Wednesday, November 30, 2005

Stonewalling on protection

The Philippines will not offer further tariff cuts in the WTO negotiations. According to the report, policymakers are claiming that:

1. "...the country needs to adjust from the headlong rush to liberalize."

2. "The Philippines has already unilaterally brought down its tariff rates much faster than in its ASEAN neighbors and through various early harvest schemes."

3. "On the agriculture issues, the Philippines is also against several of the provisions that would further open up the Philippine market to foreign agriculture imports."

For cryin' out loud. Point 1 is vague gibberish. Point 2 is true. However consider recent study by Rafaelita Aldaba of the PIDS (pdf file): Since the 1980s major tarrif reforms have been undertaken. Currently the average tariff rate is only 6.82%. However, tariff reform remains an important arena for policy debate: Recently the dispersion in tariff rates and effective protection rates have increased. Protection has risen in agriculture, with the rice and corn receiving some of the highest rates of protection. For specific manufacturing activities, effective protection remains high (such as for pesticides, insecticides, and motor vehicles). In 2004, the weighted average of effective protection rates for exporting industries is only 1.4%, whereas for importable industries the weighted average was 11.0%. This is an important source of distortion in the allocation of resources.

Aside: an obvious measure of the rate of protection is the percentage difference between domestic and world price. This is the "nominal" protection rate. The effective protection rate adjusts this further by computing protection extended only to the value-added; in other words, tariffs on imported inputs should reduce the amount of protection.

As for Point 3: Aldaba also points out that the high tariffs for agriculture resulted from the WTO negotiations. (Talk about perverse effects!) Apparently what happened was: ceiling tariffs were set very high. Tariffs were set at that ceiling. Tariffs were then reduced according to the agreed schedule. However the final tariffs continue to confer considerable protection on agriculture.

So yes, the average tariff and protection rate is low, but its uneven distribution continues to distort the allocation of resources. So yes there is further room for tariff reduction.

Perhaps the negotiators' statements are merely a ploy to help win concessions from other countries. In that case the rough analogy is: "I'm gonna shoot my own foot, as long as the bang is loud enough to make you all deaf! The only way to stop me is that if you stop shooting your own feet too!"

Come Hong Kong in December, guess what? BANG!!!!!!


jemy said...

hi. probably more of a whimper rather than a bang.

this "policy" of ours has simply not been thought through.

Anonymous said...

True. This excuse of "need more time" is getting to be really annoying. Everybody always "needs more time". No business will ever say "I am ready, so open the flood gates for more competition now".


Econblogger said...


I meant the sound of bullets piercing feet.


Well said.

jemy said...

well they could always whimper after they shoot their own foot.