President Gloria Macapagal-Arroyo had to attend a birthday party in Pampanga, and so she missed the opening of the 15th ASEAN Summit in Thailand. Three other ASEAN leaders were late, but with good excuses: Hun Sen of Cambodia had to conclude an official visit by the South Korean president; Yudhuyono of Indonesia had to have his inauguration for a second term; Najib of Malaysia had to conclude a parliamentary debate.

The ASEAN leaders discussed food and energy security, the global economic crisis and climate change. But for us, and the summit’s host, one of the biggest stories was what happened on the sidelines: the bilateral or country-to-country talks, between the Philippines and Thailand on the question of tariffs on rice imports, and its potential impact on an ambitious ASEAN scheme.

The scheme is an ASEAN free trade agreement (AFTA) that aims to turn the regional grouping into something similar to the European Union: free trade within ASEAN among member countries. This affects trade in rice: AFTA requires import duties on rice among members—except Malaysia, the Philippines, and Indonesia—to be eliminated altogether by Jan. 1, 2010. Most ASEAN members impose a 5 percent import duty on rice. The Philippines, however, imposes a much higher tariff of 40 percent, and under the agreement, the Philippine tariff would be reduced to 20 percent effective Jan. 1, 2010. But the Philippines wants only a slight reduction in the tariff on rice, which is to 35 percent, and keep it at that level until 2015.

Rice-exporting countries like Thailand have, of course, a great interest in eliminating rice tariffs. And so at the forefront of the campaign to set AFTA in place is the ratification of the ASEAN Trade in Goods Agreement (Atiga) which still hasn’t been ratified by three ASEAN countries: Thailand, Indonesia and Laos. The Thais announced prior to the summit that the willingness of the Philippines to offer tariff concessions could lead to their signing on to Atiga and, in turn, influence the success or failure of AFTA.

Thailand’s Commerce Minister Porntiva Nakasai put it, “Manila’s delay in implementing the zero tariff will cause difficulties for Thai rice exports. The Philippines imposes a high import duty of 40 percent on rice, because it classifies it as a ‘highly sensitive product’. It plans to reduce the tariff to 35 percent by 2015, but that’s still too high.”

Trade and Industry Secretary Peter Favila offered to cut the Philippine tariff from 40 to 35 percent but no further. This was because, he said, the Philippines, even if a net importer of rice, needs to maintain tariff protection for its rice farmers. The Philippines offered to concede a quota of 50,000 tons of tariff-free rice annually to compensate rice-exporting countries like Thailand for not meeting the tariff target under AFTA. Thailand responded by asking for a quota of 360,000 tons. As it is, Thai rice imports for the Philippines from January to August this year already amounted to 116,322 tons, mainly of premium-grade rice for commercial use, since Vietnam has cornered the market for lower quality rice imports.

The Thais obviously feel they are operating from a position of strength, in the face of the calamities that struck the Philippines, which means the last crop of this year and production for much of next year have suffered as a consequence of typhoon-related floods. The previous Thai government had ambitiously proposed a regional rice cartel and while the present Thai government is less ambitious, the same aggressive pursuit of their national interest can be seen. So far, the Philippines is trying to hold its own, though both Thai and Filipino officials are trying to make soothing noises concerning the ultimate resolution of the trade dispute and its effects on ASEAN free trade.

The resolution of this ongoing dispute will be one of the last economic and diplomatic problems fully within the powers of the Arroyo administration to win, lose, or achieve a draw, in terms of competing national interests.