BUSINESS leaders and economists on Tuesday sounded the alarm against government plans to raise tariffs on certain imports to refill its coffers. Their word of caution to government: importers will just pass on additional costs to consumers already reeling from lost income.
In interviews with the BusinessMirror, members of the private sector and the academe agreed that this might be the worst time to increase tariff rates on imports, particularly on basic goods and medical products. They argued that any additional cost to importers will likely just end up getting passed on to buyers.
In a television interview, Trade Secretary Ramon M. Lopez said the government is studying the option of raising tariffs on specific imports to generate revenue—a move many economists are expecting to occur in a time of crisis like this.
“We are considering, but that’s still being studied right now,” Lopez disclosed, when asked if the government is looking into increasing import duties right now. “If at all, it would be minimal tariff to raise funds. [It is] under study right now. It’s not for protectionism; it is simply to raise some revenues for the government.”
Former Tariff Commissioner George N. Manzano warned the government to go slow with such plan, especially at a time that poor households are in need of essentials and health workers lack personal protective equipment (PPEs).
He said “basic consumer items that are consumed by the general population, especially the poor,” should be spared any tariff increase. Further, import duties on medicines, PPEs and medical products—all crucial in the fight against Covid-19—should remain the same, he added.
Double-edged sword
Likewise, American Chamber of Commerce of the Philippines Executive Director Ebb Hinchliffe said that hiking tariff rates could be a double-edged sword to the economy.
On one hand, it is an easy way for the government to generate cash that it can utilize to bolster its Covid-19 health efforts and social services. On the other hand, importers can just pass on additional costs to consumers; therefore, making it inflationary.
“We all recognize the need to refill the coffers, but usually if the cost of higher tariff is passed on to the consumer by the importer, this could be inflationary,” Hinchliffe said.
Similar to Manzano, Hinchliffe said the government should spare food and pharmaceuticals from any extra tariffs. As well, he added on the list the inputs that semiconductor firms need to assemble electronic parts, the country’s largest export product.
In a meeting last week, World Trade Organization (WTO) members also voiced out concerns on protectionism, which is the expected response of many states in response to the still-growing impact on industries and on jobs of the coronavirus pandemic.
According to estimates by the International Labour Organization, about 25 million workers worldwide are at risk of going jobless due to the economic impact of the pandemic. This effect on employment could be a driving force enough for governments to impose policies that would protect their own industries but to the detriment of free trade.
David Walker, chairman of the WTO’s General Council, said in the meeting that markets must remain open in order to facilitate the flow of essential goods, particularly medical products, as well as agricultural and food items.
WTO Director General Roberto Azevedo also called on members to resist enforcing policies that may further contribute to the disruption of supply chains. He said that for the world economy to restart, states should uphold the rules and values of the multilateral trading system.
Apart from the plan to raise tariffs, Lopez announced that the government is adopting a policy mandating contractors of public infrastructure to source construction materials from domestic manufacturers in order to stimulate demand.
“Sometimes, you don’t have to give subsidy or support in cash. You only need to give them the demand, the market for their products, and they will live for another day,” Lopez said.
“Business and local employment will be strengthened [by this policy]. There has to be that kind of either a mindset or a policy guideline. Just to clarify, this is not for protectionism, but simply to stimulate demand for the economy and create jobs,” the trade chief added.
Lopez added that the government is on top of the standards compliance of manufacturers, and there is no reason for contractors to worry about the quality of locally made materials.
Most of the work in Metro Manila, as well as in many rural areas, is now allowed to resume, as the government last week decided to relax quarantine restrictions. Among those permitted to do business again are construction firms, particularly those in charge of infrastructure projects that are listed under the government’s “Build, Build, Build” program.
Image credits: Nonie Reyes and Nonoy Lacza
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