
According reports, the classification of these are still not
founded on reasonable grounds, causing confusion and perceptions of
arbitrariness as to their nomenclature; all the more reason why
there is difficulty in pushing for FTA.
Too many exclusions and small margin of preference attibute to
non-use of FTA. There seems to an unstable criteria for products
and services to be qualified under an FTA, which effectively
restricts a local firm's market access.
The submission of documents, specifcations and other materials
involved in an FTA has been perceived as am intrusion against the
confidential information that firms have, which they hold onto
theirs tools of the trade. The secret
information/ingredient/process which they have to divulge upon
application for certifacte of origin is what they deem to be their
prized possession, so precious to be shared to anyone even to a
partner in the FTA.
Effect of Difficulties in the Enforcement of FTA in the
Philippines: : Deglobalization, a Proposed Alternative
Deglobalization is a process of reducing interdependence between
economies of nations. It does not imply a total or absolute
isolation of a nation's economy to the exclusion of others. While,
so much hype is focused on globalization and free trade, the
Philippines has be suggested to take a back seat and take measures
to protect its own backyard.
The Philippine state must be given first and foremost, a greater
relative autonomy vis-a-vis the elite. It must protect its own
interests first rather than having other well-to-do states hijack
what they dont have or are short of. Protectionism, one that has
been guised as for this country's benefit, is actually protecting
the interests of other vultures who prey upon the weaknesses of
this poor economy.
There are also other measures that Philippines must under take
in order to push for deglobalization. Focusing on the internal
market as the driver of development, strategic protectionism,
taking sustainable development seriously, economic democracy,
coordinating national development strategy with those of
neighboring states and finally, transformation of the current
system of global economic governance to create space for developing
countries as this.
These proposed ideas for deglobalization are what are thought to
best serve the needs of people and contribute to genuine
development.5Walden Bello, Deglobalization Ideas for a New World
Economy, pages 119-125.
DIFFICULTY IN ENFORCING FREE TRADEIn partial fulfillment of the
requirements for:International Trade Law Friday 7:30-9:30 PM
Submitted to:Atty. Ever Rose Y. Higuit
Submitted by; Christina Soriano2012-0195
