No need to apologize for tariffication bill

"It’s a sound proposition."

Reading the media reports on the passage by both chambers of Congress of the rice tariffication bill, one gets the uneasy feeling that the approving legislators and the Duterte administration’s economic managers are apologetic—somewhat, anyway—about their espousal of the bill.

Why should they feel apologetic? The bill, when signed into law by President Duterte, will simply change the basis upon which rice is brought into this country. Hitherto rice, the staple food of most Filipinos, has been brought into this country through transaction—between the Philippine government and other government—undertaken on the basis of quotes. Once the tariffication law is in effect, (1) the quota system will be replaced by a two-rate tariff system—one rate for rice imports from ASEAN (Association of Southeast Asian Nations) countries and another, higher rate for imports from non-ASEAN countries—and (2) private importers will be able to bring rice into this country. A quota system replaced by tariff, which are in essence taxes; those are the only changes that will take place.

Why do I say that the congressional supporters of the rice tariffication bill and the Duterte administration’s economic managers appear to be apologetic about the pending implementation of the Rice Tariffication Act? Because of three propositions advanced by them, including the chairperson of the Senate committee on agriculture.

The first proposition is that tariffication will necessarily result in a lowering of the inflation rate as measured by the consumer price index. How this will come about has not been explained by the tariffication advocates in their rice import decision making, traders will be guided by the state of the rice marker, bringing foreign rice into this country only when consumption and supply conditions are conducive to profitable operations. They will not import rice when the market is awash with the staple and they will rush to import rice when they perceive an impending shortage of it. Rice imports in government-to-government transactions are priced with market price behavior in mind. So will tariffied rice imports automatically bring about a decline in inflation? The Filipino people should not be made to develop false expectations.

The second proposition advanced by the Rice Tariffication Act’s advocates is that tariffication will lead to a flooding of the market with imported rice, causing rice prices to collapse, causing great damage to Filipino farmers. This proposition is absurd. Why would rice traders import rice in volumes calculated to bring about sharp declines in rice prices? What would they stand to gain from such a change in market conditions? Poor Filipinos will of course benefit enormously from rice price reductions—that would be most welcome from the poverty-reduction standpoint—but is that the principal motivation underlying traders’ decisions to import rice? Unfortunately, it isn’t.

Finally, there is the proposition that Filipino rice producers stand to benefit from the farmer-support fund that will be established with the revenue generated by the rice tariffication law. A part of the fund will be used to finance farm equipment—including tractors and threshers—for Filipino rice farmers, a part will go toward low-cost credit to farmers and a part will finance expanded agricultural extension services to the farming communities. Those who are passionately interested in the progress of the Philippine agriculture should not hold their breath. The benefits being promised to Filipino rice farmers by the Rice Tariffication Act have again and again been promised to them—was an Agriculture and Fisheries Modernization Act not passed in 1990s? Still, adequate and consistent government support has long eluded this country’s farmers. And I dare predict that it will likely elude them in the coming days.

Rice tariffication is a sound economic policy change, and it serves to fulfill a national obligation to the WTO (World Trade Organization), which prohibits merchandise trade quotas. It can stand on its own. It is justifiable.

It needs no apology from its proponents.