By Janina C. Lim,

A SHOWDOWN looms among the President’s men over the ticklish matter of prolonging the country’s rice quota.

Department of Agriculture (DA) Secretary Emmanuel F. Piñol has expressed preference for extending the quantitative restriction (QR) on rice by another two years, or until 2019, in a bid to give the government’s self-sufficiency program another try.

An extension of the QR however doesn’t sit well with President Rodrigo R. Duterte’s two main economic managers, namely Finance Secretary Carlos G. Dominguez and National Economic and Development Authority (NEDA) Director-General Ernesto M. Pernia, both of whom cite the failure of past administrations’ self-sufficiency programs.

The QR is a non-tariff barrier that limits the amount of rice that can enter the Philippines, which is the world’s biggest importer of the grain.

Under global trading rules, countries are supposed to phase out such barriers and replace them with tariffs, the schedule for reduction of which was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).

When it signed up for the World Trade Organization (WTO) in 1995, the Philippines sued for more time to strengthen its rice sector against foreign competition. In exchange for keeping its QR for 10 years, Manila granted concessions to countries that would incur opportunity costs arising from the Philippines’ import restriction on the staple.

The country successfully negotiated for two extensions of the WTO waiver on the tariffication of rice, the second such extension ending in July next year.

When it secured the 10-year waiver from the WTO in 1995, Manila had agreed to a minimum access volume (MAV) of 119,460 metric tons (MT) of rice with an in-quota tariff of 50%. The MAV is the amount of rice that the Philippines committed to import at the lower tariff.

Upon securing the first extension, which lasted seven years or until 2012, the Philippines committed to increase the MAV to 350,000 MT and lower the in-quota tariff to 40%.

During the negotiations for the second extension, which was granted in 2014, the Philippines had agreed to, among others, increase the MAV to 805,200 MT and reduce the in-quota tariff to 35% corresponding to the Asean Trade in Goods Agreement (ATIGA) duty and a most-favored nation (MFN) rate of 40% for volumes imported outside the MAV.

The MFN tariff is the minimum duty imposed on an import from another WTO member with whom the importing country has no preferential trading arrangement. ATIGA is an example of a preferential trading arrangement involving members of the Association of Southeast Asian Nations.

“We need to go back to 350,000 MT,” Assistant Secretary Mercedita A. Sombilla said, referring to the MAV prevailing during the first extension.

“Definitely, the same scheme will be set up. There will be in-quota, and there will be out-quota,” said Ms. Sombilla, who is director of the NEDA’s Agriculture, Natural Resources and Environment Staff.

The reversion to the pre-2012 tariff levels is contained in Executive Order (EO) 190, which was issued last year by then President Benigno ‘Noynoy’ Aquino III.

According to Sec. 2 of the said order, “the concession entered by the Philippine government shall cease to exist upon the expiration of the waiver.”

After more than two decades of maintaining the QR, the government has yet to attain its goal of self-sufficiency in rice. Local production averaged 3.9 MT a hectare a year, lower than the 7 MT average of neighbors Thailand and Vietnam, both of which are the world’s top suppliers of the staple.

The Agriculture department’s Mr. Pinol, however, is keen on a third extension of two years, or until 2018, for one last attempt at attaining rice self-sufficiency.

“Farmers are unprepared for the lifting of the quantitative restriction,” he told a Senate hearing last month. Any extension would have to go through Congress, and given a politically sensitive commodity like rice, mustering enough votes is not a problem for proponents.

Should the Philippines fail to secure an extension of the QR, the consequences go beyond the rice sector. This as the concessions Manila granted in exchange for the WTO waiver involve other agriculture products.

Think chicken nuggets or hot-dogs, a key ingredient of which is mechanically deboned meat (MDM).

To appease other countries that stand to lose from its rice QR, the Philippines agreed to cut tariffs on MDM to 5%. An end to the QR would result in a 700% increase in the duty on MDM imports.

“If you remove the QR, the tariff on mechanically deboned chicken would rise to 40%,” Simeon C. Amurao, Jr., director of the DA-Bureau of Animal Industry (BAI), said, adding that meat processors import bulk of their raw materials to manufacture their products.

This is why a group of meat processors has echoed the Agriculture chief’s call for another extension of the QR, citing the dire impact on their production costs. Without the extension, meat processors are bracing for skyrocketing prices next year.

“That’s very damaging to the processed meat industry,” said Francisco J. Buencamino, executive director of the Philippine Association of Meat Processors Inc. (PAMPI).

“That’s why our association is negotiating for a status quo, [that] the QR be retained and the 5% be also retained for the arrangement not to lapse,” he said.

“We don’t have local substitutes since there is no production of MDM here in the country so we really have no choice but to just pay higher duties for our use of mechanically separated meat. That means that most processed products will have to go up in cost,” he added.

Another option for PAMPI members, which number 35, is to reformulate their products so they cut down on MDM use.

“So the likelihood is we will be re-tailoring our formulations to reduce the use of MSN (mechanically separated meat) so the impact on prices is not much,” said Mr. Buencamino.

Data from the National Meat Inspection Service show that the Philippines imported 110.19 million kilos of MDM from chicken and 1.51 million kilos MDM from turkey in the first nine months of this year. These comprise 96.98% of the country’s total MDM imports.

Last year, the Philippines ordered 157.55 million kilos of MDM from chicken and 3.59 million kilos of MDM from turkey. Another 729,277 million kilos of MDM from pork entered the country last year.

Major sources of MDM from chicken are the US, Brazil, and the Netherlands, while MDM from turkey is mostly imported from the US, Canada, and the Netherlands.

Processed meat production last year stood at an estimated 800,000 MT, according to Mr. Buencamino.

The meat processors’ clamor for a status quo, however, has not gone unchallenged.

Local meat producers said the end to the rice QR and the accompanying trade concessions would help address the growing incidence of technical smuggling.

“Some of the importers — not all though — they use this as a cover for technical smuggling,” Pork Producers Federation of the Philippines, Inc. (PPFP) President Edwin G. Chen said, referring to the low tariff on MDM and pig fat.

“They will misdeclare the shipment as fat or offal so the tariff rate is very low at 5% to 10%. But they will mix in some prime cuts, which otherwise should be slapped a 30% tariff,” he said.

Mr. Chen said part of the problem is the Bureau of Customs’ (BoC) lack of technical capacity to inspect thoroughly the container vans that bring in the meat products — a weakness that some importers take advantage of to falsely declare imports.

Should the government push through with the rice QR extension, then pork products should be removed from the list of concessions, he said.

PPFP has been lobbying for an increase in the tariff on offal, skin, rind, fat and MDM — all of which are sources of misdeclaration — to a range of 30% to 40%.

The previous administration stalled the country’s tariff reductions, passing on to the Duterte government the burden of proceeding with the country’s commitments to open up the agriculture sector to greater foreign competition.`