TARIFF LAW DAY 2 Exhaustive Review of Tariff History, Administration, and Philippine Policy

History of Tariff and Etymological Origins

• The Origin of 'Tarifa':

  • Tarifa is a small historic town located in the Province of Cádiz, Andalusia.
  • It represents the southernmost point of Europe and is positioned $21$ miles from Gibraltar.
  • Historical Context: As Mediterranean commerce expanded, a group of racketeers established their headquarters in Tarifa. They intercepted merchant ships passing through this point and levied a fixed rate on them.
  • Naming: Mariners referred to this tribute as a "tariff." The term became current in England because English vessels constituted the majority of the merchant trade at the time.
  • Arabic Roots: The town received its name from the Arabs, specifically named after 'Tarif Iban Malik'. In July $710$, he was sent by 'Tarik' (Tariq) to reconnoiter the country.

• Etymological Derivatives:

  • Old French (Tarife): Meaning "rate."
  • Spanish (Tarifa): Meaning "price list."
  • Arabic (Ta’rif): A verbal noun from 'arafa' (to know), meaning "notification."
  • Arabic (Ta’rife): Meaning "price list" or "rate book."
  • Italian (Tariffa): Meaning "price list."
  • Portuguese (Tarifa): Meaning "schedule."

• General Definition: Tariff is documented as the oldest method used by governments to control trade by levying taxes on imported or exported goods.

History of the Philippine Tariff System

• Pre-Colonial Trade: Ancient Filipinos were already actively trading with China, Japan, Siam (Thailand), Cambodia, India, Burma, Sumatra, Java, and neighboring islands.
• Preferential Treatment in Spain: The Law of $1882$ provided that products from the Philippine archipelago were exempt from duty in Spain, with specific exceptions: tobacco, rum, sugar, cacao, chocolate, and coffee.
• The Almojarifazgo:
  • This was a $3\%$ ad valorem duty imposed on both imports and exports.
  • It was established in Manila by Governor Guido R. Lavizares in $1573$.
• Evolution of Colonial Duties:
  • In $1606$, the duty on Chinese goods was increased to $6\%$.
  • Commodity prices were fixed and paid in gold or in metal gongs (bells) brought from China.
  • Observations: Chinese writers Chao Ju-Kua ($1209$-$1214$) and Wang Tay-Uan ($1349$) noted that ancient Filipinos were highly skilled in commercial dealings.
• Historical Imports and Exports:
  • Foreign Imports: Silk, woolens, bells, porcelains, perfumes, iron-tin, and colored cotton cloth.
  • Philippine Exports: Rice, coconuts, palm oil, sugar, fibers, straws, cane, dyewoods, lumber, and luxuries like sea snails, edible bird nests, tortoise shells, and pearls.
• Port Openings (Chronology):
  • $1833$: Zamboanga
  • $1842$: Cebu
  • $1855$: Iloilo and Sulu
  • $1874$: Legazpi and Tacloban
• Historical Rates Enforced by the Tariff Board:
  • $15\%$ on all goods from Spain and Mexico.
  • $3\%$ on goods from other countries, except Chinese goods which were $6\%$.
  • $10\%$ on all Asiatic merchandise exported to Mexico.
  • $3\%$ on all exports other than Asiatic products.

General Purposes and Classification of Customs Duties

• Primary Purposes of Tariff:

  • Revenue Tariff: A tax imposed primarily to generate public revenue for regional or national governments rather than to restrict trade volume.
  • Protective Tariff: Known as "Trade Remedy Measures." Designed to shield domestic production from foreign competition and unfair trade by raising the price of imports. Its revenue yield is secondary to its protective function.
  • Bargaining Tariff: Rates designed for negotiation purposes, often containing provisions for higher duties against countries with unsatisfactory or unfair tariff policies.

• Classification by Form:

  • Specific Duty: Levied based on quantity (weight, volume, gauge, number of units) without regard to the item's value.
  • Ad Valorem Duty: Derived from Latin meaning "according to value." Levied as a specific percentage of the imported article's value.
  • Mixed and Compound Duty: A combination of both specific and ad valorem rates applied to the same product.

• Classification by Economic Purpose/Effect:

  • Revenue Duty: Primarily to raise government funds.
  • Protective Duty: Primarily to restrict the entry of foreign goods to protect local manufacturers.

• Special Purpose Duties:

  • Anti-Dumping Duty: Imposed when goods are imported at less than their normal value (price in the country of origin). The duty equals the difference between the export price and normal value.
  • Countervailing Duty: Levied to offset any specific subsidy bestowed upon the manufacture or exportation of a product. It is additional to ordinary duties.
  • Safeguard Duty: An emergency action/increase in tariff levied when import volume exceeds a trigger level or CIF value falls below a trigger price, causing serious injury to domestic industry.

• Penal Duties:

  • Discriminatory Duty: A penalty (up to $100\%$ ad valorem under Section $714$ of CMTA) against countries that impose unreasonable charges or limitations discriminating against Philippine products.
  • Marking Duty: Under Section $710$ of CMTA, if goods or containers are not properly marked with the country of origin at importation, a duty of $5\%$ of dutiable value is collected.
  • Transit Duty: Tax on commodities passing through a customs territory en route to another destination or for stopover privileges.

Philippine Tariff Reform Programs (TRP)

• Definition: TRP is a continuous review and restructuring of the Philippine tariff system to remain responsive to economic needs, trade patterns, and technology.

• TRP-I ($1981$-$1985$):

  • Basis: PD $1464$.
  • Instruments: Tariff Reform Program and Import Liberalization Program (IMP).
  • Coverage: Chapters $1$ to $97$ of the TCCP. Changes were staged over $5$ years to cushion economic impact.
  • Goals: Remove excessive or outdated protective rates and shift raw material imports from advanced processing to basic/crude forms.

• TRP-II ($1991$-$1995$):

  • Basis: EO $470$ (signed July $20$, $1991$; took effect August $24$, $1991$).
  • Coverage: Approximately $80\%$ of total tariff lines.
  • Rationale: Reduce the overall level of protection and disperse it across industries. Aimed for more efficient resource allocation and better access to affordable inputs.

• TRP-III ($1995$-$1998$):

  • Basis: EO $264$, $288$, $313$, $461$.
  • Rationale: Harmonize rates toward a uniform level of protection to promote global competitiveness.
  • Rate Structure: Targeted a uniform $5\%$ rate by $2004$. In $2003$, rates were categorized into $3\%$ (raw/intermediate goods) and $10\%$ (finished products).

• TRP-IV ($1998$-$2004$):

  • Basis: EO $465$, $486$, $334$.
  • Rationale: Evaluated the impact of reductions and corrected distortions. Introduced a recalibrated structure ($3\%$, $5\%$, $7\%$, $10\%$, $15\%$, $20\%$, $25\%$, $30\%$).
  • Selected Industries: "Philippine Winners" (selected for global competitiveness, employment, and linkage) were targeted for recalibration via EO $465$.
  • Policy Shift: In January $2003$, the government slowed the pace of TRP to align with ASEAN Free Trade Area (AFTA) and WTO minimums.

• Comprehensive Tariff Review ($2024$-$2028$):

  • Culminated in Executive Order No. $62$.
  • Covers over $450$ pages of modified lines to temper inflation and support domestic industry.

The Philippine Tariff Commission (TC)

• Mandate: Prescribed under RA $10863$ (Customs Modernization and Tariff Act/CMTA). Signed May $30$, $2016$; effectivity June $16$, $2016$.
• Legal Status: Attached agency of the Department of Economy, Planning and Development (formerly NEDA).
• Functions (Section $1603$ of CMTA):
  1. Adjudicate trade remedy cases.
  2. Study impacts of tariff policies on competitiveness and welfare.
  3. Administer Philippine tariff schedules/nomenclatures.
  4. Issue advance rulings on classification and settle classification disputes.
  5. Provide independent analysis to the President and Congress.
  6. Analyze goods composition and commodity headings.
  7. Review trade agreements for consistency with national objectives.
  8. Conduct public consultations and hearings.

Evolution of Philippine Tariff Laws

• Philippine Tariff Act of $1909$: Passed by US Congress; established the legal foundation for tariffs during the colonial era.
• Republic Act $911$ ($1953$): Created the TC as an independent agency under the Office of the President. TC Foundation Day is celebrated every August $17$th.
• General Appropriations Act of $1956$: TC became a division of the Department of Finance.
• Republic Act No. $1937$ ($1957$): The first Tariff and Customs Code of the Philippines (TCCP) passed by the Philippine Congress. Re-established TC as an independent body.
• PD No. $1$ ($1972$): Reorganized TC into a collegial body and placed it under NEDA.
• PD No. $34$ ($1972$): Consolidated all amendments to the TCCP.
• PD No. $1464$ ($1978$): Consolidated and codified all laws; remained the primary code for $38$ years.
• EO No. $292$ ($1987$): Shifted TC to a sectoral setup (Agricultural/Food, Machineries/Transportation, Chemicals, Textile/Paper, Metals/Non-Metals).
• EO No. $143$ ($2000$): Shifted TC back from a sectoral to a functional setup.
• EO No. $366$ ($2004$): Rationalization plan creating the RIITAS and FMAS services.

Organizational Structure and Qualifications

• Chief Officials:

  • One Chairperson and two ($2$) Commissioners appointed by the President.
  • Qualifications: Natural-born citizen, good moral character/integrity, and expert knowledge of tariff/trade matters.
  • Prohibitions: Cannot practice any profession or have financial interest in any government contract or private enterprise management.

• Administrative Services:

  • RIITAS (Research Investigation and International Trade Analysis Service): Focuses on external functions (globalization monitoring, trade negotiations, injury investigations, ASEAN studies).
  • FMAS (Finance, Management and Administrative Service): Focuses on internal functions (fiscal management, HR, IT, planning, procurement).

• Divisions within RIITAS:

  • Commodities Studies Division (CSD).
  • Economics, Trade and Industry Studies Division (ETISD).
  • Financial Studies Division (FSD).
  • International Trade Studies Division (ITSD).

• The Official Seal (Section $1602$):

  • Winged Wheel with Spokes: Symbolic of progress, delivery, and expeditious performance of functions.
  • Bundled Rice Stalks: Represents the agricultural sector.
  • Factory with Smokestack: Represents the trade and industry sector.
  • Dragon: Symbolizes hopes for economic growth with social equity.

Powers and Procedures

• Rights and Investigatory Powers:

  • Access any documents pertinent to investigations (Section $1605$).
  • Summon witnesses and administer oaths.
  • Issue Subpoena Duces Tecum (production of documents) and Subpoena Ad Testificandum (to testify).
  • Require sworn statements on selling prices of goods.

• The Flexible Clause (Section $1608$):

  • Presidential Power: Upon NEDA recommendation, the President can increase, reduce, or remove rates, or establish quotas/bans.
  • Limits: Increased rates cannot exceed $100\%$ ad valorem.
  • Additional Duty: President may impose an additional duty on ALL imports not exceeding $10\%$ ad valorem.
  • Operational Constraints: This power is exercised only when Congress is NOT in session. Congress can terminate this power via a joint resolution.
  • Effectivity: Orders take effect $30$ days after promulgation, except the $10\%$ additional duty which is at the President's discretion.

• Promotion of Foreign Trade (Section $1609$):

  • Trade agreements apply to goods of the specific country whether imported directly or indirectly.
  • Petitioner Requirement: Must use Tariff Commission Form $4$ (submitted in triplicate) for withdrawal or suspension of tariff concessions.
  • TC Duties: Determine if domestic industry is threatened with injury and if wholesale prices of domestic products are reasonable (considering raw materials, labor, overhead, and ROI).