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Tariff cut extension can ease economic pressure

PRESIDENT Ferdinand Marcos Jr.’s decision to extend temporary tariff reductions on imported pork, rice, corn and coal was perhaps a choice that he and the country would rather he did not have to make, but it was a good call. In fact, it was the only choice the President could make, under the circumstances. The other option, letting the tariff cuts expire and increasing the level of protectionism for our faltering agriculture sector would guarantee further supply and price pressures, whereas extending the lower tariffs at least offers the prospect of lessening the burden on Filipino consumers.

President Ferdinand Marcos Jr. delivers a speech during the command and retirement ceremony of Philippine Air Force chief Lt. Gen. Connor Anthony Canlas Sr. at the Villamor Air Base Gymnasium in Pasay City on Tuesday, Dec. 20, 2022. PHOTO BY J. GERARD SEGUIA President Ferdinand Marcos Jr. delivers a speech during the command and retirement ceremony of Philippine Air Force chief Lt. Gen. Connor Anthony Canlas Sr. at the Villamor Air Base Gymnasium in Pasay City on Tuesday, Dec. 20, 2022. PHOTO BY J. GERARD SEGUIA
 

Over the weekend, Malacañang announced that the President had approved an extension of the validity of Executive Order 171 up to Dec. 31, 2023. EO 171 was issued by outgoing President Duterte early this year, and reduced duties on pork, corn and rice; it was originally due to expire on December 31 this year. Likewise, reduced tariffs on coal imports also implemented by Duterte will continue, likely beyond the end of next year, the Palace said.

Under EO 171, tariffs on pork remain at 15 percent for amounts within the import quota and 25 percent for amounts over that; corn at 5 percent and 15 percent, respectively; and rice at 35 percent. Import duties on coal remain at zero percent.

With respect to coal imports, the continuing exemption from tariffs simply removes a factor that aggravates already high fuel prices — largely a consequence of the Russian invasion of Ukraine — which in turn has led to higher electricity costs. The government cannot control coal prices, but it can at least eliminate tariffs that add to them, and not make an uncomfortable situation worse.

The continuing tariff reductions on the agricultural commodities are a bit more contentious. Following the President’s decision, agriculture groups including the Philippine Chamber of Agriculture and Food Inc., the Federation of Free Farmers, and the Samahang Industriya ng Agrikultura (Sinag) bitterly criticized the move.

The tariff reductions have not reversed “skyrocketing” food prices, the groups said, and would “result in the killing of our local production of pork, corn and rice industries.” The groups even claimed that there is an oversupply of pork, making a tariff reduction unnecessary, and that “[t]he basis and rationale of EO 171 miserably failed as even NEDA (National Economic and Development Authority) acknowledges it.”

Supply problems

For the record, NEDA did not acknowledge that EO 171 had “miserably failed,” but instead endorsed the draft EO last Friday before President Marcos signed it.

The main impetus for the reduction of tariffs in the first place was the inability of local production to provide sufficient supply; it is true that food prices have remained elevated, but they would likely be much worse if imports were not increased. The examples of price and supply problems with other commodities not covered by EO 171, such as sugar and onions, is evidence enough of that. As for pork, the continuing outbreak of the African swine fever (ASF) in some parts of the country has seriously constrained supplies, despite the agri groups’ claim. As one example, several provinces recently banned the shipment of pork and pork products from ASF-affected Panay, creating supply bottlenecks just ahead of the busy holiday season.

Certainly, the country should not lose sight of the critical priority to ensure its own food security. Facilitating more imports should never be considered a solution to that challenge, but rather a stopgap measure, albeit one that may have to be implemented for longer than we might wish, to prevent more widespread economic hardship. As protectionist measures alone have been clearly demonstrated to do nothing to solve agriculture’s real problems of low productivity, inefficient and imbalanced supply chains, and as a consequence of both, low incomes, there should not even be a debate over import measures.

Rather, the time those measures afford should be used wisely to intensify efforts to solve the agriculture sector’s chronic shortcomings. Rather than merely repeating criticisms without offering alternatives, the disaffected agricultural groups should work more closely with the government to define what they need to make imports at any level of tariff protection ultimately unnecessary. That, after all, is food security.

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