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Protectionists' Scare Tactics Against Free Trade for the Philippines

Happy Halloween, I guess? I decided to write this article just today to tackle scare tactics against economic liberalization. A scare tactic is defined as a strategy intended to manipulate public opinion about a particular issue by arousing fear or alarm. Economic liberalization is defined by Investopedia as:

Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. These barriers include tariffs, such as duties and surcharges, and nontariff barriers, such as licensing rules and quotas. Economists often view the easing or eradication of these restrictions as steps to promote free trade.

This is also where we have free trade. I've read protectionist scare tactics during the times of former Philippine presidents, the late Benigno Simeon C. Aquino, and Rodrigo R. Duterte. I found a lot on Facebook and Twitter. It's not uncommon really that stupid people abound on social media and write the stupidest things. These scare tactics abound and it's no surprise. There are many to name though I'd like to name a few. 

The scare tactic of saying only foreigners will get the jobs

Above is an example of a scare tactic. The meme belongs to the Philippine Anti-Fascist League Facebook page. I'm pretty disgusted by this one. They use a meme of the devilish clown from the Stephen King novel It. I'll translate what It the Clown is saying into English for the sake of non-Filipino readers. It is saying, "There will be many jobs if we open the Philippines to foreigners." However, the meme insinuates that only foreigners will get jobs instead of Filipinos. 

Again, I've already explained that it's a blatant lie that only foreigners will get jobs as a result of FDI (read here). Yet, that's the same lie that was given. The same lie that only foreigners will get rich. They may make up stories such as a certain Korean school only gave Filipinos menial jobs than office jobs. However, one needs to check Korean schools and you may notice some Filipinos have already worked as secretaries, accountants, and English language teachers!

I wonder if these people know that Grab is Singaporean and Food Panda is German (read here). Both Singapore and Germany are very open economies. I've been ordering from Grab and Food Panda--both imported companies. The drivers that have arrived at my doorstep are Filipino drivers. How's that for FDIs will not provide jobs for Filipinos? How's that trying to refute my claim that FDIs provide jobs for the locals? I've ordered from both services. Grab drivers and Food Panda drivers in the Philippines are all Filipinos. I haven't seen a single Singaporean driver or German driver. I'll get a Singaporean driver if I go to Singapore. I'll get a German driver if I go to Germany.

The scare tactic that only foreigners will get rich leaving the country with nothing

Malaya Business Insight

There have been other lies. I couldn't get over the lie that the late Neil Doloricon, of IBON Foundation, had made. I still feel this meme appeals to the ignorant. I wonder if they're aware that FDIs only get rich based on net income after taxes  (read here). Do I really need to display the same computation all over again? Companies get rich based on what's left of the net income. Nobody truly gets rich (at first) based on the sales for the day. 

Sadly, some people still have that sari-sari store mentality. It's like the sales of the day are considered the profits of the day. However, in cost accounting, your revenues are not your profits. That basic fact in accounting alone shows that FDIs will get rich but only based on what's left after expenses. This sample computation alone (again) proves the scare tactic wrong:


Image by Sabrina Jiang © Investopedia 2020

For the FDI to achieve profit--it must make sure all its revenues exceed expenses. The cost of goods sold (COGS) may include the local transportation services, the local raw material suppliers, the local employees, and everything related to the production process. The FDI must pay for the COGS resulting in the gross income. However, the gross income must be deducted from everything else such as advertising expenses, administrative expenses, depreciation, and interest accumulated (which may come from a local bank like Banco De Oro, Chinabank, or Metrobank). The gross income less the expenses get us our earnings before taxes. 

To say that the FDI leaves the local economy with nothing is ignorance. FDIs will still need to be registered with the Bureau of Internal Revenue (BIR). The BIR will either put them as VAT payers or non-VAT payers. They will be paying taxes like withholding taxes and quarterly tax. The VAT (12%) will be remitted to the BIR monthly. There will be the quarterly income tax and the annual income tax return (ITR). In short, taxes will be paid by the FDI which goes to the BIR. The FDI is still required to register themselves as taxpayers like the local players. Even without a Filipino partner--they will still pay taxes as long as they're earning money in the Philippine soil. 

Basically, the profit per month is based on income minus all expenses including taxes. Local companies have to collect accounts payable every month. Capital must be allocated to the workers. Workers don't own the means of production. However, workers are entitled to be paid according to their work. If they work well then they must be paid well. All these bills must be paid in order to continue doing business. What's left after all expenses including taxes is where they become rich.

The scare tactic that open FDI equals environmental destruction

This is yet another scare tactic that makes me cringe. FDI is pretty selective in some ways. For example, if a multinational corporation (MNC) wants to build an underwater park in Palawan the no. If the MNC seeks to create a wildlife sanctuary then why not? This reminds me that I wrote an article about how FDI doesn't equal environmental degradation (read here). 

A very huge misconception especially if you know Singapore's history

I could remember asking if you'd support a local business that's not environmentally friendly (read here). The meme above by PH Antifa is truly misleading. It's not like as if the Philippines can't set laws against environmental destruction. One reason why Singapore succeeded with FDI is not about its lack of natural resources. Rather, after reading the late Lee Kuan Yew's book From Third World to First--one of the many things that fascinated me was about greening up Singapore.

Lee Kuan Yew's policies focused on environmentally sustainable business practices. Just reading about North Korea and Venezuela's pollution is sickening. Venezuela is a very protectionist state Protectionism in Venezuela hasn't made it a green paradise. In contrast, Venezuela still has great amounts of pollution. North Korea is even way more polluted than South Korea. North Korea has more mineral resources than South Korea. Guess what? South Korea is richer than North Korea. 

The Philippines can accept FDI while learning from Lee Kuan Yew's green policies. Singapore is just a plane trip away. Singaporean Prime Minister Lee Hsien Loong can be a good guide to help the Philippines in a real green revolution. After all, money is useless when nature is gone. It's after all, nature, that provides the resources to make money and what money can buy. 

The scare tactic that FDI equals increasing debt

This is clearly another stupid thing. Foreign investment and foreign debt are two different concepts (read here). We really need to differentiate the two. Once again, foreign debt is classified as follows:
Foreign debt is money borrowed by a government, corporation or private household from another country's government or private lenders. Foreign debt also includes obligations to international organizations such as the World Bank, Asian Development Bank (ADB), and the International Monetary Fund (IMF). Total foreign debt can be a combination of short-term and long-term liabilities.

Foreign debt, also known as external debt, has been rising steadily in recent decades, with unwelcome side-effects in some borrowing countries. These include slower economic growth, particularly in low-income countries, as well as crippling debt crises, financial market turmoil, and even secondary effects such as a rise in human-rights abuses.

Meanwhile, we have FDI defined as follows:

Foreign investment involves capital flows from one country to another, granting the foreign investors extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment or an equity stake large enough to enable the foreign investor to influence business strategy. A modern trend leans toward globalization, where multinational firms have investments in a variety of countries.

Once again, the difference is really big. The Sri Lankan crisis is not because of investment but based on onerous loans. Why would Sri Lanka borrow that much money that it can't pay? Debt isn't necessarily a bad thing. However, borrowing more than you can pay isn't. 

The scare tactic that FDI equals Foreign Direct Invasion which ignores the local industries

This is really the same scare tactic used by so-called intellectual groups such as Bayan Muna (Nation First), Kabataan Partylist (Youth Partylist), and the League of Filipino Students to protest (LFS) against the Public Services Act of 2022. Carwyn Candila of LFS even said, "We are here to renounce this exploitation." Kabataan Partylist representatives such as Sarah Jane I. Elago and Raoul Manuel have also made the same claims. Bayan Muna members such as Neri Colmenares and Teodoro Casino say FDIs are exploitative, and a loss of sovereignty. I still can't get over this statement by Casino which is really just plain stupid:
Without definite limits on foreign ownership and with no preference for Filipino citizens and corporations, the Constitutional provisions on the national economy and patrimony would become a tabula rasa. It would now be up to the Federal Assembly to determine policies on foreign equity sharing and just about anything there is about the economy and our natural resources. This, of course, creates an entirely new window for corporate lobbying, putting small, underfunded Filipino citizens and corporations at a great disadvantage.

Worse, by totally removing the State’s role in developing an industrialized, self-reliant economy, in implementing agrarian reform, in promoting and protecting Filipino enterprises and producers, and in reserving our natural resources for Filipinos, Duterte’s Cha-Cha will leave small enterprises, workers and farmers having to fend for themselves from the onslaught of even more globalization.

These amendments are the culmination of 3 decades of “economic reforms” toward a totally free market, neoliberal economy. Combined with the existing policies of economic liberalization, deregulation and privatization, the amendments remove the last impediments to the total domination, control and plunder of our economy and natural resources by foreign corporations and banks.

Even worse, Hilario G. Davide Jr., a former United Nations (UN) diplomat even said the following:

MANILA - The provisions of the Constitution on foreign ownership should remain because amending it may lead to the Philippines being a "colony" of foreign investors, a former chief justice said Monday.

The Philippines has "one-fifth of the richest natural resources" and it was "designed that it should only be for Filipinos," said Hilario Davide Jr., a member of the commission that crafted the 1987 charter.    
"If you remove the Filipino citizenship requirement in the exploitation of natural resources, on the acquisition of public lands, or even in mass media, in education, you remove the solemnity of nationalism," he told ANC's Headstart.
Davide said lawmakers should be guaranteed to be incorruptible because Congress can be prevailed upon by foreign interests in order to favor exploitation of the country's natural resources.

"One country may have businessmen so strong because they have the money. If you are in Congress, there might be a temptation to agree to certain propositions, to reduce the limit, for instance, of Filipino participation and increase the participation of foreigners," he said.

"In the end, we will become a colony of businessmen of other countries," he added.

Davide said the 60-40 foreign equity ratio should stay also because the Philippine population is growing annually and they should have food security.

"What will you feed the people afterwards if all our assets here, natural assets, would be [granted] to foreign investors?...Congress should stick to it [60-40] and fully implement the same," he said.

The Constitution restricts ownership of certain areas of investments to firms with at least 60-percent Filipino capital.

The restriction also covers exploration, development, and utilization of natural resources through co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations.

This is why I even wrote an article asking if you'd trust Davide Jr. or Kishore Mahbubani from Singapore (read here). Both grandpas are former UN diplomats and policymakers. The comparison between Davide Jr. and the late John Gokongwei Jr. isn't that good. I prefer to compare Davide Jr. to Mahbubani. Mahbubani didn't just say it--he also proved it. Singapore is a testament to Mahbubani's statements. Mahbubani can directly prove the claim wrong that Singapore only opened up after it became a first-world country. Meanwhile, Davide Jr. is yet to prove his statements as the Philippines is left behind by its ASEAN neighbors. 

The common tactic is to create the Colonial Mentality Bogeyman. I wrote about Pinoy Pride Economics (read here). Pinoy Pride economics has never worked one way or another. The idea that FDI means ignoring local companies is bogus. First, they say that the invasion happens then the destruction of the local companies. Instead, allowing FDIs to own 100% of their shares will help develop the local company (read here). It doesn't take an economic genius to figure that out. FDI will teach new skills, bring in capital, and bring in better opportunities. Besides, some of the best-imported products (which would be local in their source) also had to face FDI. 

FDI has helped local companies through competition. A good example is Jollibee (read here). Jollibee had to face several companies like McDonald's and Wendy's. However, Tonk Tancaktiong didn't chicken out. Instead, Tancaktiong faced the challenge. Now, Jollibee is a worldwide corporation. Meanwhile, the world is yet to taste North Korean soju, use Koryolink over Samsung, and buy Venezuelan local products. FDIs had helped local companies to either innovate or be incinerated. It's all about handling competition. The only thing local businesses need to be protected is from unfair business practices and not from healthy competition. 

It's not like as if there are no rules to follow. All businesses, whether local or foreign, will always have rules. They will be subjected to it. Besides, any good business will survive in competition. Any bad business will perish. There's the chance to grow. Growth never happens in the absence of competition. Plants also need sunlight and fertilizers to be healthy. Protectionism has given no real growth for Filipino businesses. The scare tactics should be treated like the Boogeyman--nothing more than a childish scare tactic to distract from real issues. 

References

Books

"From Third World to First--The Singapore Story: 1965-2000) by Lee Kuan Yew
Harpers Collins Publishers

Videos

"The Singapore economic model - VPRO documentary - 2009"  by VRPO Documentary (September 8, 2018)

Websites

"Trade Liberalization: Definition, How It Works, and Example" by Caroline Banton, reviewed by Robert C. Kelly, fact-checked by Hans Daniel Jasperson

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