Effects of the Five Percent Uniform Tariff - Philippine Institute for ...

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EFFECTS OF THE 5% UNIFORM TARIFFby: Elizabeth S. TanFinal draft as of July 1997I. IntroductionThe first step towards uniform tariffs actually started in the early eighties with the TariffReform Program (TRP) cure trade liberalization. The result was a ceiling rate of 50% and afloor rate of 10% when the TRP ended in 1985. The next round of reforms, between 1986 and1988, focused on the lifting of quantitative restrictions (QRs). The next logical step in order topreserve and sustain the gains from previous reform was to engage in a new round of tariff cutsspread over five years. The second major tariff reform began in 1991, i.e., E.O. 470 which setthe ceiling rate at 50% for a few commodities and a floor rate of zero. These two major reformswere ditticult to implement and sometimes almost unpalatable to many because of the usual fearof competition from cheap imports and unemployment. The opposition from private sector wasstrong as they lobbied for postponement. Hence, in between reforms, there were policyreversals. Nevertheless, a major victory has been won especially after the massive lifting ofQRs in the late eighties and early nineties; then, there was the completion of the second roundof tariff cuts in 1995. At this juncture, would it be excessive exuberance to contend that thegains are now irreversible and the direction of future trade reform is unmistakably clear- towardsfreer trade? Bolstered by global trends then and now, implementing uniform tariffs is thelogical result of these events.The discussion on uniform tariffs started in late 1994 and the announcement camebefore the final year of E.O. 470. This was considered a laudable move for it sent clear signalsto private sector regarding the direction of future policy and the policy announcement gavecredibility and continuity to the whole process of reform. It was surprising, though, becauseunlike past trade reforms, there were no public hearings nor public debate. It was the leastcontroversial and least resisted trade reform to date. Moreover, there was only little oppositionfrom private sector. Why has public acceptance been so straightforward?The proposed 5% uniform tariffs will be effective by year 2004. By then, the sociopoliticalconditions will have changed. Over the years, the citizenry, private sector included, hasdone its learning, adjustment and understanding and this has made reform more acceptable.After all sixteen years is a long time. There were also other trade events and issues occuringsimultaneously, such as the General Agreement on Trade and Tariffs (GATT), the Asia PacificEconomic Cooperation (APEC) and the ASEAN Free Trade Area (AFTA), all of which weremore urgent concerns. The Common Effective Preferential Tariff (CEPT) will require membercountries to adopt a tariff between 0-5% by year 2003; hence, the 5% UniformTariff will beredundant for imports coming from ASEANThere was some healthy skepticism though from independent economists regarding theappropriateness of setting the uniform rate at 5%, perceived to be relatively low for a developingcountry. The main concern was the revenue effect. 1 All together, year 2004 is still seven yearsfrom 1997 and there is no sense of urgency for immediate public debate on the issue.
What is the objective of the 5% uniform tariff ? Apparently, it is to reduce protectionfurther and make local industries truly globally competitive. The main objective of this study isto argue for the case of uniform tariffs and to quantify the effects of implementing a 5% uniformtariffs. A parallel objective is to look into a closely related issue, i.e., the level of the uniformrate and its macroeconomic effects. The paper is organized into six parts. Part II presents thecase for uniform tariffs. Part III sketches tariff restructuring to approach the uniform rate. PartIV presents the theoretical framework, the Trade Model using I-0 framework and the Simulationmodel. Part V analyzes the changes in tariffs on the protection structure and the economy andpart VI concludes the study.
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