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Philippines[91]


1 Introduction

The Philippines is an archipelago composed of approximately 7 000 islands located at the southern coast of Asia between latitudes 4°23' north and 21°25' north and longitudes 116° east and 127° east. It has a total area of 300 000 square kilometres. Its climate is tropical with high temperatures, abundant rainfall and a high relative humidity ranging from 71 percent during the dry season to 85 percent during the wet season. Two distinct rainfall patterns characterize the Philippine climate; the wet or rainy season during the months of June to November, and the dry or hot season during the months of February to April.

Generally, Philippine terrain is mostly mountainous with coastal lowlands. Soils throughout the country are suitable for different crops and agricultural activities. The Philippine geographical landscape comprises three large islands (Luzon, Visayas and Mindanao). Although Luzon has a higher annual rainfall, it is more prone to drought because of its pronounced dry weather during the months of January to May. The Visayas and Mindanao islands have a lower incidence of droughts.

The Philippines lies in the typhoon belt between latitude 10° and 40° north. The northern parts of the country are most vulnerable to typhoons. Typhoons visit the archipelago on average 20-30 times a year, especially during the months of June to December. The typhoons are destructive to agricultural crops as they travel at more than 100 km/h. The southern part of the Philippines, up to latitude 8° north, is nearly free from typhoons, making the lands of nearly the whole of Mindanao exceedingly important to agriculture.

Agriculture is still a dominant sector of the Philippine economy. Although its contribution to GDP has declined from 24 percent during 1985-1990 to 20 percent during the 1995-2000 period, the sector contributed 46 percent to total employment during the pre-GATT-WTO period and 40 percent during 1995-2000.

Of the approximately 12 million hectares devoted to agricultural crops, the share of rice is 32 percent; coconut 26 percent; corn 21 percent; sugarcane, banana and coffee, 8 percent; and the remaining 13 percent shared by root crops, vegetables and fruit trees. Rice makes the highest single contribution to agricultural gross value added. In addition, the country is also a major producer of hogs, broilers, eggs (chicken, ducks and quail) and, to some extent, small and large ruminants. The hogs-poultry subsector has been a consistent source of growth in agricultural value added averaging 10 percent per year.

For the past five years, Philippine’s major agricultural exports, ranked according to FOB dollar value, include crude and refined coconut oil, bananas, centrifugal raw sugar and canned pineapple. Major food imports, however, consist of wheat, milled rice, powdered milk and food preparations.

The United States is the major market destination of Philippine sugar, refined coconut oil and canned pineapple exports, while Japan and the Near East are the market destinations for Philippine bananas. Australia and New Zealand are the major suppliers of Philippine powdered milk imports; the United States and Canada are suppliers of wheat; and Viet Nam, Thailand and China supply Philippine rice imports.

The Philippines has made great strides in instituting structural policy reforms in trade and the general economy in pursuit of sustainable economic development. These efforts developed a strong momentum after the First EDSA Revolution of 1986. The most notable of these reforms was the country’s formal accession to the WTO in 1995. Philippine agriculture, the dominant sector of the Philippine economy, which historically received the lowest sectoral protection rate before 1995, is now covered by the disciplines of the UR AoA. The practice of imposing quantitative restrictions on imports that compete with its sensitive products (e.g. rice, corn, onions, meat, etc.) had been the norm rather than the exception. It was understandable, therefore, that before the formal signing of the agreement in 1995 by the Philippines, strong protests were mounted by the major stakeholders who feared that the agricultural sector was the least prepared for open trade and that the agreement would “wreak havoc” on Philippine agriculture.

The Philippines is also a founding member of AFTA where trade reforms are a major focus in the region. As member of both the WTO and AFTA, Philippines is considered as an LDC rather than an NFIDC. Ironically, however, after the signing of the WTO agreement, the country has tended to be a net importer of food.

2 Experience with implementing the agreement on agriculture

2.1 Trade liberalization in the Philippines[92]

The first attempt of the Philippines in trade reform took place in the 1960s when decontrol became a policy, and import and export licensing was no longer required. The fixed exchange rate policy was ended, and the peso was devalued. Because of balance of payments problems, however, industry protection and import controls were imposed, increasing the number of regulated commodity lines from 1 307 in 1970 to 1 820 in 1980.

The second attempt at trade reform began in the 1980s, when a tariff reform programme (TRP) and import liberalization programme (ILP) were implemented as part of a structural adjustment programme. The TRP reduced tariff rates from 100 percent to between 10 and 50 percent. The ILP also reduced the proportion of restricted items from 20 to 24 percent. ILP was postponed by three years because of the economic crisis of 1983. Import liberalization resumed in 1986 mostly on industrial goods; agricultural export taxes were removed; fertilizer and wheat imports were also liberalized, but not for imports of agricultural commodities.

After the completion of the TRP in 1985, a new round of unilateral tariff reductions was implemented. Executive Order (EO) 470 in 1991 reduced the number of high-tariff commodity lines over a five-year period ending in 1995. EO 8 issued in 1992 removed QRs, which were replaced by tariffs. This was, however, reversed by the Magna Carta for Small Farmers Law, which required QRs on agricultural products grown domestically in sufficient quantities. Thus, in 1993, through Memorandum Order 95, QRs for corn, pork and poultry were restored, but not for beef and sugar.

One of the key features of EO 470 was the decrease in the number of high-tariff commodity lines and the increase in low-tariff commodity lines. The majority of commodity lines fell within the 10-30 percent rates.

Under the WTO, the Philippine tariff commitments for agricultural commodities have the highest rates of protection followed by textiles and metals (Table 1). The initial and bound tariffs for most sensitive agricultural products are within the range of 95-100 percent in 1995 and 1996. By the end of the agreement, bound tariffs for all sensitive agricultural commodities will fall within the range of 10-50 percent (Table 2).

Table 1. Tariff rates (%) under the AoA by commodity group, 1997-2000

Commodity group

1997

1998

1999

2000

Overall

12.47

9.73

9.51

8.20

Agriculture

19.62

14.50

14.33

13.26

Chemical

6.77

5.25

5.15

4.64

Textiles

14.43

12.56

12.52

8.89

Metals

14.85

10.37

9.62

9.02

Machinery

10.63

8.34

8.11

7.47

Mining

5.34

4.69

4.69

3.91

Manufacturing

11.48

9.09

8.84

7.48

Source: Philippine Grains Development Program Project Main Report, 1998. Vol. I. Draft final report, as cited by Mangabat (1998).

Table 2. Frequency distribution of tariff rates on sensitive agricultural products, 1995-2004

Tariff rates

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

10-30

1

1

1

1

1

1

1

1

1

1

35-50

23

23

36

36

44

44

44

44

90

90

55-70

14

14

9

9

51

5

1

51

0

0

75-90

8

8

50

50

0

0

0

0

0

0

95-100

50

50

0

0

0

0

0

0

0

0

Source: Philippine Grains Development Program Project Main Report, 1998. Vol. I. Draft final report, as cited by Mangabat (1998).

AFTA was organized in 1990 to address the possible trade effects from other regional trade agreements. The AFTA free trade mechanism is governed by the common effective preferential tariff (CEPT). Under the CEPT, each member country sets its preferential tariff on commodities coming from member countries at rates no higher than the MFN rates.

Products under the AFTA-CEPT scheme are classified into several categories: inclusion list, temporary inclusion list, sensitive list, highly sensitive list and general exception. Their levels of tariffs are directly proportional to their degree of sensitivity.

Finally, APEC, which was formed in 1998, is consistent with the downward adjustment of tariffs in the attainment of trade and investment liberalization, investment facilities, and economic and technical cooperation. The Philippine WTO bound tariff rates, the individual action plan of APEC member countries and the Bogar tariff commitments are all consistent in targeting zero tariffs by 2020.

2.2 Philippine commitments and compliance with the AoA

Two types of commitments were made by the Philippines in the AoA: external commitments of the Philippines in compliance with the agreement, and internal commitments to Filipino farmers. Philippine commitments to the external agreement included enhanced market access, removal of domestic support (13 percent reduction from 1995 to 2004 for trade-distorting support) and no use of export subsidies; tariffication of all QRs; prohibition of NTBs; minimum access volumes (MAVs) of 3 percent of 1986 to 1988 consumption for 1995 and 5 percent of 1986 to 1988 consumption for 2004; reduction in tariff bindings by 24 percent with minimum 10 percent cut per tariff line from 1995 to 2004; and plant variety registration and protection (patent or sui generis system).

For its internal commitments to farmers, the Philippines promised to provide an action and budget plan for UR adjustment measures (safety nets); enactment of appropriate legislation (e.g. Agriculture and Fisheries Modernization Act [AFMA]) to provide tariff reductions on inputs, as well as trade remedies to act as safeguards against import surges, injuries to domestic industries and dumping; reforms in the value-added tax for agro-processors; budgetary support to agriculture amounting to P73 billion from 1995 to 1998 under the UR Action Plan; and support for irrigation, P28.4 billion from 1995 to 1998 and P6 billion per annum from 1999 to 2004.

The assessment of Philippine compliance was substantial in terms of the external agreement but mixed and inadequate under domestic or internal commitments, and less than satisfactory under the AFMA (Habito, 1999).

2.3 Impact of AoA on the global competitiveness of Philippine agriculture

In the Philippine agricultural sector, the impact of the AoA was generally a decline in global competitiveness among sensitive Philippine agribusiness products, as shown by selected studies of the STRIVE Foundation (Gonzales, 1999; Gonzales et al., 2000). The global competitiveness of five agricultural products (rice, corn, beef cattle, hogs, broiler and eggs) was analysed in the pre-AoA (1994) and post-AoA (1999) periods under both import and export trade regimes using the resource cost ratio (RCR), as an indicator of global competitiveness. In the analysis, the agribusiness products were further disaggregated by levels of technology for rice and corn and degree of commercialization for the livestock and poultry products.

In general, the results showed that these agricultural products were competitive as import substitutes before the signing of the AoA, but such competitiveness was eroded subsequently (Table 3). Under an export trade regime, these commodities were generally not competitive before the AoA, and their non-competitiveness was subsequently further exacerbated. The major reason for this decline in cost competitiveness was due to the general “unpreparedness” of Philippine agriculture to face global competition.

2.4 Market access

As discussed earlier, trade reforms in the Philippines were unilaterally pursued in search of sustainable economic development. Agriculture together with the other sectors was a major component of the trade liberalization strategy, even before the country’s accession to the WTO.

Of the four major areas of concern of the AoA (market access, domestic subsidies, export subsidies and SPS measures), the major concerns of the Philippines are market access and SPS measures. In line with market access, the Philippines has removed QRs and converted them into tariffs, with the exception of rice. The tariffication law of 1995 or Republic Act 8178 provided for the establishment of MAVs and the creation of the Agricultural Competitiveness Enhancement Fund for the development of the sector, especially those agricultural commodities detrimentally affected by the AoA.

Table 3. Global competitiveness of selected Philippine agricultural products pre- and post-AoA

Agricultural product

Technology

RCRa

Before GATT-WTO (1994)

After GATT-WTO (1999)

Import substitution

Export promotion

Import substitution

Export promotion

Riceb

High technologyc

0.48

0.94

0.75

1.52

Medium Technologyd

0.81

1.53

0.83

1.69

Low technologye

1.19

2.30

0.91

1.96

Cornf

High technologyg

0.31

1.65

0.29

1.52

Low technologyh

0.39

1.92

0.56

2.87

Beef cattlei

Backyard

0.53

1.09

0.54

0.99

Commercial

0.52

1.13

0.51

0.95

Hogsi

Backyard

0.56

1.24

0.91

1.90

Commercial

0.42

0.99

0.46

1.03

Broilersi

Backyard

0.94

1.79

1.05

2.19

Commercial

1.06

2.01

0.98

2.02

Eggsi

Backyard

0.83

2.40

1.14

3.55

Commercial

0.73

2.12

1.20

3.81

a RCR is an indication of global competitiveness, if RCR < 1, competitive; RCR = 1, neutral; RCR > 1, not competitive, evaluated at the official exchange rate of P25/US$ before GATT-WTO and P40/US$ after GATT-WTO

b From “Trade Liberalization of the Philippine Rice Sector”, STRIVE Foundation, 2000 (wet season only).

c With palay yield of greater than 5.0 tonnes/ha/season.

d With palay yield of 3.0 but less than 5.0 tonnes/ha/season.

e With palay yield of less than 3.0 tonnes/ha/season.

f From the corn rapid appraisal surveys of STRIVE Foundation, 1999 (wet season only).

g With corn yield of 3.0 tonnes/ha/season or more.

h With corn yield of less than 3.0 tonnes/ha/season.

i From the “The Global Competitiveness of the Livestock and Poultry Subsectors Before and After the GATT-WTO”, STRIVE Foundation, 1999.

Source: Gonzales (2000).

Tariffs

The Philippines committed to bind tariffs on 744 agricultural lines. For agricultural commodities not enjoying QRs, the initial bound rate was 10 percent higher than the existing tariff rates. Table 4 contains bound MFN tariff rates for selected agricultural commodities under GATT-WTO. Take note that, for sensitive commodities, final tariffs were generally higher in 2004 than in 1995 before the AoA.

Table 4. Tariffs for selected agricultural commodities (%)

Commodity

Initial rate

Applied tariff rates

Final rate

1995

1996

1997

1998

1999

2000

2004

Beef








Inbound

30

30

30

30

20

10

30

Outbound

60

60

50

30

20

10

30

Pig meat








Inbound

30

30

30

30

30

30

30

Outbound

100

100

80

80

60

60

40

Poultry meat








Inbound

50

46

42

42

42

42

40

Outbound

85

88

72

72

55

55

40

Coffee








Inbound

50

50

45

38

38

38

40

Outbound

100

100

80

80

60

60

40

Maize








Inbound

35

35

35

35

35

35

35

Outbound

100

100

80

80

65

65

50

Rice








Inbound

50

50

50

50

50

50

50

Outbound

-

-

-

-

-

-

-

Sugar








Inbound

50

50

50

50

50

50

50

Outbound

92

92

75

75

62

62

50

Source: Department of Agriculture-Agile Project (1999).

Tariff rate quotas

The Philippines currently maintains tariff quotas for some agricultural products for which QRs were lifted. These include live animals (HS headings 0103 [swine]; HS 0104 [sheep and goats]; and HS 0105 [poultry]), pork (HS 0203), goat meat (HS 0204), poultry meat (HS 0207), potatoes (HS 0701), coffee (HS 0901 and HS 2101), maize or corn (HS 1005), and sugar (HS 1701).

Until 1997, the Philippines also maintained tariff quotas on bovine animals (HS 0101) and on beef (HS 0201 and HS 0202). The tariff quotas on these items were abolished when the applied tariffs on these items were markedly lowered below the in-quota rate, and the in-quota and out-quota tariffs were unified. This move reflected pressure from the domestic cattle industry for lower tariffs on live cattle as well as recognition that the input needs of meat processors cannot be met by the local cattle industry.

The MAVs of selected commodities under GATT-WTO are shown in Table 5, together with their corresponding utilization rates. Take note that, during the post-AoA period (2000), only corn, coffee beans and extracts, potatoes, chilled/frozen pork, and sugar had utilization rates higher than 25 percent. Utilization rates are generally higher where the domestic sensitivity of imports means that the MAV import ceilings are set at a low level.

Rice (HS 1006), by virtue of its exemption from tariffication under Annex 5 of the AoA, is covered by the MAV system, but the sole importer is the National Food Authority (NFA). Over the implementation period of the rice TRQ, the allocation has been subscribed fully on all years as the country’s annual imports far exceed the MAV volumes set for the year. Questions have been raised concerning the sole power of the NFA to import rice. The issue revolves around the tariff revenue foregone because of NFA’s trading activities. Tolentino (2002) estimated that the tariff revenue foregone from rice importation by the NFA was around P24 billion from 1995 to 2000.

Table 5. MAV utilization rates, Philippines, 1995/1996 to 2001

HS heading

Description

1995/96

1997

1998

1999

2000

2001

0102

Live bovine animals (head)

18 752

13 556

14 461

15 366

16 270

17 174

Percent utilization rate

0.0

0.0

0.0

0.0

0.0

0.0

0103

Live swine (head)

3 885

2 570

2 570

2 570

2 570

2 570

Percent utilization rate

0.0

0.0

0.0

0.0

0.0

0.0

0104

Live sheep and goats (head)

75 919

54 892

58 514

62 170

65 830

69 488

Percent utilization rate

0.0

0.0

0.0

0.0

0.0

0.0

0105

Live poultry (head)

8 202 780

6 342 356

3 765 181

7 188 006

7 610 830

8 033 654

Percent utilization rate

0.0

0.0

0.0

0.0

0.0

0.0

0201

Fresh/chilled beef (tonnes)

6 087

4 261

4 436

4 611

4 785

4 959

Percent utilization rate

35.0

0.0

0.3

0.0

0.0

0.0

0202

Frozen beef (tonnes)

21 131

86 054

71 317

85 581

98 418

108 259

Percent utilization rate

92.4

89.9

9.8

0.0

0.0

0.0

0203

Fresh/chilled/frozen pork (tonnes)

49 985

36 135

38 545

40 955

43 365

45 775

Percent utilization rate

5.6

21.2

15.8

44.1

44.5

18.6

0204

Fresh/chilled/frozen chevon (tonnes)

1 030

745

795

845

895

945

Percent utilization rate

0.0

0.0

0.0

0.0

0.0

0.0

0207

Fresh/chilled/frozen poultry (tonnes)

22 525

16 160

16 701

17 746

18 790

19 834

Percent utilization rate

4.3

9.9

16.2

90.9

62.9

59.6

0701

Fresh/chilled potatoes (tonnes)

1 430

1 035

1 102

1 171

1 240

1 309

Percent utilization rate

0.0

1.9

7.0

38.7

81.9

95.2

0901

Coffee beans (tonnes)

932.0

993

6 060

1 126

1 192

1 258

Percent utilization rate

0.1

92.5

100.0

97.3

95.7

92.9

1005

Corn (tonnes)

200 061

144 623

154 266

163 908

224 550

183 192

Percent utilization rate

0.0

99.1

71.8

99.1

99.4

73.1

1701

Sugar (tonnes)

59 069

42 701

45 547

48 393

51 420

54 087

Percent utilization rate

0.0

0.0

99.9

0.0

61.5

0.0

2101

Coffee extracts (tonnes)

20

20

23

25

26

28

Percent utilization rate

80.6

72.3

86.5

82.0

69.7

99.3

Source: MAV Secretariat, Department of Agriculture.

2.5 Domestic support

The Philippine level of trade-distorting domestic support, in terms of input subsidies and price support for rice, corn and sugar, totalled P6.0 billion from 1995 to 2000 or P1.0 billion per year (Table 6). These subsidies are way below the de minimis level of 10 percent of the value of production, and therefore, the Philippines is not obligated to reduce such support. However, there has been a conscious effort to phase out input subsidies in favour of more enduring support for productivity such as irrigation and market infrastructures.

Enforcing the official rice support price above the farm market price has always been one of the challenges facing the NFA. From 1996 to 2000, farm market prices were considerably lower than the government support price. Exacerbating the problem is the limited public fund and capability to procure rough rice (estimated at less than 4 percent of total production).

Table 6. Philippines domestic price support to agriculture, 1995-2000 (thousand pesos)

Year

Product

Market support

Total AMS

1995


257 253

257 253


Rice

257 253

257 253


Corn

0

0

1996


920 468

920 468


Rice

876 766

876 766


Corn

43 702

43 702

1997


1 828 558

1 828 558


Rice

617 447

617 447


Corn

148 463

148 463


Raw sugar

1 062 648

1 062 648

1998


621 741

621 741


Rice

72 220

72 220


Corn

549 521

549 521

1999


1 241 993

1 241 993


Rice and corn

1 091 993

1 091 993


Raw sugar

150 000

150 000

2000


1 192 638

1 192 638


Rice and corn

592 638

592 638


Raw sugar

500 000

500 000

Total (1995-2000)



6 062 651

Source: Various Philippine notifications to the WTO and General Appropriations Act for 1999 and 2000.

Other domestic supports (Green Box, Amber Box, etc.) are very insignificant within the context of the overall national budget.

2.6 Export subsidies

The Philippines did not schedule any export subsidies in its WTO commitments and therefore is not entitled to, nor does it use in practice, export subsidies. Likewise, all export taxes on agricultural product exports ended in 1996. All export strategies and implementation are mainly pursued by the private sector with minimum assistance from Government.

2.7 Experiences in market access provisions

The Philippines is experiencing difficulties in accessing markets for its banana and pineapple exports to Australia and mangoes to the United States (although at least mangoes from Guimaras island are now accepted in the United States). These are more focused on NTB issues.

The United States, however, has sent feelers to the Philippine Government on the non-filling of domestic pork quotas. The Philippine response is simply that frozen pork products have very limited demand in the domestic market where consumers prefer fresh meat.

2.8 SPS Agreement

Government policies on food safety and quality standards are principally embodied in the Consumer Act or Republic Act 7394. According to the Consumer Act, it is the policy of the State to protect the interests of the consumer, promote their general welfare and to establish standards of conduct for business and industry.

The State shall implement measures to achieve the objectives of: protecting the consumer against hazards to health and safety, and deceptive and unfair and unconscionable sales acts and practices; providing information and education to facilitate sound choice and the proper exercise of rights by the consumer; providing adequate rights and means of redress; and involving consumer representatives in the formulation of social and economic policies.

Toward this end, the Department of Agriculture (DA) issued DA-Administrative Order No. 9 series of 1993 to implement the law. DA-AO 9 principally outlines responsibility centres and a set of standards for product quality and safety, including registration, labelling and packaging, advertising and how to address consumer complaints. The responsibility centres or implementing agencies are given the mandate to undertake research, as well as develop and establish quality and safety standards for agricultural products. They are also allowed to levy, assess, collect and retain fees necessary to cover the costs of inspection, certification, analysis and test of samples needed to comply with the provisions of the Consumer Act. DA-AO 9 also provides for the creation of a Technical Committee to oversee the overall implementation of these guidelines.

Harmonization of SPS measures with international standards was one of the WTO commitments of the Philippines. Several studies of the Department of Agriculture Agricultural Policy Research and Advocacy Assistance Program (APRAAP) policy project indicated that the Philippines has yet to establish its SPS standards for the essential components, additives, contaminants, mycotoxin or aflatoxin levels for meat, eggs, dairy products (Manuel, 1996); SPS measures for processed foods (de Leon, 1996); SPS measures for fish and fishery products (Anzanza, 1996); and SPS for fisheries and marine quarantines (Guerrero, 1996).

Republic Act 8435 or the Agriculture and Fisheries Modernization Act of 1997, in its section on product standardization and consumer safety, states:

It is the policy of the State that all sectors involved in the production, processing, distribution and marketing of food and non-food agricultural and fisheries products shall adhere to, and implement the use of, product standards in order to ensure consumer safety and promote the competitiveness of agriculture and fisheries products.

RA 8435 also called for the creation of the Bureau of Agriculture and Fisheries Products Standards (BAFPS). The BAFPS shall set and implement standards for fresh, primary- and secondary-processed agricultural and fishery products. The BAFPS can: (1) formulate and enforce standards of quality in the processing, preservation, packaging, labelling, importation, exportation, distribution and advertising of agricultural and fisheries products; (2) conduct research and product standardization, alignment of local standards with international standards; and (3) conduct regular inspection of processing plants, storage facilities, abattoirs, as well as public and private markets in order to ensure freshness, safety and quality of products. These two pieces of legislation lay out the overall policies on food safety and together form the legal backbone by which food standards are established in the Philippines.

To date, the Philippines has not received technical assistance in implementing SPS measures.

2.9 Compliance with TRIPs

In compliance with Article 27.3(b) of the TRIPS Agreement, the Philippines enacted the Plant Variety Protection Act of 2002 (RA 9168), which will protect, among others, plant varieties by patents or plant varieties by a sui generis system. The bill was filed in 1996 and signed by President Arroyo on 7 June 2002.

To comply with the TRIPS agreement in other sectors, the Philippines also enacted RA 8293 in 1997 that created the Intellectual Property Office under the Department of Trade and Industry. No technical assistance has been received by the Philippines to implement the TRIPS agreement.

The Plant Variety Protection Law essentially conforms with the 1991 UPOV Convention regarding the grant of plant breeder’s rights. It also creates the National Plant Variety Protection Board mandated to promulgate guidelines for the effective implementation of the Law, and having original jurisdiction over petitions for compulsory licensing, nullification and cancellation of Certificates of Plant Variety Protection.

To support national genetic conservation activities, the Law further establishes a Gene Trust Fund for the benefit of organizations or institutions managing and operating an accredited gene bank. It also encourages farming communities and organizations to build an inventory of locally bred varieties.

2.10 Rules and disciplines

Trade measures against unfair trade - anti-dumping and countervailing duties

The Philippines has enacted domestic laws for special safeguards, anti-dumping and other trade-related remedies but has not yet put them to the test. A special case in point is the dumping of chicken leg quarters from the United States in the Philippine market, which is detrimental to the domestic broiler industry.

The Philippine legislation on anti-dumping is embodied in RA 7843, which Congress passed in December 1994 and which took effect in the following year.

Section 302 of the Tariffs and Customs Code of the Philippines provides for countervailing duties to correct the injurious effects of subsidized imports. Section 302, which is based on the GATT Code on Subsidies and Countervailing Duties, is mainly consistent with the provisions of the WTO Agreement on Subsidies and Countervailing Measures. There is an initiative in Congress to pass a law that would provide sufficient detail for the filing of petitions, the conduct of countervail investigations, and other conditions when imposing countervailing duties fully consistent with the substantive and procedural requirements of the WTO.

Safeguards

With the current economic crisis, calls have grown stronger from adversely affected sectors for import-relief measures. The Congress enacted a Safeguards Law (RA 8800) consistent with WTO rules that provides domestic industries with import relief, to address injurious surges in imports brought about by obligations, including tariff concessions, under the WTO, and other regional trading arrangements, as well as unforeseen developments like the financial crisis.

Non-tariff barriers

The Philippines subscribes to the requirements under the Agreements on TBT, SPS Measures and Import Licensing. The Philippines believes that measures under these Agreements should not be taken to impose unnecessary barriers to trade. This means that they should be applied in a non-discriminatory manner, based on scientific evidence where applicable, properly notified, and provide for adequate consultations undertaken preferably prior to their implementation.

Trade-related investment measures

The Philippines notified existing trade-related investment measures (TRIMS) in the automotive and the coconut-based chemical sector. The Philippines grants certain incentives contingent on local content and foreign exchange requirements for its Car, Commercial, and Motorcycle Vehicle Development Programmes (CDP/CVDP/MDP). Under EO 259, local content requirements exist in the soap and detergents industry, making use of coconut-based chemicals, for reasons of protecting the environment. The Philippine Government is committed to full conformity with the TRIMS Agreement by the year 2000.

Given the above background, the logic of the Philippine position in the next round of negotiations is clear: Flexibility and longer adjustment time are needed to implement the AoA, if a broad base and sustainable economic development are to be attained.

3 Experience with food and agricultural trade

3.1 Export market effects

The anticipated impact of the AoA was improved market access for Philippine agricultural exports. In general, markets were generally open for traditional exports within the already established markets in developed countries. In these countries, volume expansion is generally no problem. However, despite the MFN status among WTO member countries, trade expansion for new products in new markets within the WTO membership is still very much a bilateral arrangement.

In the case of the Philippines, both tariff and NTBs (SPS) were reasons for nonexpansion of Philippine agricultural export products among WTO countries. Tuna is a case in point. Tariff rates of Philippine tuna exports to Europe face a tariff of 24 percent, while exports from African and Caribbean countries are charged zero tariff.

In the case of banana and pineapple exports to Australia, SPS requirements hinder Philippine exports. Under the substantial equivalence principle in the SPS harmonization agreement, the same quality banana exports are acceptable in Japan. Australia’s posture in suddenly raising its SPS standards to protect its inefficient banana and pineapple farmers is a clear indication of restricted trade. To persuade Australia to seriously consider dialogue on banana and pineapple exports, the Philippines had to suspend the issuance of veterinary quarantine certificates in 1999 for Australia’s live cattle exports. To date, the issue has not yet been resolved, pending the verification of the risk assessment by the Australian Government regarding banana exports.

The notification provision of the SPS agreement is a very slow process and does not work effectively for potential LDC exporters.

3.2 Macroeconomic context

Trade (export) performance is not just a function of the AoA but is influenced even more by the macroeconomic environment. Foreign exchange rates, interest rates and investment affecting commodity prices and productivity are, among others, determinants of trade performance.

Before 1991, the peso was generally regarded as overvalued. From 1985 to 1990, the nominal effective exchange rate with the US dollar was generally higher by some 10-30 percentage points. From 1991 to 1994, the nominal-real effective exchange rate difference declined to an average of 2 percentage points. From 1995 to 2001, however, the reverse pattern was observed. The real effective exchange rate was generally greater than the nominal effective exchange rate, implying that after the Asian financial crisis of 1997, the peso is undervalued relative to the US dollar. These trends are shown in Figure 1.

Figure 1. Percentage changes in real and nominal effective exchange rates,

Source: International Financial Statistics.

The trends in the peso/US$ exchange rate indicate that, after 1997, the devaluation of the peso in real terms relative to the US dollar was favourable to Philippine exports. Therefore, after implementation of the AoA, the Philippine agricultural exports were expected to increase.

The trends in domestic and inflation rates are shown in Table 7. Domestic nominal interbank call loan rates declined from 15 to 14 percent in 1990 to around 13 percent in 2000. The inflation rate, however, declined from double digits during 1990-1991 to single digit figures since 1992 (8.6 percent) declining further to 4.4 percent in 2000. Since the real domestic interest rate is the difference between the nominal rate and inflation, the variability in inflation rates determined the levels of real interest rates in the Philippines. The real interest rate averaged 5.46 percent from 1996 to 2000, relatively higher by 1.1 percent point compared with the average of 4.35 percent pre-AoA. In conclusion, there was little difference in real interest rates in the Philippines before and after the AoA.

Table 7. Trends in domestic interest and inflation rates, 1990-2000

Year

Nominal interbank call loan rates (%)

Inflation rates (%)

Real average interbank call loan rates (%)

(1)

(2)

(1) - (2)

1990

15.4

13.2

2.2

1991

14.8

18.5

-3.7

1992

15.7

8.6

7.1

1993

16.7

6.9

9.8

1994

13.7

8.4

5.3

1995

13.4

8.0

5.4

1996

12.1

9.0

3.1

1997

12.6

5.9

6.7

1998

13.8

9.7

4.1

1999

13.2

8.4

4.8

2000

13.0

4.4

8.6

Source: Philippine Statistical Yearbook.

3.3 Exports

Agriculture and food exports of the Philippines averaged US$1.3 billion and US$1 billion, respectively, from 1985 to 1994 and increased to US$1.7 billion and US$1.4 billion during the 1995-1999 period. Annual growth rates, estimated using linear trend, were 2.49 percent and 3.19 percent for agriculture and food exports, respectively, in the pre-AoA period (1985-1994). These trend rates declined to 0.18 percent for agriculture exports and 0.30 percent for food exports, respectively, post-AoA (Table 8). These declines in agriculture and food export growth rates were reflected in declining shares of agricultural exports in total Philippine export receipts, from an average of 16 percent in 1985-1994 to 8 percent during the 1995-2000 period. The actual and trend lines of agriculture and food exports before and after GATT-WTO accession are shown in Figure 2.

Table 8. Value of agricultural and food exports and imports, 1985-1999

Year

Exports

Imports

Net balance

Agriculture

Food

Agriculture

Food

Agriculture

Food


Annual average (US$ million)

1985-94

1 260.13

1 019.65

1 103.01

739.70

157.12

279.95

1995-99

1 703.14

1 429.62

2 627.10 2

073.51

-923.96

-643.89


Average growth rate (%)

1985-94

2.49

3.19

14.71

15.83



1995-99

0.18

0.30

8.01

12.28



Source: FAOSTAT.

Major agricultural exports included crude and refined coconut oil exported to Netherlands and the United States as major markets; fresh bananas to Japan, People’s Republic of China (new market) and Near East; tuna to Japan, the United States and Germany; pineapple and pineapple products to the United States and Japan; shrimps and prawns to Japan and the United States; manufactured fertilizer mainly to Viet Nam; sugar to the United States market; desiccated coconut to the United States and EU; seaweeds and carrageen to the United States and EU; fresh mango to Hong Kong and Japan;[93] copra oil to the EU and Republic of Korea; copra and coffee in small quantities; and tobacco (unmanufactured) to the United States, Japan and EU.

According to FAOSTAT data, the top five agricultural exports from 1996 to 2000 were bananas, crude and refined coconut oil, centrifugal raw sugar and canned pineapple. In terms of value, crude coconut oil, popularly known as copra, and bananas were the top agricultural export revenue generators during the period.

Figure 2. Agriculture and food trade, Philippines, 1985-1999 (US$ billion; lines with lozenge symbols are actual values; unmarked lines are trend lines).

1. Agriculture and food exports, 1985-1999

2. Agriculture and food imports, 1985-1999

Net agriculture and food trade, 1985-1999

Indices of aggregate agricultural exports in terms of quantity, value and unit price are shown in Table 9. Using 1989-1991 as the base period, the index shows that between 1985 and 1999, quantity and unit price indices were relatively constant from the base. However, from 1995 to 1999, quantity and unit price indices increased by 8 and 27 percentage points from the 1989-1991 base, indicating that the increases in the aggregate export value index were due to the general improvement in the volume of agriculture exports and in the unit prices of these exports.

The direction of trade over the past ten years for major agricultural exports has been very stable. Crude coconut oil (copra), for example, has been a consistent export to the Netherlands and EC 15. Refined coconut oil is basically covered by a preferential quota agreement with the United States, while Japan, China and the United Arab Emirates are destinations for Philippine banana exports.

The Philippines is in the process of expanding its fresh fruit exports of bananas, mangoes, pineapple, and papayas to the Australian, United States and Japan markets. However, NTBs have constrained such expansion.

Table 9. Trends in export and import volumes, value and unit prices of agriculture and food, 1985-1999 (1989-1991 = 100)

Year

Export

Import

Agriculture

Food

Agriculture

Food

Quantity

Value

Unit

Quantity

Value

Unit

Quantity

Value

Unit

Quantity

Value

Unit

1985

92

97 106


93

95

102

63

53

83

70

85

78

1986

116

95

82

110

85

77

56

49

87

52

43

82

1987

106

96

90

102

95

93

57

57

100

53

48

91

1988

90

101 112


89

100

111

79

80

101

74

72

97

1989

90

100 110


92

100

109

91

98

107

90

97

108

1990

106

99

93

105

100

94

122

116

95

127

122

96

1991

104

102

98

103

100

97

87

86

98

84

81

96

1992

94

113 119


95

117

123

103

105

101

100

102

101

1993

105

109 103


110

115

104

114

117

102

109

114

103

1994

103

116 112


105

121

115

125

149

118

129

149

115

1995

125

155 123


125

163

130

156

190

121

159

207

129

1996

108

142 131


113

148

131

174

224

128

200

267

133

1997

110

144 131


112

152

135

180

201

111

191

220

115

1998

112

140 124


116

151

129

236

227

96

252

252

100

1999

85

106 124


93

113

121

186

205

110

202

238

117

Annual average

1985-1994

101

103 103


100

103

103

90

91

99

89

91

97

1995-1999

108

137 127


112

145

129

186

209

113

201

237

119

Source: FAOSTAT.

3.4 Imports

Agriculture and food imports averaged US$1.1 and US$0.74 billion, respectively from 1985-1994 and increased to US$2.6 and US$2.1 billion respectively, after the Philippine accession to WTO in 1995. Annual growth rates for agricultural imports were 15 percent in the pre-AoA period and 8 percent afterwards. However, food import value grew at 16 percent per annum between 1985 and 1994, and slightly declined to 12 percent per year during the 1995-1999 period. The actual and trend lines for Philippine agriculture and food imports are shown in Figure 2.

Major agricultural and food imports include rice from Viet Nam, Thailand, India, China and the United States; milk and cream and cream products from Australia, New Zealand and the Netherlands; wheat and meslin from the United States; corn from the United States, Argentina, China and Thailand; tobacco from the United States, Brazil and China; fertilizer from Indonesia and the Near East; meat and bovine animals from Australia, India and the Netherlands; and other products such as cotton, agricultural machinery, flours and malt.

Based on FAOSTAT data, the top five food imports of the Philippines from 1996 to 2001 based on value were wheat, rice, dry skim and whole cows’ milk and food preparations.

FAOSTAT also provides data on indices of agriculture and food imports in terms of volume, value and unit price (Table 9). The trends indicated that in the pre-AoA period (1985-1994), agriculture volume and unit price of imports were less than the 1989-1991 base year. However, from 1995-1999, volume of imports and unit price increased by 86 and 13 percentage points, respectively, making the aggregate value of agricultural imports higher by 109 percentage points than the 1989-1991 base year. Food imports followed the same directional trends as agricultural imports except that the aggregate magnitude in value was 136 percentage points higher than the 1989-1991 base year.

The suppliers of Philippine agricultural and food imports have not changed dramatically during the past decade. Exceptions are made for rice and corn, which were traditionally supplied by Thailand and the United States. Now, new suppliers of rice include Viet Nam and India, and for corn, Brazil and China. For wheat, the United States is still the major source of Philippine imports, while New Zealand and Australia are the major sources of milk imports.

3.5 Implications of trade flows

There are no empirical data that can provide enough evidence that the changes in export and import trade flows were due to the implementation of the AoA. In fact, since market expansion of Philippine exports is so negligible, one can conclude that the AoA implementation has had no effect on market access.

However, investments in the Philippines to spur agricultural exports have not been forthcoming over the past five years. This phenomenon is due not to the implementation of the AoA but rather to a carryover of the 1997 financial crisis and the political and economic structural adjustments taking place.

4 Food security impacts

Food security is a key development issue because access to food is an inherent human right. Food nutritional intake is the most basic indicator of the quality of life. Food security is likewise a strategic issue. It brings to the fore the dynamic interactions of population, urbanization and levels of incomes with food production, utilization of natural resource endowments and technology.

The impact of liberalized trade on food security is an added development dimension in this analysis. In the absence of a quantitative model, the analysis will rely on selected indicators of the supply and demand side of food before and after the Philippine accession to GATT-WTO. The first step, however, is to describe the national state of nutrition or food security in the Philippines.

4.1 State of Philippine food security

The FNRI survey conducted in 1993 showed that significant decreases in the intake of energy, iron, calcium, and ascorbic acid ranging from 3.9 percent (energy) to 12.9 percent (ascorbic acid) had occurred in the period since 1978. These could be attributed to the decline of fish and meat consumption, as well as a lower intake of fruits and vegetables. Likewise, inefficiencies in food marketing and distribution and severe income constraints could be considered as factors which contributed to the nutritional inadequacy among a large population of Filipino households.

Trends in food consumption from 1978 to 1993 showed that there was a general decrease in the intake of various foods. Only in the period 1978-1982 was an increase of 2 percent in food consumption observed. In contrast, consumption decreased by as much as 12 percent from 1982 to 1993. There was also a general decline in the consumption of cereals and cereal products, fruits, starchy roots and tubers, and vegetable consumption during the period, but an increasing trend was observed for eggs and egg products, poultry and corn intakes.

In the absence of a nationwide nutrition survey after 1993, a socio-economic survey made by STRIVE Foundation in 2000 in ten major rice-producing provinces of the Philippines on selected food intakes seemed to indicate some improvements in nutrition intakes ranging from 7 percent (vegetables) to 22 percent (cereals) from 1993 to 2000 (Table 10).

Table 10. Comparative average food intakes for selected food groups,

Food group

Intake (g/day)

1987-1993a

2000b

Percent difference

Cereals and cereal products

343

419

22

Fish, meat and poultry

152

176

16

Vegetables

109

116

7

a Food and Nutrition Research Institute Nationwide Nutrition Survey.

b STRIVE Foundation Socio-economic Survey in 10 major rice producing provinces of the Philippines.

Data from FAOSTAT on national trends in per capita availability for calorie, protein, and fat also tend to show improvements in calorie intake by 5 percent, protein by 5 percent and fat by 16 percent between the pre-AoA period (average 1985-1994) and post-AoA period (Table 11). Although the rates of growth were lower across food elements during the post-AoA period, the magnitude of change was larger, as exemplified by kilocalorie availability.

Table 11. Comparative trends in per capita availability of energy, protein, and fat, pre- and post-AoA periods, 1985-1999

Year

Energy

Protein

Fat

(g/capita/day)

(g/capita/day)

(g/capita/day)

1985-1994

2 236.3

52.9

38.2

1995-1999

2 350.9

55.7

44.5

Percent difference

5

5

17


Average growth rate (%)

1985-1994

0.9

1.4

4.3

1995-1999

0.3

0.0

2.1

Source: FAOSTAT.

4.2 Rice: The main staple

In the Philippines, the attainment of food security as a development goal hinges on the agricultural sector. In particular, rice, the staple food, has been historically the centre point for the achievement of food security goals. Food security has been operationally interpreted at the rice subsector level as rice self-sufficiency. Past rice government programmes, with the exception of Gintong Ani rice in 1996, all explicitly expressed rice self-sufficiency as their major goal (STRIVE, 1999).

A cursory look at the rice programmes over the past 30 years will show the performance of past programmes in terms of rice production (domestic supply) versus rice utilization. There were 20 deficit years as compared with 10 surplus years. Imports historically averaged between 1 and 14 percent of production, except during the 1998 El Niño year when rice imports reached their highest level of 2.1 million tonnes or 38 percent of domestic supply. The desire of the Philippines to be self-sufficient in rice has been spelled out in the provisions for QRs for rice in the AoA.

The population growth rate in the Philippines is an essential factor explaining the growth in grain demand. Not only has overall rice demand kept pace with the population growth rate, but the current per capita consumption of rice has generally increased as well since the mid-1980s. In 1985, the per capita demand for rice was estimated at 94.3 kg. In 2000, this figure was placed at 103 kg. With population growth estimated at 2.3 percent, annual consumption of rice increased at an annual rate of 2.98 percent. The country consumed nearly 5.7 million tonnes of rice in 1985 and close to 8.9 million tonnes in 2000. Over the seven-year period (1995-2001), the country imported the equivalent of 13.3 percent of production to augment rice buffer stocks. The highest level reached 39 percent in 1998 when the output of the rice sector plunged by about 24 percent compared with 1997.

Looking to the medium term, there is every reason to expect a substantial expansion in demand. Over the last two decades or so, the gap between domestic production and total use has increased, and the years wherein domestic production has met total use have been few and far between. With annual population growth at around 2.3 percent and increasing per capita incomes, demand for rice can be expected to grow by between 2.5 and 3.0 percent per annum. Additional demand would be generated if the 30 percent poorest of the population had the means to supplement their diets to an adequate level.

During the pre-AoA period (1985-1994), rice production, area harvested and yield levels were increasing on average by 2 percent, 1.1 percent and 0.9 percent, respectively. In the period 1995-2000, these same parameters were increasing by 3.3 percent, 1.4 percent, and 1.9 percent, respectively. Therefore, in the post-AoA period, it appears that not only imports of rice but domestic production account for the relatively higher per capita kilocalorie-rice availability.

4.3 Corn for food and feed

Corn is very versatile in its uses. Estimates of corn utilization suggest that in a normal production and use season, demand for feed may take about two-thirds of the corn crop, ranging from 55 percent to 70 percent. The balance of the crop is used for food, seed and manufactured products, most of which goes into foods. In terms of per capita food use, the levels have changed little since 1985 and the years in between. Food consumption of corn is mainly in the form of corn grits. It is particularly favoured in corn producing areas, but is only a minor staple in urban and rice producing areas.

During the pre-AoA period (1985-1994), corn output, area harvested and yield levels were increasing on average by 1.8 percent, -1.7 percent and 3.5 percent, respectively. In the period 1995-2000, these same parameters were increasing by 1.8 percent, -1.4 percent and 3.3 percent, respectively. Over the six-year period (1995-2000), the country imported an equivalent of 7.8 percent of corn production to supply the needs of the livestock and poultry sector.

Like rice, corn is considered a sensitive commodity under both the AoA and AFTA, covered by a minimum access volume with an in-quota tariff rate of 35 percent and an MFN rate of 65 percent. Because of MAVs and the high tariff in corn, food wheat (tariff of 3 percent) and feed wheat (tariff of 10 percent) imports have displaced the potential domestic market for locally produced corn.

4.4 Food security and poverty incidence

Food supply availability is just one side of the food security issue. The other side is effective purchasing power of the population reflected by indicators such as levels of income and food prices. It is via these two indicators that liberalized trade has more dynamic interactions. Domestic food prices are generally influenced by border or international prices of food products. Border prices are, in turn, determined by international trade. Levels of income, however, determine to a major extent the ability to purchase food. Prices and income levels of consumers, therefore, jointly determine the effective demand (purchase) of a particular food commodity.

Food versus non-food prices

In terms of relative prices, the index of wholesale and retail prices for Metro Manila, the major consumer market, is a good indicator of food and non-food price trends. Retail food prices were rising at about 6.4 percent per annum in the period 1990-1994, compared with an average increase of 7.2 percent per annum for non-food prices. In the later period, these growth rates reversed, and food prices increased more rapidly than non-food prices (6.4 percent versus 5.5 percent per annum, respectively). The relatively higher rate of increase of food prices after 1995 has implications for food security among the low-income and disadvantaged group. However, it was hard to conclude that such trends were due to GATT-WTO accession.

Food security and poverty alleviation

The Philippine Department of Agriculture puts great emphasis and focus on the attainment of food security and poverty alleviation. The 1999-2004 Medium Term Agriculture Development Plan targets reduction of poverty incidence from 44 percent in 1997 to 30 percent by 2004.

The head count rural poverty incidence increased from 48 percent during the 1985-1994 period to 53 percent from 1997-2000 (Table 12). The case is not the same by family count for both rural and urban. There was a decline in poverty incidence from 36 to 19 percent for urban families from 1985-1994 and from 54 to 46 percent for rural families. One contributing factor to food insecurity is the increasing annual per capita poverty threshold from P8 885 in 1994 to P13 916 in 2000. Another factor is the seeming decline in the income decile shares for all household deciles except for the ninth and tenth deciles during the 1995-2000 period.

Table 12. Urban-rural poverty incidence, 1961-2000

Year

By head count

By family

Urban

Rural

Total

Urban

Rural

Total

1961-1971

45

59

54

45

59

54

1985-1994

31

48

40

36

55

44

1997-2000

23

53

38

19

46

33

Sources: Balisacan (1997); NSCB various years; Philippine Statistical Yearbook, National Statistics Office, various years.

Family expenditures on food as a proportion of total expenditure declined from 51.9 percent in 1985 to 43.2 percent in 2000. However, from the point of view of rural families whose income levels did not increase substantially from 1994 to 2000, the figure of 43 percent of their incomes devoted to food alone is still relatively large.

Food import dependency ratio

Trends in the percentage of food and agricultural imports to total imports and total exports from 1990 to 1999 are shown in Table 13. In 1990, the ratio of food imports as a percentage of total Philippine imports was 7 percent, declining to 6 percent in 1999. Likewise, as a percentage of total exports, it was 12 percent in 1990 and declined to 5 percent in 1999. This trend implies that the food import dependency ratio has declined from 1990 to 1999 in proportion to both total imports and total exports. The major reason, as shown in Table 13, was that the percentage growth in food imports was relatively small (115 percent) compared with the quantum leap in total imports (891 percent) and total exports (242 percent) during the period. The agricultural import dependency ratio followed the same pattern as food imports, but the decline was larger in magnitude mainly due to the low percent increase (94 percent) in agricultural imports relative to food imports during the period.

Table 13. Ratio of food and agricultural imports to total imports and exports, 1990 and 1999

Item

Year

Percentage change

1990

1999

Food imports (US$ million)

992

2 134

115

Agricultural imports (US$ million)

1 362

2 645

94

Total imports (US$ million)

13 967

38 429

891

Total exports (US$ million)

11 430

39 141

242

Ratio of food imports to total imports (%)

7

6

-1

Ratio of food imports to total exports (%)

12

5

-8

Ratio of agricultural imports to total imports (%)

9

7

-2

Ratio of agricultural imports to total exports (%)

12

7

-5

Source: National Statistical Coordinating Board and FAOSTAT.

4.5 Synthesis

The results tend to indicate that there were higher food prices, increased poverty incidence and thresholds in the post-AoA period. However, the data also show declines in food expenditures as a proportion of total household expenditures, increasing per capita energy and nutrient availability despite high population growth, and declining food import dependency relative to total imports and exports. Because the latter indicators are more conclusive than those mentioned earlier and regardless of whether or not the changes were due to the impact of the AoA, the trends indicate that the Philippine economy was more “food secure” in the post-AoA period.

5 Negotiating proposals and the future

In future agricultural negotiations, the Philippines fully endorses the position of ASEAN for special and differential treatment of developing countries in world agricultural trade. Likewise, as an individual country, the Philippines focuses on poverty alleviation, food security and provision of employment opportunities as the overriding goals of multilateral trading arrangements. The issues are discussed in more detailed in this section.

5.1 ASEAN position

The Philippines “strongly and fully endorses” (as cited in the Statement by the Republic of the Philippines given to the Special Session of the Committee on Agriculture, Informal Meeting, 4-6 February 2002) the proposal submitted by ASEAN, Special and Differential Treatment for Developing Countries in World Agricultural Trade (G/AG/NG/W55). The key issue is that the “playing field” between developing and developed countries is still substantially different. Thus, the ASEAN proposal advocates the need to develop a meaningful special and differential treatment for developing countries (S&D) that takes into account the principles of fair trade and the need to achieve a level playing field for all WTO members. The succeeding discussion outlines the ASEAN proposal.

Special and differential treatment

As mentioned in the ASEAN proposal, “the primary intent of S&D is to establish equity and fair competition where structural conditions across countries are different. Paragraph 5 of the “Enabling Clause” embodies the spirit of S&D”.

The underdevelopment in agriculture of developing countries makes it difficult to implement reforms at the same level and pace of developed countries. With this premise, the Agreement must therefore afford developing countries more time to adopt reforms on a differential and more gradual basis. Flexibility in terms of a longer time frame for the implementation of commitments is essential but not sufficient. More important is that the nature, depth and substance of commitments must also be different.

Export subsidies

With respect to export subsidies, the ASEAN proposes “as a first general obligation, developed countries must immediately eliminate all forms of export subsidies and commit to their unconditional prohibition”.

However, developing countries must be given the right to continue using their existing flexibility with respect to export subsidies (i.e. Article 9.4).

Domestic support

A major breakthrough in the UR is the inclusion of domestic support policies in agriculture. However, the ASEAN proposal contends that the rules and disciplines on domestic support in the AoA were formulated more in consideration of the policies of developed countries. This caused major imbalances in obligations and commitments between developed and developing countries.

Developing countries that had little or no trade-distorting domestic subsidies are allowed to provide a 10 percent ceiling on product-related domestic support and a further 10 percent on non-product-related domestic support. In contrast, developed countries are not subject to an effective upper limit, but are only expected to lower their trade-distorting subsidies (AMS) by 20 percent in six years.

The majority of developed countries are known to be heavily subsidizing countries. This means that they have an obvious advantage because they can still maintain 80 percent of their trade-distorting subsidies. However, developing countries which had not applied trade-distorting domestic support measures can only subsidize their farmers to no more than 20 percent of the total value of their agricultural production.

The ASEAN proposal suggests remedying this state of imbalance by taking into account the following.

For developed countries:

1. Developed countries must commit to a substantial down payment of aggregate and specific support from a determined base period, in absolute terms. The remaining AMS should then be subject to reduction over time leading to their elimination. This depth of commitment will render any tendency to apply export subsidies (to resolve the perennial problem of over-production owing to unbridled internal subsidization) academic.

2. The aggregate nature of AMS reduction commitments in the present Agreement has allowed countries to meet their overall commitment by adjusting policies in a manner that results in some changes in a limited number of sectors while preserving the support regimes in others, particularly in more sensitive commodities. Reduction commitments in the next phase must therefore be made on a disaggregated level, to ensure that all sectors are included in the multilateral disciplines and to avoid greater distortions in the level of support between commodities.

3. The Blue Box category of support measures, or domestic support under production limiting programmes, must be subjected to similar substantial reduction commitments leading to their elimination.

4. Given their already high levels of AMS, developed countries should no longer be allowed to have the additional flexibility to apply de minimis.

5. Moreover, the criteria for Green Box measures defined in Annex 2 of the present Agreement must be reviewed to ensure that they meet the fundamental requirement that they have at least minimal or no tradedistorting effects or effects on production. The review should ensure also that the elements contained in the Green Box are more responsive to the needs, particularly food security concerns, of developing countries.

6. There should be an overall cap on the budget of developed countries allocated for Green Box measures.

For developing countries, domestic support will continue to be a vital tool for developing countries’ efforts to develop their agricultural sectors, which is a longterm and legitimate concern. A meaningful S&D treatment must provide the flexibility to developing countries to pursue policies and strategies that would adequately advance their agricultural development aspirations.

As cited in the ASEAN proposal, below are some key elements of S&D that would continue to be relevant to the needs of developing countries:

1. Direct or indirect measures that are an integral part of the development programmes of developing countries, including investment and input subsidies, as identified in Article 6.2 of the present Agreement, must remain exempt from reduction commitments during the next phase of the reform programme.

2. Measures intended to promote agricultural diversification must be exempt from reduction commitments.

3. The existing de minimis concept and threshold must continue to be applied but only to developing countries.

4. Developing countries must be given an effective and meaningful degree of autonomy on policy instruments to address food security concerns.

5. In addition, the Agreement must be able to make an appropriate differentiation between domestic measures which result in overproduction and the ability to carve out a niche in the international market, and those measures designed to face the challenges of food security of developing countries.

Market access

Market access issues cited in the ASEAN proposal revolve around four areas, (1) tariff disparities; (2) tariff peaks and escalations in tropical products; (3) special safeguards; and (4) Generalized System of Preferences (GSP).

The ASEAN position proposes that the rules on tariff quotas should be clarified to ensure the non-discriminatory allocation and administration of tariff quotas, involving inter alia disciplines in the operations of state trading enterprises. Furthermore, tariff disparities must be eliminated, with developed countries committing to greater tariff reductions.

Tropical products still have difficulty entering markets of developed countries. This is primarily because of the high tariffs applied by developed countries. Full trade liberalization must be pursued in tropical products by further tariff reductions and eliminating tariff peaks and tariff escalation on these products.

ASEAN proposes that developing countries must also have differential commitments and modalities as appropriate in the area of market access. It is also suggested that developing countries be allowed to continue the application of special safeguards.

The concessionary nature of GSP and the recent tendency to impose conditionalities on GSP leads to non-adherence to the fundamental GSP principles of non-discrimination and non-reciprocity. It also results in unpredictable market access conditions for developing countries. To remedy this, it is proposed by ASEAN that “GSP principles already encapsulated in the Enabling Clause should be elaborated and maintained in the framework of the Agreement, with the explicit commitment by developed countries to conform the fundamental principles of GSP”.

5.2 Philippine position

Aside from the ASEAN position that points out the imbalances in the present agreement, the following discussion highlights other issues that reflect the position of the Philippines in the next phase of the reform process of world agricultural trade.

Food security is a basic human right regardless of race, nationality, or religion. Genuine development cannot be achieved without first ensuring sustained physical and economic access to food supplies for all members of the populations, particularly the poor. Economic access is highlighted, because food security is also about addressing the issue of poverty. However, poverty is attached to unemployment issues. In developing countries like the Philippines, this is primarily a rural phenomenon. It is estimated that 77 percent of the poor and food insecure in the Philippines are situated in the rural areas.

Most developing countries have joined the multilateral trading system primarily because of expectations and aspirations that their development needs can be addressed by the initial phase of reform embodied in the present Agreement. The long time frames given for the implementation of commitments did not suffice to further their development efforts. Also, the imbalances in the existing Agreement have undermined all development efforts (sound domestic reform initiatives) of developing countries. This has further exacerbated food insecurity and poverty.

Thus, for developing countries like the Philippines to participate meaningfully in advancing world agricultural trade, there must be proper, adequate and necessary flexibility in pursuing rural development, poverty eradication and food security policies. It is also suggested by the Philippines that “provisions relative to food security in any future Agreement must ensure appropriate differentiation between domestic support measures that unduly distort production and trade, and those that are legitimately designed to target food security and poverty eradication concerns” (as cited from the Statement of the Philippines, delivered by Dr. Segfredo R. Serrano, Assistant Secretary for Policy and Planning, Department of Agriculture, before the July 2001 Special Negotiating Session of WTO Committee on Agriculture, Geneva, Switzerland).

The Philippines addressed three major prescriptions proposed to developing countries:

Domestic policy reforms fully aligned with full trade liberalization in developing countries are necessary for these countries’ attaining their development objectives and furthering the reform process.

1. Domestic policy reforms are essential. However, as mentioned earlier, the sheer imbalances in the present agreement makes these domestic policy reforms futile. Until such imbalances are corrected, the necessary flexibilities must be accorded to the Philippines and other developing countries, most particularly in addressing poverty and food security.

More liberal trade policies will enhance food security - in fact “global” food security, and the general welfare of consumers, through reductions in trade distortions, leading to improved resource allocation, etc.

2. Domestic support and protection must be given to the vast poor majority of the population, which are mostly in rural areas. The support and protection given to these large segments of the population would not significantly distort world markets given developing country budget constraints and small inconsequential market shares. Though adjustment shocks from the reform process are unavoidable, the Philippines asserts that domestic reforms take precedence (food security and poverty alleviation). The Philippines does not support or subscribe to the view that increasing poverty, food insecurity and inequality, no matter how temporary, are necessary costs of development.

Together with domestic policy reforms and more liberal trade policies, food aid and other such similar measures can adequately address food security in developing countries.

3. Food aid is helpful in addressing food security situations. However, it does not aid in addressing the fundamental need for a fair trading environment driven by balanced rules and tight disciplines against distortions and circumventions. If this fundamental need is not taken care of, food aid and other technical assistance may become ineffective and even block the developing countries’ creative and production potentials.

Food insecurity is also vastly different from market access insecurity. Both continue to exclusively plague developing countries such as the Philippines.

Market access

The Philippines suggests that beyond the clamour of other developing countries for greater market access to developed country markets, market access commitments by Members must be commensurate to the amount of trade distortions polluting the world agriculture trade environment. It is in this view that the S&D is yet to be operationalized fully.

Thus, the issue is beyond market access but instead is more focused on the operationalization of an effective S&D.

Domestic support and export subsidies

Domestic commitments (e.g. safety nets and domestic support) were made to major stakeholders in the agriculture and fisheries sector. However, government compliance with these commitments has been grossly poor. For physical safety nets (infrastructure, competitiveness-enhancing public investments), there was only an estimated 40 percent compliance. However, domestic support is only 4 percent of GVA in agriculture, which is substantially low given that the allowable limit for product-related domestic support is 10 percent and up to a further 10 percent in non-product-related support. There is also a six-years delay in the enactment, and current non-implementation, of necessary trade remedy laws on anti-dumping, countervailing measures and special safeguard measures.

However, the Philippines performed well with respect to international compliance to its AoA commitments. This included, among others, the replacement of quantitative restrictions by a tariffication system, phasing down of tariffs, and establishment of MAV mechanisms.

The Philippine government also undertook a unilateral tariff reform programme. Except for “sensitive” agricultural products, this unilateral tariff programme led to a lowering of tariffs beyond WTO bound commitments for which the country may not be given credit in future negotiations. It is viewed in the Philippines that this policy may have compromised the country’s negotiating leverage in any forthcoming market access negotiations.

Because of this programme, the agriculture and fisheries sector’s ability to compete has been unfavourably affected. This undermined the capability of the sector to overcome adverse natural occurrences (e.g. El Niño phenomenon), survive and compete in the international and domestic markets, and overcome unpredictable international economic episodes (e.g. the Asian financial crisis of 1997).

Thus, the expected benefits from multilateral trade were not realized in the past six years that GATT-WTO has been implemented. The sector continues to be plagued with poverty and underdevelopment.

The Philippines’ position in arguing for domestic support generally echoes the S&D proposal submitted by ASEAN. The evident imbalances must be addressed and corrected in order to further the reform process. As mentioned earlier, highly subsidizing countries are able to retain 80 percent of their AMS, while developing countries are limited to 10 percent of the GVA of agriculture.

Future negotiations must address longer time frames for developing countries, and the focus should not be limited to market access negotiations alone. Negotiations must address domestic support and export competition issues comprehensively and concretely. In general, S&D for developing countries must be about meaningful reforms and one that considers depth and substance of commitments. A meaningful S&D likewise involves the active participation of developed countries.

Levelling the “playing field” means serious commitments by developed countries to remove major sources of trade distortions within an acceptable time horizon. Emphasis is also placed on the need to provide flexibilities with respect to domestic policy and strategies that will be pursued by developing countries like the Philippines in advancing their development aspirations. This argument is substantiated by both the ASEAN proposal and statements made by the Philippines in Special Negotiating Sessions of the WTO, discussed earlier.

References

Gonzales, L.A. 1999a. The global competitiveness of the livestock and poultry sub-sectors before and after the GATT-WTO. Final Report. Laguna, Philippines.

Gonzales, L.A. 1999b. Trade liberalization of the Philippine rice sector. Final Report to PhilRice. STRIVE Foundation, Laguna, Philippines.

Gonzales, L.A. 2000. Philippine agriculture in the next millennium: Strategic issues and directions. Paper presented to the Crop Protection Association of the Philippines, February 2000.

Gonzales, L.A. 2002. Strategic issues on trade. Lecture given at the UA&P Graduate School, Pasig City, Philippines.

Gonzales, L.A., Elca, C.D. & Lapiña, G.F. 2001. Benchmarking, global competitiveness analysis and policy advocacy for the livestock and poultry subsectors. Final Report. The Department of Agriculture. STRIVE Foundation, Laguna, Philippines.

Gonzales, L.A., Sebastian L.S., Francisco S.R., Gonzales, V.A., Casiwan, C.B., Cataquiz, G.C., Elca, C.D., Lapiña, G.F. and. Banta, S.J. 2002. Food carrying and income generating capacities of the rice sector. PhilRice-STRIVE Foundation, Laguna, Philippines.

Habito, C.F. 1999. Farms, food and foreign trade: The World Trade Organization and Philippine agriculture. AGILE Project, Dev. Alternatives Inc. Manila, Philippines.

Mangabat, M. 1998. Effects of trade liberalization on agriculture in the Philippines: Institutional and structural aspects. Working Paper No. 37. CGPRT Center, Bogar.

World Trade Organization. 1999. Trade policy review of the Philippines. Geneva.

World Trade Organization. 2002. Special and differential treatment for developing countries, developed country reforms, and World Trade in agriculture. Statement by the Republic of the Philippines. Special Session of the Committee on Agriculture, 2-4 February 2002, Geneva.


[91] Study prepared for FAO by Dr Leonardo A Gonzales, STRIVE Foundation, Los Baños, Laguna, Philippines. The author acknowledges the policy inputs of Percy Manzo and the research assistance of Geny Lapiña.
[92] Condensed from Mangabat (1998) and WTO (1999).
[93] Starting 2002, fresh mango from Guimaras Island of the Philippines will be exported to the United States.

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