Feliciano on tariffs

Yesterday I had the privilege of participating (as reactor) in a highly interesting and informative lecture given by Justice Florentino Feliciano (formerly of the Philippine Supreme Court and the Appellate Body of the WTO) at the AIM. The topic was "Constitutional Law Issues and the Tariff Regime of the Philippines". The following article, by Paul How, appears in today's issue of BusinessWorld but, unfortunately, is not available online. For the benefit of the readers, here it is:

Clearer jurisdiction over tariffs sought

A former justice of the Supreme Court yesterday called for amendments to the Tariff and Customs Code of the Philippines to better define the mandate of the Legislative and Executive in the modification of tariff rates.

Retired justice Florentino P. Feliciano, in a lecture yesterday, cited Sections 401 and 402 of the Customs Code, which had been amended in 1978 by former President Ferdinand E. Marcos to allow greater discretion on the part of the Executive to change rates. Mr. Feliciano said the two sections had to be modified “back to conformity” to the 1987 Constitution, which primarily gives Congress the authority to modify taxes, duties and tariffs.

“There has been no systematic legislative effort to rationalize comprehensively the Tariff and Customs Code of the Philippines,” the former justice said, noting that limits should be imposed on legislative delegation to the Executive to revise tariff rates. Sec. 401 of the law provides, among other things, to raise import duties by up to 100% of the present rate at any single time, and to lower these even to a 0% rate. When the law was passed back in 1957, Mr. Feliciano noted, rates could be raised by up to 500% at once, and were lowered by at most
half of the rate at the time. It also limited presidential action when Congress was not in

Sec. 402, on the other hand, is the basis for the Chief Executive entering into trade agreements with foreign governments where-in import duties can be modified. Mr. Feliciano, however, said there was a “caveat” to clarifying Congress’ primary role in tariff rate revision, in that international agreements previously entered into by the President will still have to be honored. An amendment of the Customs Code, he said, “does not eliminate or mitigate international obligations. Our problem is not a defense to our liability to [other countries], and this could open us to suits.”

Ma. Lourdes A. Sereno, former Law professor of the University of the Philippines, said
the issue was not a merely “academic” one and was something affecting the present competitiveness of the country. She pointed out that while Congress has enacted two laws modifying tariff rates since 1986, the Aquino administration had ordered six of these; the Ramos administration, 15; the Estrada administration, five; and the Arroyo administration, over 20 since 2001. This, she said, was “entirely inconsistent with the constitutional design.”

She noted how tariff rates in the country were comparably lower than those of Mexico,
India, Japan, Indonesia and Malaysia. She said that, for nonagricultural imports, the Philippines was limited to imposing on average a rate of 23.4%, but the average applied rate was 4.3%. For agricultural imports covered by trade agreements, the Philippines had an average bound tariff rate of 34.7%, but only had an 8% average applied rate.

Trade lawyer Jeremy I. Gatdula, however, said tariff rates in Hong Kong and Singapore were low compared to the Philippines. But this did not mean they were performing poorly. “Malaysia may have higher average tariffs. but it’s not something we need to follow. Malaysia is essentially different from the Philippines, just as the US is different as well.” Mr. Gatdula
said discussions should not be focused on raising tariffs but on finding out “what works for
the Philippines.”

Lilia R. Bautista, a former Trade undersecretary, said it may be “misleading” to compare
Philippine tariff rates with other countries, saying that most nations normally had a high
average bound rate and a lower average applied rate. She also said that although there is
a constitutional question on the Executive’s entering into trade agreements, ratification by
Congress allowed legislative participation.

Energy Sec. Raphael P.M. Lotilla, who was also present in the talk, said Congress may
appreciate the convenience of allowing the Executive to propose changes to tariff regimes,
leaving the legislature to ratify the agreements containing these changes. Mr. Lotilla, a former
Economic Planning official, said it may be “more cumbersome” if the legislature will
have to draft their versions of a bill based on the proposals of the Executive, adding that the
Tariff Commission also went through the process of conducting public hearings.

Tariffs, as I mentioned during my talk, are but instruments of our national will. It's effectiveness (whether it be the lowering or increase thereof) depends on how well that instrument is used in conjunction with other factors that are peculiar to our society. It is therefore not substantially worth arguing that US did this or Malaysia (which, it must be emphasized, was considered in one international ranking as having an economy more open than that of the Philippines despite the alleged higher average tariffs) or Singapore or Hong Kong or Korea did so and so because those countries are evidently not the Philippines.

I also stressed the need to create well defined rules that distinguish treaties from executive agreements, particularly as the Philippines is in the process of either negotiating or entering into a number of trade agreements within the coming months.

It's also time we stop resorting to labels, whether it be protectionists or free traders as such just denigrate the arguments into simplistic categories that do nothing to help arrive at solutions. We should therefore stop referring to protectionists as "nationalists" (as the latter doesn't necessarily follow the former) and trade liberalization advocates (not free traders) as "globalists" (most of the trade libbers I know are highly nationalistic individuals). In the end, we are all Filipinos, of different persuasions maybe, but with the same purpose (hopefully) in mind.