The NEDA board approves the low tariff regime while prices are rising

By means of Kyle Aristophere T. Atienza, News reporter

THE BOARD of the National Economic and Development Authority (NEDA) has approved a medium-term plan to reduce tariffsFfs on agricultural and industrial products as the Philippines faces rising prices and declining factory performance.

The NEDA board approved the Comprehensive Tariff Program for 2024 to 2028 amid concerns about inflation, which is expected to increase further by May. Growth in local industrial production also slowed in May.

Under the plan, the government would maintain fares at “more than half the rate.”Ff lines” for products with relatively low tariffs,” NEDA Secretary Arsenio M. Balisacan told a newsletterFTuesday at the presidential palace.

He said the program aims to improve manufacturers’ access to raw materials and increase their competitiveness.

“This measure will help our domestic industries by reducing the costs they incur on their inputs, making them more competitive, especially in the global market,” he added.

Mr. Balisacan said the board had approved a recommendation to reduce tariffs on certain chemicals and coal briquettes to “improve energy security and reduce input costs.”

Chemicals at reduced ratesFfs include inputs for antiseptics, detergents and medical research.

Reduced rateFCoal financing comes at the right time as the country faces “energy constraints,” he said.

Terry L. Ridon, a public investment analyst, said the decision to further cut coal ratesFfs goes against the government’s policy of phasing out coalFextinguished power stations.

“While it is true that there is pressure on electricity prices, it is not just because of the price of coal,” he said in a Facebook Messenger chat.

The Philippines imposed a moratorium on new coal-fired power plants in 2020, a move that policymakers including Senate President Francis Joseph G. Escudero have linked to massive power outages on the main Philippine island of Luzon.

Philippine electricity prices are among the highest in Southeast Asia, according to a study by the Ateneo de Manila University Department of Economics and the Ateneo Center for Economic Research and Development.

The country’s residential tariff as of December 2021 was $0.16 per kilowatt hour (kWh), compared to $0.18/kWh in Singapore, $0.10/kWh in Thailand, $0.10/kWh in Indonesia and $0.05/kWh in Malaysia, the report said.

Mr. Balisacan said the country needs a “balancing act” in its clean energy transition.

“We cannot immediately and quickly move to zero emissions, otherwise that will also kill our industries,” he said. “But we are committed to being part of the global effort to reduce emissions.”

“Reducing the tariff on briquettes will allow us to produce energy from coal, [which] will be more accessible to our population and especially to our industries.”

The government should continue to accelerate the transition to renewable energy while using coal to support its industries, George T. Barcelon, chairman of the Philippine Chamber of Commerce and Industry, said by phone.

Mr Barcelon hopes the NEDA board’s move will boost exports, which he says are still dogged by “weaknesses”.

Also approved by the NEDA board is a proposal to merge the tariff lines for certain chemicals and chemical products, textiles, machinery and transportation equipment to simplify the tariff structure and simplify customs administration.

Factory activity growth in the Philippines slowed in May as employment fell for the first time in five months, S&P Global said Monday.

The Purchasing Managers’ Index (PMI) for the Philippines stood at 51.9, up from 52.2 in April, indicating a “modest improvement” in factory activity. A PMI reading above 50 indicates improved business conditions compared to the previous month, while a reading below 50 shows the opposite.

‘SAD DAY’
“The tariff cuts are just one phase of a medium-term plan,” Ateneo economics professor Leonardo A. Lanzona said in a Facebook Messenger chat, noting that the state should draw up medium-term employment and skills development plans to stimulate production.

“While the plan may increase gross domestic product, we may end up with many capital-intensive industries,” he said.

In addition to electricity costs, food prices continue to drive Philippine inflation, which Balisacan said threatens economic growth.

Under the tariff program, reduced tariffs on corn, pork and mechanically deboned meat, which started in 2019, would be maintained until 2028. Rice tariffs will drop from 35% to 15% until 2028.

The policy is “a sad day for Philippine agriculture,” the Samahan ng Industriya ng Agrikultura said in a Viber message.

Rice prices were responsible for more than half of Philippine inflation, which rose to 3.8% in April.

Inflation likely accelerated to 4% for the fourth month in a row in May, mainly due to a spike in electricity costs, according to an average estimate of 16 analysts in a Business poll.

Mr. Balisacan said the government aims to stay within the 2-4% inflation target “so that we can return to the low interest rate regime.” “Once interest rates start to fall, economic activity will pick up and be even more robust.”

The country’s largest farmer groups said in a joint statement that reduced tariffs on non-ASEAN (Association of Southeast Asian Nations) rice in the past four years have not lowered prices.

“Reduced rice tariffs have paved the way for more rice imports and yet rice prices have only increased,” they said, noting that reduced rice tariffs “have not benefited consumers” and “have only penalized local producers.”

They have also deprived the government of much-needed revenue, she added.

“As with all previous tariff cuts, another round of tariff cuts will be futile as our foreign rice suppliers will simply increase their prices,” said the groups, including the Federation of Free Farmers, SINAG and Kilusang Magbubukid ng Pilipinas.

The Philippines imported two million tons of rice at the end of May, equivalent to 53% of expected imports.