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China in the WTO: What does it mean for us?

(Article published in the Jun 2,2003 issue of TODAY, Business Section)

Most everything I had memorized - the dates, the names, the places- was forgotten as soon as I finished my final exams in Oriental History, but, today, almost 45 years later, I still remember what my second year high school teacher at the Ateneo told us: “Watch out for China.  Even now, Russia is beginning to be afraid of it and has began to closely watch the border they share.  When that sleeping giant awakes, we, her tiny neighbors, will have something big to worry about”.  Across my sophomore mind then zipped, “What? Me worry?” 

China has been more than stirring during the decades since my high school days and in December of 2001, it joined the World Trade Organization (WTO).  China’s accession is, according to Stephen W. Bosworth who is known to most of us as the Ambassador of the United States to the Philippines in those turbulent years, 1984-1987, “the most important thing by far that has happened to the global system since, at least since, the formation of the WTO, maybe including the formation of the WTO”.  It looks like my teacher’s “sleeping giant” has sat up and its neighbors have become genuinely worried. 

Last year, on October 7, 2002, the Carlos P. Romulo Foundation for Peace and Development, founded in January 1996, as a private, non-profit, and non-partisan think tank seeking to propagate a critical understanding of public policy and its impact on peace and development, held a round table discussion on the implications of China’s being in the WTO on the ASEAN and, particularly, with respect to the Philippines.     

Nine experts, -- in alphabetical order, Romeo L Bernardo, Philippine undersecretary for international finance, privatization and treasury operations at the Department of Finance from 1990 to 1996; Stephen W. Bosworth also dean of the Fletcher School of Law and Diplomacy at Tufts University; Florentino P. Feliciano, senior associate justice of the Philippine Supreme Court; Christopher Findlay, professor of Economics at the Asia Pacific School of Economics and Management at the Australian National University; Cayetano W. Paderanga, Jr. acting as moderator was previously the Philippine secretary for socioeconomic planning and director general of the NEDA from 1990 to 1992; Mari Pangestu, lecturer in international economics at the University of Indonesia; Julius Caesar Parreña, senior advisor of the Taiwan Institute of Economic Research; Timothy Ong, who was appointed in 2002 as deputy chairman of the Brunei Economic Development Board, and Zhang Yunling, professor of international economics, director of the Institute of Asia-Pacific Studies, and director of APEC & East Asian Cooperation at the Chinese Academy of Social Science -- spent the whole day understanding the opportunities and challenges posed by China in the WTO and then presented their findings and recommendations to Gloria Macapagal Arroyo at Malacañang in the afternoon of the following day.  

The text of the proceedings of the round table conference showed surprisingly, at least to me, that statistics-laden and prone to projections (which are quickly distanced from foretelling) as their science is, economists can in fact engage in an interesting exchange of views, if not in vigorous debate.  I used to dismiss, flippantly, economics as the documentation of the obvious and described economists as those who, when asked about their office  telephone numbers, would respond with an estimate.  Surely, I had thought, nothing arresting one’s attention could come out of their discussions.  But I was wrong. 

Professor Zhang Yunling began the one-day dialogue with a presentation of his views on the impact of membership in the WTO on China itself and in the ASEAN.  He admits that China in the WTO  will present the ASEAN with serious challenges because “China becomes more competitive and attractive”. Transparent, he also mentioned. But that was before SARS. Then, as if to assuage hidden fears, he lost no time in trying to assure his audience that it will create for the ASEAN “more opportunities”. 

Take for instance, says the good professor, the trend in trade.  He points out that China’s imports from the ASEAN surged by 21 percent during the first seven months of 2002.  It was the fourth largest exporter to China, after Japan, Taiwan and the European Union.  He further stressed: 80 percent of China’s trade with ASEAN is in manufactured goods.  The thesis therefore is that China has become and will become a significant market for ASEAN’s manufactured goods.  He admitted that China was a strong competitor of the ASEAN for direct foreign investments, but he maintains, “China’s competition is there, but not the major cause of ASEAN’s problems.” 

Right after the Chinese professor finished his presentation, strong reaction was immediately recorded from Mari Pangestu, the Indonesian professor.  She started by advising “caution” in the interpretation of data.  The so-called “manufactured goods” imported from the ASEAN probably came from Singapore and Malaysia.  But for the rest of the ASEAN countries, she says, heir exports to China are “resource-based products”, meaning, I suppose, still raw materials. 

Addressing Zhang  Yunling, Ms. Pangestu, proceeded, in her own words, to “challenge your foreign investment story on China.”  It was the contention of Zhang Yunling  that the diversion of direct foreign investment flow from the ASEAN to China was benefiting ASEAN also because the foreign investments set up in China causes China to import and export, “as it is exporting, it is importing”.  Ms. Pangestu quickly pointed out that multinational companies in China have began sourcing their needs locally and therefore will import less from ASEAN.  This is a “hallowing” out of the regional group. 

This vigorous debate is just an illustration of how the ideas were tossed around during the one-day round table conference.  To appreciate the full length discussion, there is no better way than to get a printed copy of the proceedings from the Carlos P. Romulo Foundation for Peace and Development.  It holds offices at the 43rd Floor, Philamlife Tower (where the famous Tower Club is housed), 8767 Paseo De Roxas, Makati City 1226.   The most interesting portion of the book, to me at least, is the discussion of the impact on China’s accession on the Philippines. 

The expert presentor from the Philippines, Romeo L. Bernardo, quickly rattled off the “challenges”, which is economist-speak for “threats”: Labor is cheaper and less militant.  Infrastructure is better. Power cost is also cheaper.  New areas are opened, offering “fantastic” incentives.  Finally, a huge domestic market, another economist-speak, for billions of potential buyers. 

Then, he did what was not characteristic of economists.  He spoke from the ground of reality, not from stratosphere of statistics.  He talked of his experience as director of PSI Technologies Holdings, Inc., a NASDAQ-listed company engaged in the manufacture of a component in many electronic equipment, including computers.  The judgment of management: “in the short term, at the rate China is growing, it will not be possible to overcome all of these obstacles (our counterpart to China’s “challenges”) even if government did everything that was necessary”.  The action point?  The company is relocating expansion to China in the next three years. 

The chorus of the experts, who jumped in the discussion, is that many of the problems of the ASEAN, including the Philippines, are not because of China per se, but are instead self-inflicted.  And these problems center not in trade, but, in the more basic areas of financial discipline and corporate governance.  Homework, the economists are fond of saying. 

Bernado also joins the other experts in pointing out, however, that there may indeed be “opportunities”, again economist-speak for activities where money can be made.  He cites the experience of Lapanday Group which was successful in marketing bananas to China under its own brand.  It used to sell under Del Monte 100percent of its pineapples and bananas.  It now sells 40percent of its produce, a large part of it to China, under its own name.     

But, like a true economist, the good expert settled in the comfortable niche of the indefinite.  Bernado says, together with his colleagues, that the increased and enhanced trade resulting from the WTO between China and the ASEAN, including the Philippines, will undoubtedly produce winners, but it is difficult for government to predict who those will be.  What government has to do, obviously, is to do its homework in the macro and refrain from intervening “too much” so that the price signals correctly tell how the trade winds blow. 

Professor Zhang, in response to Bernardo and the rest,  mightily tried to demonstrate, under the cover of statistics, that, in his view, the Philippines is not the loser in the trade with China.  To quote: “I think generally Philippine companies are winners, they benefit from China’s economic boom.”  His opinion is that not necessarily all multinationals will be moving to China since, according to him, “the real cost in the Philippines…[is] probably lower than in China”.  

To which, Roberto R. Romulo, chairman of the CPR Foundation and twice referred to, in wry humor no doubt, by two experts as “the person who really knows the things before they happen”, replied: “Professor, I wish that were true”. 

As for me, my own wish is simply to locate my Oriental History professor, if he is alive (or his heirs, if not) and had to him (or them) a copy of the proceedings of the round table conference sponsored by the CPR Foundation. It is my token of recognition, belated and for the first time, that he (in whose class we all almost always fell asleep at 2:00 in the afternoon) really knew what he was talking about.