Impact of Trade Liberalization in Philippine Agriculture and Fisheries Sector

1. Impact of Trade Liberalization in Philippine Agriculture and Fisheries Sector by Naty Bernardino, IGTN-Asia Presentation at the South Center Panel on “Making Trade Support Development: Global Problems and Viable Alternatives”, WTO Public Symposium, April 21, 2005, Geneva

2. Presentation Outline I. Brief Historical Background II. Trade Liberalization in Phil. Agriculture A. Basic features of Phil. Agriculture B. GATT-UR Commitments C. Impact of Trade Liberalization • Trade Liberalization in Fisheries Sector A. Basic features of the Sector B. Trade Liberalization Policies C. Impact of Trade Liberalization • July Framework: Issues and Implications on Agriculture and Fisheries • Conclusions and Recommendations

3. I. BriefHistorical 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

4. I. BriefHistorical 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

5. I. BriefHistorical 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.)

6. II. Trade Liberation in Philippine Agriculture 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

7. II. Trade Liberation in Philippine Agriculture B. GATT-UR Commitments Tariff Binding and Tariff Reduction

8. II. Trade Liberation in Philippine Agriculture 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

9. II. Trade Liberation in Philippine Agriculture 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

10. II. Trade Liberation in Philippine Agriculture 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.

11. III. Trade Liberalization in the Fisheries Sector • 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

12. III. Trade Liberalization in the Fisheries Sector • 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

13. III. Trade Liberalization in the Fisheries 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

14. III. Trade Liberalization in the Fisheries 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

15. IV. July Framework Agreement: 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.

16. IV. July Framework Agreement: Implications 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

17. IV. July Framework Agreement: Implications 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

18. IV. July Framework Agreement: Implications 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

19. V. Conclusions and Recommendations • 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. • 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.

20. V. Conclusions and Recommendations 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

21. V. Conclusions and Recommendations 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.