IN business there are no temporary enemies, only permanent interests. That may apply to trade between countries—a dictum tested between the Republic of the Philippines and the People’s Republic of China.
Indeed, two issues continue to cast a shadow on diplomatic relations between the Philippines and China: the latter’s aggressiveness over disputed waters and links of Chinese nationals in the illegal-drug trade. Nonetheless, trade flows between the two countries are seen to remain unaffected as China’s economic prowess in the Association of Southeast Asian Nations (Asean) region still makes it a crucial trading partner.
In fact, President Rodrigo Roa Duterte said in a speech on Wednesday welcomed investments from countries like China. The Chief Executive’s statement is a nod to the “attractive silence” strategy after the Philippines emerged victorious in a legal battle the previous administration waged at the United Nations.
That lawsuit at the Permanent Court of Arbitration (PCA) marked the transition in Philippine politics in the first half of the year. That period proved the most tumultuous period in the two nations’ row over the South China Sea, culminating in the PCA’s arbitral award favoring the Philippines. While that added fresh fuel to the fire, remained silent on the trade front.
According to Jayant Menon, the absence of noise in the trade between China and the Philippines is expected.
Menon, lead economist for trade and regional cooperation at the Asian Development Bank, underscored the absence of any move by China to impose trade sanctions as a solid reassurance.
“I don’t think that the diplomatic issues are affecting trade yet, because there’s no trade war,” Menon told the BusinessMirror. “What we’re actually seeing is that China continues to be an important trading partner not just for the Philippines, but for the region as a whole.”
Growing trade
DATA gathered from the Philippine Statistics Authority revealed that bilateral trade in goods has gradually been increasing between the two countries even after 2013, when the Philippine formally filed a complaint against China before an international tribunal at The Hague in the Netherlands.
The PROC has risen from being the Philippines’s third top trading partner to the second spot, in merchandise trade, in 2014.
Based on the same data, the Philippines has had a growing trade deficit with China—signalling an increasing trade dependency—in the period covered, with both imports from and exports to the PROC consisting largely of electronic components.
Even if the Hague ruling has been forecast by analysts as cause for an even deeper rift, Menon sees that there is enough mutual economic benefit to keep trade relations on an even keel.
This was evidenced by the proposal to restart the China-Philippines Joint Economic and Trade Committee during the 48th Asean Economic Ministers’ Meeting in LaoPDR.
According to China news agency Xinhua, Department of Trade and Industry (DTI) chief Ramon M. Lopez met with Chinese Minister of Commerce Gao Hucheng this month, where talks to revive the joint consultation mechanism were initiated.
The DTI also participated in the China-Asean Workshop on E-commerce last July in Beijing, China. According to a news statement from the Office of the President, this workshop was organized by the Department of International Cooperation-Ministry of Industry and Information Technology of the PROC.
The three-day workshop was attended by Asean member-states ,which include the Philippines, Malaysia, Indonesia, Vietnam, Myanmar, Singapore, Thailand, Laos and Cambodia.
The present administration’s friendlier stance with the PROC is seen to mitigate the rising tension between the countries that was at its peak during the administration of President Benigno S. Aquino III.
Asean-China
ASEAN-China trade exhibits a similar trend: the PROC stands as the second top trading partner of the bloc as it has been for a decade, with total trade value surpassed only by intra-Asean trade.
Data from the Asean showed that China’s share of Asean’s trade has been gradually climbing: from an 11.7-percent share in 2011 to 15.2 percent in 2015.
This comes as no surprise as China remains to be a manufacturing powerhouse in the region, positioning itself firmly in regional production networks and ensuring a steady flow of trade in intermediate goods with Asean neighbors.
“The thing with the Asean-China trade is that a lot of it is part of the regional supply chain of the global production network,” Menon said in an interview with the BusinessMirror. “These parts and components are being value-added in the region, then finally being assembled in China to be exported to the rest of the world. It’s not real trade in actual goods, but in parts and components.”
According to a May 2015 study of the United States-China Economic and Security Review, China consistently appears among the top 5 trading partners of each of the Asean countries.
Menon said he expects this pace of trade to continue “irrespective of any slowdown in China because the final demand is outside the region.”
“I don’t think this kind of trade will be affected by economic and political factors,” he said.
Ramos link
TENSIONS may have eased as Mr. Duterte sent to China former Philippine President Fidel V. Ramos to begin talks with the Asian economic giant.
The Associated Press (AP) reported that Ramos on Friday, said China has welcomed him to visit Beijing for discussions in the wake of last month’s international arbitration panel’s ruling in favor of the Philippines over China’s South China Sea maritime claims.
Ramos said in a statement that he met in Hong Kong with the Chinese legislature’s foreign affairs chief Fu Ying and a leading government-backed scholar on the dispute, and agreed on the need to reduce tensions through talks.
Ramos “expressed the Philippine government’s desire to hold formal discussions, with the Chinese government on issues of mutual concern and interest at the appropriate time to explore pathways to peace and cooperation,” a statement said.
However, Ramos told reporters at a brief news conference that the ruling had not been directly discussed and gave no indication of when the Beijing talks might be held and suggested another negotiator might take his place.
The July 12 ruling by the panel in The Hague, the Netherlands, ruled China’s maritime claims had no basis in international law.
Ramos said there would be ample opportunities for talks between the two governments at a series of upcoming international gatherings.
Mr. Duterte has also been reported by the AP as saying he is adopting a softer approach in resolving the long-simmering disputes with Beijing in the South China Sea.
“We’re not in a hurry to wage war; we’re in a hurry to talk.”
Balancing act
BUT as much as Asean needs China to stimulate growth amidst a lingering slowdown in global trade, the world’s second-biggest economy also needs its smaller neighbors in its endeavor to shape the economic order in the region: the Regional Comprehensive Economic Partnership (RCEP).
The People’s Republic of China should continue the balancing act between asserting its claim over the South China Sea and ameliorating trade ties with Asean if it hopes to push its economic agenda, the RCEP, to a successful conclusion.
While nothing signals the halt to negotiations on the RCEP, which just wrapped up its 14th round this August, Menon said diplomatic tensions in the region must not be a deterrent in realizing the free-trade area (FTA).
“If things take a sharp turn on the political front of course the economics will be affected but, hopefully, we can avoid that,” Menon said. “Right now, there’s enough mutual benefit to pursue economic relations, and to allow the political issue to take its own course.”
“I think China will realize that Asean needs to be a strong partner in the world,” he added. “It will realize the strong relationship in Asean is worth preserving.”
TPP survival
THE opportunity to move the RCEP forward couldn’t come at a more favorable time for China as the fate of the US-led rival trade deal, in the form of the TPP, has come under a cloud of uncertainty.
The approval of the TPP is now in the hands of the US Congress, currently preoccupied with the run-up to November’s US presidential elections.
Moreover, the issue of the Asia-Pacific trade deal has been a hot-button issue during the campaign of the two leading presidential nominees. Presidential candidates Hillary Clinton and Donald Trump have expressed anti-TPP rhetoric to curry favor with the voters.
“Asean countries are keen to conclude the RCEP this year,” Menon pointed out. “The Philippines has stated the intention to join the TPP, but that lies with the US Congress, and given the highly politicized nature of the situation there, the TPP will have to survive [on its own] first.”
Largest FTA
ANALYSTS see RCEP as China’s attempt to carve out a sphere of economic influence in Asia, along with its “One Belt, One Road” strategy—both of which will require deeper cooperation with Asean neighbors,
The RCEP’s significance cannot be understated: volumes of GDP (gross domestic product), trading and foreign investments of the 16 participant-states account for nearly one-third of the world’s total. It is currently the largest Asian FTA under negotiation.
The RCEP will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, legal and institutional matters, and other issues.
In goods trade, the RCEP seeks to harmonize tariff schedules and rules of origin requirements for Asia’s expansive global supply chains.
Projections by the ADB indicate that the RCEP provides global income benefits of about $260 billion. As talks on the RCEP progress, so must the amiable relations between and among countries in the region persist.
Asean members have already implied its desire to remain impartial following the Hague tribunal’s final award favoring the Philippines on the South China Sea issue, this past July. Asean foreign ministers decided to leave out the issue in its joint statement.
The Philippines dropped the request to include the UN court’s ruling on the joint communiqué, after Cambodia disagreed with the wording of the statement.
G-20 agenda
AN AP report quoted a senior Chinese diplomat as saying that Beijing wants next month’s meeting of leaders of the Group of 20 (G-20) major economies to avoid political issues such as its territorial disputes with its neighbors in the South China Sea.
Deputy Foreign Minister Li Baoding said China wants to avoid sensitive diplomatic issues at the September 4 and 5 summit that it is hosting in the eastern resort city Hangzhou.
The consensus among members is to “focus on economic development and not be distracted by other parties,” Li said on Monay when asked about territorial disputes in the South China Sea.
“The Hangzhou summit must focus on economic issues,” Li added. “This is what people want to talk about most at the summit.”
Li gave similar responses to questions about China’s opposition to South Korea’s deployment of a US missile defense system.
A desire to avoid a showdown at the G-20 summit was seen by some as moderating China’s response to the July 12 ruling by an international arbitration panel in The Hague, the Netherlands, that invalidated China’s maritime claims to virtually the entire South China Sea.
However, speculation has also risen that China might make even more assertive moves after the meeting, including possibly launching reclamation projects in new areas or declaring an air-defense identification zone over the crucial waterbody.
PCA notes
THE Philippines is not the only country that has cried foul over China’s activity in the contested maritime areas. In the 501-page PCA Case 2013-19 document, the arbitral tribunal said it also received a request from Australia to observe the Hearing on the Merits.
“As one of the original States Parties to [the United Nations Convention on the Law of the Sea], Australia has an abiding national interest in promoting the rule of law regionally and globally, including through the peaceful settlement of disputes in accordance with international law,” page 22 of the document read. According to the tribunal, the Philippines did not object to the Australian request.
The country’s issue with China dates back to the mid-15th century, the document revealed.
“The Philippines also notes that, for periods of the 14th century and for much of the 15th and 16th centuries, the Imperial Chinese Government actively prohibited maritime trade by Chinese subjects.” China, however, has repeatedly asserted its sovereignty over the Spratly Islands and Scarborough Shoal.
“According to China, its nationals have historically engaged in navigation and trade in the South China Sea and the activities of Chinese fishermen in residing, working and living among the Spratly Islands ‘are all manifestly recorded in Geng Lu Bu [Manual of Sea Routes], which was passed down from generation to generation among Chinese fishermen,’” the document said.
With additional reporting from the Associated Press and Dennis D. Estopace
Image credits: Nonie Reyes