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The tariff rises from the dead

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Milwida M. Guevara

Milwida M. Guevara

I had lodged my studies on tariff inside my “baul” (treasure chest) from the time globalization, harmonization and customs union came to be in vogue. As countries entered into agreements to let goods flow freely across regions, tariffs became irrelevant.

Tariffs in the Philippines date back as far as the Treaty of Paris in 1898. The Treaty called for equal treatment of imports from the United States and Spain. The Payne-Aldrich Tariff Act of 1909 provided for complete free trade between the United States and the Philippines. It was only in 1957 when the Tariff and Customs Code was enacted and government learned the multiple use of tariffs. The Code prescribed 271 tax rates on various goods.

The Code was simplified in 1973. Three rates were adopted: 10 % on food and raw materials; 30 to 50% on intermediate goods such as pipes and office equipment; and 70 to 100% on consumer goods such as electrical equipment. With a very high import duty, only the rich and the famous could afford to buy imported appliances such as television and refrigerator. I remember how our teacher Ms. Correa brought us on a field trip to observe how a washing machine works. Those were wonder days when I took my seat among a crowd of spectators in the house of Mama Andoy who was the only one in our town with a TV set. We looked forward to the visit of ‘balikbayans” and feasted on grapes, and chocolate bars that they brought. They were like Santa Claus who gifted us with cans of corned beef and bottles of peanut butter.

Tariffs are used to protect domestic industries from foreign competitors. A tariff on an imported product increases its price and makes it less competitive relative to a similar product produced in the country. But protection is a double-edged sword. Higher prices will be borne by consumers who will also have lesser goods to choose from. It can also happen that protected industries can get so complacent and become “infants” for so long. And why so? Because producers get a higher degree of protection if the value that they add to a product is low.

Tariffs used to be a tax handle when the country was at the early stage of its development.
Tariffs are relatively easier to administer because there are fewer importers than domestic traders.In 1974, more than one-fourth (21.4%) of our tax revenues came from import duties.Their relative importance has fallen since almost all our good have a 0 duty as part of our commitment to the ASEAN. Goods whose importation is controlled like rice, are notable exceptions. Only the NFA and selected grain dealers are allowed to import rice.

Tariffs rose from the dead and assumed prominence when President Trump started imposing a 25% duty on aluminum and 10% duty on steel that is imported from Canada, Mexico, and the European Union. Then, more tariffs were imposed on solar panels and washing machines from China. This was in accord with his “Putting America first” policy. His thread of thought is that consumers would patronize products that are produced in the US. Without an add- on tariff, they would be cheaper than imported ones. Further, companies that have relocated abroad will re-establish their companies in the US to avoid paying tariffs.

However, a tariff war has ensued as countries that were affected came up with matching retaliatory tariffs on US products. China imposed tariffs on goods that it imports from the United States such as soybeans and agricultural products.

The stock market reacted as well as investors feared that demand for affected products would plummet which could trigger a cycle of low production and low profits. This would mean lesser jobs and lower incomes. The tariff war can backfire on the United States since industries that are dependent on imported materials like steel will have higher production costs. American exporters will bear the brunt of tariffs on their goods that are levied by importing countries like Canada and China.
Like any other tax instrument, tariffs are powerful tools. They can affect a change in the distribution of income, resources, and the seat of power. They can be used for retaliation, getting even, and as a bargaining tool. Unfortunately, we are not able to ask election candidates about their policies on tariffs, or if they understand them at all. We can only wait and pray.

mguevara@synergeia.org.ph

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