Discussion Paper, School of Economics, University of the Philippines 2015-10
This paper argues that the way for the Philippines to the ASEAN Economic Community (AEC) is not through ASEAN but through the world. Being good neighbors will define the AEC and how the Philippines fits into it-not necessarily in the way it was planned. Of the 4 pillars underlying the AEC, the paper focuses on Pillar 1-Single Market and Production Base-and within this, trade in goods. During the period of AFTA implementation the Philippines did not only aggressively pursue a program of preferential tariff reduction but a concomitant reduction of MFN tariff rates. Between 1993 and 1999 the margins between Philippine AFTA rates and its MFN rates sharply declined, so that the initial preferential bias in terms of both exports to and imports from ASEAN diminished and trade shares with the region remained stable. In a sense the country's readiness for AEC was already laid down at the start of AFTA and fortified when it unilaterally liberalized on an MFN basis. But this is only one, albeit critical, part, of the AEC package. The other pillars and the other parts of Pillar 1 are still beset by barriers to effective regional trade - mostly homegrown and putting the domestic house in order is necessary not only for the AEC but for firmer integration with the world economy. Even with the current progress in trade-in-goods, sustaining this requires a readiness that needs to be attended-with or without the AEC. Of the original 5 ASEAN members, most have successfully overcome barriers to integration into the regional and global trade and investment systems. Thus, for some of these countries, aggressive pursuit of the AEC is marginal and a by-product of global readiness. Their institutional machineries have been built around the global trading arena, their economic actors exploit their borders' opportunities, their governments bold in forging agreements that open markets. The Philippines has yet to fully be ready for the global markets, its economic actors still have to appreciate borders and their potential for expanding markets, and its government carries out audacious reforms that realize its nearby neighbors can be exploited as part of the larger world economy.