Impact of Trade Liberalization in Impact of Trade Liberalization in Philippine Agriculture and Fisheries Philippine Agriculture and Fisheries

SectorSector

by Naty Bernardino, IGTN-Asiaby Naty Bernardino, IGTN-AsiaPresentation at the South Center Panel on “Presentation at the South Center Panel on “Making Trade Making Trade Support Development: Global Problems and Viable Support Development: Global Problems and Viable AlternativesAlternatives”, WTO Public Symposium, April 21, 2005, Geneva”, WTO Public Symposium, April 21, 2005, Geneva

Presentation OutlinePresentation Outline

I. Brief Historical BackgroundII. Trade Liberalization in Phil. Agriculture

A. Basic features of Phil. AgricultureB. GATT-UR CommitmentsC. Impact of Trade Liberalization

III. Trade Liberalization in Fisheries SectorA. Basic features of the SectorB. Trade Liberalization PoliciesC. Impact of Trade Liberalization

IV. July Framework: Issues and Implications on Agriculture and Fisheries

V. Conclusions and Recommendations

I. BriefI. Brief Historical BackgroundHistorical Background

• Post-Independence era of the 50’s -60’s

- continuation of colonial trade relations mainly with the US; Philippines provided raw material and semi-processed raw material exports to US industries (Parity Rights, Bell Trade Act, etc.)

• Export-Oriented Industrialization era of the 70’s- supply-driven petro-dollar loans from IFIs financed low value-added and labor-intensive exports manufacturing of electronic parts and garments

I. BriefI. Brief Historical BackgroundHistorical Background

• Debt crisis of the 80’s and SAPs- shift towards all-out trade, investment and finance liberalization policies together with cuts on public spending and privatization/ deregulation of public services to arrest negative balance of payments; from fixed to floating dollar-peso exchange rate (SAPs)

- unilateral tariff reduction programs started

(TRP I, II, III) together with lifting of import restrictions on key products; reduction/withdrawal of domestic support for agriculture

I. BriefI. Brief Historical BackgroundHistorical Background

• 1990’s- conclusion of the GATT-UR- ASEAN Free Trade Area (target: 0-5% tariff level by 2003)- post-Asian financial crisis (foreign mergers and buy-outs of key industries; liberalization of banking and finance, retail trade, foreign lease on land, mining exploration, etc.)

II. Trade Liberation in Philippine II. Trade Liberation in Philippine AgricultureAgriculture

A. Basic Characteristics of Philippine Agriculture- small-scale peasant economy with a few capitalist-run TNC plantations in the South- employs 50% of Philippine labor force- contributes 30-40% of GDP- traditional exports (copra oil, bananas, sugar, pineapple, etc.) faced prolonged decline in world prices in the last 4 decades; attempts at new export “winners” failed

II. Trade Liberation in Philippine II. Trade Liberation in Philippine AgricultureAgriculture

B. GATT-UR CommitmentsTariff Binding and Tariff Reduction

Binding Coverage

Average Bound Rate

Average Applied Tariffs

in 2002

Agricultural Products

99.4% (783 tariff lines)

34.6% 9.2%

Non-Agricultural

Products

61.8% (2,998 tariff lines)

23.4% 5.2%

Philippines (Total) 66.8% (5,640 tariff lines)

25.6% 5.7%

II. Trade Liberation in Philippine II. Trade Liberation in Philippine AgricultureAgriculture

B. GATT-UR Commitments- Philippine domestic support is way below de minimis level of 10%

- QR for rice was maintained; tariff quota was set at 50% for a gradually increasing minimum access volume (224,000 mt at 50% tariff in 2004); but actual import volume since the late 90’s rose to an average of 1,000,000 mt

II. Trade Liberation in Philippine II. Trade Liberation in Philippine AgricultureAgriculture

C. Current State of Phil. Agriculture and Impact of Trade Liberalization

• growing trade deficits in agriculture trade since late 90’s • tariff cuts led to revenue losses contributing to country’s fiscal crisis• stagnant agricultural production growth rates that could not cope

with increasing population• import dumping (world prices of rice and maize are only 1/2 and 1/3

of local prices, respectively) thanks to US subsidies that is equivalent to 76% of the cost of producing its own rice, obscenely making US the third largest rice exporter

II. Trade Liberation in Philippine II. Trade Liberation in Philippine AgricultureAgriculture

C. Current State of Phil. Agriculture and Impact of Trade Liberalization

• country’s import dependency ratio on rice, its staple food, rose from 3% in the 80’s to 12% in 2003

• domestic support for agriculture has been decreasing due to government’s fiscal constraints; complicated by other governance issues like smuggling, corruption, etc.

III. Trade Liberalization in the III. Trade Liberalization in the Fisheries SectorFisheries Sector

A. Basic Features of the Fisheries Sector

- small-scale underdeveloped fishing industry- employs1.6 million labor force, mainly subsistence artisanal fishers; approximately 6 million of household population depend on fishing for their livelihood- poverty incidence of 53% among fishing population is higher than the national average of 30%- contributes 5% of GDP- declining growth rates in production (from 2% in the 80’s to 1.5% in recent years) indicative of depleted resource base

III. Trade Liberalization in the III. Trade Liberalization in the Fisheries SectorFisheries Sector

A. Basic Features of the Fisheries Sector- fishery exports is 6% of total production (main exports are tuna, shrimp and seaweed)- import volume in 2002 accdg. to gov’t figures was 66,000 mt, mainly sardines, tuna and mackerel; but smuggled Taiwanese and Chinese fish imports may bring actual import volume to around 174,000 mt- fish imports still relatively small due to domestic regulation, i.e. Fisheries Code of 1998 allowing imports only for canneries and processing; prohibits selling in wet markets- net-importer in volume but net-exporter in value terms

III. Trade Liberalization in the III. Trade Liberalization in the Fisheries SectorFisheries Sector

B. Trade Liberalization Policies- tariff reduction was done mainly through AFTA with applied tariff rates ranging from 10-15% in 2001; twice these rates as per NAMA formula would bind tariffs at only 20-30%- open access regime combined with push for aquaculture farming has caused serious depletion of marine and coastal resources, displacing communities and affecting livelihood of small-scale fishers- lack of serious resource management program combined with lax enforcement of law to prevent encroachment of foreign commercial fishing vessels into the country’s territorial waters

III. Trade Liberalization in the III. Trade Liberalization in the Fisheries SectorFisheries Sector

C. Impact of Trade Liberalization- declining growth rate in value of exports from 8% in the 80’s to only 2.7% in the 90’s to the present due to failure to compete with highly-subsidized imports from China and Taiwan - existing import restrictions have cushioned impact of dumping; present volume of imports have no observable drastic effect on local prices yet; but if NAMA is put in place, what happened to the agricultural sector may be repeated in fisheries- a critical problem is unsustainable resource utilization resulting from intensified export production (aquaculture and commercial fishing) and lack of resource management programs

IV. July Framework Agreement: IV. July Framework Agreement: Implications and Issues Implications and Issues

• Annex A: Framework of Modalities in AoA- Expansion of Blue Box exemptions and effect on US and EU subsidies- no deadline for export subsidy elimination - SDT lip service; blank modalities on SP and SSM- contentious issues on tariffication, i.e. AVEs, tariff peaks, etc.

IV. July Framework Agreement: IV. July Framework Agreement: Implications and IssuesImplications and Issues

• Annex B on NAMA Modalities- 100% tariff binding coverage- loss of flexibility by sovereign countries to use tariff adjustment as a strategy for industrial development; NAMA is a recipe for deindustrialization - simplified formula of 2 x 2001 applied tariff rates is unfair to developing countries which implemented earlier unilateral tariff reduction - Philippines 2001 non-agricultural applied tariff rate averaged only 4.3%; multiply this by 2 would bind tariffs at only 8.6% on the average

IV. July Framework Agreement: IV. July Framework Agreement: Implications and IssuesImplications and Issues

• Fisheries Inclusion in NAMA

- tariff reduction to displace 90% of world’s fishers who are mainly small-scale artisanal fishers in developing and least developed countries

- country’s 2001 applied tariff rates in fisheries ranged from 10-15%; twice these rates would bind tariffs at 20-30%, not enough protection for a sector with threatened resource base- even if defined as environmental good, protection of small-scale fishers and resource management/conservation should be the priority concern instead of tariff reduction- developed country subsidies for their commercial fishing activities in cross-territorial waters should be abolished while domestic subsidies for small-scale fishers in developing countries should be protected and increased in the framework of SDT

IV. July Framework Agreement: IV. July Framework Agreement: Implications and IssuesImplications and Issues

• Fisheries Inclusion in NAMA

- tariffs should be recalibrated to incorporate social and environmental costs and maintain flexibility on tariff application to take into account seasonality of fishery products

- precautionary principle and SDT should generally guide and therefore restrict trade of fisheries as an environmental good

V. Conclusions and V. Conclusions and RecommendationsRecommendations

1. Ten years of the WTO have not made trade supportive of development. Gross imbalances remain. The Doha Development Round, despite its rhetoric on development, retains the fixation on further liberalization especially if the July framework agreement is not drastically altered.

2. Trade justice and protection for the South should be the overarching framework if trade is to support development. Current NAMA modalities are a recipe for deindustrialization. AoA modalities on domestic support is a reversal of the original GATT-UR. The rhetoric on SDT should be given flesh.

V. Conclusions and V. Conclusions and RecommendationsRecommendations

3. Guided by the above framework, substantive reforms in the Doha Round negotiations (particularly in agriculture and NAMA) should be pursued:

- SP and SSM modalities as proposed by G33- G20 position to add more disciplines/criteria to the blue box and green box including product-specific caps- G20 position of 5-yeardeadline on export subsidies- Option of non-concurrence by developing countries to NAMA or adoption of higher multiplier rate and a more realistic base year in the formula for tariff reduction and binding- Exemption of fisheries from NAMA

V. Conclusions and V. Conclusions and RecommendationsRecommendations

4. National governments of the South should also be made accountable for their WTO plus and previous unilateral policies on trade liberalization. Maximum policy flexibility should be used in the national capitals to reverse these past policies. Full caution should be exercised in the face of bilateral trade deals that are being clinched parallel to WTO.