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By: Mark Anthony P. Tamayo on April 11, 2019

First of three parts
The multifaceted systems of controls and taxes on traded goods were believed to be in existence over three centuries ago, when travelling merchants offered, on their own accord, customs fees to monarchs and sovereign rulers for the privilege of selling goods within their territory.

Through the years, the customs fee (subsequently called “customs duty”) became compulsory. Its collection was said to have been outsourced to a select group of individuals (such as tax farmers). These individuals would use either peaceful or non-peaceful means to collect what had become an essential revenue source for monarchies and states.

Competition among traders of goods then became solider. Creativity in terms of marketing, branding and reasonableness of prices of goods also became widespread. This resulted to dumping (i.e. happens when exporters sell their product to an importer at a price lower than its normal value).

As trade exponentially increased worldwide, tariff and customs laws needed to be legislated. As a consequence, various customs offices had to be established.

Fast forward to the present day, the concepts of tariff and customs have not changed. This is true notwithstanding the evolution in global and regional trade policies, rules and processes.

Tariff’ still refers to a tax on imports (or exports) in the form of customs duty which is collected by the government generally as a revenue generating measure (revenue tariff). It also serves as a protective barrier (protective tariff) designed to artificially inflate prices to support the local industries and protect domestic output from foreign counterparts.

Rules of trade between nations

Under the Word Trade Organization (WTO) agreement, the principle of the most-favored nation (MFN) treatment requires that countries cannot normally discriminate between their trading partners. It generally denotes equal treatment to ensure equal trading among all WTO member-nations, rather than exclusive trading privileges.

Some exceptions are, however, allowed. These include, among others, the existence of regional economic integration embodied in Free Trade Agreements (e.g., Asean Trade in Goods Agreements that applies only to goods traded within the group). The rationale behind this is to accommodate the needs of developing countries.

Furthermore, under the national treatment provision of the WTO, imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market.

Therefore, charging customs duty on an import is not a violation of national treatment provision even if locally-produced products are not charged an equivalent tax.

In fact, Section 1608 (Flexible Tariff Clause provision) of the Customs Modernization and Tariff Act (CMTA) grants the President, in the interest of general welfare and national security, the power to increase, reduce or remove existing rates of customs duty including any necessary changes in classification, upon recommendation of the NEDA. This power of the President can be exercised only when Congress is not in session.

Trade remedy measures (i.e., anti-dumping, countervailing and safeguard measures) were likewise passed to address unfair competition. These remedies are trade policy tools that allow governments to take remedial action against imports, which are causing material injury to a domestic industry.

Such trade remedies are divided broadly into three legislations (as aligned with the WTO Agreements) and adopted in their entirety in the CMTA.

RA 8800 (Safeguard Measures Act)

RA No. 8800 provides an interim protection to a domestic industry affected by the surge of unexpected and unforeseen increased imports causing or threatening serious injury to domestic producers of like or directly competitive products. The purpose for the application of safeguard measures is to give them reasonable time to prepare for, and adjust to, increased import competition, resulting from the reduction of tariffs or the lifting of quantitative restrictions agreed upon in multilateral trade negotiations.

For non-agricultural products (general safeguard action), a verified petition is filed (by a producer belonging to, or representing, a domestic industry whose collective output constitutes a major proportion of the total domestic production) with the Secretary of the Department of Trade and Industry. While for agricultural products (Special safeguard action), the petition is filed with the Department of Agriculture.

The concerned Secretary may also initiate action motu proprio, or upon the request of the President, or a resolution of the House or the Senate Committees of Agriculture or on Trade and Industry.

Safeguard relief measures

Once a petition is filed, the concerned Secretary shall then conduct a preliminary investigation to determine whether or not 1) a prima facie case exists to warrant a formal investigation, as well as 2) to impose a provisional safeguard measure. In an affirmative finding, the concerned Secretary will then issue a Department Order (DO) for the imposition of the provisional safeguard measure and shall refer the case to the Tariff Commission for a formal investigation.

The provisional safeguard measure shall take the form of a tariff increase, which shall be paid through a cash bond. The cash bond is set at a level sufficient to prevent serious injury to the domestic industry.

After formal investigation, the Tariff Commission shall submit its report of findings and recommendations to the concerned Secretary in the form of definitive safeguard measure to be imposed. If the determination is affirmative, a DO shall be issued for the proper implementation on the imposition of a definitive safeguard measure by the Bureau of Customs.

Definitive safeguard measures are applied on a global basis and may generally take the form of an increase in, or imposition of, tariffs; decrease in, or imposition of, tariff rate quotas (Minimum Access Volume); or quantitative restrictions (import quotas). These measures must be temporary, product-specific and applied to all imports irrespective of the source.

Other actions, such as initiation of international negotiations may also be recommended to address the underlying cause of the increase in imports.

In next week’s article, the author shall discuss other trade remedies available for the protection of the domestic industries.

From the The Manila Times website on April 11, 2019

Trade remedies as trade policy tools

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Euney Marie J. Mata-Perez

Mark Anthony P. Tamayo

Gerardo Maximo V. Francisco