Study on New Generation Trade Agreements and Philippine Agriculture. Dr. Agham C. Cuevas Prof. Emmanuel Genesis T. Andal

Transcription

1 Study on New Generation Trade Agreements and Philippine Agriculture Dr. Agham C. Cuevas Prof. Emmanuel Genesis T. Andal

2 Study on New Generation Trade Agreements and Philippine Agriculture Dr. Agham C. Cuevas Prof. Emmanuel Genesis T. Andal

3 BACKGROUND AND OBJECTIVES The study aims to assess the policy requirements of new generation FTAs and how the Philippines current policy environment stands relative to such requirements, with particular focus on the agricultural sector. It aims to help identify appropriate courses of action that will properly situate the agricultural sector within the more open trading environment. The study is expected to help provide government with stronger basis with which to (i) make an informed decision on joining emerging new trade agreements, (ii) develop strategies to address specific challenges or issues attendant to such membership, and (iii) advance the Philippines trade and economic interests in such new agreements.

4 FRAMEWORK AND METHODOLOGY A. Network Analysis this approach analyzes the properties of the network that describe the prevailing trade relations among economies included in the analysis two indicators is used in this study: the volume and the intensity of agricultural trade relations B. Gravity Model of Trade used to estimate the potential effects of FTA membership to agricultural bilateral trade flows C. Key Informant Interviews used to identify the effects of more open trade to agri-based commodities

5 FRAMEWORK AND METHODOLOGY Network Analysis A network is defined to be a mathematical description of the state of a system at a given point in time in terms of nodes and links (Schiavo, Reyes, and Fagiolo 2010) Trade links are then presented as a network and economies are depicted as nodes in the network. Trade relations and the intensity of the trade relations, between any two economies are represented as edges based on some parameter related to trade (Fagioli, Reyes, and Schiavo 2010) The study adopts a weighted network approach for the network analysis where an edge is assigned a value weight based on the geometric mean of the two indicators earlier described

6 FRAMEWORK AND METHODOLOGY Network Analysis Indicators Total trade (the sum of imports and exports) was used to measure trade volume, and the trade intensity index (TII) was used to measure trade intensity The TII is given by TII ij = t ij ΤT iw t Wj ΤT WW where t ij is the value of economy i s total agricultural trade with economy j, T iw is the value of economy i s global total trade, t Wj is the value and of global total trade with country j, and T WW is total global agricultural trade. The calculated values of both total trade and TII are then normalized, where the normalized value is the ratio of the difference of the value between any i and j and the smallest value in the data set

7 FRAMEWORK AND METHODOLOGY Gravity Model The gravity model is initially estimated with the following stochastic multiplicative form: f ij = GY i β 1 Y j β 1 P i β 3 P j β 4 D ij β 5 e β 6L ij +β 7 B ij +β 8 I i +β 9 L i +β 10 I j +β 11 I j +β 12 M ij +β 13 M i +β 14 M j (1) The model is controlled for, in the order specified in (1), GDPs and populations of origin and destination countries, their respective bilateral distances, being landlocked, being an island, sharing a common border, sharing a common language, and FTA membership An OLS regression, which log-linearizes (1), excludes observations that have zero values causing loss of information, leading to sample selection bias

8 FRAMEWORK AND METHODOLOGY Gravity Model Furthermore, Silva and Tenreyro (2006) showed that the presence of heteroskedasticity renders a log-linearized model OLS estimates inconsistent To address these issues, the study employs Poisson regression Since the new generation FTAs included in this study are either still being negotiated or being targeted to be joined by the Philippines, what is measured are the potential effects of these new generation FTAs to bilateral trade flows The model measures the potential opportunity cost of not being a member of these new generation FTAs; measures the trade flow differential that is due to just being included in the group of the respective members of the new generation FTAs

9 Summary of Existing Agriculture Provisions in the Present FTAs Tariff elimination and duty reduction Provisions on non-tariff measures Special safeguard measures/trade remedies Countervailing duties Dumping and anti-dumping measures Emergency measures Sanitary and phytosanitary measures Technical Barriers to trade Tariff Rate Quotas (WTO bound) Quotas (quantities under tariff rate quotes applied) Export subsidies Trade facilitation Intellectual property rights Rules of origin (varies across FTAs, and under HS classification; usually wholly obtained or 35-40% of the regional value content)

10 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE A. Network Analysis and Centrality Results Included economies with which the Philippines is currently negotiating or planning to negotiate FTAs with Used top ten most traded agricultural commodities of the Philippines Also included those economies that are in the top ten trade partners of the Philippines for each commodity In the case where an EU member ranks as one of the top ten trade partners in a particular commodity, it is included as a separate node

11 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE A. Network Analysis and Centrality Results Degree Centrality The number of nodes directly connected, or adjacent, to a given node ν ; the higher the values for degree centrality, the more integrated the economy is within the trade network Closeness Centrality The reciprocal of the average shortest path length; higher the values for closeness centrality means lower economic distance of an economy towards the trade network, or the closer it is to the network Eigenvector Centrality Measures the relative importance of a node within the network; High values for eigenvector centrality means that the economy is linked to the more important economies in the trade network, attesting its own importance, it will be included as a separate node

12 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE Example: Banana Country Degree Closeness Eigenvector ARE AUS BRN CAN CHL CHN EU HKG IDN IND IRN JPN KHM KOR KWT LAO MEX MMR MYS NZL PER PHL SAU SGP THA USA VNM

13 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE A. Network Analysis and Centrality Results Commodities Frozen Fish Milk and Cream Banana Dates, figs, pineapples, avocados, and guavas Findings The network conglomerate around China, Japan, and the United States. These countries are also the top three in terms of all the centrality measures. The Philippines is in the top ten only in degree centrality ranking the 9 th, and ranked 12 th and 13 th respectively for the two closeness and eigenvector centrality. The network form a hub around Oceania. The centrality measures confirm this, with Australia and New Zealand always making the top ten. The Philippines only makes the top ten in closeness centrality, ranking 9 th, and ranking 14 th and 11 th in degree and eigenvector centrality, respectively. The network for banana shows the Philippines is at the hub. The country rule the roost in banana, always ranking number one in all the centrality measures. Trade links with China and Japan are the strongest. The strongest trade ties are among China, the Philippines, and Thailand. These three economies also made the top five in all of the centrality measures. The Philippines was number one in the closeness centrality

14 Commodities Wheat and meslin Rice ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE Coconut and palm kernel Other plant parts A. Network Analysis and Centrality Results (cont.) Findings Australia, Canada, and the United States constitute the hubs. These three economies also are in the top ten of all the centrality measures. Philippines ranked 9 th and 8 th in degree and eigenvector centralities respectively and is ranked 11 th in the closeness centrality The hubs are EU, Thailand, Vietnam, and the United States. These four economies are in the top ten of all the centrality measures. The Philippines is in the top ten of all the centrality measures. The network centers around Indonesia, Malaysia, and the Philippines. The three economies are also in the top five of all the measures. The Philippines is at first place in eigenvector centrality China and the United States form the hub, with Thailand being connected to both. These three economies rank at the top five in all the centrality measures. Philippines did not make the top ten only in degree centrality, where it ranked 12 th ; the rankings in the closeness and eigenvector are 10 th and 9 th, respectively.

15 Commodities Other food preparations Solid residues from soya bean Coffee Cocoa ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE A. Network Analysis and Centrality Results (cont.) Findings EU and the United States, with Singapore and Australia are the strongest links. These four economies are all in the top ten in all the centrality measures. Philippines did not fare well. The country ranked 15 th, 13 th, and 16 th in degree, closeness, and eigenvector centrality The strongest links are in the Atlantic. Argentina seems to attract significant trade flows, and has strong links with EU and Brazil. These three economies are in the top five in all the centrality measures. The country ranked 17 th, 14 th, and again 17 th in degree, closeness, and eigenvector centrality Cluster around Europe and Southeast Asia. Nodes forming around EU and Indonesia, and Vietnam. EU is the most central and has the largest eigenvector centrality while Vietnam ranks first in closeness centrality The Philippines does not fare well in this network, as it ranked 19 th, 17 th, and 19 th in degree, closeness, and eigenvector centralities, respectively. The hub seems to form around EU, Indonesia, and Ghana. The Republic of Korea and Hong Kong topped both the degree and eigenvector centralities. Ghana always landing in the top five for all centralities. Philippines ranked 10 th degree centrality, and ranked 18 th and 19 th respectively for closeness and eigenvector centrality

16 Commodities Natural Rubber Abaca Live fish Fresh/Chilled fish ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE A. Network Analysis and Centrality Results (cont.) Findings The hub is formed in Indonesia, Thailand, China, and Malaysia in the center. These four economies make up the top four of the degree centrality. EU and New Zealand and Malaysia are the top three in eigenvector centrality. Malaysia is 4 th in closeness centrality. Philippines ranked 11 th, 14 th, and 16 th I in degree, closeness, and eigenvector centralities respectively The network conglomerate around China and India. These two economies ranks 1st and 3 rd respectively in degree centrality, the top two spots in closeness centrality and 2 nd and 6 th in eigenvector centrality Philippines ranked 2 nd, 5 th, and 1 st in degree, closeness, and eigenvector centralities respectively The center of the network is comprised of Hong Kong and China. These two economies always enter the top five of all centrality measures The Philippines ranked 13 th, 11 th, and 6 th in degree, closeness, and eigenvector centralities, respectively. The hub form around the United States, and to a lesser extent Japan. These two economies has relatively high ranking in the centrality measures. For the eigenvector centrality, the two were dislodged to sixth and fifth place respectively. Philippines ranked 10 th degree centrality, and ranked 18 th and 19 th respectively for closeness and eigenvector centrality

17 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE B. Gravity Model Results The gravity model was run on each data involving each of the new generation FTAs included in the study, namely, TPP, RCEP, and Philippines-EU FTA Used to measure the potential effects of these new generation FTAs to bilateral trade flows. Each gravity model estimate the potential opportunity cost of not being a member of these new generation FTAs. Intra-trade dummy - if + there is potential trade creation, if - there is no potential trade creation Outside import and export dummies - if + no potential trade diversion, if - there is potential trade diversion

18 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE TPP RCEP PH-EU FTA Fish and Crustaceans Intra-trade dummy Outside import dummy Outside export dummy Dairy Products Intra-trade dummy Outside import dummy Outside export dummy Edible Fruit and Nuts Intra-trade dummy Outside import dummy Outside export dummy Coffee, Tea, Malt, and Spices Intra-trade dummy No significant difference No significant difference + Outside import dummy Outside export dummy Animal/Vegetable Oil and Fats Intra-trade dummy Outside import dummy No significant difference + - Outside export dummy Cereals Intra-trade dummy Outside import dummy Outside export dummy Food Preparations Intra-trade dummy Outside import dummy Outside export dummy Miscellaneous Edible Preparations Intra-trade dummy Outside import dummy Outside export dummy No significant difference - - Food Residues Intra-trade dummy Outside import dummy Outside export dummy Cocoa and Cocoa Products Intra-trade dummy Outside import dummy Outside export dummy Natural Rubber Intra-trade dummy Outside import dummy + No significant difference - Outside export dummy Textile Fibres Intra-trade dummy Outside import dummy - No significant difference No significant difference Outside export dummy - - -

19 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE C. Trade Impacts of Entering FTA The criteria used are the presence of trade creation and the centrality measures Impact is Very High if there is potential trade creation, and corresponding centrality measures are relatively low Impact is deemed High if there is trade creation and the corresponding centrality measures are relatively high Impact is Low if there is no trade creation and the corresponding centrality measures are relatively low Impact is Very Low if there is no trade creation and the corresponding centrality measures are relatively high

20 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE C. Trade Impacts of Entering FTA To identify the likely gainers and losers from joining these new generation FTAs, the study looks at whether a commodity group is import-heavy or export-heavy Local players in the import-heavy commodity groups are the likely losers, as the substantial opening up of markets caused by highlevel trade impacts of FTAs will be forced to compete, and if not resilient enough, will be driven out of the market by the competition Local players in the export-heavy commodities meanwhile are the likely gainers, as opening up of markets made happen by high-level trade impacts will allow them to take advantage of other markets abroad

21 Summary of the Categorizations of Potential Impacts from Joining an FTA Commodities TPP w/ US RCEP Philippines-EU FTA w/ UK Fish and Crustaceans Very High Low Very High Dairy Products Very High Very High Very High Edible Fruit and Nuts High High High Coffee, Tea, Malt, and Low Low Very High Spices Animal/Vegetable Oil and High Very Low High Fats Cereals High Very Low High Food Preparations Very High Very High Very High Miscellaneous Edible High High High Preparations Food Residues Very High Very High Very High Cocoa and Cocoa Very High Very High Very High Products Natural Rubber Low Very High Very High Textile Fibres Very Low High High

22 Summary of the Categorizations of Potential Impacts from Joining an FTA: Comparison for TPP and the Philippines-EU FTA. Commodities TPP TPP without Philippines-EU Philippines-EU w/ US US FTA w/ UK FTA without UK Fish and Crustaceans Very High Very High Very High Very High Dairy Products Very High Very High Very High Very High Edible Fruit and Nuts High High High High Coffee, Tea, Malt, and Low Low Very High Very High Spices Animal/Vegetable Oil and High High High High Fats Cereals High Very Low High High Food Preparations Very High Low Very High Very High Miscellaneous Edible High High High High Preparations Food Residues Very High Low Very High Very High Cocoa and Cocoa Very High Very High Very High Low Products Natural Rubber Low Low Very High Low Textile Fibres Very Low Very Low High High

23 Summary of the Categorizations of Potential Impacts from Joining an FTA. Fish and Crustaceans a. Frozen fish b. Live fish c. Fresh/Chilled fish Dairy Products Milk and cream Food Residues Solid residues from soya bean TPP w/ US RCEP Relatively Unaffected Relatively Unaffected Relatively Unaffected Philippines-EU FTA w/ UK Cocoa and Cocoa Products Natural Rubber Relatively Unaffected Textile Fibres Relatively Unaffected

24 Summary of the Categorizations of Potential Impacts from Joining an FTA (cont.) Edible Fruit and Nuts a. Banana b. Dates, figs, pineapples, avocados, and guavas Coffee, Tea, Malt, and Spices Animal/Vegetable Oil and Fats Coconut and palm kernel Cereals a. Rice b. Wheat and meslin Food Preparations Other food preparations Miscellaneous Edible Preparations Other plant parts TPP w/ US Relatively Unaffected RCEP Relatively Unaffected Relatively Unaffected Relatively Unaffected Relatively Unaffected Philippines-EU FTA w/ UK

25 Summary of the Categorizations of Potential Impacts from Joining an FTA: Comparison for TPP and the Philippines-EU FTA. Fish and Crustaceans a. Frozen fish b. Live fish c. Fresh/Chilled fish Dairy Products Milk and cream Miscellaneous Edible Preparations Other plant parts Food Residues Solid residues from soya bean Cocoa and Cocoa Products Natural Rubber Textile Fibres TPP with US TPP without US Philippines-EU FTA with UK Philippines-EU FTA without UK Relatively Unaffected Relatively Unaffected Relatively Unaffected Relatively Unaffected Relatively Unaffected Relatively Unaffected Relatively Unaffected

26 Summary of the Categorizations of Potential Impacts from Joining an FTA: Comparison for TPP and the Philippines-EU FTA (cont.) Edible Fruit and Nuts a. Banana b. Dates, figs, pineapples, avocados, and guavas Coffee, Tea, Malt, and Spices Animal/Vegetable Oil and Fats Coconut and palm kernel Cereals a. Rice b. Wheat and meslin Food Preparations Other food preparations Miscellaneous Edible Preparations Other plant parts TPP with US Relatively Unaffected TPP without US Relatively Unaffected Philippines-EU FTA with UK Philippines-EU FTA without UK Relatively Unaffected Relatively Unaffected Relatively Unaffected

27 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE E. CONCLUSION AND RECOMMENDATIONS Summary of Findings a)the industries that are set to benefit from these new generation FTAs are those in export heavy commodity groups namely: (1) live/fresh/chilled fish, (2) edible nuts and fruits like banana and pineapple, (3) coconut and palm kernel, (4) miscellaneous edible preparations, (5) natural rubber, (6) and textile fibres b)the likely losers in these new generation FTAs are (1) local producers of milk and cream, (2) soya bean residues, (3) cacao, (4) coffee, and (5) rice

28 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE E. CONCLUSION AND RECOMMENDATIONS Recommendations a)productivity and competitiveness Enhancement of both R&D effort and efficient technology transfer mechanism Coordination among the academe and research institutions, the government, and the private sector, and also between DARFUs and LGUs Minimize cost of technology adoption Improvement of supply chain by provision of infrastructure support and logistics mechanisms to the entire supply chain

29 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE E. CONCLUSION AND RECOMMENDATIONS Recommendations a)productivity and competitiveness Focus on creation of viable cooperatives, industry organizations and institutional set-ups to benefit Encouragement of product diversification in agriculture and fisheries based on comparative advantage Putting importance on the role of agricultural extension workers

30 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE E. CONCLUSION AND RECOMMENDATIONS Recommendations b) Credit Increase of the amount of financing available to the rural sector and the Further improvement access of small farmers to these funds c) Information Information campaign, trainings, seminars on FTAs Provision of reliable market information as there is still difficulty finding reasonably accurate data

31 ANALYSIS OF IMPACTS OF NEW GENERATION TRADE AGREEMENTS ON PHILIPPINE AGRICULTURE E. CONCLUSION AND RECOMMENDATIONS Recommendations d) Product standards and rules of origin Modernization of labs and equipment Simpler RoO regime e) Transportation and logistics f) Collective action Harmonization of inter-agency negotiations and clear country objectives Dealing with systemic integrity challenges

32 Thank You!