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 barriers
import quotas and tariffs and to increase tradeof goods and services with each other. 1, 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:
Partners
Trade Agreements
Japan

Japan-Philipines Economic Partnership

Agreement (JPEPA)

ASEAN

ASEAN Free Trade Agreement (AFTA)

ASEAN, Australia, New Zealand

ASEAN-Australia-New Zealand Free Trade

Agreement (AANZFTA)

ASEAN, China

ASEAN-China Free Trade Agreement

(ACFTA)

ASEAN, India

ASEAN-India Free Trade Agreement (AIFTA)

ASEAN, Japan

ASEAN-Japan Comprehensive Economic

Partnership Agreement (AJCEPA)

ASEAN, Korea

ASEAN-Korea Free Trade Agreement

(AKFTA)

*Source: dti.gov.ph

1https://en.wikipedia.org/wiki/Free_trade

Advantages of Free Trade

Free Trade as mentioned in the preceeding has flourished for its ease of access to
international markets, specifically:
1. Comparative cost advantage
With 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 earnings
Factors 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 imports
Since there is ease of market access, more product competitiors for import are readily
available and present themselves better by its cheap costs.
4. Enlarged market
Free trade essentially involves minimal to non-interference by the governments. As such,
trade barriers are lesser and trade flow becomes easier.
5. Competition
Free 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 exploitation
Free trade is a good deterrent of monopolies in the local scene because of availability of
other sources abroad.
7. Greater Welfare
Free 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 Trade

However good and promising Free Trade seems, it is not without its pitfalls. Some of them
are:
1. Unequal subscription
Free 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 countries
Free 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 competion
Competition induced under free trade is unfair and unhealthy. Backward countries
cannot compete with advanced countries.
4. Unequal distribution of gains
Gains of trade are not equally distributed under free trade due to unequal state of
development of different countries.
5. Difficulty of payment
A country with unfavourable balance of payments finds it difficult to overcome this
situation under free trade policy.
6. The enabling cost
Free 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.2

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 information
2. Delays in administrative costs
3. Use of Export Porcessing Zones (EPZ) and/or Information Technology Agreement
(ITA)
4. Arbitrary classification of origin
5. Too many exclusions
6. Confidentiality of information required
7. Small margin of preference
8. Non-tariff measures used by FTA partners3
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. 4
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
3
4

Factors 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.
Supra.

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. 5

Walden Bello, Deglobalization Ideas for a New World Economy, pages 119-125.

DIFFICULTY IN ENFORCING FREE TRADE

In 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 Soriano
2012-0195