Tariffs that kill
If agricultural tariffs are too low, they can kill critical agriculture sectors. Furthermore, the livelihood of millions of farmers and fisherfolk in these sectors will be severely jeopardized.
This may happen with the inclusion of two sections in the proposed “Livestock Development and Competitiveness Law of 2021” . The bill is needed and well-formulated. But these sections which specify very low tariff levels have not undergone the thorough study agriculture stakeholders request to justify the levels given.
An ideal tariff makes imports equal or cheaper than the local product to motivate improvement from local producers. This decreases with a specific timetable in mind. Tariff determination is a complex process, requires much research, and necessitates much stakeholder consultation. Furthermore, it should provide the necessary flexibility for a rapidly changing global environment. If these two sections are left outside the law and the normal process of tariff determination is allowed to proceed, this proposed bill should be passed immediately. But with these sections that have not received the thorough necessary tariff study, the bill runs the risk of not achieving its laudable objectives.
Low tariffsThere is a saying: “Aanhin pa and damo kung patay na ang kabayo (What will we do with the grass if the horse is already dead)?” If the specified tariff rates further harm the livestock and corn industries already suffering from subsidized imports, then the bill’s objectives may be overtaken by the damage from too low tariffs.
Agriculture stakeholders in the livestock and corn industries believe the rates specified in the proposed law are much too low. They believe it did not follow the normal thorough study and extensive consultation required for correct tariff determination. To specify this in a law with little flexibility over an extended period of time will further worsen their problems, which they did not cause in the first place.
An example is the absence of necessary quarantine facilities, which allowed the African swine fever to wreak havoc on our hog industry. The government’s executive branch hurriedly recommended decreasing a hog tariff rate from 30 percent to 5 percent. Both the Senate and House of Representatives roundly rejected this, and a compromise was reached. It is this kind of decision without the appropriate thorough work that stakeholders wish to avoid in determining tariffs, specially if this is unnecessarily included in a law.
Another example of rushed work is the 35-percent rice tariff rate. The agreement was that we would prepare our farmers for this rate. Without doing this preparation, our government had to comply with the 35-percent rate by an already postponed deadline.
But the World Trade Organization (WTO), our own law (Republic Act No. 8800), and other countries encourage valid safeguards, which effectively increase the tariff or protection rate temporarily given in certain circumstances. As the former president of both Cement Manufacturers Association of the Philippines and the Asean Federation of Cement Manufacturers, I personally saw how we won the cement safeguards easily.
We could have won the rice safeguards even more easily. But this time, certain officials did not even bother to respond to two formal submissions of Alyansa Agrikultura and Federation of Free Farmers. Because safeguards were not provided, the protection rate was not increased, and net incomes plummeted. Federation of Free Farmers national manager Raul Montemayor has an excellent study on this.
In addition to the devastating impact on incomes because of too low a tariff, what used to be an annual rice important volume of 1 million tons increased by 32 percent from 2.10 million tons in 2020 to 2.77 million in 2021.
What are the specific tariff rates included in the proposed bill? Section 12 stipulates that the most favored nation (MFN) tariff rate on livestock and poultry imports originating from Asean WTO member shall be reduced as follows: “a) 15 percent in the first six years following the enactment of this act, and b) 5 percent in the seventh year and thereafter.” Note that this normal rate is 40 percent, and 30 percent in special cases. On the other hand, Section 13 on corn similarly states that the MFN shall be reduced as follows: a) 10 percent in the first two years, for corn, and b) 5 percent in the third year and thereafter. This rate is currently 50 percent.
Aside from this, tariff cuts did not result in the promised significant decrease in prices. For rice, except for 2018 when the government failed to import rice on time, the rice prices were generally the same before and after the retail trade liberalization law. For pork, the expected significant price decreases did not materialize.
By all means, this bill should be passed into law before this administration ends. But Sections 12 and 13 must be taken out. Otherwise, the exceedingly low tariff rates that did not even go through the deep study and extensive consultation will kill critical agriculture sectors, livelihood opportunities we badly need, and ironically, the laudable objectives this law should achieve. INQ
The author is Agriwatch chair, former secretary of presidential programs and projects and former undersecretary of the Department of Agriculture and the Department of Trade and Industry. Contact is [email protected]
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