Some final thoughts on the machinations of food imports

FOOD imports are clearly a delicate subject here in the Philippines, and the issuance of Administrative Order (AO) 20 last month was itself a huge leap in the wrong direction. However, the issuance of AO 23 last week could address the shortcomings in AO 20 and ensure it works as intended.

AO 20 sought to remove a number of perceived non-tariff barriers to imports, based on the fundamental reasoning that any increase in food supply, regardless of the source of that supply, results in lower food prices. Food prices have been the biggest driver of persistent price inflation for more than a year, and it’s something that politicians and economics nerds alike are understandably keen to control.

AO 20 was primarily a creation of the National Economic Development Authority (NEDA), which, for all its academic brainpower, approached the problem in simplistic, shorthand terms. Importing food to fill shortfalls in domestic production should lower prices, but in practice this has not been the case; overall food supplies have increased only modestly, if at all, and prices remain high. The fact that this has persisted despite a number of measures that have allowed increased imports in recent years (e.g. the Rice Tariffs Act) should have been an indication that the problems causing limited supply and higher prices are not at all related to imports , but that clue was missed or ignored in favor of the easier misinterpretation that “if something isn’t working, it’s because you’re not doing it enough.”

The main intended impacts of AO 20 are to increase the number of registered importers, relax import volume controls on key commodities such as sugar and fish, and streamline import processing in various ways, including conducting Sanitary and Phytosanitary Import Clearances (SPSIC ) are subject to the Anti-Red Tape Act (Republic Act 9485), i.e. they are automatically cleared if they are not processed within a prescribed period. This particular provision is particularly alarming because it is a health and safety issue for a country that faces persistent threats from things like African swine fever, bird flu, and the fact that the phrase “food safety” does not exist in any Chinese. Language, allowing a situation where something deadly can slip out due to mere bureaucratic timing, is stupid and irresponsible.

AO 23, on the other hand, was a welcome surprise. It was brought to my attention several weeks ago that there had been an organized effort to get the government to adopt the system of pre-shipment inspections and electronic invoicing of shippers, but that the proposal had been rejected due to NEDA’s concern that “it would be inflationary. ” Then AO 20 appeared, and that seemed to herald the end of legitimate attempts to enforce some control and regularity over imports until some confidence was restored about a week ago.

The potential loophole regarding SPSICs in AO 20 has yet to be addressed, but some of the other troubling parts of that decision will be kept in check by the provisions of AO 23. Potential importers looking to game the system thanks to the looser requirements for accreditation under AO 20 are likely to be discouraged by the new double layer of checks on import shipments. The electronic invoicing system also means that information about import shipments can be more easily shared between the Bureau of Customs (BoC) and other relevant agencies. Questionable shipments can in most cases even be stopped before leaving their ports of origin, while shipments that are especially critical can be safely expedited.

The biggest advantage of AO 23 is that it will significantly reduce the workload of the BoC. Contrary to popular belief, the BoC does not suffer from corruption, at least not in the Marcos era; Customs Commissioner Bienvenido Rubio has done a good job of weeding out the bad actors, in part because, unlike most of his predecessors, he seems to view it as a normal, ongoing part of his job. Rather, the BoC’s shortcomings that have allowed smuggling to continue are largely due to the fact that the agency was simply overwhelmed by having to manage a large volume of imports with an inefficient system. The new system means the BoC has fewer steps to complete for each shipment, and those fewer steps are each significantly more efficient and reliable than what they replace. This gives BoC personnel the space to do other necessary things, such as carrying out more thorough and faster spot checks and inspections of unusual shipments.

As for the new system leading to higher prices, there’s probably something in that, but not much. The costs of shipments before inspection and electronic invoicing will be borne by shippers, who will of course adjust their prices upward to compensate, but the difference would be only a small fraction of a percent. And the adjustment would not necessarily be “inflationary,” implying a continued increase, but rather a one-time increase. For example, the price of a kilo of imported beef could increase by a peso or two for the first shipment under the new system, but that will remain the case; Thanks to the system, it won’t increase by an extra peso or two with each subsequent shipment.

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