Executive Director's Corner

Trans-Pacific Partnership: What it means for Philippine agribusiness


Posted on November 09, 2015 09:05:00 PM

Trans-Pacific Partnership: What it means for Philippine agribusiness

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M.A.P. Insights
Rolando T. Dy

The Trans-Pacific Partnership (TPP) is termed a landmark agreement in global trade relations.
The TPP binds 12 countries: the United States, Canada, Chile, Mexico and Peru in the Americas; Brunei, Japan, Malaysia, Singapore and Vietnam in Asia; as well as Australia and New Zealand. Altogether, they comprise an 800 million market and account for $28-trillion gross domestic product, or 40% of the world economy.

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The US Trade Representative Web site claims: “TPP will make it easier for American entrepreneurs, farmers, and small business owners to sell Made-in-America products abroad by eliminating more than 18,000 taxes and other trade barriers on American products across the 11 other countries in the TPP — barriers that put American products at an unfair disadvantage today.”

Four ASEAN (Association of Southeast Asian Nations) countries are in (Brunei, Malaysia, Singapore and Vietnam), but the three big nations (Indonesia, Philippines and Thailand) are still out. What is the latest with them?

Indonesian President Joko Widodo told US President Barack Obama that Indonesia intends to join the TPP. Thai Prime Minister Prayut Chan-O-Cha is cautious as Thailand is also in talks regarding the Regional Comprehensive Economic Partnership (RCEP) which is an economic and trade pact between 10 ASEAN members and six other countries: China, Japan, South Korea, India, Australia, and New Zealand.

Meanwhile, Philippine President Benigno S. C. Aquino III said he wants the country to join the TPP since most countries that signed up for the trade pact were existing allies. Department of Trade and Industry Secretary Gregorio Domingo seconded that the country is “unequivocally joining.”

Noted economist Cielito Habito, in an article, cites the potential costs of losing some of our export markets to competing TPP members if we do not join, and the potential benefits of expanded exports into more open markets if we join.

He cited Vietnam, which produces many of the similar exports to major TPP markets, could take business away from us, as its exports would then enjoy duty-free access while ours would not. A counterpoint is the possibility that more open access to the domestic market by TPP members might edge out uncompetitive Filipino producers, leading to short-term job losses. Still, he added, it could well mean lower prices, better quality and wider choices for our consumers.

What are the potential gains and losses to the Philippine agri-food sector in joining the TPP? Let me cite a few products. They are now slapped five% duty within the ASEAN Economic Community (AEC).

RICE. It is under quantitative restrictions at tariff of 35% within minimum access volume (MAV) of 805,000 tons. It will be lifted within AEC by 2017. Tariff outside the MAV of 50% will continue.

SUGAR. Thailand is the main source in AEC but Thai sugar face nontariff barriers into the Philippines. With TPP, Australia could be under similar regime?

CORN. Thailand is the main source, too, in AEC, but the US will benefit from 5% tariff from the 35% to 40% MFN (most-favored nation) duty today. It will not benefit the corn farmers, but will likely benefit the chicken and hog producers. When the world price of corn is high, they resort to low-duty feed wheat.

CHICKEN. The MFN duty for the low-priced chicken parts from Canada and the US is 40%. Canada exported 15,400 tons of meat and offal worth $14 million while the US exported 78,100 tons ($74 million).

PORK. The MFN duty for pork is 30 to 40% from Canada and the US. Australia could come in too. Canada exported 21,200 tons ($34 million) while the US 22,300 tons ($53 million) in 2014.

WHEAT. The MFN duty of 7% will be reduced to zero. Many Filipinos will enjoy lower prices of pan de sal, bread, noodles, and biscuits. It will also promote the export of baked goods.

Be wary of diversion (rules of origin). TPP countries can export corn to say Vietnam, and the excess corn of Vietnam will be exported to the Philippines under AEC tariff.

Exports to the US. Canned tuna and frozen shrimps are already duty-free. Thailand and Vietnam are key exporters of canned tuna. Indonesia, Vietnam, and Thailand lead in shrimp exports. Coconut oil is duty-free with the Philippines and Indonesia as key exporters. Canned pineapples are slapped a 6% duty. Thailand, the Philippines and Indonesia are the main exporters. Vietnam, a small player, can gain market share at duty-free status.

Trade expert George Manzano opined that while the Philippines already enjoys privileges under the US Generalized System of Preferences (GSP), but the GSP is not permanent unlike foreign trade agreements. Many Philippine products can already enter the US market duty-free provided the rules of origin are met.

To Canada. Frozen shrimps and canned crab meat have tariffs of 11% while tariffs on desiccated coconut and dried mango are at 6%. Vietnam would gain.

Under Canada’s Generalized Preferential Tariffs, most of Philippine food exports are duty-free.

To Japan. Frozen shrimps and canned crab meat have MFN tariffs of 9.6% while fresh banana has 10-20% at low-peak seasons. Japan applies 12% to desiccated coconut and six% to dried mangoes.

Under the Japan-Philippines Economic Partnership Agreement (JPEPA), duties of Philippines exports have fallen.

For example, it is now 8.5% to 18.5% on bananas. However, several countries, such as Indonesia and Vietnam, now enter at zero duty for pooled quotas of 1,000 tons a year.

Under the JPEPA, shrimps will get immediate elimination of tariffs, while tariffs on crabs will go through gradual elimination. Sugar’s tariff rate quota (TRQ) would be just half of the applied MFN rate. The RQ for chicken meat will provide advantage for the Philippines with in-quota rate of 8.5% versus MFN applied rate of 11.9%.

Will Vietnam gain lower tariffs under TPP?

Vietnam is viewed by analysts as a big winner as the deal would boost its growth as firms move factories to the low-wage country.

Vietnam’s Minister of Industry and Trade, Vu Huy Hoang, said that the TPP is expected to help raise the country’s gross domestic product by an additional $23.5 billion in 2020 and $33.5 billion in 2025, as major markets, such as the US, Japan, and Canada, will eliminate import taxes, creating an impetus for Vietnam’s exports.

Where to, Philippines?

Filipino consumers will surely gain from lower tariffs of wheat, meat, and other food products. Exporters to TPP countries will have their markets expand or market shares protected.

However, local producers of rice, sugar, and meats may need safety nets during the transition.

For example, income transfer a la 4Ps (Conditional Cash Transfer) may be necessary for the affected farmers living in poverty. Or tariff reduction could be spaced out over a long period.

Without carefully calibrated safety nets, accession to the TPP may face opposition from affected sectors and their allies. In the meantime, government officials should already start strategizing, and not wait for the last minute.

Joining trade agreements is not a “walk-in-the-park.” There are bound to be gainers and losers. Policy makers must conduct “line-by-line” impact analyses under the two scenarios: joining the TPP versus not joining the TPP.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the M.A.P.)

Rolando T. Dy is the Vice Chair of the M.A.P. AgriBusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

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