Friday, February 5, 2010

Davao business sector confident to benefit from foreign trade agreements

Davao business sector is confident to benefit from the full implementation of the ASEAN-China Free Trade Area (ACFTA) which effected January 1st of 2010.

Former Davao City Chamber of Commerce and Industry, Inc. (DCCCII) president Simeon Marfori said Dabawenyos, and even the whole country, can expect to feel birth pains from the agreement in the long term.

Marfori said it took the Association of Southeast Asian Nations (ASEAN) almost a decade to implement the world’s third largest regional agreement that is expected to cover almost two billion people from the areas covered by member countries of the ACFTA including China and the six founding ASEAN members--Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand.

The two other agreements being that of the European Union (EU) and the North American Free Trade Agreement (NAFTA).

“Free trade will always be initially painful since it will make things a bit different from what we have become accustomed to economy-wise, as we will be competing with products from the other areas in terms of production, quality and price,” he said.

Marfori, who has officially turned over the Chamber presidency to Engr. Robert Quinto last December, said this would mean equal footing for all competitors not only in the local market but especially in the ASEAN market.

After the adjustment period, he said, Davao can expect an overall positive effect from the agreement.

“The best that we can expect from the ACFTA is low prices of consumer goods,” he said.

Davao City, he added, has a competitive advantage over the other countries when it comes to agriculture, mining, services and manpower.

Dabawenyos should however realize that the key to being competitive is to produce products which we can produce at the least possible cost so we can sell it at a cheaper rate compared to our competitors, he said.

“It means we should not insist on producing onion as an agricultural product if we incur a higher cost than say China, or some other countries that can produce the commodity at a lower cost,” he said.

Marfori said Davao already has a winner in its banana products for import, both the upland and the lowland. There are other fruits and crops we have not really fully explored in the export market including pineapples and pomelos, he added.

As a result of the ACFTA, the founding countries of ASEAN are required to eliminate tariffs and other investment barriers on up to 90 percent of products from textiles, to vegetable oils and steel, effective January 1 this year.

Exempted from this are later ASEAN members including Vietnam, Laos, Cambodia and Myanmar, which will only cut the tariffs gradually until they totally eliminate tariff by 2015.

But while the agreement is a shout-out to the whole world that ASEAN is open for business, not all countries are ready for freer trade. Even the agreement itself has been criticized for lack of a rigorous mechanism when it comes to settling disputes, he said.

Some ASEAN countries are also fearful of China’s effects on their economies, considering the low price of products from the said area even before the agreement took effect.

On the other hand, Quinto said when it comes to competition under the ACFTA, “we are at an advantage because we are an exporting country and our agribusiness products do not really compete against China.”

However, Quinto admitted that "we will be the loser when it comes to the manufacturing sector because no one can beat China when it comes to price." He admitted that we do not face any chance of winning against China when it comes to the production of microchips.

“But with or without the removal of tariff or the implementation of the Free Trade, we will always be a winner when the Philippine Peso has a cheaper conversion rate as against the US dollar as it would make our products cheaper in the world market,” he said.

Fears about the effects of the ACFTA implementation are valid but the agreement will have different impacts on the ASEAN members. Grassroots level farmers in South East Asia are expected to benefit from the opportunity to export agricultural products to China under very competitive terms, thanks to the ACFTA Early Harvest Programme.

However, these very same farmers will now have to compete with imported products from China that are more competitive. Indonesia has indicated this nervousness earlier when several associations asked for the temporary exemption of eleven additional industries from the agreement to include tools, transportation, steel and iron, plastic, electronics, footwear, food and beverages, forestry and plantations, machinery, creative industries and downstream chemical industry.

Marfori said while the full implementation has started early this month, he doubts they will be able to fully implement the new tariff rates since he believes there is as yet no Implementing Rules and Regulations and even the Bureau of Customs has not yet released the list of new tariff rates.

“This means there is still time to prepare and to do that, both the government and the private sector should work together to make sure that the agriculture sector is given the right training and technology,” he said.

While there has been little preparation time for the private sector, he said, we have been more or less prepared by the World Trade Organization which is a grander agreement. The private sector has a lot of things to do like getting more investments. The government too, he said, should now work closely with the private sector so they can get their acts together.

The ACFTA is seen as the largest agreement yet in terms of population. It is expected to create total trade of about 1.23 trillion dollars and regional Gross Domestic Product of about two trillion dollars. But more than the figures, the agreement is expected to bolster trade between ASEAN and China at a dramatic pace, considering that this is already happening even before the ACFTA, with China’s share in the total trade of ASEAN increasing from 2.1 percent in 1994 to seven percent in 2003.

The ASEAN’s largest trading partner at present is the United States with 14 percent total trade, followed by Japan with 13.7 percent, European Union with 11.5 percent and now China with seven percent. This is expected to grow further with the implementation of the ACFTA.

Davao City is expected to take part in this growth, with the help of its export products, with agriculture on top of the list. The city also has an existing sisterhood agreement with Nanning, and it considers this already a step towards the right direction, hopefully leading to some benefits when ACFTA is finally fully implemented in the real world

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