Mike Clancy

Mike Clancy
enjoying the moment - and the coffee

Tuesday, January 11, 2011

Updates for January 2011

While for the first time in a number of years, the people of the Philippines end their year with an air of optimism about their future, for Taiwan, the other Asian country that I monitor for New Nations, there are clear signs that  the democratic ideals forged over the past two decades are now being rolled back as the administration of President Ma Ying-jeou seeks a closer relationship with Beijing.

You can read these reports here:



Monday, November 1, 2010

The art of the possible

Manila, October 31 2010: President Benigno Aquino III appears determined to be a president for all the people but while he may enjoy massive support among the population at large, will it be sufficient for him to make a difference during his term of office – assuming he is able to complete his term?

Corruption and violence have become so deeply rooted in Filipino society that the sheer inertia of a political system based on self-interest is working against him and will take both effort and statecraft to turn around. Then there are the hurdles being placed in his way by powerful vested interests. These range from the conservative Catholic hierarchy to powerful political families intent on maintaining the status quo and their privileged positions.

It should not be forgotten that during the presidency of his mother, Corazon Aquino (1986–1992) there were no less than seven coup attempts made against her. Two cameos from recent weeks demonstrate the difficulties he faces.

Local elections marred by violence

On October 25, fifty million Filipinos again went to the polls. This time it was to vote in local elections.

In the Philippines, the barangay (village) is the smallest self-governing political unit. There are 42,025 of them scattered throughout the country and each one elects a barangay chair and seven members of the barangay council — a total of 336,200 positions. Concurrently, elections were held for a similar number of youth council positions – again one council for each barangay. Originally these youth councils were intended to foster a new generation of political leaders but they too have become corrupted perpetuating the vicious cycle of self-interest that pervades politics at all levels. They have become part of the problem.
No wonder then that, just like the national elections held earlier in the year, these local elections have been marred by political violence, intimidation and rampant vote buying. Since the campaign started on September 25, 33 people have been killed and another 14 wounded in 47 election-related incidents including four people murdered on the day of the poll itself. Organisers within the Commission on Elections (COMELEC) congratulated themselves on the fact that the poll was “more peaceful” than in 2007 when 67 were killed in 101 election-related incidents including 23 on polling day. True, it does represent progress of a sort.

Delayed distribution of voting materials forced postponement of the election in 1,732 barangays and allegations have surfaced that the delay was deliberately caused by a faction within the poll body seeking additional “monetary consideration” for doing their job. This may or may not be true but to many people it has a ring of plausibility. Such is the low esteem in which the COMELEC is held in many quarters. President Aquino was reported to be angered by the lack of professionalism shown and has vowed to investigate. Corruption and violence is alive and well and extends to the village level.

Reproductive health bill angers the Catholic Church

Then President Aquino has the Catholic hierarchy to deal with. The bishops, who remained blissfully silent throughout the tenure of former President Gloria Macapagal-Arroyo while she and those around her plundered the country, are up in arms at the introduction into Congress of a reproductive health bill that would give families freedom of choice in birth control matters.

The church in the Philippines claims that artificial contraception is a form of abortion and is against giving families informed choice. Aquino has incurred the wrath of the bishops – not for advocating contraception – but simply by expressing the view that families should have freedom of choice. Aquino, himself a Catholic, at one stage was threatened with excommunication, but church officials have back peddled on this claiming this was merely “one possibility.” A more likely outcome, should the bill be passed into law, is that the church will put pressure on medical practitioners at the local level to counsel their patients against using artificial contraception. While constitutionally, there is total separation between church and state, a spokesperson for the Catholic bishops claimed that “if a law or a state policy is against Christian teachings, persons, Christians, Catholics are not bound by conscience to obey that”.

At this stage both sides have backed away from outright confrontation preferring dialogue; however (and as the secular press has been quick to point out) it clearly reveals to all the priorities of the bishops who are prepared to turn a blind eye to human rights abuses and rampant corruption but who take the moral high ground when it comes to making birth control advice available to the poor and needy.

Even prominent Catholics have warned that the bishops need to tread carefully or risk alienating significant elements of the population especially the urban educated elite, most of whom – according to surveys —practice contraception in defiance of the teachings of the Church. As is so often the case, it is the poor whose faith is born out of desperation, who stand to benefit most from passage of the bill and most to lose if it fails. Perhaps unsurprisingly, former President Arroyo, now a congressional representative for Pampanga is supporting the position of the bishops.

Positive news on the economic front

News that the economy is regaining its health has come as welcome news and may give President Aquino some wiggle room. In recent weeks both the World Bank and the IMF have released revised growth forecasts for the Philippines which exceed earlier expectations. With the economy growing, there will be less incentive to rock the boat – that at least is the theory.

Citing better than expected growth in both internal and external demand, the World Bank now expects the Philippine economy to grow this year by 6.2 percent – up from its previous estimate of 4.4 percent. Continued strong inflow of remittances from overseas Filipino workers has stimulated domestic consumption and new investments from abroad, particularly into the business process outsourcing industry have been among the main drivers. Growth in the first half of 2010, at 7.9 percent, was the best semestral outcome in more than 30 years. However, account must be taken of the low base effect since the figure for the corresponding last year was only 1.1 percent.

The IMF is now punting on seven percent growth this year – well above the forecast of 3.2 percent made at the start of the year and the revised April figure of 3.6 percent.

Remittances, which kept the country out of recession during the GFC, continue to rise. Total remittances for the first eight months of the year stood at $12.2 billion, an increase of 7.4 percent over the same period last year.

Inflation for the first three quarters averaged 4.1 percent and well within the official target of 3.5 to 5.5 percent for the year as a whole.

A government for the people

In a speech marking the first 100 days of his presidency, President Aquino announced that with a strengthening economy, the Philippines was now “ready for takeoff.” Filipino politicians are well known for making extravagant claims but compared to that of President Arroyo who announced just before the GFC hit that the Philippines would be a First World country by 2020, this claim was downright modest.

Baby steps have been taken. The new administration has resolved the disputed contract relating to the Ninoy Aquino International Airport Terminal 3 which had festered throughout the Arroyo term; it has revised the bidding process for public works contracts to make the procedure more transparent, and has revised some defence contracts where the tenders were drafted to blatantly favour one company. Other achievements include the setting in place of a monitoring system for public projects and an overhaul of the excessive payments and bonuses made to the fat cats of government-owned corporations. Savings have been directed at improving the budgets for health, education and social welfare programmes as well as the conditional cash transfer programme which helps the poorest of the poor.

A new system of public private partnerships – which throughout the Arroyo years existed in name only – has been introduced to encourage private investment into mass transit, airports and schools.

Positioned for takeoff may be an overstatement. That baby steps have been taken in the right direction is certainly true.

Monday, August 30, 2010

The ties that bind

Taipei, China August 28 2010: The Economic Framework Cooperation Agreement (EFCA) with China has now passed into law. Taiwan’s unicameral legislature ratified the accord on 17 August after 10 hours of debate. Not unexpectedly, the KMT dominated house, voted down all amendments proposed by the opposition DPP party. Government legislators naturally praised the accord saying “its implementation will ensure the country’s prosperity for 50 or 60 years”. Those in the Opposition naturally took the reverse view claiming that the ECFA has been “cooked up by the KMT and the Chinese Communist Party” to bring Taiwan under the control of China economically and hastening unification.

It is still too early to tell how the ECFA will alter the course of Taiwan’s future development but given the continued expansion of China’s hegemony over East Asia, analysts are probably right to sound the warnings – they are there for all too see.

Over the past decade and even under the DPP leadership, Taiwan’s economy has become increasingly dependent on the Chinese mainland in what has been termed a triangular pattern of trade whereby orders are booked in Taiwan but manufactured and shipped from China to other markets. One Taiwanese newspaper editorial has pointed out that the percentage of Taiwan’s trade carried out in this manner has grown from 13 percent in year 2000 to 50 percent this year. It is this triangular trade arrangement that has led to a hollowing out of Taiwan’s manufacturing base (with consequent declines in employment levels) despite the continued growth of exports and GDP.
The key question is whether the signing of the ECFA will reverse this pattern by allowing Taiwan to sign trade agreements with other countries and perhaps develop new industries (especially in services) or will it act as a vacuum cleaner sucking up what remains of Taiwan’s industrial base and transplanting it to China. The signs so far do not give much cause for optimism.
But first the good news; the government has once more upgraded Taiwan’s domestic growth prospects for this year based on improving export orders, better than expected private investment as well as robust consumer spending. The 6.14 percent domestic growth forecast for 2010 announced back in May, has now been revised to 8.24 percent.

GDP rose 12.53 percent year-on-year in the second quarter, the third consecutive quarter of growth since Taiwan came out of the 2009 recession. For the two remaining quarters of the year, further quarterly expansion rates of 6.9 percent and 1.37 percent are forecast. Looking ahead, the outlook for 2011 is for a growth rate of 4.64 percent.

The main reason for the slowdown of growth in the latter part of the year has been attributed to the base effect rather than any significant real slowdown. This could be an oversimplification as the most recent economic data from the major economies suggest that the pace of recovery could be slowing with the debt crisis in Europe not yet resolved and unemployment in the United States remaining stubbornly high.

The value of export orders in July, at US$33.8 billion, climbed to their fourth highest level ever and their second highest level since the global financial meltdown. Cumulative orders from January to July totalled $227.9 billion, a year-on-year rise of 35.2 percent (but remember the low base effect). Taiwan is hoping that for the year as a whole, orders will surpass $400 billion.

All of this looks very encouraging, but as the Taipei Times pointed out recently in an editorial, few benefits from this continued economic expansion are trickling down to the person in the street. The wealth disparity in Taiwan is at a record high: “In 2008, those in the top 5 percent of the income pyramid enjoyed, on average, an annual income of NT$4.5 million (US$140,530). The bottom 5 percent only earned an average of NT$68,000. In 1998, the highest incomes were only 32 times more than the lowest.” It appears that the winners in the economy are the exporters and their shareholders who are able to invest their growing wealth in property, pushing home prices ever higher. The same editorial pointed out that the cost of a home in Taipei City now represents more than 11 years of salary for the average wage earner.

It is hard to see how the ECFA can improve matters for the man in the street. Other commentators have drawn attention to the manner in which China is now enticing Taiwan’s high-tech farmers to China under the guise of cross-straits agricultural cooperation. As a result, high-value domestic Taiwan species: animal, fish and plant are now being bred in China on a large-scale sufficient to become a threat to Taiwan’s rural industries. Low cost entry of these products into China from Taiwan is only possible if there is a market for them. If China is replacing Taiwanese exports with domestic local production, then rather than expanding the market for Taiwan produce, it will simply disappear entirely. And once China produces these species in sufficient quantities to export, Taiwan is in further difficulty.

Despite the continued reassurance from President Ma Ying-jeou that the signing of cross-straits economic pacts have no political significance; such claims are sounding increasingly hollow. China’s agenda for Taiwan is clear for those who want to read the signs and is worrisome not only for Taiwan but for much of East Asia.

Back in the 1990s China passed domestic legislation claiming the entire South China Sea as its territorial waters; this was widely considered to be an ambit claim since many other countries bordering the Sea, including Vietnam, Malaysia, Indonesia and the Philippines were making claims of their own. Recently China upped the ante by proclaiming to visiting US officials in March that the South China Sea was part of its “core national interests” and crucial to its territorial integrity.

Similar to its claim to Taiwan, this puts the matter beyond negotiation as far as China is concerned.

One third of the world’s maritime commerce passes through the South China Sea and the implications of this declaration are only too clear. This is a clear laying down of the gauntlet to the United States and in particular the US Navy.

The US attitude towards China’s strategic expansion has appeared ambivalent and as a consequence, President Barack Obama’s overtures towards China have given Beijing the impression of US weakness. This has tempted China’s leaders to press their advantage believing that the US is unwilling to challenge China directly. While US Secretary of State Hillary Rodham Clinton was quick to reassure ASEAN nations that the US considers the maintenance of security and stability in the South China Sea as matters of US national interest, China’s foreign minister Yang Jiechi, was equally quick to issue a condemnation of Clinton’s comments.

And while ASEAN is seeking multinational negotiations to resolve issues involving common interest maritime areas, Beijing is equally adamant in insisting that the ASEAN countries negotiate bilaterally.

A multilateral forum would, of course, involve the United States, Japan and possibly Korea and this is the last thing that China would want to happen. Nevertheless, where there is action there is reaction. The interesting aspect in all of this is that such a multilateral form – whether or not Taiwan was given a seat at the table (and the likelihood is that it would not be invited) – would serve to give Taiwan a little more freedom to manoeuvre.

But not only has Taiwan’s President Ma Ying-jeou followed a policy of appeasement towards Beijing, he is on the record as vowing that no matter what, he will never ask the US to defend Taiwan. No wonder that most of Taiwan’s population are bewildered.

With the US economy decidedly shaky, the question for the State Department to ponder is how to deal itself back into the game.

Social Networking - course outline

Wednesday, August 25, 2010

A new paradigm for the Philippines

Manila, 24 August 2010: As this is being written, the Philippines once again has been thrust into the glare of international media attention and for all the wrong reasons. A former officer of the Philippine National Police, sacked over corruption charges, hijacked a bus full of Hong Kong tourists and held members of the 200-strong rescue team at bay for more than 11 hours on August 23. Eight tourists were killed together with the hostage taker during the bloody shootout as police eventually stormed the bus.

The entire event was played out on national TV and relayed around the world for all to see. Up to the minute reporting took on a whole new meaning as reporters covered live, all police activities allowing the hostage taker to monitor what was happening outside the bus and anticipate police moves.

To make matters worse, a group of college girls visited the scene in their school uniform and treated the entire affair as a party even posting their group photos to their Facebook accounts. Tasteless activity in the extreme – whatever were they thinking?

Former Senior Inspector Rolando Mendoza, who – according to reports – was dismissed in 2008, had seized the bus in an attempt to negotiate reinstatement into the police force. Live coverage of his brother being taken in for questioning by police apparently threw the hostage-taker into a frenzy. According to reports from hostages posted to their Facebook accounts, to that point Mendoza had been civil and considerate towards them. It was seeing the manner in which police manhandled his brother which sent him into a rage and changed the entire mood.

President Aquino declared August 25 as a day of mourning as anger mounts in Hong Kong over the manner in which the incident was handled. Four senior members of the Philippine SWAT team have been relieved of their posts over the botched rescue. Hong Kong authorities have issued a travel advisory warning against travel to the Philippines and China itself is expected to follow suit. Overseas Filipino domestic workers in Hong Kong are being summarily dismissed from their jobs as retaliation according to reports.

In the overall scheme of things, while the deaths of eight people will be quickly forgotten by the world at large it has once again signalled the violent nature of Filipino society. It may be recalled that the last time the Philippines made world news was in November 2009 when more than 50 people were gunned down in Maguindanao during a turf war between rival political clans.

Despite the contraction in global tourism worldwide in the aftermath of the Global Financial Crisis, inbound tourism to the Philippines held up well in 2009, rising by 1.5 percent to 3.14 million. Tourism accounts for 6.2 percent of the country’s GDP and China has been emerging as an important and rapidly growing market with arrivals from China, Hong Kong and Taiwan all posting significant recent growth thanks especially to the introduction of direct charter flights to regional tourism centres in the Philippines. Undoubtedly, as a result of this incident, there may be a dip in numbers from East Asia for some time to come denting prospects of further growth in the months ahead.

In terms of foreign direct investment, immediate fallout within the East Asian region is expected to be minimal. China (including Hong Kong) accounted for a little over five percent of FDI in 2009 – up from 1.9 per cent in 2008. Much of China’s investment is strategic and goes into agriculture and resources and this is expected to continue. Rather, this episode has once again demonstrated the volatility of the local environment for foreign investors generally.
It is the last thing that newly installed President Benigno Aquino II (already dubbed P-Noy – a clever play on the term “Pinoy” which loosely translates as “quintessentially Filipino”) needed. President Aquino has been in the job less than two months but already the mood of the country has shifted, and for the better. While his detractors have been quick to criticise his lack of a roadmap for getting the country out of poverty as he has promised to do, he has been given full marks by most people for changing the paradigm of government. His proclaimed mission statement is to wipe out corruption and to make the government more responsive to the basic problems of the Filipino people – mass poverty, increasing malnutrition, unemployment and underemployment, substandard education and poor social services. And that is just to begin.

Both his inaugural speech delivered on 30 June and his State of the Nation (SONA) address to the Philippine Congress four weeks later, underscored this basic theme. His message was not about programs of governance – that will come later, but rather about quality of leadership. Despite his detractors, his message resonated with the ordinary people; and as one newspaper columnist put it, he is regarded as the most credible and most sincere politician to emerge in a long time. It is leadership by example: a leadership which does not exploit power, a leadership that immediately confronts corruption by refusing pomp and perks and disables a source of abuse and discrimination.

While it may be too much to expect corruption to be wiped out during the term of his presidency, with the right leadership from the top, he stands a very good chance of making a significant dent in the problem and rolling back the tide that engulfed the nation during the Arroyo years.
His task is a formidable one. The Central Bank has pointed out that even if the rate of growth can be accelerated, the Philippines has fallen so far behind its neighbours that it will take decades to catch up. Even if the country could achieve a GDP growth rate of 10 percent over the term of his presidency, by 2015, in per capita GDP terms, the country would only be where Indonesia was in 2009. To get to where Thailand is today would take until 2028 and current Malaysian levels of prosperity would only be achieved by 2038.

The refreshing aspect of this announcement was in its honesty – a far cry from the ludicrous claim of Arroyo and her supporters that the Philippines would achieve developed country status by the end of the current decade.

Change will not come easy and already it is evident that there are many, especially those who prospered during the Arroyo years who want to see business as usual. Ten days into his presidency there were five extrajudicial killings including two teachers, a peasant leader a local official and a journalist. Nobody has yet been brought to account.
While resistance to reform is expected, especially from those in Congress used to presidential largesse, Mr. Aquino has something going for him that former President Arroyo never had – the support of the people. That can be a formidable weapon.

Tuesday, August 10, 2010

The Philippines and the Clean Development Mechanism

Preface to the report

In geological terms, the world's climate has gone through periods of warming and cooling over eons but, as far as we are aware, never as rapidly as that being experienced at the present time. Perceptible change can now be measured within the space of a decade. There is a conclusive body of scientific evidence that this present period of warming is being caused by anthropogenic emissions of greenhouse gases. Global warming will not only change the earth's biomes, it will impact on all human activity from agriculture and food security, coastal and marine resources, water resources, land use and forestry, energy and energy security as well as human health.

Although responsible for only a small portion of anthropogenic greenhouse gas emissions globally, Southeast Asia, including the Philippines, has been identified as being among the regions of the world most vulnerable to climate change. Local consequences will include sea-level rise and flooding, altered crop cycles and land-use patterns as well as an increasing number of extreme events (typhoons) as weather becomes less predictable. Changing water temperatures will also impact on the marine environment compounding the effect of sea-level rise and introducing additional uncertainty into fisheries and aquaculture which remain important generators of income for many.

While debate continues as to the extent that the world's climate will change, there is general agreement that over the short to medium term, it is irreversible.

Seeking global solutions to protect the atmosphere

Global warming has been on the international agenda since the 1970s. Initial concern was over depletion of the earth's Ozone Layer. This layer found at altitudes of 10–50km above the ground protects us from the harmful effects of certain wavelengths of ultra-violet (UV) radiation that can cause skin cancer and other diseases. Chlorofluorocarbons (CFCs) used in many aerosols; refrigeration and air-conditioning equipment as an industrial solvent were found to be the main culprit.

In 1977, the United Nations Environment Programme (UNEP) began addressing this issue. This led to the Vienna Convention on the Protection of the Ozone Layer in 1985. The 1985 Vienna Convention was followed by the 1987 Montreal Protocol which set clear targets for phasing out CFCs. Over the years, the list of substances to be phased out has increased to nearly one hundred including the hydrofluorocarbons, carbon tetrachloride, and methyl chloroform. The agreement, ratified by 191 countries, has helped cut production of ozone-depleting chemicals from more than 1.8 million metric tons in 1987 to 83,000 metric tons at the end of 2005.

Ozone depleting substances, the focus of early attention, are greenhouse gases (GHG) that contribute to climate change. Their radiative force is about 20 per cent that of carbon dioxide (CO2). Carbon dioxide emissions were not addressed in these early international agreements but this early debate did provide a focus for addressing the broader problem of global warming.

The ozone debate directed world attention to the atmosphere as a finite resource. Aided by advances in meteorology and satellite mapping, during the 1980s, scientists were able to demonstrate not only that the earth's atmosphere was showing increased and unnatural signs of heating up but that climatic changes were occurring faster than had earlier been thought possible.

Established in 1988, The Intergovernmental Panel on Climate Change (IPCC) is an expert body appointed by the United Nations General Assembly to review and assess the scientific literature and make recommendations for broad action by the United Nations on climate change.

On the basis of the 1st IPCC report in 1990, the United Nations Framework Convention on Climate Change (UNFCCC or simply FCCC) was adopted and opened for signature at the UN Conference on Environment and Development held in Rio de Janeiro in 1992. The UNFCCC commits all parties to combat global warming under the principle of "common but differentiated responsibilities" (see Box 2) and covers all greenhouse gases not controlled by the Montreal Protocol. The developed countries, which are collectively responsible for 75 per cent of global emissions, recognized that emissions from developing countries will continue to grow in the short term to accommodate their development needs. They also recognized the need for financial incentives as well as technology transfer that would encourage developing countries to reduce their greenhouse emissions. The Philippines became a party to this Convention in 1995.

The IPCC continues to issue regular reports which are noteworthy in the fact that as more data becomes available for analysis, even the worst-case scenarios of earlier reports are found to be overly optimistic and that change is occurring at a faster rate than earlier thought.

The IPCC Fourth Assessment Report issued in 2007 used a number of different emission scenarios to project the range of future climate change patterns throughout the world including in Southeast Asia. Under a continued high emission scenario (known as the A1FI scenario), the mean surface air temperature in the region is likely to increase by 0.87ºC in 2020 over year 2000 levels; by 2.01ºC in 2050; and by 3.77ºC in 2080. For the low emission pathway (referred to as the B1 scenario), the temperature increases will be smaller but still noticeable: projected at 0.75ºC increase in 2020, 1.32ºC by the mid century, and to around 1.96 ºC at the end of the century. Between these boundaries there are a number of other outcomes depending on the variants and parameters selected. The 2007 Special Report on Emission Scenarios points out:

For the next two decades, a warming of about 0.2°C per decade is projected for a range of SRES emission scenarios. Even if the concentrations of all greenhouse gases and aerosols had been kept constant at year 2000 levels, a further warming of about 0.1°C per decade would be expected.

Efforts to combat global warming take two forms: mitigation — whereby action is taken at a range of levels (from global to local) to change human activity to reduce carbon emissions as well as those of other GHGs, and adaptation — the modification of human activity patterns (such as changes to crops and crop cycles) in recognition that over the short to medium term, climate change is irreversible. Stabilising atmospheric temperatures and eventually reversing the warming cycle may take hundreds of years. Reputable scientists are already warning that the atmosphere may be close to a tipping point beyond which climate change becomes irreversible within a geological time-frame and that urgent and concerted global action is needed to keep global warming under the dangerous 2°C level relative to 1990 levels. This will require a global reduction of anthropogenic emissions by between 25 and 40 per cent below 1990 levels by 2020. In turn countries need to move to "low carbon" economies as quickly as possible.

While the UNFCCC established the framework and the principles, it is the Kyoto Protocol that provides the "regulatory" detail by which these principles are converted to action. The Kyoto Protocol is an international agreement linked to the UNFCCC. As of November 2009, 187 states had signed and ratified the Protocol including the Philippines.

Unlike the Convention which merely encourages industrialized countries (and the European Community) to stabilize GHG emissions, the Kyoto Protocol sets binding targets for 40 developed countries (known as the Annex I countries) to reduce their GHG emissions. These countries have agreed to put in place policies and measures to collectively reduce GHG emissions (as a first step) by 5.2 per cent of their emissions against 1990 levels during the period of 2008 to 2012.

Furthermore under Article 11, Para 3, the Protocol provides an additional option for Annex II countries of meeting their commitments through cooperation with developing country Parties:

"The developed country Parties and other developed Parties in Annex II to the Convention may also provide, and developing country Parties avail themselves of, financial resources for the implementation of Article 10, through bilateral, regional and other multilateral channels."

The Clean Development Mechanism

Under the UNFCCC, countries meet their emission reduction targets primarily through national measures. However, a key feature of the Kyoto Protocol is the creation of additional measures by way of three market-based mechanisms. These are (i) the Clean Development Mechanism (CDM), (ii) Joint implementation (JI), and (iii) International Emissions Trading (IET). Parties from Annex II countries which have ratified the Kyoto Protocol, regardless of emissions reductions commitments, are permitted to utilize one or more of these mechanisms in order to meet their Kyoto commitments.

These three mechanisms are all intended to provide market-based stimuli to green investment incentives that will encourage Parties to meet the emission targets.

It is the CDM that is of special interest to developing countries such as the Philippines. CDM allows emission reduction projects that assist developing countries in achieving sustainable development and generate "Certified Emission Reductions (CERs)" for use by the investing countries or companies (the Annex II Parties). Through qualified emission reduction projects, the CDM is able to stimulate international investment and provide the essential resources for cleaner economic growth in all parts of the world. The CDM assists developing countries in achieving sustainable development by promoting environmentally friendly investments from industrialized governments and businesses.

The CDM provides a business reason for Annex II countries to implement project activities that reduce anthropogenic emissions in non-Annex I Parties, principally the developing countries. The CERs generated by such projects can be used by the Annex II Party to help meet their own emissions targets under the Kyoto Protocol. International emissions trading can be linked to regional or domestic trading schemes, the most notable of which is the European Union Emissions Trading Scheme (EU ETS). These credits can then be sold to companies or governments to meet their own targets, enabling an economic interchange and transfer of technology to the seller and the host country, and a more cost effective method of meeting targets for the buyer. Many countries have established government bodies to promote and help with the development of CDM projects including the Philippines.

Building a green economy

As countries emerge from the Global Financial Crisis, there is widespread recognition that future development, to be sustainable, must also be green. This means a global shift towards low carbon economies. The Philippines stands to benefit from this shift over the short to medium term, in a number of ways:

  • The CDM provides opportunities for the Philippines to participate in the global carbon trading market while at the same time gaining new technologies that can contribute to future economic development.
  • The CDM also provides incentives for reforestation activities that can benefit local communities — as demonstrated through examples cited in this report.
  • Greening produces new jobs and new skills that can be used as the basis for enhancing the Decent Work Agenda.
  • Greening does not necessarily impose costs on companies but can also (depending on circumstance) bring rewards.

There are longer term benefits too provided the incoming administration of President Aquino can improve the domestic investment climate. In recent years, foreign direct investment into the Philippines has been among the lowest in Southeast Asia due to the high cost of doing business as well as perceptions of problems with governance and rule of law.

The Philippines has a number of advantages to exploit. Firstly of course there is the educated and available labour force. The availability of industrial land and the proximity to major Asian markets provide a second set of advantages. If the government can address negative investor perceptions and improve the investment climate then there is an ideal opportunity for the Philippines to benefit from a new wave of "green" industrialization that will reinvigorate the manufacturing sector and provide long term sustainability for the economy.

A necessary first step is to identify the skills available, those needed and the gaps in the market. This report seeks to do this and to recommend policy directions necessary to produce desirable outcomes in areas related to the environment, education and skills development.

This report, commissioned by the International Labour Organization as part of a global partnership with the European Centre for the Development of Vocational Training (CEDEFOP) and covering 21 countries is the first step towards identifying the skills needed to make the transition to a greener economy through policy applied research. The twenty one country reports together with the report of the technical validation workshop as well as the synthesis report are being published progressively on the ILO website at http://www.ilo.org/skills/what/projects/lang--en/WCMS_115959/index.htm. A summary version of this report will also be contained within another ILO report Overcoming the Jobs Crisis and Shaping an Inclusive Recovery: The Philippines in the aftermath of the global economic turmoil, to be published by the ILO Country Office for the Philippines in Manila, Philippines.

Saturday, July 24, 2010

The deal is done

Taipei, July 24th 2010: The much talked about Economic Framework Cooperation Agreement (ECFA) between Taiwan and China is now a fait accompli. The agreement was signed June 29 during the fifth round of cross-straits negotiations held in Chongqing, China between Taiwan's semi-official Straits Exchange Foundation (SEF) and its Chinese counterpart, the Association for Relations Across the Taiwan Straits (ARATS). A copyright protection agreement establishing a mechanism to reinforce anti-piracy laws was signed at the same time although an investment protection pact and a proposed cross-straits medical cooperation pact have been held over until the sixth round of talks scheduled for later in the year.

Only following signature were the contents of the ECFA revealed and Taiwan's KMT-dominated legislature will only be able to accept or reject the agreement in toto. The government has ruled out any opportunity to review individual clauses. The status of the accord has already come into question as in law it is an agreement signed between two private organizations. Critics have pointed out that this may cause some problems if the agreement is lodged with the World Trade Organization (WTO) (which Taiwan has said it would do) and could be used by China to further erode Taiwan's status by claiming it to be a domestic agreement rather than an FTA, but this has been brushed aside by supporters as a mere technicality. The agreement does provide for establishment of a cross-straits economic commission to be responsible for follow-up negotiations and overall supervision of the agreement and this may go some way towards mitigating concern over this aspect.

In many respects the ECFA follows the Closer Economic Partnership Agreement (CEPA) signed between China and Hong Kong back in 2003. However, one key clause — that pertaining to safeguards, contained in the CEPA, appears to be missing from this latest document. Article 9 of the CEPA states that either side can temporarily suspend tariff reductions in the event that "the implementation of the CEPA causes a sharp increase in the import of [certain] products originating from the other side which has caused or threatened to cause serious injury to the affected side's domestic industry." There is no such clause in the ECFA and therefore no feasible means for Taiwan to suspend imports from China that threaten domestic industries. Taiwan's only recourse would be to the termination clause whereby either side could give written notice of termination of the entire agreement. Only after such notice had been given would Taiwan and China hold negotiations within 30 days to resolve differences and if the parties failed to reach consensus, termination would occur after 180 days. The problem is that such termination would be seen as a political act with dramatic consequences; the reality is that Taiwan must rely on China's goodwill not to undertake dumping or other actions that would damage Taiwan's manufacturing base.

Supporters of the pact are placing much emphasis on the "early harvest" provisions which will be implemented in three phases over the next two years. When the ECFA takes effect, which is expected to be towards the end of this year once both sides have completed their internal procedures, the early harvest lists will allow the 539 items on Taiwan's list, amounting to around US$13.8 billion in exports per year, to receive zero tariff treatment within the next two years, while Chinese exporters will get a reciprocal deal on 267 items representing some US$2.9 billion in exports per year. The real value has yet to be determined. While heavy industrial items such as iron and steel from Taiwan will have easier access to China's market, these are industries which are now being downsized in China and so it suits Beijing to allow entry of these items. On the other hand, high tech items such as flat panels, machine tools and inputs to solar power generation have not been included. China has embarked on an industrial upgrading strategy which will see it in the future competing with Taiwan in these high-end items and their exclusion from the early-harvest list will force Taiwanese companies to shift some of their production to the mainland of China. In short, at first sight it appears that the immediate benefits are slanted in Taiwan's favour while the longer-term benefits accrue to China.

Nevertheless despite the reservations in some quarters, the general mood among economic analysts is upbeat. A number of institutions and think tanks have once again upgraded their economic outlook for Taiwan over the immediate term. The International Monetary Fund (IMF) is now forecasting GDP to grow by 7.7 percent this year (up from the April estimate of 6.5 percent). The local Chung-Hua Institute of Economic Research is now forecasting 6.94 percent (up from 4.99 percent). With early harvest provisions not expected to kick-in until 2011, the immediate reason for better than expected GDP growth is attributed to better than expected export orders (Export orders for June totalled US$34.22 billion and analysts predict orders could reach a record-breaking US$400 billion for the whole year) and improved domestic consumption.

Domestic investment is also recovering. CIER expects domestic investment to increase 15.79 percent for the full year, its highest level since 1992, with private investment expanding 22 percent, compared with a contraction of 19.38 percent last year. 

Unemployment, inched up slightly in June to 5.16 percent (seasonally adjusted 5.2 percent) on the strength of new graduates entering the workforce. For the first half of 2010, unemployment averaged 5.47 percent, down 0.26 percentage points compared with the same period last year. Most analysts are forecasting a steady drop in the unemployment rate as the employment generation effects from closer cross-strait ties and the government's various initiatives to attract foreign investment. take hold. The general consensus among the various agencies is that the jobless rate will fall below five percent by the end of the year.

Barring unforeseen events, the general expectation is that now that China has the deal it has been wanting with Taiwan, the pressure will be lifted for a period to win over Taiwanese hearts and minds and ensure the re-election of President Ma Ying-jeou and his KMT administration in 2012. While both sides have emphasized that the EFCA is an economic agreement, the political ramifications are evident for all to see. Taiwanese vote for the most part with their hip pockets and just as President Ma's popularity plummeted with the onset of the global financial and economic crisis, it could just as easily rebound as the economy recovers – and that appears to be precisely what is happening. Recent telephone polls conducted by the Cabinet Research Office have shown that Ma's overall approval rating now stands at 46.8 percent and that 68.3 percent of voters approve of his efforts to approve cross-straits ties. These numbers need to be seen against the backdrop of another independent survey which showed that 69.9 percent remained against unification with China notwithstanding the signing of the ECFA. This was the highest figure recorded since February 2006. Tellingly, even among government supporters, 60 percent were opposed to unification with China and only 30.6 percent supported unification.

Clearly Mr. Ma and his team remain where they have been for some time now – between a rock and a hard place.