I.

Introduction
Rice is the considered the staple food for most of the Filipinos. The
country's rice consumption per capita rose from 93. 2 kg per year in 1995 to
123.3 kg per year in 2009. Therefore, rice production is essential to the
food supply of the Philippines. In 2010, Philippines is the 8th largest
producer of rice in the Philippines, accounting for 2.8% of global rice
production, and in the same year, the Philippines was also the largest rice
importer in the world1.

The figure above shows the annual rice consumption of the Philippines from
1960 to 2014. As you can see in the graph, there is an increasing trend in
1 http://ricepedia.org/philippines

the consumption of rice. From the 2,800 MTin 1960, the consumption rose
to 12, 860 MT in 2011.

The second figure shows the annual production of rice in the Philippines.
Same with consumption, the production rate of rice in the country has an
increasing trend. In 2014, the country had produced 12,200 MT of rice. 3
Even though the Philippines is one of the major producers of rice in the

2 Philippines Milled Rice Domestic Consumption by Year N.d. Retrieved on October 15, 2015
fromhttp://www.indexmundi.com/agriculture/?country=ph&commodity=milledrice&graph=domestic-consumption

3Philippines Milled Rice Production by Year N.d. Retrieved on October 15, 2015
fromhttp://www.indexmundi.com/agriculture/?country=ph&commodity=milledrice&graph=production

world, the country's production is still very small compared with the other
major-rice producing countries in Asia.
Since rice is a major consumption item for the Filipino consumers, it is also
a major source of income for millions of Filipino farmers. Because of this,
the government is implementing certain policies regarding the supply and
distribution of rice. One of the major policies implemented by the
government is the control of imported rice through a quantitative restraint
(QR).
The primary institution concerning about restrictions in imports and
exports is the World Trade Organization (WTO). The main function of WTO
is to ensure that trade flows smoothly, predictably and freely as possible. In
1995, the Philippines became a WTO member. Through the membership, the
Philippines, along with Japan and South Korea, were granted exemption
from the removal of quantitative restrictions on rice under the Annex 5 of
the WTO agreement4.
Quantitative restrictions (QR), as defined by the World Trade organization,
are limits imposed on the volume of goods traded by a WTO member.
General Agreement on Tariffs and Trade (GATT) requires the general
elimination of these restrictions except in defined circumstances.
Members' notifications on quantitative restrictions are compiled in a WTO

4 https://www.wto.org/english/tratop_e/tpr_e/tp114_e.htm

database which is accessible to the public. The Philippines was one of the
first countries subjected under the QR agreement.
Under the agreement, the WTO will require a minimum access
volume of 805, 200 metric tons of imported rice for the members of the
organization. Upon the limit given by WTO, the tariff imposed would be
35%, and exceeding the limit will incur a 50% tariff. The agreement will be
valid for five years and is renewable after termination5.
The graph below shows the rice importation trend from 1960 to 2014 6. The
trend has a fluctuating pattern because the implementation of the QR
agreement is not continuous over the years. There were periods where the
country was not subjected into the restriction policy.

5 http://nfa.gov.ph/component/content/article?id=393
6http://www.indexmundi.com/agriculture/?country=ph&commodity=milledrice&graph=ty-imports

Despite the termination of the QR agreement in June 2012, the

Philippines continued to negotiate with the WTO for an extension of the
Special Treatment. The country was granted an additional 5 year-extension
that will expire in 2017. According to the Department of Agriculture, the 5year extension will be used as a preparation period for the country to
improve its production capability and to cope with the increased pressure
that comes with the enforcement of free trade within Southeast Asia in
2015.7
II. Statement of the Problem

7 Rice imports under MAV slapped with 35% tariff, June 28, 2014, Retrieved on October 15,
2015 fromhttp://www.philstar.com/business/2014/06/28/1339791/rice-imports-under-mavslapped-35-tariff

The Philippines is one of the three countries granted exemption in 1995

from the removal of quantitative restrictions (QR) on rice under Annex 5 of
the World Trade Organization (WTO) agreement. However, the Special
Treatment (ST) accorded to the Philippines expired on June 2012. Efforts
prior to the renewal of the ST was made by the government and the WTO
granted the extension for five more years. By the end of 2017, should the
government negotiate to extend the QR agreement or should they opt for
termination of the ST and replace the QRs for rice with tariffs?
III. Alternatives
First Alternative: The government should negotiate again with WTO
to extend the QR Agreement for another five years.
Second Alternative: The government should terminate the QR
Agreement and opt for tariffication of Rice trade.
Third Alternative: The government should renew the QR Agreement
for

couple

concerning

the

of

years

while

improvement

formulating
of

Rice

or

longer-term
Palay

policies

production

in

accordance to Rice trade tariffication.

IV. Presentation of Data
A. First Alternative: The government should negotiate again with
WTO to extend the QR Agreement for another five years.
PROS

CONS

Limits

imports in the country

QR has greater protection

the

entry

of

rice

effect than tariff measures.

QR increases profits of the

Limiting the amount of rice

imports in the country may

domestic industry.

lead to unstable prices.

Distortion of free trade
QR harms consumers

and

downstream industries in the

importing countries.
QR may impede efforts of
domestic

producers

to

improve

productivity

or

rationalize operations.
Quantitative restriction (QR) is a non-tariff barrier that limits
the volume or value of goods traded by a World Trade Organization
(WTO) member.8 These trade policy measures are designed to cushion
the domestic rice farmers from any imbalances that may arise as a
result of trade liberalization. The Philippines is a member of the WTO
and was granted a Special treatment (ST) clause for rice. The ST is
a regulatory measure that allowed the country to impose Quantitative
restrictions on rice thus permitting the Philippines to set Minimum
Access Volume (MAV)-minimum amount of rice that can be imported
per year. Last 2012, the agreement expired and the Philippine
8 World Trade Organization. N.d. Retrieved on October 15, 2015
fromhttps://www.wto.org/english/tratop_e/markacc_e/qr_e.htm

government negotiated with WTO for another 5-year extension of the

ST.
Retaining the Quantitative restriction has pros that need to be
carefully analyzed. First benefit is that QR limits the entry of rice
imports in the country thus preventing sudden increase in the
amount of rice imports. It allows the government to control the
amount of imported rice that can enter the country. Second benefit is
that QR has greater protection effect than tariff measures. By
limiting the amount of rice imports, local farmers and their produce
are protected from extreme foreign competition. QR is advantageous
in terms of helping local farmers prepare for competition and keeping
farm income attractive.
domestic

industry.

Lastly, QR increases profits of the

Because

QR

protects

particular

domestic

products from competition with foreign products by having a high

level of competitiveness, they may be beneficial in the short term in
protecting and increasing profits of the domestic industry by
producing competing products and maintaining stable employment in
that industry.
On the other hand, retaining the Quantitative restriction has its
downside. First, limiting the amount of rice imports in the
country may lead to unstable prices. Without QR, foreign countries
can freely export their rice/palay in the country. If this happens, the
aggregate supply of rice will increase and will lead to price surge

making the imported rice cheaper compared to the locally produced

rice. Therefore, Filipinos will patronize the cheaper imported rice.
This in turn could hurt domestic producers. The expected surge in
rice imports will translate into larger negative income effects for
household groups where the problem of poverty is most severe.
Second, QR leads to distortion of free trade. When a trading
partner uses tariffs to restrict imports, it is still possible to increase
exports as long as foreign products become price competitive enough
to overcome the barriers created by the tariff. But when a trading
partner uses quantitative restrictions, however, it is impossible to
export in excess of the quota no matter how price competitive foreign
products may be. Thus, quantitative restrictions are considered to
have such a greater distortional effect on trade than tariffs. 9 Third,
QR

harms

consumers

and

downstream

industries

in

the

importing countries. Without mid-term plans to eliminate restrictive

measures, domestic producers will be unlikely to develop the ability to
earn foreign currency through exports, which is the true indication of
competitive strength. The quantitative restrictions leave at best
import-substitute effect, and consumers and downstream industries in
the importing country also suffer disadvantages such as higher prices
and other disadvantages that are the immediate results of import
restrictions. Therefore, such measures may cause a negative overall
9Mangabat, M. (1999). Effects of Trade Liberalization on Agriculture in the
Philippines: Commodity Aspects.

effect on the importing nation's economy in the mid or long term. 10

Lastly, quantitative import restrictions may impede efforts of
domestic

producers

to

improve

productivity

or

rationalize

operations in order to survive the tough business environment,

depending on the operation of the quantitative restriction. Unless it is
clarified

that

the

restrictions

are

temporary,

and

appropriate

measures are taken to ensure that protected producers acquire

sufficient competitiveness, quantitative restrictions could harm the
mid- or long term development of the affected industry and the
economic benefits of the country employing quantitative restrictions.11
Overall, retention of quantitative restriction may cause a positive and
negative overall effect on the importing nation's economy in the short,
mid, or long term. This alternative impose both mid and long-term
costs that clearly outweigh benefits of protecting domestic industries.

B. Second Alternative: The government should terminate the

QR agreement and opt for tariffication of Rice Trade.
PROS

Import tariff gives price

10N.d. Quantitative Restrictions.

11 Ibid.

CONS

Government relinquishes

advantage to locally produced

control of imports to the

goods.
Government and producers

private sector
World and domestic prices are

earn revenue under

-

unpredictable

tariffication
Government no longer
assumes planning function of
computing the annual quota of

imported rice
Avoids the added uncertainty
from discretionary import

targeting
Avoids the timeless problem of
allocating the import quota to
private traders in a fair and
transparent manner

Tariffication is converting existing non-tariff barriers into import

equivalent tariffs or in simple terms it gives or confers the same level
of protection as the original trade barrier. Unlike Quantitative
Restrictions, Tariffs have revenue generating function and less of a
distorting effect on markets where monopolies exist.
There are five advantages that tariffication provides first is that
the import

tariffs

raises

domestic

prices

in

the

country

imposing the tariff, for small or developing countries the rise in

domestic price is equivalent to the amount of the tariff while for large
countries the rises in price is somehow or somewhat less than the
amount of the tariff because part of the tariff is reflected in a
reduction

in

international

prices12.

Second,

Government

and

producers earn revenue under tariffication in the form of tax

revenues- the revenue equals the tariff rate per unit of imported
goods times the quantity of goods imported 13, so the same amount
goes to government as tariff revenue -and producer surpluses at the
expense of its consumers in the form of higher prices. Third,
Government

no

longer

assumes

planning

function

of

computing the annual quota of imported rice because the

Government would now only compile different information and
forecasts to have an estimate on domestic demand, domestic supply,
and the deficit or surplus to be filled up by imports depending on
existing conditions of demand and supply. Fourth, it avoids the
added uncertainty from discretionary import targeting because
the original role of the Government is to provide its people a clean
intervention in stabilizing the domestic price and reduce its volatility,
however private sectors cautious to public sector because they believe
12 http://www.meti.go.jp/english/report/data/gCT9904e.html

13 http://research.bworldonline.com/popular-economics/story.php?id=90&title=Imposingtariffs-on-rice

that it can be politically driven. Lastly, it avoids the timeless

problem of allocating the import quota to private traders in a
fair and transparent manner because tariffication shows good
governance for traders. The import business is liberalized in terms of
licensing, permits, and payment of custom duties.
The

disadvantages

of

Tariffication

are

Government

relinquishes control of imports to the private sector this boils

down to trust issues in the private sector because there is no
guarantee that the private sector will bring the right amount of rice at
the right time and would they be able to balance the household food
security with domestic industry and farmer interest and World and
domestic prices are unpredictable therefore the fluctuation of
market prices makes it hard for the receiving country to calculate the
equivalent tariff that is needed.
If the tariff reduces or decreases, the country should expect that
imports price would rise and will lead to a fall in the producer price
owing to availability of cheaper imported rice. The country should still
stop the renewal or negotiation with Special Treatment under
Quantitative Restriction agreement and start the tariffication or Rice
liberalization in the country. But the country should ensure to
negotiate a tariff that offers equivalent protection to its producers as
well as to its consumers. The Government should also find the right
mix considering different factors such as fluctuation in international

prices, exchange rate, local rice production, and rice smuggling

because removing QR can significantly decrease the domestic price,
bringing it closer to the world or international price that can help
reduce rice smuggling as the price advantage of selling smuggled rice
is diminished. Income from smuggling would then be insufficient to
compensate for the risk and high transaction costs involved.14
C. Third Alternative: The government should renew the QR
Agreement for a couple of years while formulating longer-term
policies concerning the improvement of Rice or Palay production in
accordance to Rice trade tariffication.
PROS

CONS

Limits

the

entry

of

rice

imports in the country

QR increases profits of the

domestic industry.
Import tariff gives price

imports in the country may

lead to unstable prices.

Higher government

expenditure
Government relinquishes

advantage to locally produced

control of imports to the

goods.
Government and producers

private sector
World and domestic prices

are unpredictable
Increased effort in

earn revenue under

tariffication

Limiting the amount of rice

14 http://www.philrice.gov.ph/wpcontent/uploads/2014/09/RS4DecisionMakers_september2014_G.pdf

The three-year extension of

maintaining political stability

the ST will serve as the

transition period towards

tariffication
Stable employment in the

industry
Efficient rice production

The third alternative is a two-way process for it is a continuous plan

concerning both the short and long run economic implications. In the
short run, the government needs to negotiate again with WTO for
another 3-year extension of the Special treatment agreement in
preparation for the total abolishment of the quantitative restriction.
During that period the government must prepare the countrys
resources and formulate new policies concerning the implementation
of tariffication on rice imports. By 2020, the Philippines would impose
tariffs and engage in free trade.
In the short run, the first advantage is that QR limits the entry
of rice imports in the country thus preventing sudden increase
in the amount of rice imports. It allows the government to control
the amount of imported rice that can enter the country. Second, QR
increases profits of the domestic industry. Because QR protects
particular domestic products from competition with foreign products

by having a high level of competitiveness, they may be beneficial in

the short term in protecting and increasing profits of the domestic
industry by producing competing products and maintaining stable
employment in that industry. Lastly, the three-year extension of the
ST will serve as the transition period towards tariffication
because it will give the government sufficient time to make the
adaptation to the new policy easier. One policy that the government
should impose is the improvement of Rice Production in the
Philippines

through

boosting

farmers

competitive

edge

and

subsidizing equipment and resources that can be used in the

production.
While in the long run, import tariffs raises domestic prices
in the country imposing the tariff, for small or developing
countries the rise in domestic price is equivalent to the amount of the
tariff while for large countries the rises in price is somehow or
somewhat less than the amount of the tariff because part of the tariff
is reflected in a reduction in international prices15. The Government
and producers earn revenue under tariffication in the form of tax
revenues- the revenue equals the tariff rate per unit of imported
goods times the quantity of goods imported 16, so the same amount
15 http://www.meti.go.jp/english/report/data/gCT9904e.html

16 http://research.bworldonline.com/popular-economics/story.php?id=90&title=Imposingtariffs-on-rice

goes to government as tariff revenue -and producer surpluses at the

expense of its consumers in the form of higher prices. Third, stable
employment in the industry - increase incentives to farmers will
prevent them from transferring to other industry thus making the
employment the Agriculture Industry stable and when the domestic
price of rice is stabilize the income of local farmers will also be
steadfast . Lastly, efficient rice production will increase the quality
of locally produced rice making it equally competitive with the
imported goods. This in turn could lead to a reduction in the price of
rice making the consumers better off.
In the short run, the third alternative also has its disadvantages. First,
limiting the amount of rice imports in the country may lead to
unstable prices. Without QR, foreign countries can freely export
their rice/palay in the country. If this happens, the aggregate supply of
rice will increase and will lead to price surge making the imported
rice cheaper compared to the locally produced rice. Therefore,
Filipinos will patronize the cheaper imported rice. This in turn could
hurt domestic producers. The expected surge in rice imports will
translate into larger negative income effects for household groups
where the problem of poverty is most severe. Second disadvantage is
higher government expenditure. The government needs to invest
heavily on the training of the domestic farmers, new technology prior
to equipment, research and development and the improvement of
irrigation systems.

While in the long run, Government relinquishes control of

imports to the private sector this boils down to trust issues in
the private sector because there is no guarantee that the private
sector will bring the right amount of rice at the right time and would
they be able to balance the household food security with domestic
industry and farmer interest and World and domestic prices are
unpredictable therefore the fluctuation of market prices makes it
hard for the receiving country to calculate the equivalent tariff that is
needed.
Increased effort of the government in maintaining political
stability applies to both short and long run process because it is an
unceasing effort in coping up to the never-ending changes in internal
and external environment. Maintaining a stable political condition will
eventually lead to stabilization of the Philippine economy because the
government is merely the backbone of a well-performing economy.
V. Conclusion and Recommendation