Discussing unilateral trade liberalization experience of HK, Singapore, ASEAN, gravity model of trade, intellectual property rights (IPR), plain packaging issues.

1. International Taxpayers Training Workshop
Feng Chia University, Taichung, Taiwan
January 10, 2018
Bienvenido Oplas, Jr.
President, Minimal Government Thinkers
Columnist, BusinessWorld, ―My Cup of Liberty‖
Free trade and IPR in East Asia

2. Under a system of perfectly free commerce, each
country naturally devotes its capital and labour to
such employments as are most beneficial to each. By
rewarding ingenuity… it distributes labour most
effectively and most economically.
– David Ricardo, ―Principles of Political Economy and
Taxation‖ (1817)
―A nation may import to a greater value than it exports
for half a century… and yet its real wealth, the
exchangeable value of the annual produce of its lands
and labour, may, during the same period, have been
increasing in a much greater proportion‖ - Adam Smith
―the encrease of riches and commerce in any one nation,
instead of hurting, commonly promotes the riches and
commerce of all its neighbours.‖ - David Hume
if we refuse to reduce our trade barriers just because others do not
reduce theirs, we lose from our trading partners‘ failure to reduce
their trade barriers and then we lose twice over from our failure to
reduce our own.‖ – J. Bhagwati

3. Mean tariff rate, % Stand. dev. of tariff rates
1980 1990 2000 2010 2015 1990 2000 2010 2015
Hong Kong 0 0 0 0 0 0 0 0 0
Singapore 0.3 0.4 0.4 0 0.2 1.8 0 0 0
Brunei 2.5 1.2 5.3 3.2
Japan 9.5 6.9 4.5 4.4 4.0 8.3 7.0 18.4 14.2
Myanmar 19.8 5.6 5.6 7.1 6.7
Philippines 38 24.3 7.6 6.3 6.3 9.2 7.9 7.0 6.7
Malaysia 10.6 13.0 9.2 6.5 6.1 12.5 33.3 19.3 18.1
Taiwan 9.7 8.8 6.1 6.4 8.2 13.2 13.2
Indonesia 29 20.3 8.4 6.8 6.9 16.7 10.8 11.2 9.6
China 49.5 40.3 16.3 9.2 9.6 32.1 10.7 7.6 7.6
Laos 10.0 8.5
Cambodia 11.2 8.8
Thailand 32.3 40.8 17.0 9.9 11.0 21.5 14.3 13.2 16.4
Vietnam 9.8 14.2 12.0 16.8
S. Korea 20.4 13.3 8.7 12.1 13.9 6.7 5.9 49.2 56.3
Source:
Fraser
Institute,
Economic
Freedom of
the World
2017
Report.
3 Paths to trade liberalization:
multilateral (WTO, APEC, RCEP,…), bilateral (country to country),
and unilateral liberalization (HK, SG, Brunei)
Tariff rates
have
declined but
tariff
variations
have also
increased in
some
countries
and
economies.

4. Unilateralism 1: Hong Kong
• A free port which thrives on
free trade. Its open door policy
makes it one of the world's
largest trading economies, an
international financial and
commercial center in the Asia-
Pacific region.
• Free trade policy means no barriers on trade. No tariff on
importation or exportation of goods.
• Import and export licensing kept to a minimum, imposed only
when there is real need like obligations to trading partners. Or
meet public health, safety or internal security concerns.
• HK imports in thousands of container ships, and exports in
millions of shopping bags. Free trade attracts lot of visitors
from other countries.

5. Unilateralism 2: Singapore
• Open, free, competitive
economy. Tariffs are zero, with
a few exceptions.
• Import restrictions based mainly
on environmental, health, and
public security concerns.
• Total merchandise trade almost
4x of GDP, FDI inflows are big.
• Rice subject to import licensing to ensure food security and price
stability.
• But insufficient liberalization in services trade. FTAs with other
countries include mutual recognition of standards, enhanced
investment protection disciplines, protection of intellectual property
rights (IPR), and elimination of anti-competitive practices,
competition policy.

6. Unilateralism 3: Chile
• Mid-80s, protectionism
and price controls were
imposed, resulted in
economic contraction.
• 1985, liberalization
restarted, tariff cut down
to 20%, further to 15%.
* ―Chile‘s trade and investment regime continues to be
characterized by openness, transparency, and predictability…
Since the last review in 2003… modernize customs and facilitate
trade, maintained a single MFN tariff rate of 6% with a few
exceptions, abolished some import taxes and export subsidies…‖
(WTO, 2009)

7. Other ASEAN unilateralism

8. ASEAN unilateral trade liberalization was good. How do
we check or verify that?
Gravity Model
• Gravity models are used in various
social sciences to predict and describe
certain behaviors that mimic
gravitational interaction as described
in Newton's law of gravity.
• Gravity models of trade are
econometric models between
countries. Newton's law of gravity
says, the force of gravity between the
two bodies is positively related to the
mass of the two bodies and inversely
related to their distance.
• For trade purpose we use the GDP to represent the mass of the countries and
the trade cost to represent their distance.
• Model predicts that GDP Increases the volume of trade between countries and
trade costs decreases it.
• For a better fitting model, other explanatory variables are used such as
population and land area of both countries and control variables such as
common borders, language and membership in regional trading arrangements.

9. Regression model
𝐿𝑛(𝑇𝑅𝐷𝑖𝑗)
= 𝛽0 + 𝛽1 𝐿𝑛 𝐺𝐷𝑃 + 𝛽2 𝐿𝑛 𝑃𝐶𝐼 + 𝛽3 𝐿𝑛 𝐷𝐼𝑆𝑇𝑖𝑗
+ 𝛽4 𝐶𝑂𝑁𝑇𝐼𝐺𝑖𝑗 + 𝛽5 𝐶𝑆𝐿 + 𝛽6 𝑈𝑁𝐼 + 𝜀𝑖𝑗
Adapted from Achakzai (2010).
𝑇𝑅𝐷𝑖𝑗- trade flow between country i and country j,
GDP - sizes of the two trading countries represented by
GDP i and j respectively. Thus it can be written as:
𝐺𝐷𝑃 = 𝐿𝑛 𝐺𝐷𝑃𝑖 + 𝐿𝑛 𝐺𝐷𝑃𝑗
Or the sum of factor incomes 𝐺𝐷𝑃𝑖 and 𝐺𝐷𝑃𝑗directly affects
trade (Dixit and Stiglitz, 1977) through Egger (2002).

10. The level of development is proxied by per capita income
(PCI) of country i and j.:
𝑃𝐶𝐼 = 𝐿𝑛(𝑃𝐶𝐼𝑖) − 𝐿𝑛(𝑃𝐶𝐼𝑗)
Higher PCI for a country creates larger demand for imports
(Ramezzana, 2000).
Other variables,: proxies of ‗barriers-to-trade (Carrerre,
2002), and proxy for transport costs (Egger 2002).
* DIST - distance between countries i and j.
* CONTIG - value of 1 when countries i and j share a common
border and 0 otherwise.
* CSL - common spoken language, 1 when the population of
countries i and j speak a common language and 0 otherwise.
Serve as proxy for cultural similarity (Carrerre, 2002).
* UNI - indicates whether country i has unilaterally
liberalized. 1 if yes and 0 otherwise.

11. Description of Data
• The model was estimated for the year 2010.
• Trade data (most preferably exports) were taken from UN
COMTRADE.
• The sample covers 1788 observations for the 10 member
countries of ASEAN and all of their trading partners.
• Data for GDP and PCI (per capita GDP) are from World Bank
database in the aforementioned year.
• Data for distance, common borders and language were
obtained from Centre d'Etudes Prospectives et
d'Informations Internationales (mentioned in Achakzai,
2010.

12. Table 1. Regression Results
_cons -10.89402 1.732706 -6.29 0.000 -14.29414 -7.4939
contig 1.845164 .448667 4.11 0.000 .9647364 2.725591
csl .4294381 .1521713 2.82 0.005 .1308296 .7280466
uni_trd .667114 .1882911 3.54 0.000 .297627 1.036601
ln_dist -.9461703 .1262944 -7.49 0.000 -1.194 -.6983405
ln_pci .7959355 .0286817 27.75 0.000 .7396529 .8522181
ln_gdp .6828134 .02429 28.11 0.000 .6351487 .7304781
ln_trd_flow Coef. Std. Err. t P>|t| [95% Conf. Interval]
Robust
Root MSE = 2.2991
R-squared = 0.5277
Prob > F = 0.0000
F( 6, 1009) = 190.67
Linear regression Number of obs = 1016

13. Which means:
1. A percent increase in GDP leads to a 0.68 percent increase in trade flow.
2. A percent increase in PCI leads to a 0.79 percent increase in trade flow.
3. A % increase in distance leads to a 0.94 percent decrease in trade flow.
4. If there is country i is unilaterally liberalized, trade flow increases by
0.67 percent.
5. If countries i and j share a common spoken language, trade flow
increases by 0.42 percent.
6. If countries i and j share a common border, trade flow increases by 1.84
percent.
• Furthermore, above table has an explanatory power, the partial slope
coefficients are all significantly different from zero.
• The p-value from the F-test of the regression is approximately 0.00
which is less than the level of significance (α=0.05).

14. From the ratio using the values estimated by the econometric
model, this means:
• Not having unilateral trade liberalization for the four
countries – PH, MY, TH, ID - would have resulted in low
amount of trade flows. For instance:
• PH exports to HK would be only 9% of actual exports;
• MY exports to US would be only 35% of actual exports;
• TH exports to MY only 15% of actual exports; and
• IN exports to SG only 22% of actual exports.
• Exception in trade between MY and SG where trade flow
increased by 123.94%. Rusdi Omar noted that there is a
special relationship between Malaysia and Singapore
described by their mutual dependence with each other.
Mutual agreements are the ones that solve the bilateral
issues between the two.
• Hence, undertaking mutual agreements benefit the two
countries.

15. Source: Mark Thirwell, ―International trade in an uncertain world‖, Stratbase-ADRi
forum, May 8, 2017.
Global tariffs are low but have stopped falling, Free Trade Agreement (FTA)
coverage has grown but may have plateaued, NTBs are rising, including temporary
barriers like anti-dumping, countervailing duties and safeguards, trade
liberalizing measures are surpassed or outnumbered by
discriminatory/protectionist measures, and ASEAN countries fit this global pattern
as shown in these two very clear charts.

17. Rank Commercial
services
$ billion
2015 2016 2015 2016
1 1 United States 690 733
2 2 United Kingdom 345 324
4 3 Germany 247 268
5 4 France 240 236
3 5 China 285 207
7 7 Japan 158 169
8 8 India 155 161
9 9 Singapore 139 149
14 15 Hong Kong 104 98
16 17 S. Korea 97 92
21 20 Thailand 60 66
23 27 Taiwan 56 41
30 31 Malaysia 35 34
29 33 Macao 40 32
34 34 Philippines 28 31
37 40 Indonesia 21 23
Source: WTO,
World Trade
Statistical
Review, 2016
and 2017.
Global exports of
services slightly
increased from $4.76
T in 2015 to $4.81 T
in 2016. 12 Asian
economies, five of
them from ASEAN,
belong to the top 40
biggest services
exporters in the
world in 2015-2016.

18. Gap in score bet. SG
and low-ranked VN
very wide; TH, VN
and ID suffered
significant declines
in scores and global
rank.
SG and MY
managed to retain
their high scores
and global ranking.

19. IPR Scores of
Selected ASEAN
Countries, 2008-
2015.
Year Sing Mal Philis Thai Indon Viet
Ave. score,
2010-15 7.9 6.1
5.0
4.4 3.8 3.8
2015 (out
of 129)
7.9 6.3 5.1 4.3 4.1 4.1
2014 (out
of 97)
7.9
(16th)
6.3
(32nd)
n.a. 4.6
(70th)
4.2
(83rd)
4.3
(78th)
2013 7.9 6.1 5.3 4.2 4.1 3.9
2012 7.9 6.2 4.9 4.1 4.0 3.8
2011 8.3 5.9 4.9 4.5 3.2 3.8
2010 7.9 5.8 4.8 4.3 3.2 3.5
2009 7.8 5.9 4.8 4.6 3.4 3.4
2008 7.5 5.8 5.0 4.6 4.2 3.2
Economy 2013 2014 2015 2016 2017 Ave. Rank
2017
Singapore 8.1 8.2 8.1 8.13 8.36 8.1 7th
Japan 7.7 7.8 8.0 8.10 8.33 7.9 8th
Hong Kong 7.7 7.8 7.6 7.78 7.78 7.7 19th
Taiwan 7.2 6.9 6.9 6.93 7.27 7.0 24th
Malaysia 6.5 6.5 6.6 6.75 6.61 6.6 32nd
S. Korea 6.4 -- 5.9 6.12 6.50 6.1 34th
China 5.5 5.5 5.4 5.41 5.71 5.4 52nd
Philippines 5.0 -- 5.1 5.15 5.33 5.1 64th
Thailand 5.1 5.3 4.9 5.04 5.21 5.1 66th
Indonesia 4.9 5.0 4.9 5.02 5.17 5.0 68th
Vietnam 4.7 4.8 4.5 4.66 4.93 4.7 77th
# C‘tries 131 97 129 128 127
IPRI overall scores of
selected Asian
econ., 2013-2017
the more developed
the economy like SG
and JP, the higher
the IPRI score and
global rank.
Implies that as
private property is
better protected,
there are more
economic activities
and business
innovations.

20. • Unilateral liberalization benefits the poor – more jobs and
exports, more goods and services. From fruits to mobile
phones to motorcycles and cars. Developing countries, big
and small, should consider this policy.
• Freer trade philosophy and policy will resurface in the coming
years. Trade is the biggest instrument to prevent wars among
countries. As famous French economist and writer Frederic
Bastiat once wrote, ―If goods cannot cross borders, soldiers
will.‖
• IPR create incentives for businesses to invest in ideas, to
develop new products, and to earn a profit from the sale of
those products. This in turn leads to improved customer
satisfaction, improved profitability, and greater employment
opportunities.‖
– Prof. Sinclair Davidson, RMIT Univ. (Econ Dept.), Melbourne,
Australia.

21. IPR non-protection -- plain packaging (PP) of tobacco products.
Purportedly for health reasons. High tobacco taxes, graphic warnings on
packaging, restrictions on advertising, outright no smoking in many areas.
Tried and done in many countries but smoking incidence does not significantly
decline as people shift to cheaper and often, illegal, illicit products.
So campaigners resort to prohibit the use of tobacco brand, logo or trademark.
Done in Australia with plans to introduce legislation in Singapore, Malaysia and
Taiwan.
Not right because a brand or logo of a company represents how effective it is in
developing consumer loyalty and service. Imagine also if all ice cream, all soft
drinks, all beer, all wine, etc. will simply be labeled as ―ice cream‖, ―soda‖,
―beer‖, etc. with no brand recognition of who produced or manufactured the
products.
IPRs like medicine patents, song copyrights, company brand or trademarks,
play an important role of recognizing efficiency and innovation, or firm and
product lousiness and mediocrity. Consumers look up to these brands and
decide which ones to support and patronize and which ones to boycott.
Governments therefore, should respect and protect these IPRs the same way it
should respect and protect physical private properties. People own their body
and not the state or NGOs.

22. On plain packaging.
People — not the state or
media or the health NGOs,
etc. — own their body. They
recognize the risks of
smoking, drinking, etc.,
compare such health risks
with the pleasure of
smoking and drinking. Then
decide whether to smoke 1
or 20 sticks a day, drink 1
or 20 bottles of beer a
week, etc.

23. Australian government collects data on national smoking behaviour
every three years as part of its National Drug Strategy Household
Survey (NDSHS). The most recent batch of data is from 2016, and
results…
 no statistically significant decline in the overall daily smoking rate
between 2013 (12.8%) and 2016 (12.2%).
http://www.forfreechoice.org/freedomofchoice/the-failure-of-the-plain-package/