By Cai U. Ordinario, Catherine N. Pillas & Jasper Emmanuel Y. Arcalas
ALL the world’s a market and every country merely merchants. Trade barriers abound, too, and the Philippines is both victim and villain.
Many times, shipments by merchants of Manila have failed to enter new markets. But other times, too, the country has also prevented goods, even from peers in the Asean, from entering the archipelago.
Experts, however, consider this the natural order of things. Some of them point to tariff, nontariff measures (NTMs) and nontariff barriers (NTBs) as elements playing in this order.
NTMs are based on science, such as sanitary and phytosanitary (SPS) measures that are put in place to prevent disease and infestation, and protect the country’s livestock and flora and fauna. But, as trade experts said, these NTMs can quickly become hurdles to trade known as NTBs.
“NTMs cover a broad area, and a subset of that is NTBs,” Jayant Menon of the Asian Development Bank (ADB) told the BusinessMirror. “If these measures are abused and raise trade costs, then they become NTBs.”
The Philippine Institute for Development Studies (Pids) distinguishes between NTMs and NTBs in goods trade. NTBs do not necessarily imply illegitimate measures nor are intended to have unnecessary restrictive implications on trade, as the World Trade Organization even allows some form of NTMs in some circumstances.
Not all NTMs are seen as “trade discriminatory” or “trade restrictive”, the PIDS pointed out.
According to the government think tank, some NTMs even encourage trade as it bolsters consumer protection and strengthens certification.
NTMs that are implemented with protectionist aims, however, are considered NTBs.
A PIDS study noted that, while tariffs have been near zero in Asean, a rising trend has been noted in the use of NTMs.
“To be sure, a majority of these NTMs are intended for justified reasons, such as sanitation and health, environment, security and consumer protection,” read the study, titled “Review of Intra-Asean Nontariff Measures on Trade in Goods”.
“However, there are also legitimate concerns that these NTMs are effectively mainly NTBs, which are more protectionists in nature,” it added.
Trade victim
IN March 2017 the International Trade Center (ITC) surveyed 1,149 firms by phone and 305 of them were interviewed face-to-face.
The results showed that 69 percent of around 750 NTMs considered by Philippine exporters as obstacles to trade are linked to the regulations set by the country’s trade partners.
Around 29 percent are linked to conformity assessments, such as product certification and testing, while 27 percent pertain to technical requirements, such as fumigation and labeling.
Certification and testing of products are hampered by the lack of facilities and, as such, are usually dependent on the accredited third-party entity. This causes delays in shipments, additional costs and “excessive administrative burdens”.
“These originate from partner-countries importing the goods, most commonly from the European Union [EU], for certification and testing, and the US, China and Asean for product certification, affecting processed and fresh-food products, furniture and handicrafts, and electronics products,” the report stated.
Further, Filipino exporters who send complex products, such as electronics, encounter problems in dealing with original design manufacturer products.
Philippine small and medium enterprises (SMEs) struggle with developing, testing and certifying that their “innovation is a significant roadblock to exporting homegrown products”.
The ITC said that while the Department of Science and Technology’s (DOST) Electronic Product Development Center was created to address this issue, the facility remain “underutilized”.
In terms of fumigation, this NTM is expensive but a “necessary evil” that exporters need to spend for. Exporters usually spend P5,000 to P10,000 per shipment of their products.
There are also partner-countries, such as Australia, that require the use of their accredited fumigation companies, which often charge higher costs for their services.
The study said that while labeling is subsidized or provided by clients, it is a problem because of the need to “develop, translate, produce and apply them,” which can be taxing on SMEs, particularly those exporting agriculture products.
“Labeling and translation requirements for agri-foods exports to the US, the EU, the Middle East and Asean, as well as garments exports to Chinese Taipei, are a big concern,” the study stated.
The study also said 24 percent are applied by the Philippines as export-related measures and mainly include clearance procedures, technical certifications and license permits.
“Private standards are included in the survey results and comprise 7 percent of obstacles, even though they do not fit the standard definition of NTMs,” the study stated.
Meanwhile, some 11 percent pertain to other burdensome regulations applied by the partner-countries, such as rules of origin (ROO). This refers to the need to certify that, indeed, a certain product is produced from a specific country.
The study said Philippine garments and processed foods are particularly affected, especially when they are being exported to the EU, Japan, the US and Asean markets.
Exporters, the study stated, encounter difficulties in complying with ROO documents, which cause delays and increases in shipment costs.
The ITC study stated that the Middle East, particularly Saudi Arabia, requires the certification and legalization of export-certification documents by the embassy. This sets back exporters by P4,000 per shipment.
In order to cut their losses, some firms prefer to bite the bullet and pay bribes. Expediting the approval of ROO documents “demands informal payments” from exporters, the study noted.
Trade villain
THE ITC said the Philippines is not that innocent when it comes to imposing NTMs of its own. Burdensome NTMs in the Philippines to imports are “skewed toward customs clearance procedures”.
The study findings showed that 54 percent had to do with import/customs clearances and another 13 percent are focused on customs valuation. Both of these NTMs, the ITC said, are prone to bribe seeking.
Import/customs permits, on average, takes three to four weeks to as long as three years to process, and “incurs many unnecessary penalties”. The ITC said there was one exporter they interviewed which had to pay a P100,000 worth penalty and waited two months before it obtained a permit.
“Although it was intended to curb smuggling and streamline the importing process by connecting all of the BIR’s [Bureau of Internal Revenue] internal departments together, it instead creates more red tape because each department now requires importers to submit additional requirements and previously unnecessary reports before the BIR approves the company for the certification,” the ITC said.
In terms of customs valuations, the ITC found that many of the country’s importers complain that the Bureau of Customs (BOC) imposes arbitrary import tariffs on goods.
There are also times when exporters from other countries are required to pay additional payments of up to P2,000 to P3,000 per BOC inspector. The ITC added these inspectors come in pairs, or even in threes.
The ITC said its staff interviewed a garments exporter who complained about the liquidation process for duty-free import of raw materials. The exporter lamented the process is “too tedious and involves too many documents, such as warehousing forms”.
In terms of import permits, firms in the chemical industry experience the most difficulty. Data showed that ensuring imported chemicals are not part of the list of 41 highly regulated chemicals requires five to seven permits and security escorts.
“This regulation has been present for a long time, but has only been enforced and abused by certain agencies in recent years, with reports of astronomical informal payments,” the ITC said.
Other NTMs imposed by the Philippines include “other entry” formalities, which comprise 13 percent; technical authorization, 9 percent; conformity assessment, 6 percent; and, other import measures, 5 percent.
Technical authorizations are costly and tedious, since these are done on a per-shipment basis. This is because agencies, such as the BOC, Department of Agriculture, Department of Environment and Natural Resources, and the Bureau of Fisheries and Aquatic Resources, require the notarization of supplier contracts from exporters.
“Import clearance, other entry formalities and technical authorizations, as the most challenging NTMs by rank, involve all types of POs [procedural obstacles] led by delays, too much paperwork, red tape and informal payments,” the ITC said.
Classification
THE United Nations Conference on Trade and Development, together with the Economic Research Institute, launched in 2015 a project classifying and collecting the NTMs across Asean.
According to their database, NTMs most used by Asean are export-related measures, SPS and technical barriers to trade (TBT).
Among these measures, the one that has been deemed as prone to become barriers by traders is the SPS.
“Some countries in Asean, I won’t name them, are still practicing issuance of import licensing in protecting their commodities. Likewise, in fruits, for example, they have SPS policies that are not clear in most cases, and [those] serve as protection,” Donald G. Dee, honorary chairman of the Philippine Chamber of Commerce and Industry, said in an interview.
The stringent measures in the entry of goods in other Asean nations, coupled with the Philippines’s own, perceived lax entry requirements put the country’s agricultural produce on the losing end.
“We’re more lax in fruit importation,” the businessman added. “We have to protect our fruit plantations and we’re trying to achieve some standards on this front, but we cannot achieve consensus.”
Transparency need
APART from the tedious process involved in meeting all the NTMs and the sometimes exorbitant costs they incur for both Philippine and foreign trader, the real problem with the NTMs still lies on the lack of transparency.
The Department of Trade and Industry (DTI) admitted as much when it said that NTMs are not readily available to the government, businessmen and the general public.
Information about these measures, the DTI said, are “dispersed” across different offices and agencies. At best, businessmen and the general public can “mine data” in these agencies to create their own list.
“In most instances, information may be available, but a lot of research and data mining would have to be undertaken to complete the whole list of regulations one has to comply with when trying to export,” the DTI said. “Regulations also change quite rapidly, and one has to be vigilant in monitoring these changes.”
Claims, assertion
TO promote transparency in NTMs, PIDS senior research fellow Erlinda M. Medalla and PIDS Project Development Officer Melalyn C. Mantaring recommended the creation of a comprehensive and updated database of the NTMs in the region and to establish a “robust mechanism” that will address the NTM issues, including harmonization of standards.
They also said there is a need for capacity-building to help firms, especially SMEs, to comply with SPS and TBT measures. For exporters, they said the first step is awareness of the applicable SPS and TBTs.
“The next is understanding how to comply with these requirements, and the third is where and how to proceed to comply. Capacity-building should, thus, include improvements, interesting laboratories and facilities, accreditation and certification,” the study read.
“Initiatives in Asean for transparency allow us to deal with them as they arise or when they change over time,” Menon said. “A lot of the NTBs can evolve, so there’s a moving target. If you address one type, it doesn’t mean you solved the problem; a different kind can emerge to replace that.”
At the Asean level, at least, there have been some headway in addressing NTMs and transparency, Menon, lead economist in the office of Regional Economic Integration at the ADB, asserted.
“Asean is proceeding with the building of a repository of NTMs and it increases the transparency,” he added. “That’s a good measure.”
The Asean trade repository initiative entails Asean member-countries to establish NTM databases in their respective countries in a bid to inject transparency on the “hidden” NTBs that countries may impose in trade.
The Philippines is seen as having complied with the initiative by establishing a National Trade Repository led by the DTI-Bureau of Import Services.
However, some sectors are asking for more action beyond Asean working groups and adapted by individual governments, especially now that the region is at the cusp of the Regional Comprehensive Economic Partnership (RCEP) agreement.
“RCEP is all about focusing on harmonizing rules and regulations, and these can go a long way in addressing these NTBs in the process of regulatory convergence,” Menon said. “A lot of NTBs relate to regulations and harmonizing them would significantly reduce trade costs and address major NTBs.”
But Dee said this is yet to be seen.
“At the working group level, Asean countries may be cooperating but when they go back to their own governments, they follow their own rules.”
Sealing farmers
THE Philippines imposes NTMs, such as QRs, to protect its local industries from unfair foreign competition. For one, the Philippines has been instituting a QR on rice for more than two decades now to “seal” farmers from competition with cheaper rice produced abroad.
“You’re ‘sealing’ Filipino farmers from foreign competition,” Undersecretary Segfredo R. Serrano told the BusinessMirror in an earlier interview. “We all know that the [global] trading environment is full of distortions. Do you think international markets are perfectly functioning?”
According to Serrano, agriculture undersecretary for policy and planning, countries like Vietnam, the US and EU members are imposing “subsidization or what OECD calls market price support.”
“If the foreign trade environment is like that—full of trade distortions—why will you not help the local farmers?” Serrano said. “Trade must be fair. Trade is not just a game of exchange of goods and services. It also has an impact on livelihoods.”
No guarantee
UNDER the General Agreement on Tariff and Trade (GATT), all forms of QRs must be eliminated by member-countries of the World Trade Organization (WTO). The elimination meant that WTO member-countries shall convert their respective NTMs into tariff rate equivalent which afforded the same level of protection or a process known as “tariffication”.
Some forms of QRs include import prohibition, quota allocation, nonautomatic licensing, minimum price-based QR, “voluntary” export restraint, seasonal restriction of QRs and export restrictions, according to the WTO.
However, Pids senior research fellow Roehlano M. Briones explained that converting a nontariff measure to a tariff rate equivalent will not really result in the same level of protection.
Briones explained the difference between the two measures lies in their respective ability to respond to changes in demand and supply.
“Tariff is an automatic mechanism to make the adjustments because you leave the decision to import in the hands of the importers and traders,” Briones said in an earlier interview. “You just give them a parameter called a ‘tariff’ and they make the choice if they are willing to pay the price in bringing in imported goods—whether it’s a million or a zero.”
NFA’s case
BRIONES explained that “a quota doesn’t have that”.
“A quota is a quota,” he said. “When the demand surges or the supply falls short domestically, and there’s a need to reconsider whether more imports are needed, that option is gone…[precisely] because of the structure of the policy, which is a quota.”
The case is true with the power vested on the National Food Authority (NFA). Under domestic laws, the NFA is the sole government authority mandated to regulate the importation and exportation of agricultural goods, particularly rice and corn.
The NFA implements the minimum access volume (MAV) commitment of the country to the WTO. The NFA determines whether it will be the private sector or the government itself that shall utilize the MAV allocation.
Furthermore, under Republic Act 7607 (Magna Carta of Small Farmers), the government prohibits all importation of agricultural products produced locally “in sufficient” volume.
This means that the country could only import agricultural goods whenever there is an established “shortage” for a certain commodity, according to Briones.
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