As the Philippines negotiates the threshold of the twenty-first century, it struggles to join the ranks of late industrializing economies in the region while strengthening the foundations of a stable democratic political order. The terms of this transition, however, remain difficult.

In the aftermath of the plunder of the nation's resources under Marcos and the lost opportunities for decisive reforms under the Aquino administration, the political leadership under Ramos has become acutely aware of the need to make up for lost time and catch up with the rest of East and Southeast Asia. This compelling realization comes at a time when the mainstream global strategy for economic growth revolves around liberalization, privatization and deregulation of markets to aggressively find one's niches in the highly competitive world market. Having committed itself to these preferred strategies of development, the Ramos administration must address the daunting task of providing the appropriate political and economic terms for successfully negotiating this transition.

First, the administration needs to build and consolidate the political consensus for a project that is seen to be socially destabilizing by many institutions and organized sectors of civil society. For instance, many groups of organized labour and agricultural workers continue to oppose the administration's vision and programme of NIC-hood, as articulated in “Philippines 2000”. Secondly, this cultivation of political support for the economic agenda of growth and development needs to be fleshed out in a democratic process where consultation, negotiations, and coalition-building are the order of the day. Thirdly, in negotiating this transition, the need for a state leadership that can provide strategic planning and direction becomes increasingly urgent. By necessity, this effective political leadership must actively intervene in initiating reforms that will activate and harness the enthusiasm and energies of the actors that count in civil society.

The social and institutional infirmities of the people as they are called upon to respond to this grand project cannot be glossed over.

A weak state embedded in a robust and often intractable civil society has been an enduring feature of Philippine political life. This weakness of the state is reflected by its lack of autonomy from dominant social classes and powerful political families and clans; its weak and inefficient bureaucracy, particularly such agencies as the customs bureau and internal revenue; and its politicized military and unprofessional police. Rather than a state “autonomously embedded” in civil society, the Philippine state is a captive of powerful particularistic blocs.

As shown by the experience of the late industrializing economies in East and Southeast Asia, an autonomous developmentalist state served as a key factor for directing economic growth and development. This pattern of development has been most notable in the cases of Japan, Korea, Taiwan, and Singapore. However, drawing lessons from these countries becomes problematic for the Philippines because these strong developmentalist states emerged in authoritarian regimes. It is of course true that autonomous developmentalist states can flourish in either authoritarian or democratic regimes. With the disastrous experience under martial rule by Marcos, however, any attempt to build a more autonomous developmentalist state will have to be forged under a democratic regime to elicit the strongest political support.

The need for a relatively autonomous developmentalist state in the Philippines becomes urgent in light not only of the fractiousness of the key actors of civil society but also of the immense challenges of interacting with the rapidly changing global environment. Key reforms and changes for the necessary political, administrative, and infrastructural support for any sustained project of socio-economic growth and development require the initiative and determination of the state leadership. With the restoration of the formal underpinnings of a democratic regime, the challenge then in the Philippines becomes the reinvention of a system of governance that is not only transparent and publicly accountable but capable of providing strategic direction for political stability and economic growth.

The Philippines' march into the twenty-first century is shaped by two defining themes in the last two decades: the struggle against the Marcos dictatorship leading to its downfall in 1986, and the continuing struggle to provide the foundations of economic growth and development in a democratizing order, like all regime changes and transition phases, this process has been difficult and contested, encumbered by the failures of the past, the uncertainties of the present, and yet animated by the promises of the future.

Fourteen years of authoritarian rule under Marcos left an oppressive legacy: an economy in tatters and a people divided at a time of momentous changes in the world. In the aftermath of this deeply troubled immediate past, the country struggles to put together the political leadership and the social constituency that could spur and sustain economic growth and development in a politically stable democratic order. This project not only seeks to resolve the country's festering national crisis. If successful, it will highlight in a powerful way a counterpoise to the conventional wisdom in Asia about the incompatibilities between democracy and economic development.

The Philippines' passage into the next century is made doubly significant as it encompasses a moment marking the centennial of the first anticolonial revolution in Asia launched in 1896 by Filipino revolutionaries against Spanish colonial rule. In 1996, the country also marks fifty years of formal independence from American colonial rule. Richly symbolic as rituals of national self-appraisal and regeneration, these celebrations reinforce in yet another profound way the acuteness of the national feeling and determination that this time there can be no failure of will and practice.

This interpretive essay seeks to evaluate the most significant events in the country's last two decades in order to understand better the structures and forces underpinning the process of change and continuity in three interlinked historical periods: the struggle against the authoritarian rule of Marcos; the Aquino presidency; and the first three years of the Ramos administration. Finally, the essay seeks to identify important trends and developments that help shape events and conjunctures in the years to come.

Together with the collective struggle against the Marcos dictatorship, no other phenomenon has so deeply touched the Filipino psyche and consciousness as the Filipino labour diaspora of the last three decades. This same phenomenon has forced the authorities to rethink its long-term implication on the survival of the Philippines as a nation and people.

During the first decades of the American colonial era, the migration of Filipino labour took shape with the recruitment of workers into the plantations of Hawaii and California and the canneries of Alaska. This was the first large-scale wave of labour migration out of the country. The second wave took place after World War II, during the fifties and sixties when Filipino professionals, mostly doctors and nurses, constituted the core of this labour export. During this period, the Philippines served as the biggest exporter of nurses to the United States and was the second biggest source of foreign doctors after India.

The first and second wave of labour migration stood out for two reasons: first, the destination was almost exclusively the United States; and secondly, after decades of struggle for citizenship, those who went to the United States almost always ended up as American citizens or permanent residents. The significance of this Filipino migration is dramatized by the fact that by the start of the twenty-first century, the Filipinos will have become the biggest Asian community in the United States, replacing the Chinese as the most numerous Asian grouping.

This current third wave of Filipino migration is distinguished by the fact that most of the individuals are contract workers whose destinations span literally the whole world, although the overwhelming majority have ended up working in the Middle East. A combination of push and pull factors have provided the basis for this massive labour export. In the Philippines, the economic crisis particularly during the decade of the eighties pushed both skilled and semi-skilled workers to look for jobs abroad.

Economic reform in the Philippines has been a particularly contentious and protracted process. In the 1950s and up to the early sixties, economic growth took place under a protectionist regime of exchange controls and import-substitution. However, after this initial spurt of manufacturing activity, industrial growth began to stagnate. Between 1961 and 1987, the proportion of total employment in manufacturing dropped from 12 to 10 per cent. In addition, between 1972 and 1988, the manufacturing sector's share in gross domestic product (GDP) barely moved: 24 per cent in 1972 and 25 per cent in 1988.

Under the authoritarian regime of Marcos (1972-86), the administration tried to pursue a policy of greater export-orientation and liberalization under pressure from the World Bank and the International Monetary Fund. These policy shifts were deflected, however, by the availability of cheap foreign loans in the international capital markets, which Marcos used to fuel a “debt-powered” strategy of growth Moreover, these policies towards greater liberalization and export-orientation could not be pursued vigorously during the authoritarian rule of Marcos because of the continuing resistance from a constituency of local industrial monopolists and oligopolists. Many of them were cronies of Marcos who had traditionally prospered under a protected trading regime serving the local market. By 1983, a balance of payments crisis led to the suspension of the trade liberalization programme initiated by Marcos.

With the decline and stagnation of industrial growth that followed the “easy phase” of import-substitution, one option for sustaining and deepening industrialization in the country would have been a redistribution of assets and resources primarily through agrarian reform to build a dynamic internal market to sustain growth and development. This option was effectively foreclosed, however by the power of the landed capitalist class which continued to control the legislature in the country.

A second option for industrial deepening would have been a carefully managed integration of a protected home market with vigorous export orientation in selected industries along the model of the East Asian newly industrializing economies (NIEs).

Two decisive developments underpin the main thrust of the Philippines' relations with the region and the world in the current order: the end of the long history of special bilateral ties with the United States; and the emergence of a heightened sense of awareness of the importance of Asia, and Southeast Asia in particular, to the country's economic and political future. A confluence of internal and global factors explain this significant reorientation.

The Philippines' colonial past and long years of dependency on the United States marginalized its ties with Asia and its Southeast Asian neighbours. During the height of the Cold War, the country served as America's closest ally in the region, an explosive role at a time when much of Asia seethed with militant nationalist movements and popular armed challenges to official government rule.

The end of the Cold War and the relative decline of the United States as an economic power coincided with the birthing of the post-Marcos period. In the Philippines, a defining moment in the country's relations with the United States took place in September 1991 when the Philippine Senate voted to end American occupation of two huge military bases in the country (Clark Air Base and Subic Naval Base) and a host of complementary military installations. With this historic decision, Philippine-American relations came to be viewed from a fresh perspective, thus allowing a better appreciation of the importance of Asia and the region in the shaping of contemporary events.

Undoubtedly, the compelling model of economic growth and development presented by the late industrializers of East and Southeast Asia has contributed to this new importance of the region in the country's consciousness. More concretely, the conscious moves on the part of the ASEAN members to strengthen their own economic and political linkages in response to both regional and global developments have provided the firm basis for this reorientation by the Philippines.

This interpretative study of the Philippines is the second publication in the Southeast Asia “State of the Nation” Monograph Series. The series is introduced by the Institute of Southeast Asian Studies as essays to honour the memory of Professor K. S. Sandhu who was Director of the Institute from 1972 to 1992.

The purpose of the series is to make available concise studies of the state of the nation in each of the countries of Southeast Asia, taking into account the political, economic and social forces that have shaped them. They will be presented in the form of interpretative essays that examine events in the immediate past, explain current developments and offer an educated reading of how key issues are evolving.

As the region grows and progresses at an amazingly rapid pace, Southeast Asians are in danger of being locked in outmoded and outdated views of each other. While each of the countries is fast acquiring the status of newly-industrializing economies in the 1980s and 1990s, our knowledge and understanding may be based on stereotypes from the post-colonial transformation. We may end up neglecting many of the significant new issues in our societies that may well determine questions of stability and prosperity in the future. Worse, we may not be grasping and understanding the social, political and economic reality that is unfolding.

This series is aimed not only at the regional audience. It is also for an international readership. The monographs are not intended to give a blow-by-blow account of contemporary developments, much of which is already fairly well-documented, but rather to provide a thoughtful overview of the significant political, economic and social developments that have shaped the individual states over the last two decades. Each monograph will be published as and when it is completed. On completion of the country monographs, the Institute will present the individual monographs and finally as a bound collection.

In February 1986, a combined military mutiny and an urban people's uprising of four days ousted Marcos from power. With the intervention of the United States, Marcos and his family and his inner circle of advisers were forced into exile in Hawaii. Relatively bloodless (more people are killed in an ordinary election day), this military mutiny and people's uprising mobilized millions into the streets of EDSA (a main highway fronting two major military camps in Metropolitan Manila), effectively paralyzing the military's will to mount any resistance.

Running against Marcos in a snap presidential election held fifteen days earlier, Corazon Aquino's extraordinary ascent to actual power via the successful mutiny cum uprising was underpinned by a fractious coalition representing diverse interests and political tendencies: the military rebels led by the RAM (originally, the Reform the Armed Forces Movement), the Catholic Church hierarchy, the anti-crony segment of big business, the anti-Marcos traditional political opposition with its conservative and liberal factions, and a loose grouping of left of centre movements, NGOs and people's organizations. Apart from Aquino, the leading lights of this uneasy grouping brought together by the extraordinary force of circumstances included then Defence Minister Juan Ponce Enrile; General Fidel V. Ramos, then chief of the national constabulary; Cardinal Sin of the Catholic hierarchy; and Colonel Gregorio Honasan of RAM.

This fragile coalition was torn asunder by a series of coup attempts against the Aquino administration. Fundamental policy differences within the Cabinet, such as the handling of the communist-led armed challenge and perception by anti-Aquino military and political elements that the administration had neither legitimacy nor decisiveness, provoked major realignments within the ruling coalition. In light of the coup attempts against the government, Enrile, who was then serving as Defence Minister, was ousted. The officials identified with the liberal faction, such as Labour Minister Augusto Sanchez, Local Government Minister Aquilino Pimentel, Jr. and, subsequently, the presidential Executive Secretary (Joker Arroyo) were also forced out of the Cabinet.

In 1972, Marcos broke the traditional social compact and terms of engagement between the state and civil society by declaring martial law. He justified the use of extraordinary constitutional powers in the face of an intensifying intra-èlite conflict before the 1973 presidential elections (under which Marcos was barred by the constitution from running for a third term) and the growing challenge from a popular-based movement. Fourteen years later in 1986, his authoritarian rule met an ignominious end, yielding to a combined military mutiny and an urban popular uprising and finally losing the support of his American patrons.

Now best remembered for his world-class “patrimonial plunder” and massive violation of human rights, Marcos sought to restructure the bases of political and economic power by reconstituting the base of support for his authoritarian regime. Striking at one faction of the oligarchy, such as the Lopezes, Jacintos and Aquinos who also happened to be his political opponents, Marcos then tried to consolidate his economic base around the ruling family (Marcos-Romualdez) and its coterie of “crony-capitalists”. To further strengthen his economic base, Marcos surrounded himself with some of the best technocrats in the country to enhance his regime's linkages with the International Monetary Fund (IMF) and the World Bank (WB) and other multilateral financing institutions. Marcos also put the major agri-based export industries, such as sugar and coconut oil, the traditional base of wealth of the exporting landed élites, under government control through the cronies. Finally, to undermine competing centres of local power and to concentrate more power at the central organs of government, Marcos started to dismantle the private armies of selected political warlords.

All of these measures failed to consolidate the authoritarian regime. The regime's pillars of support — the cronies, the technocrats, and the military — all proved to be unreliable. As the economy unravelled and human rights violations escalated in the context of the counter-insurgency war, the popular opposition together with its armed components grew stronger.

On 27-28 January 1992, Heads of State of the Association of Southeast Asian Nations (ASEAN) met in Singapore for the Fourth ASEAN Summit Meeting, at which they agreed to the establishment of an ASEAN Free Trade Area (AFTA) by the year 2008. This deadline has subsequently been moved forward to the year 2005. The backbone of AFTA is the Common Effective Preferential Tariff (CEPT) Scheme, which aims to reduce tariffs to 0-5 per cent for 15 product groups (fast track) within 5 to 7 years, and the remainder (normal track) within 10 to 15 years. Although much has been said about “open regionalism”, an important objective of AFTA is to promote intra-regional trade. This objective is evinced by the fact that the tariff reductions within AFTA are strictly preferential in nature. The importance of intra-ASEAN trade has been heightened following the establishment of the North American Free Trade Area (NAFTA) in 1993, and the European Economic Community (EEC) in 1992. With markets external to the region becoming more trade- restricting, and given East Asia's preoccupation with its accessibility to the North American market, the region will have to increase intra-ASEAN trade if it is to offset some of these losses (Kumar 1992, p. 74). In light of these developments, it is not surprising that the initial response to the creation of AFTA was nothing short of euphoric.

The initial enthusiasm has begun to wane in recent months, however. Fearing a flood of imports, producers in Thailand and, more recently, in Malaysia have called for greater protection at least in the short term (see Kumar 1992, p. 72). This response is particularly concerning since these two countries have been promoted “to play a leading role in ensuring relatively exclusion-free implementation of AFTA” (Chirathivat 1993, p. 8). As recently as April 1994 for instance, Malaysia implemented the Approved Permit System (APS) which places new import restrictions on petrochemical products.

Introduction

This chapter attempts to identify problems and prospects in AFTA rather than address them at length. As such, we shall keep the discussion short, treating it like a research agenda on how AFTA would operate after the Uruguay Round as the General Agreement on Tariffs and Trade (GATT) is restructured into the World Trade Organization (WTO). Thus, the chapter focuses on the global trading system and AFTA.

The Global Environment

Having developing, open economies dependent on external sources for trade, investment, technology, and other factor flows, ASEAN is greatly affected by the state of the world economy. The global environment is witnessing at least five mega-trends which simultaneously affect these exchanges. The first relates to the political revolution which began in the 1980s. This ranges from the metamorphosis of command economies in Asia and Europe to new capitalist centres to more market orientation reflected in liberalization, deregulation, and privatization in other economies. Effectively, a more competitive economic order resulted with more players in the system.

The second is associated with the electronics revolution since the 1950s, which broke the constraints of time and space. Telecommunications and computers have converged and product miniaturization is another outcome. At the same time that the world has shrunk, greater economic interdependence and transmission of business cycles or volatility have resulted from the electronic network.

The third trend concerns the corporate revolution which saw the internationalization of value added or commodity chains (Ohmac 1990; Porter 1990; Kahler 1991; Dickc-n 1992; Howells atid Wood 1993). This has simultaneously meant an unprecedented supercompetitive era and global shake-out from which no industry or country can be immune to (Turner and Hodges 1992). As world trends point towards political independence and self-rule on one hand, there are more economic alliances on the other. Acquisitions and alliances mean added muscle without getting bigger, producing a product anywhere using resources from anywhere by a company located anywhere, to be sold anywhere.

Introduction

The signing of AFTA in January 1992 was a welcome development. It breathed new economic life into ASEAN which, though originally established with an economic programme, had for the past two decades played a primarily political role. ASEAN also has a political aspect which has found expression in the Asian Regional Forum with its extended membership, but the chief objective of AFTA is trade liberalization. It is hoped that, within the Common Effective Preferential Tariff (CEPT), substantially free trade among ASEAN members will be achieved within fifteen years, and that more efficient allocation of resources within the wider ASEAN market will have trade-creating effects far beyond ASEAN borders. In addition to the phased reduction of tariffs and non-tariff barriers (NTBs) to trade, AFTA is embarking on a wide-ranging programme of co-operation on non-border measures to facilitate trade, such as harmonization of standards, and to remove obstacles to foreign investment (Lee 1993).

AFTA can undoubtedly make a useful contribution to trade and welfare in the region. But its CEPT, as is generally recognized, has significant limitations. The emphasis is on tariffs, which are becoming less important relative to regulatory NTBs as impediments to trade. It focuses on merchandise trade, which is declining in importance relative to service trade and investment. It aims to liberalize intra-ASEAN trade, which accounts for less than one-fifth of the trade of ASEAN countries and it covers only about one-third even of intra- ASEAN trade. It is a free trade area, which in its nature is discriminatory. And it has a slow timetable.

I hope I shall be forgiven if I make these limitations of AFTA the pegs on which to hang my discussion of issues and agenda.

Liberalization and Facilitation

Freeing of intra-ASEAN trade from remaining tariffs and quantitative restrictions (QRs) on trade in goods is still a worthy objective.