Author Archives: Greg Rushford

One President Away from Disaster

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One President Away From Disaster
Why the Philippine election threatens to break an economic winning streak.

BY GREG RUSHFORD APRIL 29, 2016
The Philippines offers one of the world’s most heartening economic success stories. Once the “sick man” of Southeast Asia, the country has recently become one of the fastest-growing economies in the region. Over the past six years its annual GDP growth rate has been above six percent.

The credit belongs to President Benigno Aquino.The credit belongs to President Benigno Aquino. Elected in 2010, Aquino promised an honest government, staffed by competent administrators who would start freeing the economy from the shackles of corruption and kleptocracy. He has largely kept his promise: he has awarded public contracts honestly, held corrupt officials accountable, and removed obstacles to much-needed foreign investments. But now Aquinio’s six-year term is nearly over, and the constitution does not allow him to run for president again. As a result, on May 9, voters will head to the polls, when they will pick their new chief executive from a field of five candidates.
The bad news is that none of the frontrunners appears likely to continue Aquino’s reforms, which remain fragile and subject to reversal. In fact, the whole group is downright disturbing — a feeling that will probably be familiar to anyone who has been following the U.S. presidential race.

The frontrunner is a misogynist whose attitude on women makes Donald Trump look like a choir boy, and who has pledged to drown criminals in Manila Bay. Another is dodging criminal investigations that allege money laundering, kickbacks, and bid rigging. Still another is a political neophyte who might be a welcome fresh face, if only she were not backed by some of the worst of the old-style cronies whose main contribution to their country has been to impoverish it. Admittedly, there is one candidate who is widely respected for his personal honesty and wealth of high-level government experience — but he has also earned a reputation for being unwilling to make tough decisions. (The fifth aspirant, Miriam Defensor Santiago, who is polling in the single digits, is not considered a serious contender due to her bout with lung cancer.)

“If this looks like a circus, it’s because it really is,” prominent investigative journalist Marites Vitug told me. In sum, after the new president is sworn in this July, the bad old days, when corrupt politicians were (disastrously) in charge of the economy, could soon come back.

If that happens, the timing couldn’t be worse. The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done.The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done. For starters, a whole series of key sectors — ports, shipping, energy, logistics, mining, finance, telecommunications, agriculture, and food — are, one way or another, closed to meaningful competition. To sustain genuine economic growth, the next president will have to take on and break up an array of entrenched cartels, monopolies and duopolies. President Aquino has made a start, but unless these and other structural problems are addressed head-on, the country’s growth is almost sure to slow.

Yet the candidates seem to have other priorities on their minds. The rule of law, for example, is notoriously weak in the Philippines — problems range from poor respect for property rights to a judicial system in desperate need of reform. So it says a lot that the frontrunner is 71-year old Rodrigo Duterte, who for more than two decades has been mayor of the city of Davao on the southern island of Mindanao. He’s known as Duterte Harry, after the Clint Eastwood movie character. That’s because, once a playground for violent criminals, Davao has become perhaps the Philippines’ safest city. The credit for that is widely attributed to death squads, widely viewed to be connected to the mayor, that have taken out an estimated 1,000 street criminals with no semblance of a fair trial.

Whatever the truth, Duterte cultivates his tough-guy image.Whatever the truth, Duterte cultivates his tough-guy image. “If you do not know how to kill people and you’re afraid to die, that’s the problem, you cannot be a president,” he has declared.

If he becomes president, Duterte promises to throw the bodies of thousands of drug dealers into the ocean. “The fish in Manila Bay will get fat,” he boasts. He has also threatened to dissolve the congress and impose martial law as “an extreme option” if corrupt politicians get in his way. Onlookers may cringe, but many Filipino voters, fed up with corruption, applaud.

Duterte’s foul mouth tends to get him in trouble. He has apologized for cussing out Pope Francis in anger after getting stuck in a massive traffic jam during last year’s papal visit to Manila. But he’s never expressed sincere regret for some of his astonishing statements about women. Recently, Duterte recalled a case where an Australian missionary had been gang-raped and killed in Davao in 1989. The rape was regrettable, he said — but somewhat understandable given how “beautiful” the victim was. She was so attractive, Duterte joked, that “the mayor” — meaning himself — “should have been first.” When his insensitivity sparked a flurry of international headlines, Duterte basically shrugged, noting that “was how men talk.”

If elected, the first “big fish” to go to jail, Duterte promises, will be one of his presidential rivals. “I have killed criminals,” the mayor has declared. “But Binay steals from the poor.”

The reference was to current Vice President Jejomar Binay, 73, the former mayor of Makati City, the Philippines’ financial center, who at times has also led the polls. Binay, who ran Makati’s political machine for 21 years, has been accused of amassing unexplained wealth — accusations he has always brushed off as unsubstantiated and politically motivated.

Binay rose from humble beginnings, working his way through law school and into politics, and eventually creating one of the country’s most powerful dynasties. One of his daughters is a senator, another a congresswoman. His son served for a time as mayor of Makati until being dismissed last year to face allegations of corruption.

Meanwhile, a senate subcommittee has investigated allegations that Binay himself indulged in bid rigging during his stint at mayor. The Philippines Anti-Money Laundering Council, an enforcement arm of the central bank, obtained a court order last year freezing more than 200 bank accounts allegedly used for money laundering by Binay and his associates. (His reply was that “allegations are not evidence.”)

Binay has cultivated a base among his poor compatriots.Binay has cultivated a base among his poor compatriots. As mayor of Makati, he generously doled out free scholarships and medical care to his grateful constituents. A video that went viral in Manila showed him handing out what appeared to be small peso bills to a line of grateful constituents — just Christmas presents for the downtrodden, his operatives bragged (without explaining exactly where the money had come from). Binay told one audience last year that poverty, not corruption, would be the number one “moral problem” he would address as president. This, needless to say, offers little hope that he would prove effective at fighting graft, often cited by Filipinos as one of their country’s most pressing problems.

Binay has raised eyebrows by being the only presidential candidate to suggest that, if the price were right, he might agree to let China buy its way out of its maritime disputes with the Philippines in the South China Sea. Chinese naval forces have seized control of some 80 percent of the Philippines’ internationally recognized exclusive economic zone, which includes valuable oil and gas reserves and traditional fishing grounds. To his credit, President Aquino has stood up to the intimidation, even embarrassing Beijing by filing an international legal challenge in The Hague. Chinese officials have made no secret of their hopes to settle the dispute by contributing money for “joint development” projects — if the Philippines will accept that China is entitled to keep control of lucrative resources that rightfully belong to the Philippines. An accommodating President Binay could be just what Chinese officials have been hoping for.

Senator Grace Poe, the adopted daughter of popular movie stars, is the third leading presidential aspirant. At 47, Poe is still considered a neophyte, having only been in the senate for three years. But she does have a team that includes several respected economic advisers who understand that the Philippines will never enjoy sustainable growth without addressing the many structural weaknesses that have held the country back for so long.

Yet Poe, too, comes with baggage that casts doubt on her capacity to sort out her country’s economic problems. Above all, she has close ties to the bad old crowd that created many of the problems that plague the Philippines today. One of her strongest political backers is former President Joseph Estrada, a boozer and womanizer who was hounded out of office in 2001 and convicted of corruption. (He has certainly demonstrated political resiliency, having been elected Manila’s current mayor in 2013.) Estrada is one of Poe’s godfathers, a relationship that has real meaning in the Philippines.

Even more worrisome, another godfather, Danding Cojuangco, is pushing hard for Poe’s election. Cojuangco, one of the country’s most notorious crony capitalists, became one of the Philippines’ richest men (and perhaps the richest) during the old Marcos dictatorship. He was on the plane when Ferdinand Marcos fled the country for Hawaii in 1986. Now chairman of the giant San Miguel conglomerate, Cojuangco has made his corporate aircraft available to fly Poe around the campaign trail.

San Miguel beer holds some 90 percent of the Philippine beer market, and the conglomerate’s revenues are estimated at some 5 percent of the country’s GDP. Besides beer, San Miguel is into chickens, hot dogs, oil refining, insurance, property developments, banks, power plants, and more. If investigators from the new Philippine Competition Commission start asking questions about undue concentration of economic power, where would a President Grace Poe stand?

The good news about Mar Roxas — a viable candidate, although never a frontrunner — is that he’s one of the rare Philippine politicians who has never been tainted with allegations of malfeasance. And although just a couple weeks short of 59, he’s had a wealth of high-level experience: senator, trade secretary, energy secretary, interior, and transportation. But he also has a reputation as a relatively weak administrator. During his stint as transportation secretary, for example, he proved unable to push through plans for a long-overdue international airport project.

Happily, the picture isn’t completely bleak. The Philippines still boasts inherent strengths that could compensate for the possibility of a severe leadership deficit following the presidential election. The country has a high literacy rate and a resourceful and talented workforce. And the country’s 100 million people are in a demographic sweet spot — their average age is in the 20s, making for a youthful, energetic population that can drive consumption and growth.

All this offers at least a faint hope that present growth trends will continue no matter who wins on May 9. Even so, pessimists are entirely entitled to ask why, despite its virtues, the Philippines always seems to be just one president away from disaster.

The WTO Struggles in Nairobi

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The Wall Street Journal

The WTO Struggles in Nairobi
There is serious doubt the organization will ever be able to negotiate meaningful trade liberalization again.

By GREG RUSHFORD
Dec. 21, 2015 12:58 p.m. ET

The World Trade Organization’s ministerial conference in Nairobi last week brought one bit of good news. After five days of wrangling, the 164 member countries announced on Saturday that they had agreed to phase out export subsidies for agricultural products. That’s a small but worthy accomplishment that had eluded the global trading system for five decades.

Otherwise there wasn’t much reason in Nairobi to cheer. The deep divide between rich and poor countries on trade persists. There is serious doubt that the WTO will ever again be able to negotiate meaningful multilateral trade liberalization.

While the Americans, Europeans and Japanese succeeded in killing off the economically outdated Doha negotiations that date to 2001, they offered no new road map. Nor did the Indians, Chinese and some Africans who still pretend that the Doha patient still has a pulse. Accordingly, the Geneva-based WTO remains an institution with an uncertain future.

In the past 20 years, the WTO has completed one multilateral trade negotiation. At the 2013 Bali meeting, members agreed to give the world’s poor nations something called trade-facilitation assistance. That aimed at smoothing the flows of goods across presently clogged borders: modernizing inefficient customs procedures by introducing electronic payments and tracing, and so forth. As Hong Kong’s chief representative to the WTO, Irene Young, reminded everyone in Nairobi this week, that deal “is expected to reduce average trade costs by more than 14%, an impact possibly greater than the elimination of all remaining global tariffs.”

But the Bali deal hasn’t yet been implemented, as only 63 of the 108 necessary WTO members have ratified it. As WTO Director General Roberto Azevêdo told reporters in Nairobi, one successful multilateral negotiation in 20 years “is not good enough.” At the WTO’s closing ceremonies Saturday at the Kenyatta International Convention Center, Mr. Azevêdo referred to the continuing impasse between the rich and poor countries, noting “the world must decide what path this organization should take.”
The fundamental problem is weak political leadership that is mired in parochial protectionist politics, especially in capitals such as Beijing, New Delhi, Pretoria and Washington. In 1948, when the WTO’s predecessor organization, the General Agreement on Tariffs and Trade, was launched, there was a shared consensus that the gradual dismantling of trade barriers was the goal.

From 1948 to 1995, when the GATT morphed into the WTO, seven rounds of multilateral trade liberalization slashed tariffs to an average of 5% from 40%. But nowdays, the GATT/WTO could more aptly be dubbed the General Disagreement on Tariffs and Trade. Few still believe in the WTO’s core multilateral negotiation function.

Some poor countries such as India never really believed. In Nairobi, India’s main goal was the opposite: demanding that the rich countries slash their trade barriers, while raising its own. India already has authority to raise its average agriculture tariffs to more than 100%, yet still demands an additional “special safeguard mechanism” rights.

Last week, India was unable to play its customary role as a wrecker, as spoiling the only WTO ministerial meetings ever held on African soil would have been unthinkable. Besides, India lost the support of traditional allies like Brazil, who demanded more access to protected Indian markets.

The Chinese also were focused almost exclusively on restricting agriculture imports and on continuing the Doha negotiations as planned in 2001. That’s because back then, China was promised preferential treatment as a poor country.

Other examples of economic short-sightedness are depressingly petty. Pakistan came to Nairobi angry that a South African cement cartel has persuaded Pretoria to slap more than 60% tariffs on Pakistani cement imports. Meanwhile, the Pakistanis were against a proposal to give Bangladesh duty-free treatment for Dacca’s clothing exports. African countries like Lesotho, which have been granted preferential tariff-free treatments on their clothing exports to the U.S., also piled on Bangladesh.

So did the Americans, who remain in thrall to their own protectionist textile lobby. Meanwhile, South Africans came to Nairobi with assurances they would stop blocking American poultry imports—hoping that would persuade U.S. President Barack Obama from denying them preferential access to American markets.

Even sadder, when the Philippines offered an excellent idea to streamline export opportunities for small entrepreneurs, the usual nay-sayers—including Bolivia, Cuba, India, and South Africa—shot it down. Don’t give the capitalists anything until our demands for additional protection are met, they insisted.

U.S. Trade Representative Froman made a fine speech to his colleagues in Nairobi. It’s time for WTO members to stop playing cynical games, he said. He meant the other guys.

Mr. Rushford is editor of the Rushford Report, an online journal on the politics of trade.

The General Disagreement on Tariffs and Trade

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The General Disagreement on Tariffs and Trade

The system that has underpinned global trade for the past 70 years is foundering. So why is no one paying attention?

The General Disagreement on Tariffs and Trade

Nearly 70 years ago, with fresh memories of the disastrous trade wars of the 1930s, leaders of the United States and 22 other countries launched the GATT, the General Agreement on Tariffs and Trade. The GATT was charged with slashing tariffs and dismantling other protectionist barriers to global economic growth. And the Geneva-based international organization delivered. By 1995, when the GATT morphed into the World Trade Organization, a series of successful multilateral trade-liberalizing negotiations had slashed average global tariffs, which had been in the 40 percent range in the 1940s, to about 5 percent. Even though many protectionist schemes remained, the WTO seemed poised to continue the good work. But in the last two decades, the WTO has descended into dysfunction, lurching from one bitter fight to another.

A deeply concerned WTO Director-General Roberto Azevedo has bluntlywarned the WTO’s 160 member countries that the GATT/WTO system has been “living on borrowed time.” He’s spot-on. I’ve been watching the GATT and its successor global trade rules-making institution for nearly four decades — witnessing the gradual destruction of the world’s most successful experiment in peaceful international economic cooperation. Although the most recent crisis that sparked Azevedo’s warnings was averted on Nov. 27, at least for now, the tensions that have weakened the WTO will remain for the foreseeable future.

The root of the problem is that too many countries either no longer believe that multilateral trade liberalization is beneficial for them, or that they lack, for varying reasons, the political will to lead.The root of the problem is that too many countries either no longer believe that multilateral trade liberalization is beneficial for them, or that they lack, for varying reasons, the political will to lead. Too many shortsighted political leaders, forgetting their history, are back in the business of creating trade blocs. They are more interested in defending their own protectionist trade schemes to fret much about what they have been doing to the WTO-supervised multilateral trading rules. And without a shared core belief that the non-discriminatory global rules work for all, the WTO cannot deliver.

In Washington, D.C., President Barack Obama has never given high priority to the WTO. Neither have Republican or Democratic leaders in Congress. While individual European WTO members like the United Kingdom, the Netherlands, and Sweden still believe in the organization’s rationale, the 28-member EU makes the notion of “European leadership” an oxymoron. Tokyo’s main goal in any trade negotiation is to preserve Japan’s stratospheric 500-plus percent rice tariffs. The Chinese now run the world’s second-largest economy, but they aren’t leading either. In parts of Africa and Latin America, leaders tend to see multilateral trade liberalization as a plot for economic domination perpetuated by their rich former colonial masters. AverageAfrican tariff barriers still hover in the 12 to 20 percent range. And when it turns to former colonies that enjoy playing the spoiler, India leads the pack.

In May, India’s new prime minister, Narendra Modi, cast a gimlet eye on the only successful multilateral trade-liberalization deal the WTO had concluded in nearly 20 years of trying. Last December, when WTO members convened in Bali, India’s government (then controlled by the leftish Congress Party that Modi’s right-wing Bharatiya Janata Party trounced in this spring’s elections) signed a deal that was widely cheered. For good reason: The so-called Bali Package was guesstimated to give the global economy a trillion-dollar boost. The WTO’s richer countries pledged to provide developing countries with billions of “trade facilitation” dollars to modernize clogged ports, fix terrible roads, and streamline corrupt customs procedures. But Modi balked.

On July 31, the strong-willed Indian leader took trade facilitation hostage,refusing to sign the necessary legal protocol to implement it.

India’s veto — unprecedented in GATT/WTO history — brought the WTO into what Director-General Azevedo called a state of “paralysis.”India’s veto — unprecedented in GATT/WTO history — brought the WTO into what Director-General Azevedo called a state of “paralysis.” The good news is that after months of bitter wrangling, Modi released his veto, declaring victory.

Some victory. Essentially, India “won” the right to continue to increase the amount of subsidies that New Delhi has been lavishing upon its farmers into an indefinite future, without fears of being held legally accountable in the WTO. India’s “food security” program — paying globally uncompetitive farmers above-market prices to stockpile grains that are later doled out to the urban poor — has been widely criticized. Perhaps half the grain rots, or is sold on the black market. Meanwhile, Indian exports of surplus rice have distorted global markets for years. Undeterred by criticisms that the purpose of WTO trade negotiations is to reduce protectionism, not enhance it, Modi nevertheless claimed the high moral ground: asserting that Mother India is only fighting for the rights of the world’s poor.

The hypocrisy extends beyond agriculture. Modi has hiked tariffs on imports of high-tech equipment from other developing countries like the Philippines, Vietnam, and China. Meanwhile, India’s main goal in the WTO’s long-stalled Doha Round of broader trade liberalizing negotiations — which the Bali deal was intended to revive — is the “flexibility” to raise all industrial tariffs even more, whenever New Delhi finds enhanced protectionism politically attractive.

As it turns out, that’s basically what many African leaders also want from the WTO: the right to raise tariffs and advance their own industrial policies — while the rich countries dismantle theirs. It’s called necessary “policy space.” South Africa’s president, Jacob Zuma, has hardly bothered to disguise hissuspicions that the WTO’s Bali deal was tilted in favor of the rich “North.” And some officials in Uganda, Tanzania, and Kenya also complained that trade facilitation meant opening their borders to import competition from giant multinational corporations.

On April 27, after meeting behind closed doors, a handful of African diplomats — nobody has publicly claimed credit — persuaded the African Union to “instruct” African WTO ambassadors in Geneva to try to delay the Bali deal’s implementation. As the AU, based in Addis Ababa, hadn’t even participated in the Bali negotiations, the power play ran into intense criticism from furious Americans, Europeans, and a long list of others. The Africans subsequently backed down, but the poisonous distrust that has paralyzed the WTO’s negotiations was back.

That distrust memorably first surfaced in late November 1999, when WTO ministers convened in Seattle, hoping to launch a new round of multilateral trade-liberalizing talks. The Battle of Seattle is best remembered for the vociferous band of anti-globalist protestors (colorfully dressed as sea turtles or ninjas) who trashed that city’s streets. Less noticed were the secret smiles from key African trade officials inside the barricaded convention center who were happy that the talks failed.

In 2001, it seemed trade liberalization was on the move again when the WTO’s Doha Round was launched. But then in September 2003, there was open cheering from African officials when WTO meetings in Cancun again collapsed in acrimony. The meetings in the Mexican resort had been intended to breathe life into the Doha Round, but instead threw those negotiations into intensive care, where they still remain. (The trade-facilitation deal that was reached in Bali last December was split off from the broader Doha negotiations, the idea being to harvest the easier parts to generate momentum to complete the Doha Round.)

Just a few hours after the Cancun debacle, I ran into a Kenyan diplomat named Mukhisa Kituyi in an Argentine-style steakhouse. It was a memorable September evening in the famous Mexican resort. Kituyi and his colleagues were celebrating that afternoon’s failure of the WTO meetings, washing down copious quantities of red meat with red wine.

“We killed it,” one of the Kenyan officials boasted, referring to that afternoon’s negotiating failure.“We killed it,” one of the Kenyan officials boasted, referring to that afternoon’s negotiating failure.

Kituyi is now secretary-general of UNCTAD, the United Nations Conference on Trade and Development. While he declines to comment, it appears the Kenyan official remains a trade skeptic. Kituyi invited President Rafael Correa of Ecuador to deliver on Oct. 4 a rousing Special 50th Anniversary speech at UNCTAD’s Geneva headquarters, just a few blocks from the WTO’s offices along the Rue de Lausanne. Correa railed against “an immoral and unjust” world economic order. In a world “dominated by transnational capital and the hegemonic countries,” the Ecuadorian leader declared, the poor countries should protect themselves by forming regional trade accords. “The world of the future is a world of blocs,” he declared. Led by an approving Kituyi, the UNCTAD audience applauded.

This is not a trivial matter. In recent years, WTO members have cut more than 300 trade-distorting preferential trade deals with various favored trading partners. They all violate the fundamental GATT/WTO principle that member countries should not discriminate against each other. Perhaps half of global trade is diverted through these discriminatory “free trade” routes.

The top U.S. trade priorities are forming two regional trading blocs, one with Europe and the second with some Asian countries. China is excluded. Meanwhile, the Chinese are advancing their own regional trade bloc that would exclude the Americans. Many Africans are looking to their own side deals with each other.

Preventing the re-emergence of discriminatory trade blocs is exactly why the GATT was created in 1947. It’s a history lesson that present world leaders would be well advised to reflect upon.

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