A farmers group is urging the Senate to empower the President to hike applied tariff rates on rice imports when there’s an oversupply of the staple to prevent planters from incurring losses.
In a letter submitted to senators, Federation of Free Farmers (FFF) said a provision that allows the President to increase rice import tariffs should be included in the Senate’s rice tariffication bill.
Senate Bill (SB) 1998, which seeks to convert the quantitative restriction (QR) on rice into tariffs, allows the President to cut tariffs when there’s a shortage.
“Notably, Section 7[a] of SB 1998 envisions only a case where the President can temporarily lower tariffs on rice imports in case of an impending rice shortage,” FFF National Manager Raul Q. Montemayor said in the letter, a copy of which was obtained by the BusinessMirror.
“It does not contemplate a situation where the applied tariff is lower than the bound rate, and the President may deem it proper to increase the applied tariff to address, say, an abnormal surge in imports or a drastic decline in import prices,”
Montemayor added.
The House version of the rice tariffication bill permits the President to cut or raise rice tariff rates, depending on the prevailing market condition. This provision, Montemayor said, would make it easier for government to protect the local rice sector from import surges.
Under SB 1998, the Philippines would impose special safeguard duty (SSG) on rice imports based on the provisions under Republic Act (RA) 8800, or the Safeguard Measures Act, which was patterned under the rules of the World Trade Organization (WTO).
Under the WTO Agreement on Agriculture (AoA), a SSG on imports could be applied when there is an import surge or the landed cost of imports falls below a trigger price.
Montemayor pointed out that there is “practically no possibility” for the country to impose a price-based SSG, as the trigger price for rice imports was pegged at P4.56 per kilogram, lower than the P22 per kg landed cost of imported rice.
‘Ineffective’
As for volume-based SSG, Montemayor flagged the delayed data collection on imports, which could hamper the use of such trade remedy. A volume-based SSG is applied when imports in a given year exceeds the preceding three-year average import volume for the commodity.
Montemayor said the imposition of general safeguards may not protect local farmers, as it would take time to take effect due to its “rigorous” process.
Under the RA 8800, the government could impose additional tariffs and even reintroduce QRs if there is proof that a domestic sector has been harmed by imports.
The effectiveness of this process to “promptly address problems arising from excessive or unduly cheap rice imports” is “doubtful,” according to Montemayor.
“In general therefore, we cannot rely either on the SSG or the general safeguards to promptly and effectively address problems that may arise in the future. Adjustments in tariff rates, by comparison, are much easier to implement and can have immediate effects,” he said.
“A high bound tariff, and judicious adjustments in applied tariffs, will give government the maximum leeway to handle any situation,” he added.
Bound rate
FFF is also pushing for the adoption of a 180-percent bound rate on rice imports instead of 50 percent under the Senate’s version of the bill.
Montemayor said a 50-percent bound rate or lower would limit government’s policy options. He noted that tariff adjustments on the applied rate would be limited to the bound rate, as it serves as the ceiling of duties. The bound rate is the maximum tariff rate that a country could slap on a commodity.
Also, a low bound rate would mean lower additional tariffs as a special safeguard measure against import surge or price depression.
Citing WTO-AoA, Montemayor said a country could only impose additional tariffs equivalent to one-third of its bound rate.
This means that at a 50-percent bound rate, the country’s total applied tariff rates with SSG would only be 57 percent compared to a total tariff rate of 133 percent at a bound rate of 100 percent, Montemayor said.
House Bill 7735, or the Revised Agricultural Tariffication Act, followed the recommendation of the Department of Agriculture (DA) as it adopted a bound rate of 180-percent on rice imports.
The DA said it could defend the 180-percent bound rate, which was computed using WTO legal texts as basis, before the country’s trade-partners.
Montemayor also noted that under WTO-AoA, a country that failed to convert its QR into tariffs upon the cessation of its special treatment would have to implement a 15-percent tariff reduction.
“Depending on whether the ‘15 percent’ is interpreted in absolute or relative terms, this means that our starting tariff, if we adopt a tariff equivalent of 50 percent, will have to be either 35 percent, or 42.5 percent,” he said.
“In comparison, the DA has maintained that it has the data to support a 180-percent bound rate that is already net of the 15-percent reduction mandated by [WTO-AoA] Annex 5,” he added.
Under SB 1998, the bound tariff for rice would be 50 percent, or the tariff equivalent as computed by the National Economic and Development Authority based on the formula in Annex 5 of the AoA, whichever is higher. Montemayor said this provision “is not legally tenable under WTO rules.”
“For as long as we can defend it at the WTO, it is perfectly legal and it will provide our government with the maximum policy space to react to, and address, market contingencies that may arise in the future,” he added.