A Free Trade Shop vs. a Protectionist Shop Compared

London School of Economics

One of the previous articles I wrote was about it whether it matters if Filipino investors will use imported equipment in their businesses. The cartoon above (from the London School of Economics) shows the difference between a free trade shop and a protectionist shop. I wanted to take a look at certain Filipino wholesale and retail businesses on how they will work. Can you imagine if local Filipino businesses decided to do that? Businesses like S&R (Lucio Co), Landers (Luis Yu Jr.), SM (the late Henry Sy), the Ayala Group, the Gaisano malls, and so on decided to practice economic nationalism? I could imagine the absurdity of that if Filipino investors decided to do so.

I go to a locally-owned mall. I see different types of products. I go to a grocery and I'm amazed at what I can get. I could find some of my favorite local products, imported products, and the like. If there's a scarcity in local rice--I could immediately go for some imported rice from Thailand and Vietnam until the prices of local rice go down. Did it matter if what I bought from that establishment was local or imported? True, the establishment had to buy imported goods. However, the sales of imported goods go to the financing of the establishment with their paying bills which include taxes. Every income it generates becomes payable via the Value Added Tax (VAT), the quarterly tax, and the annual income tax. Their machines are, after all, inspected by the Bureau of Internal Revenue (BIR). Failure to comply always results in consequences. The BIR could care less if what's sold was local or imported. What the BIR could care about is that the establishment declares its income and pays taxes.

Can you imagine if a Filipino business decided to do everything themselves? A start is that they'll sell nothing but local goods. One can argue that stores like Island Souvenir and the like sell only Filipino delicacies. Some stores (like souvenir shops) focus on local goods because they sell to tourists who want to buy local goods. However, they're pretty much using imported equipment in their operations. Let's think what if Filipino businesses (in the name of "nationalism") decide to do everything themselves. It made me think of what Lee Kuan Yew said about doing everything ourselves. It would require them to start making their own delivery services using carabaos and pushcarts. Meanwhile, Filipino businesses engaged in free trade would probably be enjoying better coverage by availing of delivery services (Grab and Foodpanda), getting quality imported equipment, and doing anything legitimate to make sure that the business runs properly. 

However, businesses like groceries and shopping malls are a different issue. Would it matter if the grocery products are local or imported? Would it matter if the tenant was a foreign brand or a local brand? I go to a mall and I look at all the fascinating products in the grocery. I could buy some Goya's chocolate and then some imported potato chips. I could go to Jollibee for snacks and then go to Chatime for my favorite mango tea. If groceries and malls started to practice "Filipino First" then they will eventually collapse. You need some legitimate money yet you won't accept a legitimate tenant because the person is a foreigner? Would you rather let your space be leased to a Filipino crook and let a gangster den rent in your place? Would you want to arrange a 60-40 arrangement with a foreign tenant which is just overpriced rent? Doing that kind of practice to do "Filipino First" in businesses will eventually cause the businesses to close down.

If I ran a commercial space--I could care less who is renting as long as they're following rules and not breaking laws. Would it matter if it were Jollibee (which is now worldwide) or McDonald's rented the space? I could have both rented my available spaces and made money. Would it matter if it were Bo's Coffee Club or Chatime that rented the spaces? If I had spaces for both then I would let them rent a space. A free trade shop will have more choices meaning there will be less shortage. Importation is used to fill in shortages while the local production tries to recover. Eventually, the foreign supplies will exhaust itself for the meantime and the local suppliers will eventually rejuvenate. It's like how it's harvest season for one country and dry season for another. A free trade shop will sell what it needs to sell by having both local and imported items. The more important thing is the availability and quality of the goods--not about the goods being local or imported.