FairTrade Statement on Comprehensive Tariff Review

 

Tariff review should lead to the re-calibration of trade measures in support of local industry and jobs

Since its formation in 2001, the Fair Trade Alliance (FTA) has been articulating the public demand for the government to put a stop to the uncritical, unilateral and one-sided trade liberalization program which has caused so much havoc on domestic industry and agriculture and the lives of workers and farmers dependent on these sectors. Contrary to the projections made by its neo-liberal architects, the trade liberalization program, now on its 25th year, has failed to deliver on its promises of job-full growth and sustained development for the nation. Instead of becoming a newly-industrializing country (NIC) like its Asian neighbors, the Philippines today has become a newly-impoverished nation, wallowing in fiscal woes, double-digit unemployment and underemployment rates and great economic uncertainties.

We, at the FTA, therefore, welcome the ongoing comprehensive tariff review being conducted by the Tariff Commission (TC) and the Cabinet-level Tariff and Related Matters (TRM) committee, belated though the exercise may be. However, for the review to be meaningful to the nation, the TC and the TRM should not hesitate to adopt urgent trade reform measures to promote the following national objectives:

1. TO LEVEL THE COMPETITIVE PLAYING FIELD
FOR LOCAL INDUSTRY AND AGRICULTURE.

Because of the unilateral and accelerated trade liberalization, we are one of the few nations in the world which have managed to discriminate against our own domestic producers by lowering the tariffs and the levels of protection for locally-produced products way below our Asian and other global competitors such as Thailand, Indonesia, China and so on. Trade Ambassador Manuel Teehankee based in Geneva noted that while the average Philippine bound tariff rates under the World Trade Organization (WTO) are almost similar for the Philippines and Thailand, the two countries have markedly different applied tariff rates in 2004 as illustrated below:

Ambassador Teehankee also noted that Brazil, China, India and South Africa have applied tariff rates similar to those of Thailand.

Moreover, these competing countries, aside from maintaining relatively higher tariff rates, still maintain various forms of import restrictions such as tariff quotas and strict import licensing requirements in order to protect their own domestic industries. For example, Thailand has tariff quotas on potatoes, onion, garlic, coffee, tea, pepper, rice, soybeans, palm oil, coconut oil and other agricultural products. Thailand also prohibits the importation of used motor vehicles and engines (to protect public health and environment) and jute sacks and bags (to secure farmers’ income).

Thailand also has no qualms in imposing high definitive safeguard tariff rates on products surging in the Thai domestic market. The WTO reports that as of May 31, 2003, Thailand was enforcing a 40 per cent definitive duty on Indonesia’s floating glass, a 51 per cent duty on Korean stainless steel, and a 128.11 per cent duty on South Africa’s flat hot-rolled steel. These rates are unthinkable in the Philippine setting, where securing safeguard duties is a litigious and expensive process.

In this context, the FTA is proposing that Philippine applied tariff rates for locally-produced industrial and agricultural products be adjusted based on the following rates:

  • In industry, adopt the rates being proposed by the concerned domestic industrial producers for their specific sectors as submitted or proposed by the domestic producers themselves to the TC.
  • In agriculture, adjust the applied rates to the maximum binding rates submitted by the country to the WTO in 1994. These binding rates, incidentally, are still lower compared to the applied rates of other countries such as India.
  • In industry sectors which have not made any presentation before the TC, adjust the tariff rates to the maximum WTO binding rates if the products are produced locally.
  • For agriculture and industrial products that are locally produced and yet are still unbound, do further consultations with their respective stakeholders to seek the optimum level of tariffs. In the context of the on-going WTO negotiations on the non-agricultural market access (NAMA), insist that these products remain unbound or negotiate for a maximum binding rate of higher than fifty per cent.
  • Freeze the tariff rates at a uniform 3 per cent for raw materials and industrial inputs not locally produced, except for sensitive products which serve as inputs to critical industries already subjected to low-tariff disciplines under the Philippine commitments to the ASEAN Free Trade Agreement, e.g., resin industry. As a rule, no imports should be allowed to come in at zero rates, because imports should cover the cost of government’s inspection and other administrative expenses.
  • As a general rule, we should resist any further tariff reduction in any sector because of the unilateral tariff liberalization the country adopted in the l980s and l990s

2. TO REBUILD AN ERODED AGRO-INDUSTRIAL BASE.

The Philippines has an eroded agro-industrial base, which is one reason why its competitiveness has been going down, from one global survey to another. For example, the local garments industry, in the quota-less post-MFA scenario, can not compete vis-a-vis the Chinese, Vietnamese, Indian and Pakistani garments exporters not only because these countries happen to have cheaper labor (offset incidentally by the higher skills of Filipino workers) but also because the Philippines does not have a modern and thriving textile industry. And yet, in the l970s up to the first half of the l980s, the country had close to 300 textile companies, around three dozen of which were integrated textile mills. Today, the textile industry is a comatose industry, with only 5-6 active textile mills. The culprits behind this sad phenomenon are not difficult to document – unabated smuggling of textiles and yarns, accelerated trade liberalization in the l990s, failure of the cotton industry to take off, failure of the synthetic fiber industry to also take off (because of the lack of development in other industries such as the petrochemical industry), and the general lack of government-private sector will and cooperation in pushing for a modern and sustainable textile industry.

The story of the textile industry illustrates in microscopic form why Asia’s second most promising economy in the early l960s (next to Japan) is now one of Asia’s industrial laggards.

Thus, the ongoing tariff review should be widened into a broad trade and development review, with an eye on how the erosion of the agro-industrial base can be reversed not only through the above tariff adjustment measures but also through pro-active and forward-looking trade and development measures. In this context, the FTA proposes the following:

  • Development of an agro-industrial master plan which seeks to promote the development of viable industrial and agricultural sectors based on continuous capacity building (R & D, skills upgrading and so on), industrial complementation and so on. Such a master plan should then serve as a general guide for the TC in determining tariff rates for certain segments of an industry. For example, it is ridiculous to see different sub-sectors of an industry bickering over tariff rates, simply because the government has no overall development plan for the entire industry, which is in sharp contrast to what is obtaining in other Asian countries. Earlier, the case of the garments-textile industry has been cited. But there are other cases – plastics-resin-petrochemical industry, fertilizer-agriculture industry, engineering-fabrication-construction industry, etc.
  • Decisive measures against smuggling. Earlier FTA estimates put the government’s losses from smuggling to reach as much as P175 billion a year, enough to wipe out the annual budgetary fiscal deficit. The original estimate of the former National Task Force Against Smuggling was even twice the figure given by the FTA. Subsequently, the government’s anti-smuggling officials reported that based on Philippine import figures recorded by other international agencies such as the IMF and UNCTAD, the estimated losses from smuggling are at least P139 billion a year, which are still much higher than the combined gains the government expects from the new fiscal measures being lined up by the executive-legislative bodies such as the sin taxes and the new VAT rates. Identifying the big-time smugglers should not be a difficult task given the fact that these smugglers have to dispose of their goods in the open market. What is needed is the will to hale them to courts and put them behind bars. As to under-valuation, the government should adopt the proposal on valuation of goods such as authorizing the BOC to reject outright any shipments with dubious values instead of going through corrupt-laden haggling over valuation (burden of proof should be on the importer), adoption of practices of other countries in the estimation of goods (e.g., China imputing royalties and license fees, while India ignoring some discounts declared by importers), and adoption of the risk-management methods using ‘Revision Orders’ based on globally-published values for products, trade value information from commercial attaches and objective data from sectoral value-chain analyses.
  • Strengthening of the rules against unfair trade practices. This means the government should put more teeth in the laws against dumping, countervailing duties and safeguards. How? One, by mobilizing the country’s foreign missions overseas in actively monitoring prices, subsidies and other trade data from exporting countries. Two, by putting the onus or burden of proof not on the injured domestic producer but on the importing parties. Three, by being decisive like the United States and Thailand in imposing higher safeguard tariffs.
  • Abandonment of the linear neo-liberal model of growth based on the one-sided liberalization process in favor of a rounded, integrated and balanced model of development which emphasizes local capacity building, R & D, industry targeting, development of the home or domestic market of 85 million Filipinos, mobilization of domestic savings and decisive measures to lower the cost of doing business.

FINALLY, we ask those in government, especially those involved in the trade negotiations in the WTO and other trade agreements, to heed the demands of industry, farmers groups, trade unions and civil societies. In particular, we would like to reiterate the following:

  • On the Non-Agriculture Market Access (NAMA), resist the comprehensive coverage of the agreement and the simplified formula of 2 x 2001 applied tariff rates, which is unfair for it ignores the earlier liberalization undertaken by the Philippines. Instead, developing countries should be given the flexibility to opt for non-concurrence to the NAMA agreement or adopt a higher multiplier rate (say 20) and a more realistic base year (1994 in the case of the Philippines). We also support the call for the fishery sector to be excluded from the NAMA coverage and for fishery products to remain unbound.
  • On the Agreement on Agriculture (AoA), maintain the quantitative restrictions on rice and adopt the special products (SPs) and special safeguard mechanisms (SSMs) as proposed by the G20 and other developing countries. Additionally, there should be no further market opening if there are no substantial reduction, if not elimination, of the $1 billion a day subsidy given by the developed countries to their farming sectors. On the other hand, there should be transparent reporting on the use of the tariff charges collected under the minimum access volumes (MAVs), the disposition of the MAV-funded Agricultural Competitiveness Enhancement Fund (ACEF) and the implementation of the different safety nets and modernization programs aimed at strengthening the agricultural sector under globalization.
  • On the General Agreement on Trade in Services (GATS), there should be no negotiations over issues entailing changes in the Constitution (e.g., opening up of the land market and equity liberalization for corporations involved in the operations of public utilities) and coverage of essential public services (e.g., health, education, water distribution, etc.). The thrust of any negotiations should be to ensure that the government retains the capacity to provide basic services for the people and extend universal service to the poor at affordable prices, and to guarantee competition against private foreign monopolies.
  • On the ASEAN free trade agreement with China, we oppose the early harvest program and we propose that the Philippines and other ASEAN countries engage China on how to balance trade relations and correct the dumping of Chinese goods in the Philippines and other ASEAN markets.
  • On the Economic Partnership Agreement (EPA) with Japan, we demand more transparency on the details of the proposed agreement and a public discussion on how the Philippines can forge a truly beneficial agreement. In particular, we want Japan’s exclusion list be bared.
  • On the bilateral free trade agreement with the United States, we agree with the position of the DTI that this is not urgent. However, we demand that any ongoing discussions, preliminary or otherwise, be made public.
  • On the ASEAN Free Trade Agreement (AFTA), we demand an assessment of the positive and negative impact of AFTA on local industry and agriculture before any new regional integration projects be pushed and that member countries should be given flexibility to opt out of certain liberalization commitments because of fiscal and other difficulties.
  • On the conduct of the various trade negotiations, we demand more transparency, public consultation and involvement of the private sector and concerned stakeholders. As it is, it is very difficult to monitor the overall ‘state of play’ in the different trade negotiations taking place on different fronts as outlined above given the limited information made public by the involved government trade officials, the highly technical nature of some of the negotiations and the apparent weak coordination among the concerned line agencies and the executive and legislative branches (as reflected in the urgent request of Congress for trade and negotiation data). We, therefore, propose that Congress and Malacanang also give the highest priority to the passage of the proposed creation of the Philippine Trade Representative Office, which, like the US Trade Representative Office, should undertake the overall coordination and strategizing of Philippine trade positions based not only on inputs from the various concerned government agencies but also, and more importantly, participation of the different private sector and civil society stakeholders.

In conclusion, we, at the FTA, would like to reiterate our position — we challenge the government to be decisive in recognizing the liberalization mistakes made in the last two and half decades under a narrow neo-liberal development framework and instituting the necessary corrective measures. The first step is to re-calibrate the present tariff rates as outlined above. But such re-calibration will not lead to sustainable growth if undertaken without any clear vision and program of reviving, reinvigorating and modernizing Philippine industry and agriculture to make them at par with the best in Asia and the world.

Advertisements



    Leave a Reply

    Fill in your details below or click an icon to log in:

    WordPress.com Logo

    You are commenting using your WordPress.com account. Log Out / Change )

    Twitter picture

    You are commenting using your Twitter account. Log Out / Change )

    Facebook photo

    You are commenting using your Facebook account. Log Out / Change )

    Google+ photo

    You are commenting using your Google+ account. Log Out / Change )

    Connecting to %s


  • FairTrade in pictures

  • Recent Posts

  • Archives

  • Founded in 2001, the Fair Trade Alliance (FairTrade) of the Philippines is a broad multisectoral coalition of formal and informal labor, industry, agriculture, NGOs and youth pushing for trade and economic reforms.
  • FairTrade seeks to promote a job-full and progressive Philippine economy through: (1) the promotion of fair trade rules and active agro-industrial policies based on the existing development needs of the nation, (2) the development of a positive agro-industrial culture to foster innovation, hard work and solidarity between and among the productive sectors of Philippine society, and (3) the transformation of an economy debased and stunted by colonial mentality, unequal trade and neo-liberal dogma into a modern, sustainable and broad-based.
  • Fair Trade Alliance (FairTrade)
    3/f Philippine Rural Reconstruction Movement (PRRM) Headquarters
    #56 Mo. Ignacia cor. Dr. Lascano, Quezon City, The Philippines
    (+632) 372 49 91 to 92 local 30
    (+632) 372 39 24
    fta[at]fairtradealliance.org

    FairTradeWeb is powered by Wordpress, MediaMax, MediaFire, Yahoo!, FeedBurner and Flickr.

  • Subscribe in Bloglines


%d bloggers like this: