EO 135: Good economic and commercial sense
Decree No. 135 (OE 135) issued last week by President Rodrigo Duterte lowered tariff rates on rice imported from countries outside of the Association of South Asian Countries. Is (Asean) 40 to 35 percent for the MAV in quota and 35 percent for the minimum access volume (MAV) out of quota. Immediately, a group of farmers said it was a “stab in the back of the rice farmers”. Opposition senators, getting their usual argument wrong from this group of farmers, immediately called for a Senate hearing on the matter.
Beyond politics and propaganda, the OE 135 broadcast makes good economic and business sense.
As part of the Asean Trade in Goods Agreement (ATIGA) signed in 2009, ASEAN member countries have committed to liberalize trade in goods within the regional bloc by lowering customs duties. on products marketed in the region. For rice, the tariff level was set at 35 percent regardless of whether the imported rice falls under the in-quota VAC or the out-quota. Outside of ASEAN, the imposed tariff is 40 percent for quotas and 50 percent for non-quota. But since the MAV in the quota is limited in quantity, the most relevant rate for discussion is the tariff level of 50 percent.
In the Asean region, the main rice producers are Vietnam, Thailand and Myanmar. Outside the region but still in Asia, the leading producer / exporter is India.
The Philippines imports an average of 1.8 to 2 million metric tons (MT) of rice per year, largely depending on whether our crop is affected by successive destructive typhoons that visit the country each year or by sporadic occurrences of pests and of rice diseases. We get about 90 percent of our rice import requirements from Vietnam because it offers the cheapest prices for 25 and 5 percent broken rice, which is the rice grade preferred by our consumers.
However, the 2019 coronavirus disease pandemic (Covid-19) is radically changing the global rice situation, as it is doing with other agricultural products. And this is the main reason why our rice import policy needs to be rethought and OE 135 has brought this rational thinking to the situation.
Tariff protection always maintained
Note that the EO 135 did not completely eliminate tariff protection on rice. It simply aligned the higher tariff rate imposed on rice from India with the current tariff level imposed on imports of rice from Asean at 35 percent. Why do we have to do this?
First of all, as mentioned earlier, about 90 percent of our rice imports depend on one source, Vietnam. So, in case any event has a negative effect on rice production in Vietnam, it will have serious implications on our rice needs. This was clearly demonstrated in the first months of the Covid-19 pandemic last year, when Vietnam decided to temporarily halt its rice exports. We were in panic mode during this time knowing that we would not have enough rice to feed our consumers and that rice prices would skyrocket due to the shortage of supply. Rice pila would become ubiquitous again, giving the impression that the country was suffering from a serious food shortage.
Therefore, diversifying our rice import market not only makes good economic and business sense, but is also in line with our national security interests, as a food shortage will inevitably trigger social unrest.
Rising global prices and access to vaccines
The second factor to note why EO 135 is an economically sound policy is that the prices of rice on the world market are increasing. While Vietnamese rice was below $ 400 per metric ton a year ago, it is now a little below the $ 500 mark for 25 percent broken and above $ 500 per ton for 5 percent broken. In contrast, Indian rice of the same quality is less than $ 500 per tonne for 25 percent and 5 percent broken.
Unfortunately, it is not worth importing Indian rice because the 50 percent tariff imposed on it and its higher shipping costs (because India is further from the Philippines than Vietnam) make the price of Indian rice less competitive than the price of Vietnamese rice. The only way to address the price disparity is to lower tariffs to 35 percent to allow cheaper Indian rice to enter our market.
Third, India is one of the largest producers of vaccines in the world, including those against Covid 19. The reduction in tariffs on Indian rice exports sends a good signal to the Indian government that we are prepared to forge stronger commercial relations with him. It is also possible that with this gesture of goodwill for their rice farmers and traders, we can convince the Indian government to place us in the priority list of countries that will receive vaccines from India. In addition, we also need to access the huge Indian market as a counterpoint to China.
Finally, the estimate of tariff revenue abandoned from the reduction in tariff rates on Indian rice is at best hypothetical and at worst methodologically flawed. It was derived by calculating the revenue that will be lost if the tariff is reduced from 50 percent to 35 percent on Indian (or non-Asian) rice imports. First, why do our traders import 50 percent rice from India when they know that rice from Vietnam and Thailand is taxed at a 35 percent lower tariff rate? It will certainly make them lose money.
Demand is primarily a function of price and a projected demand cannot be realized if the price is not competitive because traders will not find it profitable enough to engage in such importation. In other words, estimating the income lost as a result of reducing tariffs from 50 percent to 35 percent for importing Indian rice is like “counting the chicks before they hatch”, but this times there are no chicks to hatch.
Analysis of a critical policy issue such as EO 135 (and other previous measures) should not proceed from a purely sectoral perspective. This will result in biased policy measures favoring stakeholders in the sector but not necessarily the vast majority of the population. For example, the high prices of rice and pork will greatly benefit producers and traders of these agricultural products, but will hurt the majority of Filipino consumers, many of whom now go hungry due to loss of jobs and poverty. decrease in income.
Unfortunately, the vast majority of consumers are unorganized and boisterous as vested producers and interest groups who have the resources and time to devote to their propaganda work. It is therefore incumbent on our legislators to determine which policy should be pushed and supported, knowing that the cardinal principle in the development of policies is “to obtain the greatest benefit for the greatest number of our peoples”.
And for those who oppose OE 135, they certainly deserve a reward from the Vietnamese government as maintaining the current tariff rates on rice imports will undoubtedly favor Vietnamese rice exporters as it practically maintains their monopoly hold. on Filipino rice import requirements.