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Report: RCEP to increase FDI to PH

According to a report by banking behemoth HSBC, the Philippines is anticipated to gain from the ratification of the Regional Comprehensive Economic Partnership (RCEP) initially through increased foreign direct investments (FDIs).

Notwithstanding the Senate’s approval of the RCEP last February 22, research by HSBC Global Research dated February 23 states that “the RCEP will assist the Philippines to attract the FDI needed to expand exports and incomes in the years ahead.”

The Regional Comprehensive Economic Partnership (RCEP), which went into effect in January 2022, is a trade agreement between the Association of Southeast Asian Nations (ASEAN) and five other significant nations: Australia, mainland China, Japan, New Zealand, and South Korea. It eliminates tariffs on 90% of the goods traded within the bloc.

Additionally, it offers a 40 percent “rules of origin,” which permits companies to be eligible for a trade preference provided that stakeholders’ contributions originate from the block’s members.

Even though the trade agreement entered into force in January of last year, only 11 of the 15 countries reportedly joined right away.

It stated that Indonesia joined in August 2022, whereas South Korea and Malaysia joined barely two months later.

According to the study, agriculture-related concerns caused the Philippines’ admission to be delayed.

According to the HSBC research, the country “only submitted 33 agricultural tariff lines for further liberalization or reform,” which “is only equivalent to 1.9 percent of the total agricultural tariff lines,” citing reports that cited the Department of Trade and Industry (DTI).

In the midst of this, the report stated that the trade agreement is anticipated to increase FDIs in the Philippines, but only after the implementation of a number of structural reforms, including improved implementation of the Ease of Doing Business Law, lower energy prices, and a change to the Charter regarding foreign ownership.

Although supply-chain relocation is currently the most talked-about subject in ASEAN, it was stated that competitiveness in recruiting FDI would be a major concern in 2023.

“The Philippines’ policymakers will continue to liberalize the industrial and service sectors, which is why the RCEP’s ratification sends a clear message or signal to investors. This should assist draw in the crucial capital needed to expand the economy’s job market, boost productivity, and move it up the value chain, it was stated.

According to the research, ratification of the RCEP “builds upon the recent historic changes such as the Public Service Act and the Retail Trade Liberalization Law,” which “reinforces the current trend of liberalization in the Philippines.”

Since the trade agreement “only reduces the tariff rates gradually, from 65 percent of traded goods upon implementation to around 90 percent over a span of 21 years,” it was stated that the RCEP is not expected to have an immediate influence on exports, but rather will do so “in the long-term.”

“The increase in exports from now until the next few years will probably be small,” it continued. “(Because of the) redundancy of tariff measures.”

The HSBC report stated that “the long game is what matters.”

“In addition to building up capital over time, the RCEP will allow Philippine exporters access to bigger markets to sell their goods to and more affordable inputs to assist boost the competitiveness of their goods. So, the RCEP should eventually enhance the Philippines’ export potential and consequently, revenues, in the years to come, it stated.

The trade agreement is anticipated to have positive effects on a number of industries, including air travel, tourist services, and electrical gear and equipment.

The paper stated that as commerce moves eastward, the Philippines should be able to benefit from this general trend by ensuring that the economy does not lag behind (i.e., the Philippines maintains its competitiveness in the region) by entering the largest trade pact.

“The RCEP is a crucial trade agreement, and the Philippines is better off joining the group now than never. The advantages may not be felt right away, but they will undoubtedly materialize in the years to come,” it was noted.

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