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What if the Philippines started its own trade war?

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Jemy Gatdula

Being Right

What if the Philippines started its own trade war?

Forget the clickbait title. This is just apropos to last week’s column: like the US, domestic and international law affords the Philippines several avenues at its disposal should a foreign country engage in unfair trade practices or its products harm national interest.

But first, it’s important to determine if the imported products are under a “bound rate”: effectively the “ceiling” the Philippines committed not to go beyond (either at the WTO, ASEAN, or other free trade agreements).

“Unbound” products enable the country to raise tariffs to practically whatever rate it reasonably wants. For “bound” products, the country can adjust tariffs to any level (called the “applied rate”) so long as it’s within the bound rate.

What US President Trump did for steel and aluminum (as there is no opportunity to study each of the 130 or so products involved) involved either unbound products or bound products but the increase was done within the bound rate. Legislation by the US Congress gives him the authority to do this.

The Philippines, as I mentioned previously, has this same mechanism and it’s found in RA 10683, Section 1608 (the “flexible clause,” which used to be Sections 401/402 of the Tariff and Customs Code).

However, it becomes a little bit complicated if the tariff increase needs to go beyond the bound rate. For the Philippines, one proceeds as usual with Section 1608 but a parallel proceeding (for this article, let’s focus on the WTO) under GATT Article XXVIII is necessary.

There, the Philippines informs the Committee on Trade in Goods about its desire to increase tariffs. After which, negotiations will happen with three types of WTO Members: those with “initial negotiating rights,” those with “principal supplying interest” (usually the Member with a large share in the market of the applicant), and those with “substantial interest.”

If an agreement is reached with such other WTO Members, the Philippines can now raise its tariffs but with the corresponding withdrawal of equivalent concessions by the other affected WTO Members.

As stated in the previous article, Trump seems to have gone with Article XXI (the “security clause”). This is available to the Philippines as well. Other options are Article XX (protecting morals, public order, life and health, the environment).

But there are still more avenues for the Philippines to protect itself from imports that are hurting the country. There are also the trade remedies.

There’s the anti-dumping measures (RA 8752), which responds to the dumped products, i.e., products sold to the imported country at prices much lower than that sold from the exporting country.

Then countervailing measures, (RA 8751), which are tariffs or other measures imposed to counter products that benefited from the exporting countries illegal subsidies.

trade war

Finally, there’s safeguards (RA 8800), which are tariffs for those products that come into the country in such amounts and period (i.e., “surge”) that causes serious injury to local industries.

These three measures are incorporated into the Customs Modernization and Tariff Act and are found in Sections 711, 713, and 712, respectively. At the same time, however, provisions of the WTO Agreements relating to trade remedies must also be complied with if the countries to be hit are WTO Members.

The Philippines can also protect itself via tariff classifications, particularly if the imported product is taking advantage of some vagueness in the classification description. This is found as well in Section 1608.

One little known measure that survived the transition from the TCCP into the CMTA — and I believe it was correct for Congress to do so — is the “anti-discrimination” provision, previously TCCP Section 304 and now CMTA Section 714. Thus, in the case of a country discriminating against the products of the Philippines, the president can:

“Declare new or additional duties in an amount not exceeding one hundred percent (100%) ad valorem upon goods” of such foreign country; and,

If such foreign country “maintained or increased its said discrimination against the commerce of the Philippines,” to declare the “product of said country or such goods imported in their vessels be excluded hom importation into the Philippines.”

However, whether the application of Section 714 will be WTO consistent is another matter but certainly its application should be considered legal (i.e., constitutional) as far as the Philippines goes.

Anyway, if all else fails, there’s the WTO dispute system.

Yet, consider this: the Chinese retaliatory measures against Trump’s tariffs are clearly questionable vis-à-vis the WTO. But resort to it was made because they know the WTO’s dispute system would take around two years to finish.

Which is precisely the time Trump needs to secure a midterm congressional victory and (perhaps) his own reelection. Meanwhile, China’s businesses and products continue to suffer.

Some things to think about should the Philippines want to defend its trade interests.

“Remember, we presently have an expected overall trade deficit of $3.07 billion, brought about due to slowed exports and the uptick in public infrastructure projects.”

 

Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.

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