Assessing Alternative Schemes for Financing Tariff Reform

As part of its objective to promote efficiency in production, the Philippine government intensified its program on tariff reform beginning in the 1990s. In the process, a large reduction in government revenue, mainly through tariff duties, had taken place and is expected to continue. In the face of the government's current huge budget deficits, how can this pressure be eased? Is there an alternative scheme that can make up for the decline in the tariff revenue? This Policy Notes looks into possible alternative schemes to address this concern.tariff reduction, tariff reform program

The Philippines: Shadow WTO Agricultural Domestic Support Notifications

"The objective of this paper is to review the agricultural trade and domestic policies of the Philippines and to provide an assessment of the types and levels of domestic support relative to the rules of the World Trade Organization (WTO). Changes in trade protection and support in the Philippines, including tariff structure, quantitative restrictions, and domestic support, are discussed and analyzed. The paper also discusses the pattern of public expenditure on agriculture in the Philippines, including major agricultural productivity-enhancing programs. The present structure of protection and support favors the agricultural sector. Trade protection is higher in agriculture relative to manufacturing. There is a quantitative restriction on rice imports and a tariff rate quota in several agricultural commodities. The green box payments and the special and differential treatment constitute the major domestic support for agriculture. These support payments are relatively substantial and will continue to be sizable in the future to support the government's food sufficiency policy. However, the trade-distorting market price support for rice and corn is significantly below the de minimis limit that applies to the Philippines under the WTO Uruguay Round Agreement on Agriculture." from author's abstractPhilippine agriculture, Agricultural support, WTO support, WTO compliance, Notification of domestic support, trade,

Oil Price Increase: Can Something be Done to Minimize its Adverse Effects?

There seems to be no stopping the increase of the prices of oil products. With this certainty already considered a given, can something be done to minimize its adverse effects? This Policy Notes argues that there may still be one way of lessening these negative effects through the use of the instrument of tariffs on imported oil products.oil price

Simulating the Effects of GATT-UR/WTO on the Philippine Economy

The GATT/WTO may affect the Philippine economy in three ways: through changes in tariff structure resulting from the country’s commitment in the Uruguay Round, through the expansion of world trade as developed and less developed countries adjust their protection structures and through the changes in the prices of tradable goods as both DCs and LDCs realign their trade and nontrade barriers. This paper simulates the possible effects of these developments in the local economy. In particular, this paper aims to determine whether the impact is favorable at the macroeconomic level and whether it is progressive in terms of income distribution. To simulate the impact of these changes, a computable general equilibrium model of the Philippine economy called the APEX model is utilized.computable general equilibrium (CGE), agriculture sector

Can the Poor Benefit from the Removal of QR on Rice?

What may happen if the quantitative restriction (QR) on rice, which puts a limit to the volume of rice imports entering the country, is removed by the end of this year? What are the effects on the local rice industry? How about on the poverty situation in the Philippines? On income distribution and on prices? The author presents the results of his simulation runs in looking at these effects.computable general equilibrium (CGE), agriculture sector, poverty, rice sector, Philippines

Who Benefits from the Tariff Reforms?

Who benefits from the tariff reforms launched by the Philippine government from 1994-2000? On the basis of the results of his simulation runs, the author of this Policy Notes suggests that tariff reduction is generally pro-poor as shown by the drop in poverty incidence as a whole due to the increase in factor prices and decline in consumer prices. However, the simulation results also indicate that there is a bias in favor of factors employed in the manufacturing sector as industry expanded while agriculture contracted. More details are shown in this Policy Notes.unemployment, income distribution, computable general equilibrium (CGE), poverty, tariff reform

R&D Gaps in the Philippines

Based on the chain of causality, R&D translates to innovation and to productivity/ technological progress, which ultimately leads to economic growth and prosperity. There exists a strong empirical support to positive relationship between effort levels in R&D and productivity. The objective of this paper is to determine and estimate the gaps in Philippine R&D. Given the causality chain, the paper tries to identify the amount of corresponding/mandatory increase in research and development. It estimates the investment gaps using growth regression model involving total factor productivity of different countries on the one hand and the research and development expenditure and research and development manpower, on the other. On the basis of the frontier generated from the regression, Philippine R&D gap is computed. Results support the general conclusion of high rate of return to research and development. Results generated in this paper provide some policy insights regarding R&D in investments.research and development sector, total factor productivity, investment gaps, increasing returns to scale

Poverty Implications of Agricultural and Non-agricultural Price Distortions in Pakistan

Using recent estimates of industry assistance rates, the effects of trade liberalization in the rest of the world and in Pakistan alone are analyzed using a global and a Pakistan CGE model under two tax replacement schemes: a direct income tax and an indirect tax replacement. The results indicate that the distributional and poverty effects in Pakistan of a unilateral liberalization of all traded goods are significantly greater than the effects of trade liberalization in the rest of the world. There is relatively higher increase in real income and larger decline in poverty incidence in poor households both in rural and urban areas. The effects of agricultural trade liberalization alone in both the rest of the world and in Pakistan are considerably smaller than those from trade liberalization involving all goods. In both the agricultural and all-goods trade liberalization scenarios involving direct income tax replacement, real household income is raised and the poverty incidence is lowered at varied rates across all household groups except for the urban non-poor. When an indirect tax replacement is used, where the burden of replacing tariff revenue is shared by all household groups depending on their consumption structure, there is reduction in household income for most of the groups and less reduction of poverty.Distorted incentives, agricultural and trade policy reforms, national agricultural development, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18,

Pakistan's cotton and textile economy: Intersectoral linkages and effects on rural and urban poverty

"Pakistan's economy relies heavily on its cotton and textile sectors. The cotton-processing and textile industries make up almost half of the country's manufacturing base, while cotton is Pakistan's principal industrial crop, supplying critical income to rural households. Altogether, the cotton-textile sectors account for 11 percent of GDP and 60 percent of export receipts. The future of this vital component of the national economy is uncertain, however. These industries face the challenges of unstable world prices and increased competition resulting from global liberalization of the multilateral textile and clothing trade. At the same time, Pakistan's macroeconomic situation is volatile. Given such challenges and volatility, this study investigates what the future might hold for Pakistan's cotton and textile industries and its implications for rural and urban poverty reduction in the country. The study uses a computable general equilibrium (CGE) model calibrated to a 2001–02 social accounting matrix of the Pakistan economy to conduct experimental simulations of possible economic changes. The CGE model results are linked to the nation-wide 2001–02 Pakistan Household Integrated Economic Survey to examine the implications the simulated developments have for Pakistani poverty. Simulation 1 examines the effects of a doubling of foreign capital inflows, as occurred from 2002 to 2006, before a subsequent financial crisis emerged in 2008. Simulation 2 analyzes the counterfactual effects of an increase in world prices of cotton lint and yarn and/or textiles which would have offset declines experienced in the late 1990s and early 2000s. Pakistan's strong textile association motivates Simulation 3, which examines the effects of a 5-percent increase in government production subsidies to the industry. Simulation 4 uses a dynamic-recursive version of the model to analyze the short- and long-run effects of a 5-percent increase of total factor productivity (TFP) in cotton, lint and yarn, and textile production." from textTextile industry, Rural-urban linkages, Poverty reduction,

Philippine agricultural and food policies: Implications for poverty and income distribution

The Philippines has undergone a series of trade reforms since the mid-1980s that have reduced protection on nonagricultural goods. However, protection on key food items is still in effect, and this has led to high domestic food prices. Such high prices have a considerable negative effect on poverty because more than 60 percent of the consumption of poor Filipino households is for food. The special product arguments of the World Trade Organization increase the pressure to maintain the existing high levels of food protection in the country. Special products treatment provides developing countries with the flexibility to implement tariff reduction programs over an extended period for certain self-designated products. These special product discussions are based on food security, livelihood, and rural development arguments. This research report assesses the poverty and income distribution implications of trade reform that is focused on agriculture and major food items (rice, corn, sugar, beef, chicken, pork, processed meat products, fruits and vegetables, and processed fruits) in the Philippines. A dynamic-recursive computable general equilibrium model calibrated to the social accounting matrix for the Philippine economy for the year 2000 and a microsimulation model that uses the 2000 Family Income and Expenditure Survey are used to analyze possible policy shifts. The simulation results indicate that trade reform in agriculture and major food items will have favorable effects on factor prices and bring about a significant reduction in consumer prices. Real household income will increase while poverty and income inequality decline. These findings therefore imply that maintaining existing trade protections on agricultureand major food items—which drive food prices up—will not solve the problem of poverty and income inequality in the Philippines. In the year 2000 the incidence of poverty in the Philippines was 34 percent. In 2003 it declined to 30.4 percent. The incidence of poverty in rural areas is higher than that in urban areas: 48.8 percent and 18.6 percent in 2000, respectively. Over the past two decades, significant structural changes have taken place in the Philippine economy. The share of agriculture in the total gross domestic product has declined. The country has switched from being a net exporter to a net importer of agricultural products and food items. The widening trade gap in agriculture and food has made the Philippines vulnerable to fluctuations in the world market. For example, the international rice crisis in 2008 has adversely affected the domestic market for rice in the Philippines. The deterioration in the net trade position of the country in food has largely been caused by the high growth in domestic food demand relative to production. Domestic food production lags behind demand because of declining productivity. There is increasing demand for food items with higher income elasticities, and there is also increasing pressure from high population growth. To address this growing trade gap in agriculture and food, the government has adopted a strategy to improve rice productivity. This is a step in the right direction: based on our rice productivity simulation results, higher rice productivity will increase domestic production and reduce imports of rice. Most importantly it will reduce consumer prices. Most of the benefits of improved rice productivity would go to the households in the first decile of the population, since rice has the largest share in their consumption basket relative to the rest of the household groups. There is a reduction in poverty incidence and income inequality. However, implementation of the Philippine government’s rice productivity program is costly, inefficient, and ineffective. In 2001 the government introduced a new technology, hybrid rice. Its adoption was aggressively pursued by the government through the Hybrid Rice Commercialization Program (HRCP). Under the HRCP the production of hybrid rice seeds is supported by the government through (1) procurement of seeds at a guaranteed price, (2) distribution of the procured seeds to participating farmers at half the procurement price, and (3) payment of additional money to participating farmers to help defray their fertilizer input costs. The government has devoted significant resources, through a system of subsidies, to supporting the HRCP. However, the results are not encouraging. The adoption rate of hybrid rice is very low. There is a high dropout rate among participating farmers, because hybrid rice seeds are so expensive and farmers have to purchase them every planting season rather than reusing them (which would result in drastically decreased yields). The massive government subsidies have distorted the ability of farmers to make an informed choice between hybrid and inbred rice varieties. Thus instead of supporting the HRCP the government should spend its limited resources on research and development that focuses on improving the yield of inbred rice. Enhancing an inbred-based system that is adapted to farmers’ familiar practice of saving, reusing, and exchanging seeds would be a more responsive approach to improving productivity than promoting such costly technologies as hybrid rice, which has not yet achieved commercially viable levels.Food prices, Trade reform, Agricultural policies, Computable general equilibrium (CGE) modeling, Social accounting matrix, Microsimulation model, food policies, Income distribution, Poverty reduction,