Rebuilding the nation’s fences*

Rene E. Ofreneo, Ph.D., Executive Director

As the good American poet Robert Frost put it, ‘good fences make good neighbors’. They are also essential in building strong economies.

Fences that are too high are a signal that one does not intend to do business with the outside world. They also nurture complacency and inefficiency among the protected sectors. Thus, in the early l960s, when then President Diosdado Macapagal abandoned the rationing of the nation’s foreign exchange earnings to ‘new and necessary industries’ in favor of the IMF’s ‘decontrol’ program and the establishment of uniform high tariff walls, the economy slowed down and the bullish local industry turned anemic.

On the other hand, fences that are too low are an invitation for foreign conquest. Since 1980, when the country adopted a radical tariff reduction schedule under the IMF-WB’s ‘structural adjustment program’ (SAP), imports of all types and sizes have flooded the archipelago, decimating many local industries. In the l990s, tariff cuts were even deepened and reinforced by the country’s liberalization commitments to the World Trade Organization (WTO) and the ASEAN Free Trade Agreement (AFTA).

The one-sided lowering of the nation’s tariff fences, way ahead of China, Thailand and many developing countries, has been an unmitigated disaster. The Philippines has become a net agricultural importing country, incurring an agricultural trade deficit amounting to $1 billion a year. Today, the country is importing virtually all its food requirements – rice, corn, poultry, livestock, vegetables, spices, wine, dairy products, sugar, confectionary, fruits, juices, cooking oil, flour and so on ad nauseam. The sterling performance of export pineapple, banana and mango cannot make up for the general weakening of over 90 per cent of agriculture and the steady decline of rural incomes in the last two decades.

As to industry, the sector has failed to expand despite the proliferation of electronic and auto assembly plants in Regions III, IV and VI. This is due to the ensuing collapse of the domestic producers of shoes, rubber, textiles, plastics, ceramic tiles, steel, electrical appliances, vehicles and so on. Even some multinationals such as Colgate and Johnson and Johnson have found it more attractive to dismantle their local manufacturing facilities and shift to import-and-distribute business. Overall, the Philippines is de-industrializing, while the rest of East Asia is rapidly industrializing!

The above developments have been aggravated by the bizarre way by which the laws on WTO valuation and safeguards have been interpreted and implemented, abetting technical smuggling and tilting the field against local producers. Imports are valued on the mere say-so of the importers, who pay low tariff and VAT tax, e.g., a pair of shoes valued at only P50.00 and paying less than P10 worth of duties and VAT. As to safeguards, this is allowed under the WTO. And yet, the Supreme Court, in a double-barreled attack against the home producers, sustained two debatable lower court rulings: one, removing the authority of DTI and DA secretaries to impose safeguard tariffs without a positive finding by the low-level Tariff Commission and two, affirming an importer’s prerogative to seek a TRO against a safeguard order on issue of constitutionality. The Philippines is the only WTO member country which has managed to clip its own power to impose safeguards against injurious imports!

What then should be done?

It is clear that one major task for the Filipino advocates of fair and just trade is to mount a battle for an equitable global economic order at both the home and international fronts.

In Hong Kong, the challenge is how to resist the demand of the developed countries to demolish the remaining tariff fences and restrictions protecting the economies of developing countries, while pushing for reforms in the unfair trade practices of the developed countries and for recognition of the right of developing countries to craft trade policies on the basis of their own development priorities. The Department of Agriculture is at least trying to do something, by joining the global demand for developed countries to phase out the latter’s trade-distorting subsidies of $1 billion a day and by pushing for the right of developing countries to have special products (SPs) that can be covered by more flexible tariff measures and special safeguard mechanisms (SSMs). Unfortunately, the government has no similar initiative for industry and it is not clear what is its stand on the US-EU demand for developing countries to open up their industrial (including fishery) and service sectors wholesale.

Of course, the developed countries have no problem demanding for deep tariff reductions, for their economies already enjoy high level of protection — high technological fences (through the intellectual property rights), high product and phyto-sanitary standards (which weed out unwanted imports such as what Australia is doing to our fruits), government’s industry assistance (subsidies, R & D, marketing support, etc.), advanced physical and social infrastructures, and political will in enforcing global trade rules (such as imposing safeguards on surging imports and sending back imports with questionable valuation).

In contrast, the Philippine problems are very basic – how to summon the will to admit past liberalization mistakes and how to forge a national consensus on rebuilding the nation’s fences and putting industry, agriculture and domestic employment back on the growth path.


* Article published in the Philippine Daily Inquirer “Talk of the Town” column on December 11, 2005.


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