INTRODUCTION

First off, I am happy to apply what we have learned in our subject, International Trade Law, to an important topic. The circumstances surrounding the importation of flour of the Philippines from Turkey have an enormous consequence to almost every Filipino household. I will tackle the issue of anti-dumping with regard the current situation of the trade between Turkey and the Philippines. I will determine whether the imposition of additional duty in the importation of Turkish flour is the best approach, which the Philippine government could have adopted.

To quote the late Abraham Lincoln These men ask for just the same thing, fairness, and fairness only. This, so far as in my power, they, and all others, shall have.[footnoteRef:1] Fairness is a value, which is protected by the Constitution. In particular, Article II section 7 which states The State shall pursue an independent foreign policy. In its relations with other states, the paramount consideration shall be national sovereignty, territorial integrity, national interest, and the right to self-determination. [footnoteRef:2] as well as Article XII section 13 which states that The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity[footnoteRef:3] clearly show that the Philippines recognizes the importance of foreign relations in the development of the economy. Contrary to what is embedded in the Constitution, recent developments in the field of the Flour industry have shown that the Philippine government has taken certain actions which impede the free flowing nature of foreign trade. In an order, Agriculture Secretary Proceso Alcala said the anti-dumping duty, which would be on top of the seven percent tariff imposed on Turkish flour, would amount to the following, 35 percent on hard flour for bread; 39.26 percent on biscuit flour; and 35.21 percent on soft flour for pastries and cookies[footnoteRef:4]. Alcala said that After a thorough examination of the evidence, data and other comment/positions by interested parties, the preliminary investigation has established the existence of a threat of material injury to the local industry caused by the importation of alleged dumped wheat flour from Turkey.[footnoteRef:5] [1: Brainyquotes, available at http://www.brainyquote.com/quotes/keywords/fairness.html (last accessed October 9, 2014).] [2: Phil. Const. art. II 7] [3: Phil. Const. art. XII 13] [4: Orti, Despuez, Philippines Slaps Anti Dumping Duty on Turkish Flour, Interaksyon.com, April 23, 2014, available at http://www.interaksyon.com/business/85321/philippines-slaps-anti-dumping-duty-on-turkish-flour (last accessed October 9, 2014).] [5: Id.]

The action of the imposition of additional duties serves as a counter measure for anti-dumping. However, it would be prudent to examine the imposition of additional duties to determine if such imposition will be for the greater good of the Philippines.

Overview of International Trade and Anti-dumping in the Philippine settingIn ever evolving world of international commerce, it is but an inevitable facet of life that countries rely no longer on their own resources and that they depend on the resources of their neighbors. Gone are the days wherein close door polices are adopted by nations in order to survive. In this day and age, in order to stay afloat, most third world countries such as the Philippines are dependent on their neighboring countries. Whether it be importing raw materials, exporting products or enticing foreign investors, one thing is for sure, there is an interdependence of countries in order to be economically stable. International commerce entails a necessary interaction between nations; trade. Following the havoc caused by World War II, delegates from Allied nations gathered for a conference to establish rules for commercial and financial relations among the worlds major industrial states. This is known as the Bretton Woods Conference. One major goal was to avoid the recurrence of the closed markets and economic warfare that characterized the previous decades. This led to the establishment of the International Monetary Fund, the International Bank for Reconstruction and Development (known as the World Bank). This was simply the beginning of international trade. Eventually, a multilateral agreement, the General Agreement on Trades and Tariffs (GATT), regulating international trade was signed in 1947. This multilateral agreement would be updated in 1994 and would serve as the foundation of trade policies which the contracting parties will follow in order to promote international trade.

The definition of international trade is The exchange of goods or services along international borders. This type of trade allows for a greater competition and more competitive pricing in the market. The competition results in more affordable products for the consumer. The exchange of goods also affects the economy of the world as dictated by supply and demand, making goods and services obtainable which may not otherwise be available to consumers globally.[footnoteRef:6] . Based on this definition, it is evident that international trade is a tool, which can be used to alleviate the effects of poverty in certain countries as well as promote competition in order for domestic industries to develop and become more efficient. [6: Business Dictionary, available at http://www.businessdictionary.com/definition/international-trade.html (last accessed October 9, 2014).]

International trade is a tool that may eradicate poverty however, certain countries have abused this tool and profited from taking advantage of countries that are not that developed. In retaliation to this injustice that occurs in the real world, the World Trade Organization (WTO) has implemented certain safeguards to neutralize unfair trade. One of the safeguards against unfair trade implemented by WTO can be found in Article VI of the GATT which provides for Anti-dumping and Countervailing Duties. Paragraph one of Article VI of the GATT provides that The contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry It is apparent from the aforementioned provision that the WTO condemns any form of dumping which causes material injury to the domestic industry of the country of export.

The Philippines has recognized the importance of placing certain safeguards in the realm of international trade. Pursuant to Article VI of the GATT, detailed guidelines have been recommended under the specific agreements that have also been incorporated in the national legislation of the member countries of the WTO. Philippine laws such as Republic Act No. 7843 (the Anti-Dumping Law of the Philippines) and Republic Act No. 8752 (The Anti-dumping Act of 1999) have been enacted in order to align with the general principles provided by the GATT to combat against unfair trade. According to the Philippine Tariff Commission, Dumping occurs when foreign producers sell their products to an importer in thedomestic market at prices lower than in their own national markets, or at prices belowcost of production, the sale or importation of which injures or threatens to injure adomestic industry producing like or comparable products or retards the establishment ofa potential industry. It is a form of price discrimination between two national markets. [footnoteRef:7] To occurrence of dumping can be broken down to four simple elements. The first element of dumping is that there must be like products. There must be a product produced by the domestic industry which is identicalor alike in all respects to the article under consideration, or in the absence of such a product,another product which, although not alike in all respects, has characteristics closely resemblingthose of the product under consideration. The second element is that there must be a price difference in price. There must be a discrepancy in the normal value (the price prevailing in theexporting country) which exceeds the export price (selling price to an importerin the Philippines).The third element is that there must be injury. The word injury as provided by the GATT must be construed to mean material injury to a domestic industry, threat of material injury ormaterial retardation of the establishment of a domestic industry. Injury test mustbe based on positive evidence and shall involve an objective examination of both (a) the volume of the dumped imports and the effect of dumped imports on prices in thedomestic market for like product, and (b) the consequent impact of these imports onthe domestic producers of such products. The last element is that there must be a Causal Link. The casual link refers to a finding that the material injury suffered by the domestic industry is thedirect result of the importation of the dumped product. It must be clear that the injurysuffered is directly attributable to the alleged dumping. [7: Anti-Dumping Investigation, Tariff Commission of the Philippines, available at http://www.tariffcommission.gov.ph/anti-dum2.html (last accessed October 9, 2014).]

Furthermore, the local laws provided that a dumping protest may cover any specific kind or class of a foreign product which is beingimported, sold or is likely to be sold, into the Philippines at a price less than its normal value, theimportation or sale of which might injure, or retard the establishment of, or is likely to injure anindustry producing like products in the Philippines.[footnoteRef:8] With that being said, it is evident that local laws seek to protect the local industry from foreign entities which may cause certain injuries to the local industry. [8: Id.]

However, the GATT does not give the contracting parties absolute autonomy with regard to restricting foreign trade. The twin principles of Most Favored Nation and National Treatment serve as safeguards in order to ensure that no foreign country will be subject to discrimination. The notion of non-discrimination is a principle which the Philippines adheres to. Therefore, it is safe to say that the local laws in relation to anti-dumping should not be used as a tool to discriminate against foreign countries. It would be of value to look at the rationale behind the anti dumping law. According to the Philippine Tariff Commission, there are three basic reasons to justify the anti-dumping law[footnoteRef:9]. The first is to transform the domestic anti-dumping law into a more workable and simple piece oflegislation providing the safety nets against the inflow of cheap dumped imports. The second rationale is to strengthen the rules governing the investigation of anti-dumping cases. Finally, the third rationale is to align the domestic law with the WTO Agreement on Anti-Dumping Practices. Furthermore, the landmark case of Taada vs. Angara, the Supreme Court provided that Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.[footnoteRef:10] [9: Id.] [10: Taada vs. Angara, G.R. No. 118295. May 2, 1997.]

Importation of Flour from Turkey

In a report made by RICARDO M. PINCA, Executive Director of The Philippine Association of Flour Millers (PAFMIL)[footnoteRef:11], he gave the background of the Turkish Flour industry. As of 2012-2013, Turkey is the worlds biggest exporter of wheat flour at 2,500,000 MT. Turkeys biggest export market is Iraq with 45% of their total export volume in 2011 and maintained in 2012. Turkeys second biggest export market is Indonesia with 25% share in 2011 but reduced to 10.5% of their total export volume in 2012 due to 20% safeguard duty imposed by Indonesia. However, Turkey diverted their export for Indonesia to Philippines. Philippines ranked third with 6% share of their total export in 2011 but now increased to 9% in 2012. While Turkey invokes trade liberalization in flour exports, Turkey also prevents flour imports in their country by imposing a tariff wall. [11: See Annex A ]

Pinca illustrated that 39% of Turkish Flour exports to the South East Asian region during the years of 2007-2012 were exported to the Philippines. There was a drastic change in the importation of flour during 2011 and 2012. There was increase of 72,341 in metric tons in the one-year period mainly because of the safeguard duty imposed by Indonesia. Another important figure to take note of is the difference between the export price compared to the normal value of the flour being exported by turkey. The table below will illustrate this discrepancy:

Normal ValueExport PriceDiscount given to the Philippines.

2010$600$27654%

2011$600$38835.3%

2012$470$34925.7%

2013 (July)$512$37726.4%

As illustrated by the table and in line with the definition of dumping[footnoteRef:12] provided by the Philippine Tariff Commission as well as Article 2.1[footnoteRef:13]of the Anti-Dumping Agreement it can be deduced that there is prima facie case of dumping being done by Turkey. [12: Dumping occurs when foreign producers sell their products to an importer in thedomestic market at prices lower than in their own national markets, or at prices belowcost of production, the sale or importation of which injures or threatens to injure adomestic industry producing like or comparable products or retards the establishment ofa potential industry. It is a form of price discrimination between two national markets.] [13: A product can be considered dumped where the export price of that product is less than its normal value, that is, the comparable price in the ordinary course of trade for the like product destined for consumption in the exporting country. ]

There is no question as to the first element. It is clear that the flour being exported by Turkey is a like product as compared to the flour being produced by the domestic industry.

With regard to the second element, the table above illustrates that there is a significant difference between the export price and normal value. The figures show that 54%,35.3%,25.7% and 26.4% for 2010,2011,2012 and July of 2013 (respectively) are not mere de minims differences. To determine whether dumping exists, the export price is compared with the normal value. Article 2.4 of the Anti-Dumping Agreement provides in relevant part A fair comparision shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally ex-factory level, and in respect of sales made at nearly as possible the same time.

With regard to the third and fourth element, Pinca claims the increasing importation of flour import has a negative impact in society. It has a negative impact to GDP growth because domestic production is substituted by imported goods. Furthermore, continuous substitution will erode domestic company competitiveness resulting to significant transfers of wealth and loss of capital. Also, there is a high possibility of businesses closing down for the local industries contributing to a higher unemployment rate. Another reason is that Turkish Flour Millers sell or export their products to an importer in the domestic market at prices lower than our own national markets, or at prices below cost of production, the sale or importation of which injures or threatens to injure domestic industry. Finally, Pinca mentioned that he believes although in a free-market economy and unhindered competition is beneficial to consumers, the case of the imported Turkish Flour is not granting the local industry a competitive level playing field, due to their subsidy system.

The opposition to the claim of PAMPHIL

Although, PAMPHIL is claiming that Turkey is guilty of dumping its flour in the country, not everyone is in favor of the imposition of additional anti-dumping duty on wheat flour imports from turkey. Ernesto Chua, president of the Malabon Longlife Trading Corporation, an importer and distributor of Turkish flour said that Cheap Turkish flour is usually used by small bakeries for pandesal and pastries, and traders said the supply will drop dramatically in July when stocks are expected to have been exhausted. [footnoteRef:14]As a result, bread prices are expected to go up by as much 20 percent. Chua mentioned that due to the actions of PAMPHIL, what will happen is that, over and above the regular import duty on flour, the provisional duties of 21.79 percent will be imposed on hard flour making bread, 39.26 percent on biscuit flour, and 35.21 percent in soft flour for pastries and cookies.As a consequence, there are exporters that have already cancelled their orders and in general, we will be importing less. [14: Anti-dumping duties to cut Turkish flour imports by 50% in July ,traders say GMA News Online available at http://www.gmanetwork.com/news/story/362730/economy/agricultureandmining/anti-dumping-duties-to-cut-turkish-flour-imports-by-50-in-july-traders-say (last accessed October 9, 2014).]

Philippine traders imported 144,000 MT of Turkish flour last year, meeting 7 percent of the domestic demand. This market share is expected to drop to 3 percent while the provisional import duty is in place, and traders are expected to look for other sources of the commodity.The Turkish Flour Yeast and Ingredients Promotion Group (TFYI) is appealing the case before the Tariff Commission. Malabon Longlife is a member of TFYI, which groups traders that export wheat flour and other Turkish product.

Avsin Kasikci head of a business delegation from Turkey, said that Turkish flour exporters will present our case to prove that there is no need for any definitive anti-dumping measure. Turkish flour is not sold at dumping prices in the Philippines, it is sold at competitive prices [footnoteRef:15] [15: Id.]

Kasikci added that "We are here to grow our partnership with the Filipinos not only through trade relations, but also valuable projects that will create meaningful and long-lasting benefits. As a leading wheat flout producer in the world, Turkey enjoys the economies of scale advantage which allows its exporters to share the cost benefits to their trade partners in over 120 countries. [footnoteRef:16] [16: Id.]

According to Chua, The average Philippine price of Turkish flour is $400 per MT for soft flour and $450 for hard flour, noting the selling price includes freight and other expenses. The figures given by Chua is contrary to the findings of the Agriculture Department which declared that Turkish flour sells for around $348 per metric ton (MT) in the Philippine market, compared with the domestic prices of $470 per MT.

It is also important to note that at the consumer level, bakers pay P700 per 25-kilogram bag of Turkish flour against P900 for the locally-milled product.

The implications of the implementation of additional duty on Turkish flour do not only affect the flour milling industry. The baking industry is directly affected by the imposition of additional duty on Turkish flour.

Filipino-Chinese Bakery Association (FCBA) said the price of pan de sal could go up if the government would impose additional duty on Turkish flour.The group warned that the price of Pinoy pan de sal, other bread products, biscuits and noodles could go up by 10 percent to 15 percent if additional duty is imposed on Turkish flour.The group said: Due to cheaper Turkish flour, Filipino consumers enjoy lower priced breads and other flour-based products such as dry noodles, biscuits and fishballs.[footnoteRef:17] [17: Philippines are split into two on flour import from Turkey, available at http://en.millermagazine.com/philippines-are-split-into-two-on-flour-import-from-turkey/(last accessed October 9, 2014).]

Analysis

Given the background of the party which advocates the imposition of additional duty on the importation of Turkish Flour as well as the contingencies which adhere to the notion that the imposition of additional duty on Turkish flour will be detrimental to the Filipino people, it would be imperative that the act of the DA imposing additional duty on Turkish flour be scrutinized in order to assess whether the additional duty on Turkish flour is what is best for the country.

It would be best to analyze the situation in four levels. The first level is to determine whether the placing of anti-dumping safeguards is the most appropriate course of action to take. The second level will be a brief comparison with the rice industry in the country and to determine whether there are certain similarities in order to assess if the course of action is what is truly beneficial to the country. The third level is to determine how Turkey can afford to give such a significant discount and whether that in itself is an unfair trade practice. Finally, there must be an evaluation of the local industry in order to determine what will be best in order for the Philippines to progress as a Nation.

At the very onset of the problem that involves unfair trading, what needs to be determined is the proper course of action a Country should take. As previously mentioned, international trade is a tool that can be used to alleviate poverty. While professing support for trade liberalization, trade policy makers often insist that international trade should at the same time be fair.[footnoteRef:18] [18: Manual of Reference on Law and Economic Development for the Philippine Judiciary]

In WTO law, dumping is not prohibited[footnoteRef:19]. However, dumping is condemned if it causes injury to the domestic industry of the importing country. The essence of the WTO rules on dumping is that members are allowed to take certain measures , which are otherwise WTO-inconsistent, to protect their domestic industry from effects of dumping. [footnoteRef:20] [19: www.wto/org/english/news_e/pres04_e/pr387_e.htm (last accessed October 9, 2014)] [20: Manual of Reference on Law and Economic Development for the Philippine Judiciary]

The importation of Turkey of flour to the Philippines is a clear case of dumping. There is a similarity in the product as well as there is a discrepancy between the import price and the normal value. That being said, when a foreign country dumps a product in the Philippines, it does not ipso facto mean that a case of anti-dumping should be filed against the foreign country. The dumping of the product in certain instances may even be beneficial for the economy of the Philippines. There are certain factors that should first be considered. In Thailand H-Beams, the Appellate Body referred to article 3.1 as an overarching provision that set forth a members fundamental, substantive obligation with respect to the determination of injury.[footnoteRef:21] These obligations concern the following: [21: Id.at p 528 citing Appellate Body report , Thailand- H-Beams, para 106. ]

The determination of the volume of dumped imports and their effect on prices (Article 3.2) Investigations of imports from more than one country (Article 3.3) The impact of dumped imports on the domestic industry (Article 3.5) The assessment of the domestic production of the like product (Article 3.6) and The determination of the thereat of material injury (Article 3.7 and 3.8)[footnoteRef:22] [22: Id.]

Furthermore, Article 3.1 requires that a determination of injury to the domestic market must involve an examination of both a) the volume of the dumped imports and the effect of the dumped import on prices in the domestic market for like products and b) the consequent impact of these imports on domestic producers of such products.[footnoteRef:23] [23: Id.]

Based on the abovementioned obligations and criterion, the key element to be ascertained in order to determine whether there is a case of anti-dumping against Turkey is the volume of dumped imports and the effect of the dumped imports on prices in the domestic market for like products.

Pinca noted that while imported flour also comes in from countries like Indonesia, Vietnam, Australia and even India, PAFMIL never raised the issue of dumping nor safeguards or countervailing duties because they are not dumping their flour in the Philippines.They play fair, he said[footnoteRef:24]. To this extent, it should be noted that according to a news article posted by the Manila Bulletin, Gardenia Bakeries Philippines Inc. is now using cheaper priced Indonesian flour for the production of Pinoy Tasty after several attempts to use the locally-produced Harinang Pinoy failed due to quality issue.[footnoteRef:25] [24: Anti-dumping case vs Turkish flour, Malaya, September 19, 2014. available at http://www.malaya.com.ph/business-news/business/anti-dumping-case-vs-turkish-flour (last accessed October 9, 2014)] [25: Gardenia shifts to Indonesian flour, Manila Bulletin, July 22, 2013, available at https://ph.news.yahoo.com/gardenia-shifts-indonesian-flour-164112169.html (last accessed October 9, 2014)]

Gardenia president and general manager Simplicio Umali Jr. told reporters that while Indonesian flour, which they bought at P840 per bag delivered, is more expensive than Harinang Pinoy, which they got at P770 per bag delivered, Indonesian flour has been able to meet its desired quality because it is high-protein.[footnoteRef:26] [26: Id.]

''We are now buying 20-30 container loads of Indonesian flour a month for Pinoy Tasty production because we cannot use Turkish flour because it is of low protein although we understand that Turkish flour has improved its quality a lot,'' Umali said. Imported Turkish flour is the cheapest source of flour in the market. It is being sold for P720 to P750 per bag delivered. According to Umali, they tried to patronize Harinang Pinoy, which is produced by RFM Corporation, starting November last year but they gave it up last May because it has a higher rejection rate.[footnoteRef:27] [27: Id.]

Based on the actions of Gardenia, it is clear that there are other sources of flour which local bakeries, which is the number one consumer of flour in the country, get their flour from aside from turkey. The presence of Turkish flour at a relatively cheaper price in the local market does not mean that it causes damage to the local flour industry. Factors such as the quality of the flour are critical to the major local bakeries. Countries such as Indonesia, Vietnam, Australia and even India all import flour into the country. These countries, which import flour, also have and effect on the price of flour in the country because Turkey does not have the monopoly of importing flour into the Philippines.

Based on the abovementioned facts, it is eveident that after examining both the volume of the dumped imports of Turkey and the effect of the imported flour on prices in the domestic market for locally produced flour and the consequent impact of these imports on domestic producers of such products there is no material injury suffered by the local market.

It should be pointed out that Victorio Mario A. Dimagiba, director of DTIs Bureau of Trade Regulation and Consumer Protection (BTRCP) acted on behalf of the consumers and sued 11 flour millers for profiteering before the DTI-National Capital Region on June 9, 2010.[footnoteRef:28] DTI filed separate Complaint-Affidavits against the 11 flour millers before the DTI-National Capital Region for violating Section 5(2) of the Republic Act 7581 or the Price Act defining and prohibiting profiteering as one of the illegal acts of price manipulation. Profiteering is defined as the sale or offering for sale of any basic necessity or prime commodity at a price grossly in excess of its true worth.[footnoteRef:29] [28: DTI Gives up Profiteering Case vs Flour, Newslink TV, May 16, 2011, available at http://newslinktv.blogspot.com/2011/05/dti-gives-up-profiteering-case-vs-flour.html (last accessed October 9, 2014).] [29: Global Forum on Competition Prepared by Victorio Mario A. Dimagiba, Director, Bureau of Trade Regulation and Consumer Protection, Department of Trade and Industry, Philippines.]

On July 29, 2010, DTI-NCR adjudication officer Ma. Carolina I. Carbonell dismissed the case on technicality saying the complainant failed to submit the required documents to warrant the filing of a formal charge against the millers. The DTI-NCR said that Dimagiba failed to submit the certificate of non-forum shopping, a requisite for filing a verified complaint or formal charge required under Section 4, Rule III of DAO No. 07, Series of 2006.[footnoteRef:30] [30: Supra note 28.]

The profiteering case was dismissed on a mere technicality this sheds a huge cloud of doubt as to whether the major players in the local flour industry is selling locally produced flour at a price grossly in excess of its true worth hence the difference between the price of imported Turkish flour and the locally produced flour. Furthermore, at the consumer level, the mass of Filipino people will suffer from the price increase of basic daily commodities such as dry noodles, biscuits, fishballs and the ever so popular Pinoy Pan de Sal. There needs to be a determination of the effects of the anti-dumping measure to be taken and whether it would be beneficial to the Nation economically as a whole or whether the imposition of the anti-dumping measure will merely cater to a small group of Filipino people.

The second level of analysis is a brief comparison between the current rice problem the country is facing. The discussion will no longer be in depth because the issue on rice quotas alone is a whole different topic which should also be analyzed and critiqued. The discussion will focus more on the intervention of the Philippine government and whether the intervention did any good for the nation. At present, the Philippines is allowing 350,000 metric tons (MT) of rice to enter the country annually at reduced tariff rate of 40 percent.[footnoteRef:31] Tariff rate quotas (TRQs) are one of the most widely used trade policy instruments in agricultural trade. The issue of whether TRQs are efficient trade policy instruments for improving market access has been widely debated. Some believe that TRQs impose an extra barrier to trade, circumvent the reforms sought under the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) and may not be as attractive as initially envisioned. Others believe that the TRQs are useful and facilitate trade and liberalization. Any expansion in quota, or decrease in tariffs, or combinations of the two, has the potential to liberalize trade in a specific industry.[footnoteRef:32] The article written by Gerrardo Sicat provides for a perfect summary of the rice situation in the country.[footnoteRef:33] [31: http://www.manilatimes.net/philippines-sets-limited-rice-imports/19324/ (last accessed October 9, 2014)] [32: IMPLEMENTATION OF TARIFF RATE QUOTAS IN THE PHILIPPINES byPRECELES HERNANDEZ MANZO (last accessed October 9, 2014)] [33: http://www.philstar.com/business/2014/02/05/1286658/rice-smuggling-corruption-protectionism-almost-same-thing (last accessed October 9, 2014)]

The tensions felt by the nation in the scandal of rice smuggling is a symptom of what underlies the current state of economic policies pertaining to the food production sector. Beneath the problem lurks the policy of protectionism that the government has put in place to help entrenched producers in the agricultural sector.I will explain why smuggling, corruption and protectionism come together as a single package. In fact, they almost become one and the same thing! This was the bane of past setback in Philippine industrialization. And this could be the lynchpin for a setback in food production even as we move forward economically.The industry watchdog in the private sector, the Philippine Federation of Industries, has estimated, based on discrepancies in Philippine import data and the export data of major trading partners, that the volume of smuggling is astounding, exceeding P300 billion alone in 2010 and 2011.A recent internal report in the Finance Department has categorically stated that a long history of backroom deals, institutionalized theft and impunity has made the Bureau of Customs one of the most prominent faces of corruption in the government.Rice smuggling in the news and in the Senate hearing. High domestic demand for rice and the high cost of production in the country relative to low-cost rice production elsewhere in Southeast Asia Thailand and Vietnam in particular are two major factors that have contributed to continued rice importation by the Phillippines.In addition , the country has been unable to produce sufficient rice for the nations needs , despite rising yields. This has necessitated rice importation to assure the countrys food security.Rice importation is regulated by the National Food Authority (NFA). It used to be that the NFA was the sole legal importer of rice. After determining the nations supply deficiency, it would contract the nations import needs directly.The practice has changed. As the countrys food stabilization agency with powers to intervene in the rice trade and distribution, it has had a colourful history. In the domestic sector it sets the prices of palay prior to milling and then mills what it buys for storage and sale to the public. It acts as a rice price stabilizer for domestic production and distribution.That role extended to the purchase and resale of imported rice to the public. That was good until the practice was changed during the time of Gloria Macapagal Arroyo when the direct importation of rice was transferred to private importers but under a regime of quantitative restrictions for each quota holder.Who benefited from the import quotas. To import rice, quota holders were initially awarded licenses by the NFA. Qualified quota holders were grains importers, individuals, and entities including farmers organizations (associations and cooperatives).The choices were undertaken by the agency. In distributing them, there were few requirements to enable quota applicants. The import quotas were not auctioned to the highest bidders.The government, therefore, did not earn any income commensurate with the privileges being offered. Thus, selected quota holders were probably parties close to the agency or to the government in power.In the Senate hearing, however, what surfaced was that those who were allocated import quotas turned around quickly and sold their quotas to other rice traders at a premium. That meant easy money just to be a quota holder.Eventually, too, only a few traders controlled the importation of rice through the consolidation of the purchases of the individual quota holders.In all these, the protection that was supposed to benefit rice farmers did not go directly to that group. The beneficiaries were those lucky to receive quotas and the traders who made profits from the trading acitivity.The face of corruption. Easily, this practice led to the following: the quota holders made a quick profit. The rice importers who eventually consolidated imported the rice from the designated sources. These importers were required to pay a 40 percent tariff on the imported rice.Did they pay the relevant import duties? Reports of smuggling of rice indicate some hint of failure to collect the tariff duties on the rice imports.Hence, this could only mean that expected revenues from the rice imports were never fully collected. As a result, the high tariffs did not result in having any revenues earned to help strengthen the state coffers.Philippine agriculture and the processed food industry is highly protectionist. Before the countrys accession to the WTO, the agricultural sector enjoyed protectionism mainly in the form of non-tariff barriers. As part of its accession to that international trade body, it committed toward remove non-tariff barriers that existed before.This was done through the Agricultural Tarification Act of 1996 (Republic Act 8178). This law repealed other laws and regulations that granted quantitative restrictions to several agricultural products. Except for the countrys staple, rice, which was allowed temporary use of quantitative restrictions, the other agricultural products were given tariff adoption guidelines.This led to some tariff rates on a few agricultural products which were given substantial tariffs. Among these are onions, potatoes, garlic and cabbages. Because of their high tariffs, these products are also the object of smuggling.Lessons from the past. Food prices are a significant part of the poors incomes. High tariffs and protection for many industries do not protect industries as often claimed by their proponents.Instead, protection serves to make our industries less competitive and less innovative. As a result, they fall behind other foreign producers making the country economically strong.Also, high protective tariffs encourage smugglers. It gives them ammunition to defy and corrupt further our weak institutions. In the end, they also lead to higher prices. The wrong parties are enriched!

As seen for the above-cited article, it is clear that the imposition of Rice Quota had an adverse effect in the rice industry. It is therefore evident that not all acts of the government to promote fair trade and acts which are intended to be for the protection of the local industry actually help the intended industry. The same case can be made for the imposition of additional duties on flour being imported from Turkey. The imposition of additional duties may lead to more smuggling cases and higher prices.

The third level to be analyzed is how Turkey is able to give such a great discount without suffering losses. The main reason behind the discrepancy between the import price and normal value is the subsidy the Turkish government gives to the flour industry in Turkey. It must be noted that certain types of subsidization in itself constitute unfair trade. In particular, the SCM agreement provides for the prohibited subsidies which are a) export subsidies and import substitution subsidies. Based on the case filed by Pafmil, there is no concrete evidence showing that the subsidies granted by the Turkish government falls under any of the prohibited forms of subsidization. Therefore, it safe to conclude that the there is no unfair practice of subsidization occurring.

Finally, it is important to look at the local flour milling industry to determine whether the presence of imported flour in the market is a detriment to the local industry or it should serve as form of competition in order to drive the local industry to seek innovation to remain competitive with foreign competitors.

Republic flour mills (RFM) the first milling company in the Philippines started its operations in 1958. It was established to address the need of the country to be self-sufficient in a basic food commodity like flour. RFM was the pioneer of the flour-milling industry in the Asian region and it evolved from a single company producing bags of flour, to a multi-company enterprise managing a chain of branded products. Its first flour mill is located on a seven-hectare land in Mandaluyong, Metro Manila. Because of the success of the Republic Flour Mills, competitors were attracted to join the flour milling industry. At present, there are twelve companies engaged in the manufacturing of flour which is affiliated with two industry organizations namely the Philippine Association of Flour Millers (PAFMIL) and the Chamber of Philippine Flour Millers (CHAMPFLOUR). PAFMIL is composed of RFM, Liberty Flour Mills, Wellington Flour Mills, Pilmico Foods Corporation, General Milling Corporation, Universal Robina Corporation and the Philippine Flour Mills. CHAMPLOUR on the other hand is composed of San Miguel Mills, Philippine Foremost Milling Corporation, Morning Star Milling Corporation and Delta Milling Corporation.[footnoteRef:34] [34: Global Forum on Competition Prepared by Victorio Mario A. Dimagiba, Director, Bureau of Trade Regulation and Consumer Protection, Department of Trade and Industry, Philippines.]

Despite the reliance of the country in the importation of flour, Nestor Constancia, president of the Philippine Baking Industry Group, said two new flourmills have been operational Asia Grains in Cebu and Atlantic Grains in Laguna. Another flourmill is being established in Subic.[footnoteRef:35] The opening of these flourmills show that there is still profit to be made in the flourmill industry in the Philippines. The problem is not with the lack of willing participants in the industry as well as the preference of the end user. As seen in the aforementioned case of Gardenia Bakeries Philippines Inc. shifting from local suppliers to an Indonesian supplier. The problem is that the quality of the local flour being produced is not at par with other foreign suppliers. The answer to the problem is not to restrict free trade rather it is to promote free trade in order to motivate the local industry to be innovative and more efficient with its procedure. The Filipino first policy as mentioned by the Supreme Court was not meant to be an isolationist policy. Filipino consumers will ultimately choose Filipino suppliers provided that the Filipino product is highly competitive or similar to foreign products. [35: http://www.mb.com.ph/new-flour-mills-offer-cheaper-prices/ (last accessed October 9, 2014)]

Conclusion The imposition of additional duty in the importation of Turkish flour is not the best approach, which the Government could have done. The WTO does not condemn dumping per se. The prohibition guaranteed by law is a case of dumping which results in material injury to a domestic industry. The importation of flour by Turkey into the Philippines does not cause material injury to the local flour milling industry.

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