Tariffs must help, not harm

Tariff is a double-edged sword. It can either help or harm. This must be kept in mind as the Tariff Commission (TC) undertakes the review and reform of our tariff structure. Very often, the TC recommends changes upon the request of specific sectors. It is fitting that the TC is currently taking a holistic view of the entire structure.

With a systems approach and its linkages, a strategic and rationalized approach can hopefully be implemented. Today, some input tariffs are even higher than the product output. This prevents production, resulting in foregone jobs and foreign exchange.

On a single product basis, some have had very high tariffs for too long a time. They protect “sacred cows” at the expense of consumers. Because of these and other problems, a recent published proposal is that tariffs should be “uniform across the goods … [for] a maximum [10 percent to 15 percent].”

United position

Last Sept. 26, the international trade committee of the public-private Philippine Council of Agriculture and Fisheries (PCAF) discussed this and agreed with the overall direction of reducing tariffs, except for the uniform rates proposed.

Arsenio Tanchuling, president of Alyansa Agrikultura (AA), said: “Rushing with a formula without knowing the situation on the ground with its inadequate support services would be irresponsible and unfair. It is essential that this time, the farmers and fisherfolk should be meaningfully consulted.”

Danilo Fausto, president of Philippine Chamber of Agriculture and Food, Inc. (PCAFI) said, “One size does not fit all. For the 42 agriculture subsectors in PCAFI, we must ensure that their situations are well-understood so that the tariff changes consider their needs.”

Emil Javier, chair of the Coalition for Agriculture Modernization in the Philippines, added: “The TC is tasked to study each sector carefully, then recommend appropriate tariff changes based on its findings. We should let them do their job, but perhaps set deadlines before the year ends for products whose [tariffs] are too high.”

On Jan. 21, 2002, I also wrote an opposition to a proposed Senate bill provision reducing tariffs with no prior review by the TC: “An ideal tariff makes imports equal or less costly to a comparable local product to motivate improvement from our producers. This decreases with a specific timetable and support measures. Tariff determination is a complex process that requires solid research and stakeholder consultation.”

Lessons learned

In the case of rice, we were required to follow an international 35-percent tariff commitment. This approach was far superior to the very dysfunctional quantitative restriction method. However, according to the Philippine Rice Research Institute, the tariff that would allow our products to be on competitive levels with imported rice was at 70 percent. This means that, as a safeguard measure, tariff should be lower than 70 percent to motivate better performance, but higher than 35 percent to enable farmers to earn a decent living and encourage further production.

Safeguard measures submitted by AA and Federation of Free Farmers were, however, unanswered. In the end, retail prices decreased by only 2 percent while farmer incomes went down by 23 percent. Had the correct tariff been implemented, farmer incomes would not have dipped that much and they would have benefited from the added tax revenues.

A similar thing happened in pork. The executive branch proposed to Congress that the 30-percent tariff for the minimum access volume of pork would be reduced to 5 percent. They were following the textbook linear solution of lower cost, higher supply, and lower prices. Though this is generally correct, an AA research convinced the Senate to make the rate 15 percent, not 5 percent. The result was a savings of 10 percent, or about P3 billion that would have gone—unnecessarily—to importers. We should not hastily implement a uniform tariff because this would only cause harm. The proposal should be interpreted as a long-term direction, complete with the necessary research, stakeholder consultation and support measures. If we are to go with the latter interpretation, tariffs would truly help agriculture stakeholders, consumers and the nation as a whole.

The author is Agriwatch chair, former secretary of presidential flagship programs and projects, and former undersecretary of the Department of Agriculture and the Department of Trade and Industry. Contact is [email protected]