The nuances of in-quota and out-quota tariff rates

THE world of international trade, particularly for agricultural products, can be a labyrinth of regulations and tariffs. Like many other countries, the Philippines navigates this intricate landscape using a system of Tariff-Rate Quotas (TRQs), specifically in-quota and out-quota rates. Understanding these terms and their impact is crucial for anyone involved in importing or exporting agricultural goods in the Philippines.

From non-tariff barriers to a more predictable landscape

Prior to the 1995 Uruguay Round, countries often relied on non-tariff barriers like quotas and subsidies to protect their domestic agricultural sectors. While these measures aimed to achieve specific goals, they also created uncertainty and unpredictability in international trade.

Thus, the World Trade Organization (WTO) Agreement on Agriculture advocated for tariffication, which involves the conversion of the non-transparent barriers into predictable and transparent tariff rates, bringing greater clarity and fairness to agricultural trade.

However, recognizing the unique needs of certain countries, the WTO granted exemptions and allowed the continued adoption of non-tariff barriers for a limited number of sensitive agricultural products, like rice and corn, subject to strict conditions.

Striking a balance between food security and openness

The Philippines employs TRQs for specific agricultural products, like rice, corn, pork and sugar, to strike a delicate balance between two competing goals: ensuring food security for its citizens and promoting trade openness. The core components of this system are:

– The Minimum Access Volume (MAV) is a pre-determined quota that allows a specific volume of a particular product to be imported at a lower in-quota tariff rate. It aims to keep essential goods at affordable prices while also encouraging international trade.

– The Out-Quota Tariff is the imposition of a higher tariff rate on imports exceeding the MAV. By raising the cost of importation, the out-quota tariff protects domestic producers from excessive competition and encourages local production, fostering food security in the long run.

It should be noted, though, that aside from tariffs, importing agricultural products often involves a multitude of regulations, such as clearances and permits from the Sugar Regulatory Administration, Bureau of Plant Industry, and Bureau of Animal Industry.

Navigating and understanding these additional requirements can ensure a smooth and compliant import process.

In-quota vs. out-quota rates

The “in-quota tariff rate” (which is availed of by importers who stay within the MAV) is, thus, akin to a “bulk discount,” since importers benefit from lower tariffs and import costs. They, thus, contribute to a stable food supply for consumers and help ensure a balanced and predictable flow of imported goods.

However, as mentioned, importations in excess of the MAV trigger the “outquota tariff rate,” a higher tariff, which effectively prevents the negative impact of excessive imports on local industries.

Free Trade Agreements and tariff rates

The Rice Tariffication Law, on the other hand, introduces a layer of complexity by granting preferential FTA rates to Aseanorigin products, regardless of whether or not they fall within the MAV. This strategic move fosters regional trade, bolsters economic ties within the Asean bloc, and underscores the Philippines’ commitment to regional economic integration while balancing domestic agricultural interests.

In contrast, suppliers of non-Asean products navigate a more intricate tariff landscape, with applicable rates depending on their alignment with the MAV requirement. They may face in-quota or out-quota rates or be subject to the Most Favored Nation rate, showcasing the intricate interplay between international trade agreements and domestic regulations.

Responding to challenges

Cognizant of the ever-changing landscape in both the agricultural sector

and the global market, the government promulgated Executive Order 50, s. 2023, which introduces temporary adjustments to in-quota and out-quota rates for critical products such as rice, corn and meat. The flexibility embedded in this approach allows the government to effectively address a range of factors influencing the agricultural industry and international trade, such as the following:

– Market demand. Balancing import volumes with domestic needs to ensure stable supply and prices.

– ECONOMIC flUCTUATIONS. Adjusting tariffs to mitigate the impact of economic downturns or global price increases.

– EXTERNAL FACTORS. Reacting to unforeseen events like El Niño or African swine fever, which can disrupt agricultural production and necessitate adjustments to import policies.

In sum, the government’s top priority should be to secure a stable and sufficient food supply for our nation. This priority aligns with the broader goal of making our agricultural sector strong, efficient and able to stand its ground in the global market.

However, the government is also committed to help promote regional economic integration. This critical balancing act is exercised by the government through the use of various schemes, such as the use of non-tariff barriers, like in-quote and out-quote tariffs discussed above.

Jigo P. Arevalo is a customs brokerlawyer and an associate of MataPerez, Tamayo and Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment, you can email the author at info@mtfcounsel.com or visit the MTF website at www. mtfcounsel.com.