Applause for the rice tariffication law

Kudos to President Duterte and to Congress. I mean it, Reader.

President Duterte’s human rights record is execrable, and I have dwelt on it in detail, as I have done with the shortcomings of Congress. But two bills he signed into law—the Rice Tariffication Act and the Universal Health Care Act—stand out as much-needed reforms whose enactment and approval deserve applause. They are genuinely propoor.

Space limits me to discussing only one.  I will take the rice tariffication, Republic Act No. 11203. Despite all the controversy surrounding it, not to mention the agriculture secretary’s undermining attitude—he made me truly understand what the phrase “damning with faint praise” really meant (faint and half-hearted praise is more harmful than loud and persistent abuse)—it is a good law.

First, a country that wants to restrict imports, for whatever reason, can do it by either imposing tariffs (taxes on imported goods) or nontariff (e.g., quantitative restrictions on imported goods such as quotas, licenses and the like). And any elementary or graduate economics textbook will show you that a tariff is superior to a quota. Why? Because the tariffs at least will raise funds for the government.

Furthermore, granting quotas involves discretion on the part of government, and discretion is the father of corruption. The import licensing system of the Philippines in the postwar period when we were short on foreign exchange corrupted the central bank and made corruption a byword. And well, yes, it is suggested that if a government wants quotas, it should at least auction them to the highest bidder—but one knows how bidding systems can get corrupted, too.

In any case, the Philippines chose quantitative restrictions as its way of protecting its farmers. But during the Uruguay Round Final Act in 1994, it committed to replace them with tariffs within 10 years.  However, it is only now, with Duterte, 15 years after that deadline, that we are doing it.

Now, Reader, you may well ask, why did the Philippines foot-drag, especially seeing how tariffs, according to the textbooks, are superior to nontariff measures? The answer is simple. The tariffs fill the government coffers. The quotas, etc. fill the pockets of the individuals (government officials) making decisions on them.

Next, the question: Why is tariffication propoor? Let’s start with the consumers. Did you know, Reader, that rice prices in the Philippines are much higher than they are in the rice-exporting countries of the Asean? About 50 percent to 100 percent higher. So now, let’s use a numerical example to illustrate the benefits of tariffication. Let’s say the price of Thai rice is P20 per kilo. Which means, our local prices could range from  P30 to P40. So assuming (for simplicity) no other costs, imported Thai rice, with say a 35-percent tariff, would cost the local consumer P27. Which means P3 to P13 less than what she would have paid for domestic rice. The consumer wins.

Does this mean our poor farmers get screwed? Will the rice industry die, as some have opined? Or domestic output shrink to nothing, so rice millers cannot operate? Will this law allow the government to wash its hands off their problems, as its critics maintain? Unmitigated hogwash.

By the way, did you know that, overall, our rice farmers are net consumers of rice? Which means that they gain as consumers. But what if, as producers, they cannot compete with imported rice? That’s where the law comes in. The tariffs, which will amount to about P10-11 billion yearly, will be placed in a Rice Competitiveness Enhancement Fund and used to help the farmers become more competitive—with farm machineries, better seeds, credit, safety nets, etc., or financial assistance. And if they still cannot compete, they will be helped to produce other high-value crops.

There is also a special safeguard duty on rice that can be imposed to protect the rice industry from sudden or extreme fluctuations. Plus, the President can increase, reduce, revise or adjust the tariffs if circumstances warrant (as long as Congress is not in session).

And as if that were not enough, government is mandated to formulate a rice industry road map within six months from the effectivity of the law.

The rice industry, dying of neglect as a result of this law? Nothing can be further from the truth.

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