Poverty Impacts of Preferential and Multilateral Trade Liberalization on the Philippines: a Computable General Equilibrium Analysis

The Philippines has been participating in preferential and multilateral trade liberalization since the 1990s. However, the poverty effects of these trading arrangements are not yet fully known. This paper, which uses a computable general equilibrium (CGE) model, finds that reducing both Most-Favored-Nation (MFN) tariff rate and ASEAN Free Trade Area’s Common Effective Preferential Tariff (CEPT) rate, combined with enhancing direct income taxes to offset the loss in tariff revenue, are instrumental in reducing poverty in the country. It also shows that the relatively poor and less-skilled household groups, like agricultural workers and industrial workers, as well as the poorest of the poor, gain from such trading arrangements because these substantially lower consumer prices. As such, this paper proposes that the Philippine government be more active and further promote preferential and multilateral trade liberalization in order to help eradicate poverty.