Monday, September 12, 2016

Tax cut 26, Excise tax on petrol products should be reduced/abolished, not increased

"People try to live within their income so they can afford to pay taxes to a government that can't live within its income." - Robert Half

This bad tax measure has been proposed by the DOF and some legislators many years ago but never succeeded. This time, it looks different as the new Duterte government is hell-bent on having this become a law within the year or next year.

"The excise tax adjustment will entail, in the case of regular fuel, raising the levy from P4.35 a liter at present to P10 a liter next year, P10.40 a liter in 2018 and further to P12.17 a liter by 2022.
For diesel, from zero at present, an excise tax of P6 a liter would be slapped next year, P6.24 a liter in 2018, until it goes up to P7.30 a liter by 2022."

Bad. Very bad. But can be acceptable if personal income tax rates will be slashed to 20% max, better if 15% max. Otherwise, bad. Very bad.

This government can be bad if such huge tax hike in petroleum products is not compensated by huge income tax cut. 

Last July 12, 2016 during the first BusinessWorld Economic Forum, among Sec. Dominguez's proposals was a zero income tax for those earning P1 M/year or less, which is very good. Things have changed in just two months.

It is misleading for the DOF to say that only the top 10% of the population are the biggest consumers of gasoline. The most affected will be the small and micro entrepreneurs who can not easily raise prices because of the competitive environment.

The only mitigating or compensating measure here would be a huge income tax cut, so that people will have more money in their pockets that they must shell out back to government in the form of higher consumption taxes like excise tax for gasoline and diesel. Imagine, from zero to P6/liter. Very parasitic thinking by government. And obviously inspired or pushed by the WB, IMF, ADB, other foreign aid.

Now, the DOF proposed income tax cut is small.

Those earning zero to P250,000 a year, P2,500 in income tax in the first year;
more than P250,000 to P400,000, P2,500 plus 20 percent of the excess over P250,000;
more than P400,000 to P800,000, P32,500 plus 25 percent of the excess over P400,000;
more than P800,000 to P2 million, P132,500 plus 30 percent of the excess over P800,000;
more than P2 million to P5 million, P492,500 plus 32 percent of the excess over P2 million, and
more than P5 million, P1.45 million plus 35 percent of the excess over P5 million.

From 7 to 6 tiers. What Sec. Dominguez did here is to retain the 32% for those earning P2M to P5M, then 35% above P5M. Pakonswelo for those earning below P2M a year, they will pay only P132,500 + 30% of the excess over P0.8M.

It is very parasitic to claim that petroleum products are "public bads" that must be taxed as high as possible to have a "clean environment". NO. Petrol products are public goods, without them, there will be massive poverty, massive underdevelopment, massive hunger in this country.

People want to walk or ride bicycles or horses/cows over long distance because cars, buses, trucks, jeeps that use petrol products will be limited or curtailed? Huge volume of animal manure on the roads alone will make our environment dirty, foul and ugly.

If fisherfolks will use manual paddle of their fishing boats, if farmers will use carabaos or cows instead of faster and stronger tractors in tilling their farms, or harvesting and threshing their harvest, see the negative impact of very low agri and fishery productivity.

A friend, Peter A. commented,

"I'm all for this, our petroleum taxes are among the lowest among importing countries. I'd split the tax so that you can incentivize certain behavior. Higher taxes for fuel but a lower category similar to the current jeepney diesel subsidy to public transport (commercial passenger and trucks) , for private vehicles keep the higher tax category. In the long run you want to disincentivize individual car use as this makes livable cities difficult. This goes hand in hand with many other urban planning tools, like zoning, parking subsidies etc. Besides even with a Php 7 and Php12 tax, this is still lower than a few years ago so the economy can take it."

The low oil prices were important contributor for very low inflation rates in the PH in the last 2-3 years. Bringing back gas prices to near P50 or near P60 a liter, and diesel to near P40 a liter, will automatically push overall inflation rate to higher levels. And more poor people will complain. Then govt will say, "we need to raise further oil taxes to finance more subsidies to the poor." Vicious cycle.

If petrol taxes will rise at high levels, more people will buy motorcycles, or small cars with low oil consumption per kilometer, and the same traffic congestion we will experience. Meanwhile, the cost of transpo of rice, vegetable and fruit dealers, fish and meat dealers, both in trucks and boats, will rise. Which means they will pass the additional cost to the consumers. Petroleum is a public good, not public bad.

Peter added, "actually all we've learned from centuries of urban planning and learning how cities work show that this blunt initiative is effective in curtailing car use. It would work even better if, as I mentioned in my comment to Butch , we add more taxes on cars , parking ( add taxes and take out the inherent subsidies) and do congestion pricing. On a world wide level where cities have done this,it works. As for the inflationary aspect, take note that I'm for expanding the current subsidy on public transport, that includes any sort of regulated transportation that has a certificate of public convenience. We already have this with the jeeps, so expand this to buses, cargo trucks, taxis etc. So that the public good aspect is not affected. 80% of vehicles on the road is taken by 20% of the private vehicle owning public, we need to reverse this . If we take a look at the most succesfull capital cities private car use is but maybe 10%. This at least give the car owner a choice, to use public transport however ineffcient or pay a bit more. Add in all the other measures we'll surely have a more livable city."

Another reason why I want the PH to disintegrate into many countries. A central government will always impose a one size fits all policy. Whether a province or island has efficient mass public transport or not, the policy applies uniformly. The Manila-based government thinks that taking out more cars, motorcycles, buses from the roads to be replaced by trains (even if the infra in many areas are not there yet) will also apply to island-provinces like Masbate, Catanduanes, Bohol, Romblon, Camiguin, Biliran, Guimaras, Basilan, etc. For these islands, reliance on petroleum is very high, they cannot bike or run or ride a bus from their province to the next. They must ride a boat, then take a tricycle or jeep or bus to their destination. A rise in petrol prices by at least P6/liter will significantly affect their mobility, the cost of their goods and services traded across islands.

Instead of raising the excise tax for gasoline and imposing the tax on diesel, the government should do the opposite -- remove or drastically reduce the tax for gas, retain the zero excise tax for diesel. This will help reduce inflationary pressures. Government should learn to cut its spending, not the people's take home pay.

Sunday, September 11, 2016

BWorld 80, Declining share of agriculture in GDP

* This is my article in BusinessWorld last August 18, 2016.

A declining share of agriculture gross value added (GVA) in GDP (gross domestic product) is often viewed negatively by many sectors because it implies that a country is not prioritizing rural development and job creation. Is this a valid observation? Let us review some agriculture data of the Philippines and compare them to its neighbors in the ASEAN and then we tackle that question in the latter part of the paper (see Table 1).

The numbers above tell us the following.

1. In terms of land area devoted to agricultural crops, Thailand and the Philippines are the most agriculture-oriented in the ASEAN. Singapore is obviously the least agriculture-oriented.

2. In land area devoted to forest, the Philippines and Singapore have the smallest forests in square kilometers. This is despite the increase in the Philippines from 22% in 1990 to 25.4% in 2013. Laos, Brunei, and Malaysia lead in this category.

3. In terms of deforestation (conversion from forest to non-forest land uses), the highest or fastest rate from 1990 to 2013 was experienced in Cambodia, which declined by 18%; Indonesia and Myanmar, which both declined by 14%. Still, their respective forest covers remain high.

4. Those that experienced an increase in both agriculture and forest as percent of land area from 1990 to 2013 are Thailand, Vietnam, and the Philippines. Laos too, though at low rate. One possible explanation for this would be a double counting in the case of agro-forestry plantations. The Department or Ministry of Agriculture would count them as agricultural lands while the Department or Ministry of Environment/Forestry would count them as forest lands.

5. Those that have big potential for more agriculture land expansion are Laos (only 10% in 2013) and Myanmar. Becoming big rice exporters like Thailand and Vietnam will be a big possibility for these two countries (see Table 2).

The above numbers tell us the following.

1. In terms of agriculture GVA per worker, Brunei and Singapore are the highest, their huge wealth allows them to employ high technology farming per hectare of land in the region. The Philippines is on a similar level as Indonesia and Thailand while the lowest, surprisingly, is not Laos or Cambodia but Vietnam.

2. Agriculture GVA as percent of GDP, Cambodia, Laos and Vietnam are the highest and the Philippines is again on similar level as Thailand and Indonesia.

3. Notice how the Philippines has reduced this ratio for more than two decades by one half, from 22% in 1990 to only 11.3% in 2013. Laos and Vietnam also made this fast transition of reducing the share of agriculture to GDP.

So, is a declining share of Agriculture/GDP bad for the economy in general and rural folks in particular?

No. The cases of our more developed neighbors Singapore, Malaysia and Thailand, as well as other rich East Asians like Japan, South Korea, Hong Kong, and Taiwan show that this is the trend that they exactly experienced.

This means that while agriculture is growing, the industry and services sectors are growing much faster and hence the denominator, overall GDP size, is growing faster too.

The services sector is important because it is the forward linkage of both agriculture and industry. Producing lots of vegetables, fruits, chicken, rice, fishery, and cattle products will be limited and compromised if there are not many restaurants, supermarkets, public markets, talipapa, carinderia, litson manok and related outlets -- all of which are in the services sector.

Proposals therefore to pour more public resources and tax money to the farmers like free or highly subsidized tractors, machine harvesters, seeds, irrigation, rice subsidy via the NFA, etc. to “correct past negligence” of agriculture may not be always correct.

Important players in the industry and services sectors like big food manufacturers, big supermarket chains, big restaurant chains, rice traders, etc. extend various technological, financial, and market assistance to their contract growing partner farmers to ensure high output and lower post-harvest losses.

Government support to agriculture should be limited therefore to basic infrastructure like modern farm to market roads and bridges, seaports for quicker delivery of bulk produce from big islands like Mindanao, Panay, and Mindoro. And more dams and big water impounding projects mainly for (a) controlling fast flood during heavy rains, impound the water, and (b) irrigation when the rainy season has subsided or ended.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a SEANET Fellow.

See also:
BWorld 76, Solar can never power the PH and Asia, August 06. 2016 
BWorld 78, If the US becomes protectionist, who loses? August 11, 2016 

BWorld 79, Brownouts, coal power and the electricity market, August 21, 2016

Energy 76, PEMC reply to my article on AEMO, WESM

The Philippine Electricity Market Corp. (PEMC) replied to my article in BWorld, Brownouts, coal power and electricity market, August 17, 2016, below.

Dear Editor: We are writing in reference to a column written by Mr. Bienvenido Oplas published on 17 August 2016 entitled, "Brownouts, coal power and the electricity market".

We note the persistent claims made in your column that Philippine Electricity Market Corporation (PEMC) is exactly replicating the Department of Energy's (DOE) efforts to push for more renewable energy (RE) resources into the system. It was also averred in your column that "since PEMC continues to be a government controlled

corporation, can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential of more REs in the WESM and grid stability?"

In addressing these claims, you used the example of the Australian Energy Market Operator (AEMO) in its initiative to conduct reliability studies. It must be pointed out that the AEMO is not merely a market operator but also a power systems operator that provides critical planning, forecasting, and power systems information. Thus, it can conduct studies on the impact of withdrawal of coal-fired generation capacity cognizant of its responsibility in maintaining the reliability of the Australian power
grid. In contrast to the Australian structure, PEMC acts only as the Market Operator responsible for the governance and operations of the WESM. The function of maintaining the security, reliability and integrity of the power grid is lodged with the System Operator. Against this context, it is grossly inaccurate to claim that PEMC is expected to study the impact of influx of RE resources in the grid.

With regard to the claim that PEMC is pushing for more RE resources in the WESM as a result of its study on "merit order effect" (MOE), this is a non-sequitur. The study published in our electricity journal focused on the impact of FIT incentives based on
the actual generation of FIT-qualified resources in the WESM as a result of priority dispatch accorded by Republic Act No. 9513 otherwise known as the RE Act of 2008. The MOE of the possible lowering of energy prices in the electricity bourse is no form of endorsement of RE resources on PEMC's part. In the study, the impact of MOE on the market affects only those distribution utilities and directly-connected customers that purchased from the market and does not necessarily translate to the direct lowering of retail rates for end-users because of the FIT. The initiative of PEMC in conducting studies and analyses affecting market outcomes is without partiality to any resource.

Lastly, we wish to point out that PEMC remains a private corporation and not a government-controlled corporation. We recognize the DOE's role in the policy oversight of the WESM operations as envisioned pursuant to relevant laws and

We understand and appreciate your pursuit of balanced reporting and as such, we deemed it necessary to address the assertions made in your column.

In the interest of unbiased journalism, we request that you allow us to air our side by publishing this letter in your paper, as is and sans comment.

Respectfully yours,

Atty. Phillip C. Adviento,
Manager, Training and Communications

The Philippine Electricity Market Corporation (PEMC) is a non-stock, non-profit corporation which was incorporated in November 2003 upon the initiative of the Department of Energy (DOE) with representatives from the various sectors of the electric power industry to be the governance arm of the Wholesale Electricity Spot Market (WESM). The WESM began Commercial Operations in Luzon in June 2006 and in the Visa yas in December 2010. In June 2013, PEMC launched and integrated the Retail Competition and Open Access (RCOA) into the WESM. The WESM is a centralized venue for buyers and sellers to trade electricity as a commodity where its prices are based on actual use (demand) and availability (supply). The WESM was created by Republic Act 9136, the Electric Power Industry Reform Act (EPIRA) of 2001. This provided for the establishment of an electricity market that reflects the actual cost of electricity and lowers its price through more efficient production through competition.

See also:

Monday, August 22, 2016

Pres. Duterte and UNexit

President Duterte was on global news again yesterday, wow. And again, for the wrong reason. 

UNexit. What a parochial, onion-skinned mind.

"I do not want to insult you. But maybe we'll just have to decide to separate from the United Nations," he said.
"If you are that rude, we might just as well leave," he said.

"So take us out of your organisation. You have done nothing. Where were you here the last time? Never. Except to criticise," he said.
Mr Duterte said the UN should refund its contribution "so we can go out".

Mr Duterte said the UN had been unable to combat hunger and terrorism and had failed to end the killing of civilians in Iraq and Syria.

Sige pa, President Digong (Pgong), open your mouth more about foreign affairs and (non) diplomacy. :-) 

I am no fan of the UN in its climate alarmism drama and racket. But in enforcing international rule of law regarding territorial disputes, settling big differences between or among countries in a peaceful manner, I support the UN. Our membership there is useful and important for us.

I can understand the torment that PH diplomats suffer out there abroad. Pgong's mind and mouth is so unstable and unpredictable. Ang bilis mapikon eh, parang bata batuta. Tough job defending or sanitizing his statements.

"You now, United Nations, if you can say one bad thing about me, I can give 10 [about you]. I tell you, you are [useless]. Because if you are really true to your mandate, you could have stopped all these wars and killings."

Somehow Pgong is correct here. The UN is busy with so many non-core functions like climate alarmism and "save the planet", and endless welfarism like MDGs, SDGs. Its core function, its raison d'etre why it was formed after WW2, has been heavily diluted. So that it has little resources left for settling territorial and cultural/ethnic disputes between or among countries.

We have to thank the UN through its Permanent Court of Arbitration (PCA). The PH governent panel won over China, we got lots of foreign support and diplomatic sympathy vs. China there. 

See also:
The PH drugs war, part 2, July 27, 2016

Sunday, August 21, 2016

BWorld 79, Brownouts, coal power and the electricity market

* This is my article in BusinessWorld last August 17, 2016.

Brownouts, actual and potential, have returned to some areas of Metro Manila and surrounding provinces in the Luzon grid over the past two weeks. This is unfortunate because electricity demand has somehow declined because of the colder, rainy season and more power plants have been added to the grid.
This rare event was caused by heavy stress in the Luzon grid as a result of the unscheduled outage of several coal-fired, hydroelectric, oil, and geothermal power plants in the grid, many of them are already ageing. Among these coal plants were (a) 382 M-W Pagbilao’s unit 2 (U2), (b) 122 M-W South Luzon Thermal’s U1, (c) 140 M-W Southwest Luzon’s U2, and (d) 60 M-W Limay Cogen Block 5.

Among the hydro plants were (a) 50 M-W Angat Main U4 and (b) 180 M-W Kalayaan U1. Then 83 M-W from Makban Geothermal and 280 M-W from Malaya Thermal U1. Almost 1,300 MW of power went on unscheduled or unplanned outage, plus power plants on scheduled or planned maintenance shutdown.

The newly-commissioned wind and solar plants in Luzon cannot and will not be able to fill up the power deficit. If the wind DoEs not blow, wind power is zero; if it is night time or day time but very cloudy, then solar power output is zero or very low.

This situation again highlights the need to continue building new coal and natural gas plants. The proposal and lobbying by certain sectors and environmentalist groups to discontinue building new coal plants and build only intermittent renewable energy (RE) plants like solar and wind is not wise. The Philippines’ fossil fuel consumption remains among the lowest in Asia’s emerging and developed economies plus Australia.

(Correction:  the last 2 columns are for oil, unit in million tonnes, not mtoe)

Last Aug. 11, 2016, the Australian Energy Market Operator (AEMO) released its 2016 Electricity Statement of Opportunities (ESoO) report and it highlighted the growing importance of network and non-network developments to secure future electricity generation. Notable in its report is this warning,

“AEMO has modelled the impact of withdrawing a further 1,360 MW of coal-fired generation capacity to meet the COP 21 commitment under AEMO’s neutral scenario, with results suggesting potential reliability breaches occurring in South Australia from 2019-2020, and New South Wales and Victoria from 2025 onwards.”

“Reliability breaches” is a technical term for power outages or blackouts. And AEMO projects that it will take place in three to four years from now. Replacing coal power with additional RE capacity will not compensate for the loss of coal capacity.

AEMO was candid enough to categorically warn about the dangers of cutting coal power and pushing more renewables into the system. This candor is good because it will prepare both power suppliers and consumers of what’s going to happen few years on the road.

One explanation for such candor by AEMO is its independence from the government as the latter pushes for more REs.

In contrast, the Philippine Electricity Market Corporation (PEMC), AEMO’s counterpart here as electricity market operator, is government-dependent. It is headed and chaired by the DoE (Department of Energy) secretary and many board members are from the government, like the National Power Corp. (NPC), National Transmission Corp. (TransCo), and the Power Sector Assets and Liabilities Management Corp. (PSALM).

Since the DoE is the main implementer of RE Act of 2008 (RA 9513), DoE is naturally pushing for more intermittent REs into the system and that is what PEMC is exactly doing. The latter for instance produced a study in November 2015 saying that REs that are priority dispatch at the Wholesale Electricity Spot Market (WESM) have created the “merit order effect” (MOE) in reducing the market clearing price (MCP) at WESM.

MOE can also be realized via more and cheaper conventional plants like coal rather than expensive and intermittent REs. With conventional plants, there is no need for additional ancillary costs.

So, since PEMC continues to be a government controlled corporation, can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential, of more REs in WESM and grid stability?

The most logical answer is no. The DoE cannot contradict itself, say that REs are necessary and say at the same time that REs are dangerous to the customers’ pockets and the stability of the national grid.

So the important implication here is that the independent market operator (IMO) as clearly stated in the EPIRA (Electric Power Industry Reform Act) some 15 years ago and now represented by PEMC, should be independent from government like AEMO. The DoE secretary and all other government energy agencies, including those in the “advisory” capacities, should get out of IMO or PEMC board.

Having less government intervention in the energy sector in general and the electricity market operation in particular is pro-consumer. Just give the consumers more choices, no or little coercion and they will choose the least costly, the more stable and reliable energy source.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

Mr. Oplas has written about the PEMC, renewable energy, and related issues in his previous columns. To read his pieces entitled “State dependence of Philippine electricity market” and “Renewable energy, expensive electricity, and the merit order effect,” please visit these links,, respectively.


See also:
BWorld 66, Renewable portfolio standard and electricity prices, June 26, 2016 
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
BWorld 76, Solar can never power the PH and Asia, August 06. 2016 

BWorld 78, If the US becomes protectionist, who loses? August 11, 2016

Transport Econ 17, On banning provincial buses in Edsa

Remember Isaac Newton's 3rd law of motion: For every action, there is an equal, opposite reaction. Apply in society: For every government intervention and prohibition, there is an equal opposite distortion.

This news was reported last August 13, 2016. If government implements this, there will be MORE traffic congestion, not less, on Edsa and rest of M. Manila. Why?

Because many of those probinsyanos/syanas who ride the provincial buses are car owners. They leave their cars in Pampanga, Tarlac, Bulacan, Pangasinan, Cavite, Batangas, Laguna, etc. when they go to Manila because it is more convenient, more time-saving to ride the buses. Now remove the provincial buses in Edsa, transpo going to Manila will be more inconvenient, take multiple rides, more time consuming, more costly. Solution: drive their cars or motorcycles from the province.

About three years ago, MMDA's former Chairman Francis Tolentino banned buses from Cavite, other parts of Batangas to enter Lawton and Buendia, they unloaded passengers only in Uniwide warehouse at the coastal road. Huge headache for many passengers on the first few days, they have to take a M.Manila bus -- less convenient, less modern, aircon not so cold, etc -- or jeepney, non-aircon.

I noticed that the week after that, traffic worsened in Edsa, elsewhere. Precisely because many of those probinsyanos are car owners. With the inconvenience and higher cost of multiple rides, many of them drove their cars to Manila.

And after banning provincial buses in Edsa and traffic congestion remains bad if not worsened, what's next? Banning private cars 2x or 3x a week. And many middle class and rich families will buy more cars that they can use on days where their other car/s are banned.

Many probinsyanos carry heavy loads when they go to Manila. Whenever I visit the farm in Pangasinan, the lightest load I carry back home is 15 kilos. Rice, buko, bananas, jackfruit, etc. Taking a taxi from Cubao alone to Makati would cost me nearly P300, which is equivalent to my aircon bus fare from Pangasinan to Cubao.

So I take the city bus, Cubao to Makati, cheap, only P26, but travel time is long. Between 1 to 2 hours, depending on time of arrival in Cubao. So if government will make the provincial buses to stop only at Novaliches or even Valenzuela, then my taxi fare will be much higher and if I take the Manila bus, my city travel will become 2 - 3 1/2 hours.

Better drive my car and carry up to 50 kilos, 100 kilos or more of provincial goods. But then I will be adding to more traffic in Manila. And then many people will say we should ban more cars. sus ginoo.

A friend Reuel H wrote, "I can attest to that. One of our bosses lives in Apalit, Pampanga and takes the bus to work. He would leave his car at SM San Fernando and board the Genesis Liner coming from Bataan to conveniently drop him off at EDSA-Shaw Crossing. With this ban, he may be forced to bring his car all the way to Ortigas Center, thus contributing to the already-horrible gridlock in this business district."

Government should be banned from their frequent ban-prohibit mentality and policy. Very unimaginative and dictatorial.

See also:

Friday, August 12, 2016

Climate Tricks 57, "Preventing flash floods" and the Green SONA

Heavy rains and flash flood are natural and cyclical, nature-made and not "man-made". Big El Nino and drought is often followed by big La Nina and frequent/heavy rains. To help prevent or minimize flash flood, build more dams and "harvest" the water, instead of cursing the flood. After the wet months, or during El Nino years, we will thank the floods that deposited water in the dams.

Weird comment  from Cabanatuan City Mayor Julius Cesar Vergara, he  said, "The water really came from the mountains," Haaaaa. I thought the flood water came from the sea :-)

The problem here is that people and officials think there is only global warming and no global cooling. That there is only "man-made" CC and no "nature-made" CC. That less flood or no flood or more flood are all proof of "man-made" CC so more money should be sent to the UN, CCC, DENR, LGUs, other government bureaucracies and they will "fight" less flood and no flood and more flood. Instead of using that money to (a) build more dams in rivers upstream, (b) do large-scale dredging of silted rivers and lakes, or (c) build artificial lakes in low-lying areas as temporary dumping ground of heavy flash flood.

Three days ago, Rappler hosted the "Green SONA 2016" (State of Nature Assessment). For the climate alarmism movement, if there is less flood or no flood, we should be alarmed. If there is plenty of flood, we should also be alarmed. Whatever weather and climate -- wet or wetter, dry or drier, hot or hotter, cold or colder -- we should be alarmed, be worried, be scared. Thus we should send more money to the UN, CCC, DENR, LGUs, WWF, Greenpeace, etc -- and they will save us from less flood and no flood and more flood.

For the "man-made" warming/CC religion, these non-stop rains and flooding elsewhere were caused by our modern life, by our cars, air-cons, energy-intensive industries and condos and malls and airplanes and buses. Thus, we should have less fossil fuels, less or no coal power plants. Modern life via reliable and cheaper electricity from coal is wrong, that is the message of CCC and Manny de Guzman, Lucille Sering, Yeb Sano, Tony la Vina, Sens. Legarda and Zubiri, etc.

Meanwhile, two stories:

1. "In peer-reviewed research, Kelly argued carbon dioxide should be considered the byproduct of the "immense benefits" of a technologically advanced society. Cutting carbon, he added, could result in a dramatic reduction in the world's quality of life that would usher in mass starvation, poverty and civil strife. Massive decarbonization is "only possible if we wish to see large parts of the population die from starvation, destitution or violence in the absence of enough low-carbon energy to sustain society."

2. “Professor Valentina Zharkova (Northumbria University) and colleagues… Professor Valentina Zharkova (Northumbria University) and colleagues’ … research suggests that the next three solar cycles will see solar activity reduce significantly into the middle of the century, producing conditions similar to those last seen in the 1600s – during the Maunder Minimum. This may have implications for temperatures here on Earth.”

Thursday, August 11, 2016

BWorld 78, If the US becomes protectionist, who loses?

* This is my article in BusinessWorld last August 03, 2016.

The purpose of free trade is to make cheap things remain cheap and the purpose of protectionism is to make cheap things become expensive. Protectionism imposes high tariff, taxes, fees, charges, and more paper work to complicate things that are otherwise simple and easy to do.

As the US presidential election nears, many issues have become convoluted as expected in any major political exercise.

One issue that gets murky is trade.

Mr. Donald Trump has been vocal about some of his protectionist pronouncements like attacking the US involvement in the Trans-Pacific Partnership (TPP) while Mrs. Clinton is less gung-ho about protectionism.

Last July 26, 2015, Bloomberg produced an article, “If Trump Wins, Asia Loses.” This story was shared by many Filipinos in Facebook and other social media platforms because the Philippines was mentioned.

“An investor survey conducted earlier this month by Nomura Holdings, Inc. flags a long list of worries under a Trump presidency: from a possible rise in trade protectionism…

The Philippines faces risks because of possible immigration restrictions. The US is host to 35 percent of the total number of Filipinos working abroad, and Nomura estimates they account for about 31% of total worker remittances, a key source of foreign inflows for the local economy.

The Philippines has one of the biggest export exposures to the US in Southeast Asia and Trump’s pledge to bring jobs back to the US may threaten the nation’s burgeoning business process outsourcing sector. The industry caters mostly to US companies and attracts revenue that may equal the size of total worker remittances, about 9% of GDP, over the next two years, according to Nomura.”

There are a number of misinformation stated in this report.

One, in trade theory and practice, the big loser in protectionism policy is the protectionist country, not its trade partner/s.

By making otherwise cheap goods from abroad become expensive, that country is penalizing its own consumers and manufacturers. In which case, the title of the piece should be “If Trump (and protectionism) wins, America loses.”

Two, the US’ merchandise trade exposure in Asia is huge, indicating that US households and businesses make substantial income and savings when they export to and import from Asia than Europe or Central and South America. In 2014, 27% or more than one-fourth of its exports went to Asia, its second biggest continental trade partner next to its North American neighbors, and bigger than Europe. And almost 40% of its imports that year came from Asia or slightly lower than its imports from North America and Europe combined at 46.5%.

Three, while the Philippines exported $8.4 billion to the US in 2014, it also imported $10.1 billion from the US, so it makes little sense to antagonize the Philippines with protectionism when the US earns more from the partnership. The US BPOs here means those US companies provide good services and backup support to their customers worldwide by utilizing cheaper and efficient personnel in the Philippines.

The table shows merchandise trade of the United States by origin and destination, 2014, $ million and percentage.

Four, a graphical presentation that the bigger loser of protectionism policy is the protectionist country, not the trade partner/s would look like this: Imagine a supply-demand curve with equilibrium or market-clearing price of P* for all trading countries. Country A becomes protectionist, its supply curve moves to the left so its new equilibrium price goes up to P1, higher than P*, or P1 > P*.

In contrast, countries B, C,... remain free traders, their respective supply curves move to the right, their new equilibrium price moves lower to P2, or P2 < P*. Consumers and manufacturers in these countries will be happy with more supply of various products and result in lower prices owing to trade diversion from protectionist to other free trader economic partners. There will be some short-term business dislocation, true, but firms and people adjust or even anticipate these changes and have plans B and C in place, including bigger trade among non-protectionist economies.

If America -- whether under Mr. Trump or Mrs. Clinton -- will become protectionist, America loses, not Asia. Free trade, more choices, more economic freedom, is the best policy that a government can give to its people.

Bienvenido S. Oplas, Jr. is a SEANET Fellow, head of Minimal Government Thinkers, and both institutes are members of the Economic Freedom Network (EFN) Asia.

See also:
BWorld 71, Free trade and higher income, July 11, 2016 
BWorld 75, How to profit from urban congestion, July 30, 2016 
BWorld 76, Solar can never power the PH and Asia, August 06. 2016 
BWorld 77, Migration and housing, August 10, 2016