Part One
FREE trade does not equate to fair trade. In an ideal free-trade environment, the lone restricting barrier to exchange of goods should only be tariffs, or custom duties. But, before today, countries have imposed measures that have been counterproductive to trade. See related story on A10.
These barriers were called as nontariff measures (NTMs) or nontariff barriers (NTBs). According to the World Trade Organization (WTO), these measures include ambiguous import licensing systems, stringent sanitary regulations, import prohibitions and import quotas.
The most common form of NTM applied by countries to protect its local market is import quotas, or technically called quantitative restrictions (QR). The WTO defines QR as “limits imposed on the volume or value of goods traded by a WTO member.” The Organisation for Economic Co-operation and Development (OECD) defines QR as “specific limits on the quantity or value of goods that can be imported [or exported] during a specific time period.” The Philippines was not different from the countries that imposed QRs on its goods, particularly agricultural commodities.
“At the time, by the 1980s, in the middle of the martial-law regime, any commodity you can think of were subjected to QR—garlic, corn, all kinds of vegetable, cigarettes and sugar were all under QR,” Economist Dr. V. Bruce J. Tolentino of the International Rice Research Institute (IRRI) said. “You cannot import them without a license from the government, which will determine how much you could import.”
Between the years 1980 and 1994, most of the agricultural commodities were eventually liberalized, leading to the scrapping of their QRs due to the development of global free trade market. One commodity persisted to retain its market protection: rice.
Free trade
THE General Agreement on Tariffs and Trade (Gatt) was signed by leaders of 23 nations in October 30, 1947, who sought to regulate international trade by reducing barriers through reduction of tariffs, quotas and subsidies.
The founding member-countries of Gatt were Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, the Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom and the the United States.
By 1982, the total number of Gatt member-countries would exceed more than a hundred. By that year, member-countries were alarmed by trade issues revolving around nontariff barriers—particularly the implementation of import quotas—and giving subsidies to produce agricultural goods.
The issue on NTBs gave birth to the eighth Gatt round, known as the “Uruguary Round”, in September 1986. The culmination of the Urugay Round, which was panned for at least eight years, resulted in the signing of the Marrakesh Agreement in April 1994.
The signing by more than 120 nations, including the Philippines, of the Marrakesh Agreement paved the way for the creation of the WTO, which replaced the GATT in 1995.
The Marrakesh Agreement resulted in series of deals, including the agreement on agriculture (AoA). The AoA intensified the implementing measures in the trade of agricultural goods among WTO member-countries. In essence, the AoA also led to the general elimination of QRs among member-countries as mandated by Gatt.
Elimination of QR
UNDER Article XI of the GATT, all forms of quantitative restrictions must be eliminated by WTO member-countries.
“No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party,” Article XI of the Gatt read.
Meanwhile, Article 4.2 of the AoA mandates that all members of the WTO “shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties” except for defined circumstances.
The conversion of a nontariff barrier into tariffs is commonly known as “tariffication”, the WTO said. Being the inventor of the word, the WTO defines tariffication as replacing agriculture-specific nontariff measures with a tariff rate equivalent, which afforded an equivalent level of protection.
In terms of tariffs, member-countries are mandated to set their “bound” tariffs or bindings to the WTO, which corresponds to the maximum level of tariffs that a certain member-country could impose. Upon its creation in 1995, the WTO has also required its members to reduce tariff of respective countries over the following years.
“On the market access side, the Uruguay Round resulted in a key systemic change: the switch from a situation where a myriad of nontariff measures impeded agricultural trade flows to a regime of bound tariff-only protection plus reduction commitments,” the WTO said.
Philippines accession
WHEN the Philippines acceded to the WTO by signing the Marrakesh agreement, it subjected its agricultural commodities to liberalization. This meant the Philippines should convert all its NTBs into tariff rate equivalents.
“The Philippines acceded to the WTO in the belief that its membership [in] the rules-based body would bring about economic benefits, primarily to the rural sector, through increased efficiency of industries required by exposure to global competition,” Economist Donah Sharon Baracol wrote in her case study for the WTO of the Philippines’s agricultural policy formation. “Jobs were promised and new industries were expected to emerge.”
However, before the Uruguay Final Accord was signed at Marrakesh in 1994, the Philippines secured approval to instead avail itself of the special treatment annex in the AoA, according to economist Ramon L. Clarete.
The Philippines availed the special treatment clause to protect the local rice industry from cheaper rice imports from other Southeast Asian countries, such as Vietnam and Thailand.
The Philippines succeeded in invoking Annex 5 of AoA, securing a 10-year special treatment on rice, allowing Manila to keep its QR on rice until 2005. Complying to the provisions of the AoA, Manila instituted the minimum access volume (MAV) scheme in rice imports.
“Under a MAV scheme, a relatively low tariff rate was imposed on imported sensitive agricultural products up to a minimum import level [the so-called in-quota tariff rate], while a higher tariff rate was levied beyond the minimum import level [the so-called out-quota tariff rate],” the WTO said.
The Philippines’s accession to WTO was ratified through Republic Act 8178, or the Agricultural Tariffication Act. The law mandates the conversion to tariffs of all QRs on agricultural commodities except for rice.
Since then, the Philippine government has eyed to achieve rice self-sufficiency by exploring various programs to improve the rice sector’s competitiveness. These attempts range from distribution of high-yielding rice varieties, mechanization of rice sector, improvement of irrigation systems, construction of farm-to-market roads and establishment of post-harvest facilities.
Despite these, the government failed to achieve the ambitious rice- sufficiency target. The consecutive failures in preparing the rice sector to become competitive to its Asean counterparts resulted in the extension of the Philippines’ right to QR before the WTO.
Agriculture Undersecretary Segfredo R. Serrano said the QR on rice serves as a protection against trade distorting measures imposed by foreign countries. Serrano explained that rice sectors of foreign countries, particularly those rice-exporting ones, such as Vietnam, are heavily subsidized by the government.
“[The importance of QR] is that you are sealing your Filipino farmers from foreign competition,” Serrano told the BusinessMirror. Serrano, added that exposing farmers “to such heavily subsidized and supportive competition” would be disadvantageous.
“Trade must be fair,” he said. “Trade is not just a game of exchange of goods and services—it also has an impact on livelihoods.”
To be continued
Image credits: Nonie Reyes