THE Philippines’ chronic struggle to come to grips with its reliance on rice as a primary staple of both the economy and the Filipino diet heated up a bit this week with the declaration by the Duterte administration that it intended to let the quantitative restriction (QR) granted by the World Trade Organization (WTO) on rice imports lapse on schedule in June next year, rather than ask for another extension of the exemption.
QR is a rule that limits the amount of rice allowed to enter the country under WTO rules, which are byzantine in their complexity. QR allows the government to establish a Minimum Access Volume (MAV) – 805,200 metric tons – that can be imported at the WTO tariff rate of 35 percent; above that amount, the tariff rate is 50 percent, and any import shipments are subject to prior approval by the National Food Authority (NFA).
In practice, the NFA will announce the MAV is “open” sometime in the third quarter of the year (that happened earlier this week), and will specify the quality specifications of acceptable imports, and the gross amount that can be imported from different countries. For this year, for example, importers can source up to 293,100 metric tons each from Vietnam and Thailand, 50,000 metric tons each from China, India, and Pakistan, 15,000 metric tons from Australia, 4,000 metric tons from El Salvador, and 50,000 metric tons from any source.
These imports differ from the imports arranged by the NFA for buffer supply. Recently the agency awarded contracts for 250,000 metric tons of imports from Vietnam and Thailand, but these were under a government-to-government arrangement, outside of the MAV and normal tariff scheme.
Finally, allowing the QR – which was scheduled to end in 2014, but is now on its third extension – to lapse, will remove the MAV. When that happens, any amount of rice may be imported to the Philippines at the 35 percent tariff rate. The tariff could drop in the future, depending on tariff adjustments that the Asean Free Trade Agreement might allow. Currently, rice is on the regional agreement’s “sensitive list” of products that are exempt from progressive reduction of tariffs.
The point of view of the government, as expressed by the socioeconomic planning secretary and NEDA director-general, Ernesto Pernia, is that letting QR lapse will achieve three things: first, it will make less expensive rice available to Philippine consumers, since most imported rice, even with the imposition of a fairly stiff tariff, is cheaper than domestic rice, which is the region’s most expensive; second, it will force Philippine producers to be competitive; and third, it will enhance the country’s image if the Philippines does not ask for another extension of QR.
“It’s not good to extend it for the fourth time. It doesn’t make us look good if we keep on extending,” Pernia said.
Protectionist-minded groups like Samahang Industriya ng Agrikultura (Sinag) are obviously not happy about the government’s intentions, and claim that farmers will be priced out of the market by “a flood” of cheap imports. Pointing out that government claims of price advantages for consumers have never materialized with other agriculture commodities (such as garlic), there is no reason to believe an advantage will be gained by allowing greater rice imports.
What Sinag would like to see instead is more government support for the country’s rice sector, including subsidies up to five percent of the value of annual production (some regional competitors subsidize rice at 10 percent or more), while maintaining import restrictions for as long as the Philippines can get away with it.
On balance, the agricultural activists are probably more realistic in their outlook than the government is; given the current state of the rice sector in this country, competition from outside is not going to encourage development, it is going to bury most of the domestic producers. In geography alone, the Philippines will never be able to match Vietnam, Thailand, India, or even Bangladesh, all of which have the benefit of wide river plains for cultivation. And while direct subsidies are an arguably bad idea, development and production support are not, and that is one area in which the government of the Philippines has fallen short for decades.
What we may be seeing is a bit of a political pragmatism in action with what everyone thought was a left-leaning government’s rather strident insistence on dropping QR. The reality is that “rice populism” in places like Thailand, and to a lesser extent in South and Central America, has proven to be problematic for its proponents – just ask Yingluck Shinawatra how that worked out for her. For all its “rock star” image back home, the Duterte government has to find a way to fit in with the rest of the world if it wants to be comfortably in power and keep the economy humming along at its present respectable pace. That means playing along with the international trade framework.
That reality is going to be disappointing to many people, and maybe it should be – but reality it is, nonetheless.