Bienvenido “Nonoy” Oplas Jr. Minimal Government Thinkers, Inc.

Presentation at the Development Studies Class De La Salle University (DLSU), Manila

04 December 2014

lecture series on Trade and Development

in the Philippines

I. Trade Theory: David Ricardo, FPE, CPE,

Consumer Surplus

II. Trade Data

III. Unilateral Liberalization

IV. Conclusions

A country that trades for products it can get at lower cost from

another country is better off than if it had made the products at

home.

Even if a country has absolute advantage (cheaper cost, etc.) in

producing two or more goods, it is better off if it concentrates on

producing that good/s where its efficiency is highest, and

buy/import from another country that good/s where efficiency is

not so high. Micro example: A consultant or academic who is fast in research and writing, fast in laundry, fast in driving. Still, he woulld get the service of a laundry shop or manual laundry, get a driver, and concentrate on being a writer.

Substitute prices of goods with prices of labor, capital, technology, other factors of production, in the above graphs

Free mobility of people and services across countries and continents will result in FPE over the long term, all other things being equal.

Countries with expensive labor due to labor deficit and low population will experience decline in labor cost once additional and competing labor of similar skills from abroad come in.

And countries with cheap labor due to high supply of workers, high population, will experience increase in labor cost once the excess labor goes out and work abroad.

Commodities that are

otherwise cheap

become (a) expensive

due to protectionism

and government tariff

and taxes, (b) supply

and choices decline

In 1989, only 9 out of the world’s top 20 biggest ports were in Asia… 20 years after, 15 of the top 20 were in Asia, including that in Dubai. Economies with larger consumers and producers, with freer trade policy, benefit.

From a “US-centric” to Asian-focused exports Source: NSO

Price/kilo

P1

P2

P3 Full protectionist price

Smuggling price

Free trade price

P3 > P2 > P1

Why make cheap imported rice become expensive? Rice export powerhouses Vietnam and Thailand have natural advantages that are not present in the Philippines: (a) huge, generally flat rice land, about 10 M hectares each, vs. the PH’s 4.5 M hectares; (b) contiguous land irrigated almost whole year by Mekong River and other river systems, ours is scattered in an archipelago; and (c) they have only 1 or 2 typhoons a year, we have about 20 on average. Crop damage there is lower.

Source: Richard Baldwin, 'Unilateral Trade Liberalization", Center for Trade and Economic Integration, CTEI 2011-04, http://graduateinstitute.ch/.../working.../CTEI-2011-04.pdf

Agri products, economies in general are more protectionist. Stark

cases are Korea, Turkey, Egypt and Thailand.

IV. Concluding Notes

• Free trade means free enterprises, free individuals. Restrictions

to trade is restricting potential economic development.

• Governments should reduce restrictions on people and goods

mobility. (a) reduceg tariffs and non-tariff barriers (NTBs) like

customs bureaucracies; (b) simplify visa requirements and

issuance, reduce the cost of migration; (c) focus on rule of law

function, go after real criminals and not ordinary migrants who

only wish to improve their condition through hard work.

• Smuggling can be beneficial to consumers in the form of

lower prices compared to protectionist prices. But this expands

corruption in government. No to protectionism, no need for

smuggling, just abolish trade restrictions.

• Unilateral liberalization – no need for or minimum of negotiations, just open the borders at zero tariff – is pro-development. No regulations except bringing in or out of guns, bombs, poisonous substances, other products that are threat to public health.

• Protectionist PH constitution should be amended to allow more foreign investments and competition.