MOVING ON MAV
What scuttling the controversial importation system could mean: it requires legislative action, could invite a response from trade partners, and means foregoing certain funds earmarked for agriculture.
ABOLITION of the minimum access volume (MAV) system, a policy direction initiated by the Economic Development Cluster (EDC), would streamline import processes and curb possible corruption in bureaucracy. It may mean, however, foregoing funds earmarked for the agriculture sector.
Getting rid of the MAV system would also require legislative action since the measure was created by Republic Act 8178 or the Agricultural Tariffication Act of 1996, experts told the Businessmirror.
Based on the Philippines’s notification to the World Trade Organization (WTO), the country’s MAV system “cannot be abolished without legislative approval” since it was created by legislation.
Former Agriculture Secretary Segfredo R. Serrano confirmed to the Businessmirror that an amendment of RA 8178 is needed in order to abolish the MAV system.
Serrano pointed out that if the country pursues abolition of the MAV system, it will not entail a notification to the WTO since it is a “unilateral move that would not prejudice” any trade partners.
However, Serrano noted that nothing will stop WTO trade partners from raising concerns at the multilateral body if the Philippines removes its MAV system, especially if they think they can leverage it.
Finance Secretary Carlos G. Dominguez III earlier revealed that the EDC, which he chairs, has instructed the DA and the Department of Trade and Industry to “work towards” the “removal of the MAV system,” replacing it with appropriate tariff rates to regulate agricultural imports.
The instruction came as EDC identified that “government tariffs, low MAV quotas and non-tariff barriers to trade” were factors in the spike in prices of key food commodities, which contributed to higher inflation rate.
Reforms under way
AGRICULTURE Secretary William D. Dar said on Wednesday they are mulling over reforms in the country’s MAV system and are seeking a unitary tariff rate for in-quota and out-quota imports of concerned agricultural products.
Dar confirmed to the Businessmirror that reforms concerning the country’s MAV system are on the way to “streamline import procedures.”
Dar said they are looking to remove the current MAV licensing requirements and implement a “first come, first served” policy on availing the existing quotas for certain agricultural imports.
Dar also disclosed that the Department of Agriculture (DA) will request the assistance of the Cabinet-level interagency Committee on Tariff and Related Matters (CTRM) in coming up with a unitary rate for agricultural commodities that have existing MAVS.
“The removal of MAV licensing requirements will streamline processes and ensure actual availment by MAV importers based on a ‘first to arrive’ principle,” he said via SMS.
“We will request CTRM to assist in the unification of in-quota and out-quota tariffs inasmuch as there are now a few products that have unified rates,” he added.
MAV is a commitment made by countries like the Philippines to the WTO to facilitate trade between countries by ensuring a guaranteed minimum volume of imports to enter their respective domestic markets at a lower tariff.
The MAV is implemented in the form of tariff rate quotas, wherein imports within the quota (in-quota) are slapped with lower tariffs compared to out-quota volume.
At present the MAVS for agricultural products are allocated among eligible importers, firms and companies based on their past MAV performances. Quota holders are also required to secure a MAV license.
Certain agricultural products with existing MAVS have two-tier tariffs such as pork; here, in-quota imports are levied with 30-percent tariff, while out-quota volume has a 40-percent tariff.
However, certain agricultural products that have MAVS have achieved unified in-quota and outquota tariff rates today due to commitments made by the Philippines to the WTO.
The products with MAV that already have uniform in-quota and out-quota tariffs are: chicken, frozen or chilled (40 percent); turkey livers, frozen or chilled (40 percent); potatoes, fresh and chilled (40 percent); and roasted coffee beans (40 percent).
The United States’ International Trade Administration noted
that the Philippines’s in-quota and out-quota tariff rates for agricultural products “averaged 36.5 percent and 41.2 percent, respectively, and have not changed since 2005.”
Elimination of Acef
SERRANO explained that abolishing the MAV system would also eliminate the Agricultural Competitiveness Enhancement Fund (Acef), as it would be depleted and would no longer be replenished since its funds come from the tariff revenues collected from imports within the MAV.
Due to this, Serrano, who was the country’s longest-serving agriculture undersecretary in the 21st century and former trade negotiator, disclosed that the DA has taken the position to retain the MAV quotas.
“Legally, there are no specific expiry provisions for the MAV and the Acef in RA 8178. Since changing and amending the law cannot be through Executive action, eliminating the MAV will require legislation by Congress,” he said in an interview.
United Broiler Raisers Association President Elias Jose Inciong is batting for abolishing the MAV system, saying it has been rendered “useless” after tariff rates for the in-quota and out-quota rates of certain agricultural products have reached parity since 2005.
As part of the country’s Philippine schedule of commitments to the WTO, the country must phase down its out-quota tariffs over a period of 10 years from 100 percent to 40 to 50 percent by 2005. Due to this, it has “roughly equalized,” meaning, the differential tariffs between the in-quota and out-quota imports have “slimmed down,” Serrano said.
Inciong concurred with Serrano that the DA only retained the MAV for purposes of the Acef.
Elimination of corruption
BUT on the other side of the coin, Serrano said abolition of the MAV would have advantages as well.
First, Serrano pointed out that the MAV, a quota administered by the DA, is “most susceptible to corruption,” thus, removing the mechanism would eliminate “this susceptibility of a cumbersome quota allocation function.”
“It is a simplification of trade policies. The management of MAV is a regulatory nightmare that is highly susceptible to corruption,” he said.
Earlier, Senator Panfilo M. Lacson claimed there is a “tongpats” (kickback) in the management of the country’s MAV system.
Serrano also explained that eliminating the MAV “increases” the government’s “chances and frequency” to apply special safeguard (SSG) actions on concerned agricultural imports. At present, agricultural imports that enter within MAV are exempted from any calculation to determine import surges for purposes of SSG.
“Revenues from the imposition of additional SSG duties on top of regular tariffs during SSG action accrue to a separate special fund that can be used to enable local industries to compete and the government to more effectively detect and counter unfair trade practices of trading partners,” he added.
‘Appropriate tariff’
INCIONG said the MAV should be abolished but the tariff rates must not be reduced below the existing out-quota tariff rates.
“Exporters have enjoyed this privilege for such a long time. It is like an income-tax holiday, it is an incentive to them. So why would you forego tariff revenues?” Inciong added.
Inciong argued that abolishing the MAV and applying a uniform tariff would encourage “more competition” between importers and traders.
“It levels the playing field and in effect increases the velocity of goods,” he said.
Meat Importers and Traders Association (Mita) President Jesus C. Cham supports the abolition of the MAV, but pointed out that a reduction of the uniform tariff must be implemented as well so that consumers would benefit and domestic industries would improve.
“There should be a commitment towards reducing the import duty so our local industries become globally competitive without tariff protection,” Cham told the Businessmirror.
Cham noted that the agricultural products that still have MAVS, such as pork, chicken, rice, corn and sugar, have the highest tariff rates.
“The average tariff across agricultural products is at 9.8 percent. They should bring down the tariffs [on pork and chicken, others] to that average level,” he said.
Serrano said if the government opts for a uniform tariff then they should find a middle ground between the present in-quota and out-quota tariff rates of the concerned agricultural import.
“You can actually calculate the monetary equivalent of that. And that should be the gambit for the stakeholders to demand for that tariff level. It could be lower than the out-quota but higher than the in-quota,” he said, adding that the stakeholders may also ask that the tariff revenues be earmarked to their respective sector’s development.
Tolentino: Efficient use of tariff revenue
HOWEVER, Monetary Board Member V. Bruce J. Tolentino, who is also a former agriculture undersecretary, said tariff revenues are better invested in “public goods that support all commodities,” such as capacity building and shared infrastructure.
“It will be inefficient and would constrict budgeting if tariff revenues would be tied to specific commodities,” Tolentino told the Businessmirror.
“More appropriate to ensure that basic public goods that support all commodities are funded from the public purse—science and technology, capacity building, shared infrastructure,” Tolentino added.
Tolentino also supports the abolition of the MAV system, pointing out that it is already “obsolete” and “no longer a significant aspect of WTO agreements.”
“It is up to each country to set tariffs according to its best interest,” he said.
“The quotas are part of the MAV system and should also be abolished. In general, tariffs should be relatively low and uniform. Competitiveness is a matter of productivity, not tariff barriers,” he added.