Philippines May Talk Trade As President Marcos Arrives In The USA

With the stroke of a pen, President Biden could easily change retail history when President Ferdinand Marcos Jr. visits the White House this week. Chatter on Capitol Hill is rife with speculation about de-coupling from China trade, and American retailers continue to face increased pressure to diversify their supply chains – seeking alternative sources for product procurement in stable countries like the Philippines. In fact, there is a long history of positive relations between the USA and the Philippines and increased trade is both a wish and a possibility.

Looking back to March of 1942, General Douglas MacArthur was forced to leave his post at the Corregidor fortress in Manila Bay. World War 11 was in the early stages and Japan was gaining ground. The General, to his deep regret, had to leave the Philippines. His parting remarks are oft quoted and ring true about the American presence in the Philippines when he said: “I shall return.”

Tracking retail trade between the two countries, history will tell you that prior to 2008, the Philippines had received an abundance of American “right-to-ship” quota, and they quickly became a powerhouse in manufacturing (especially in the garment trade). Unfortunately, the rapid growth of the industry faded very quickly (and almost vanished) between 2005 and 2008 when China ascended to the WTO (World Trade Organization). As the “right-to-ship” quota went away in the Philippines, the result was much like Ross Perot’s famous “giant sucking sound” and the country soon lost about 500,000 sectoral jobs because of the structural change. During that period, former Philippine President Gloria Arroyo worked with the USA to modify the situation, but to little avail as time ran short in her term.

In the years that followed, many USA Government officials (who were staunchly pro-Philippines) have also termed-out of Congress, including the late-great Honorable Senator Daniel K. Inouye who always tried to help. When Philippine President Rodrigo Duterte took over the Presidency, posturing between the two countries shifted downward but now, under newly-elected President Ferdinand Marcos Jr. – an excellent re-kindling of the entire USA-Philippine relationship is at hand.

American retailers will declare that they are overly reliant on China, and are working diligently to reduce the burden. However, at every turn in the road, there is seemingly a new set of global problems and de-coupling (from a source as excellent as China) is far from easy. Some brands turned to Myanmar (Burma) as a country of supply, but that hasn’t worked out too well given the military coup. Some brands took advantage of the African Growth and Opportunity Act (AGOA) and moved their products to Ethiopia, but the U.S. Government pulled the AGOA plug when civil war erupted and the effort setback. Some brands when to Haiti and that has become somewhat problematic, plus Nicaragua has also proved to be unstable. The concern for sourcing executives is that global instability has blocked many of the China-exit doors, plus the posture held by the Biden Administration office has (up to this point in time) seemingly blocked new trading opportunities.

Not that any one country owes another country anything but, historically, the Philippines has always been a different story. It remains, to this day, the only former USA territory that does not have a preferential trade agreement with America. President Biden could change all that, and Americans would likely support the initiative – because the Philippines has, once again, stepped up to the plate with newly admitted USA access to four additional military bases in the country under the Enhanced Defense Cooperation Agreement (total of nine bases).

During World War 11, more than 250,000 Filipino troops fought side-by-side with American soldiers in the war against Japan.

During the Korean War more than 7,400 Filipinos fought side-by-side with American Soldiers during the war against North Korea.

During the Vietnam War more than 10,400 Filipinos provided medical and civilian assistance to USA troops.

Each of these fore-mentioned countries has benefited directly or indirectly from the world of preferential trade with America. The Philippines has not.

Even though the USA did not go forward with the TPP, Japan was included in the original Trans-Pacific Partnership (now re-named CPTPP) but the Philippines was not included.

South Korea was awarded a trade preference agreement named KORUS, and Vietnam was included in original TPP (now CPTPP).

The Philippines have yet to be part of a current USA trade preference program – and the last official trade deal was the Laurel-Langley Act which expired in 1974 (49 years ago).

China, for their part, did offer the Philippines membership in a trade program called the Regional Comprehensive Economic Partnership (RCEP) and the Philippines has recently voted to join the group. The RCEP trade pack covers 15 countries and approximately $29 trillion of GDP. It is the world’s largest trade agreement (and the USA is not a member).

When Presidents of two countries meet, it’s always hard to predict what the outcome will be. There can always be other factors that present when the meeting takes place. However, many in the retail industry are hopeful that increased trade, a Free Trade Agreement, or even a sectoral trade agreement will be on the table. It is difficult to say what will transpire, but many hope for the beginning of a positive outcome.

Turning back in time, General Douglas MacArthur did fulfill his promise to return to the Philippines – when he walked back ashore with American troops – on to the Island of Leyte in October of 1944.

He said: “People of the Philippines: I have returned.”