Who is Michael B. Froman? Well, most Filipinos will never have heard of him, yet his reckless, off-hand decision-making could cost the Philippines US$100 million a year in new export earnings and threaten inward investment for the creation of some 75,000 new jobs between now and 2020, by which time half a billion trade dollars will have been lost.
And to add insult to injury, those earnings and jobs will now end up in countries that don’t have the capacity, or the infrastructure, or the know-how to make the very products which Filipino manufacturers have been shipping to the US for years. This isn’t trade policy; it’s politically driven madness.
Froman’s diktat involves the country-zoning of preferential duty-free access to America’s US$5 billion travel-goods market for products ranging from suitcases to wallets; handbags to backpacks. Previously, this category wasn’t included for tax-exemption under the Generalized System of Preferences (GSP). It was added in the GSP Update Act which came into being in June. And that was when the Philippines travel-goods trade first learned – via a Froman press release – that their goods would not be benefitting.
This is bad news for the manufacturers – including US brand names that have set up in the Philippines and were hoping to expand – but it’s also another blow to the country’s apparel and accessories sector, of which travel goods is a part. Its shipments last year declined by 42.7%, contributing to the 13.1% decline in total exports.
And while half a billion dollars over the next five years might not seem a big deal to a career bureaucrat in Washington – we can find no evidence of him ever setting foot in the Philippines – to the local companies which need all the work they can get right now, and 75,000 prospective job seekers, it is.
All and any foreign direct investment is important to the Philippines, and particularly right now as the government tackles what really amounts to a programme of national reconstruction. Infrastructure, agriculture, telecommunications, transport and manufacturing are crying out for investment, as too are health and social services and education.
The new GSP beneficiaries, meanwhile, are mostly countries in Sub-Saharan Africa – the likes of Rwanda, Ghana, and Lesotho; countries that don’t have any meaningful travel-goods manufacturing capacity whatsoever. Exports of travel goods to the US, from the entire African continent, amount to one hundredth of one percent of market share.
So who is Michael B. Froman? He is the US Trade Representative and his office is responsible for US trade development. A former Citigroup investment manager, he is also an autocrat who seems to believe that he owes no one an explanation for a decision which he arrived at, seemingly, in consultation with himself – though it has all the political hallmarks of President Barack Obama’s White House which appointed him as its policies craftsman.
Despite repeated requests over the past two months, he has declined to elaborate on this decision. It was fashioned in secrecy and presented as a fait accompli. And as far as Froman is concerned that’s the end of the matter. Nothing more to be said on the matter!
But then that’s his style. His draughting of trade deals for the Trans Pacific Partnership (TPP) – Obama’s legacy-flagship trade pact – have been heavily criticised for the secrecy in which they were carried out; not least for the benevolence extended to pals in Wall Street and Big Business. He, of course, called them: “the most transparent trade negotiation in history”. Class dismissed!
Nor is this the first time he’s shunned the Philippines on trade. Recently, he rejected appeals for duty-free status from Philippine garment makers in areas devastated by typhoons to assist them in rebuilding their businesses.
What then is this really all about? In a phrase, political window-dressing. Defending Froman’s decision, the White House explained that he wanted to make “a powerful contribution to lifting people out of poverty and supporting growth in some of the poorest countries in the world, while also reducing costs to American consumers and businesses” – though in reality it will achieve neither. In other words, it’s a token gesture to show poor African countries that avuncular America cares.
So, in a more macro sense what have we got? The US wants to keep troops on Philippine soil for the next 10 years (as agreed under the 2014 Enhanced Defense Cooperation Agreement)
– the geopolitical optics of this are good for Washington. It also wants to boost US trade with the region through the TPP and its Pivot to Asia policy. In return, it will penalise the Philippines, a close treaty ally (though not a TPP signatory), on an important trade issue in favour of a continent, Africa, where it has no intention of pivoting to – apart from for its humanitarian optics and, apparently, to source handbags and wallets which are never going to arrive.
If that’s not madness, it will do until madness comes along.