Is the Early Harvest good for RP?

Recently, the durian imported from Thailand is 16 Yuan (or 126 pesos) a kilo on fruit markets in Beijing, China, whereas the same fruit cost twice as much last year. A RP banana exporter may also wonder why his export of banana to China has to pay 16% tariff while other ASEAN exporters need only to pay 10%. Well, may I say, the answer is the Early Harvest.

1. What is an Early Harvest Program?

The Early Harvest Program is a free trade arrangement under the framework of China-ASEAN Free Trade Area (FTA) and is designed to accelerate the implementation of China-ASEAN Economic Cooperation Framework Agreement. By reducing the tariffs of some products, agricultural products in particular, including livestock, meat, fish, dairy products, live plants, vegetables, fruits and nuts, the ASEAN countries can attain early access to China’s huge domestic market prior to the establishment of the FTA.

The establishment of China-ASEAN FTA and the initiation of the Early Harvest Program were unanimously endorsed by the ASEAN countries. By the end of 2003, nine of them except the Philippines have signed the Early Harvest Agreement with China.

2. The Early Harvest Program enables the Philippines to be in a better position to export more competitive agricultural products to China. As a result, the local farmers will be the direct beneficiaries.

Firstly, Early Harvest means that your tropical fruits will enjoy more and easy access to Chinese market. With a population of 1.3 billion, China has a tremendous demand for tropical fruits. As one of the largest tropical fruits suppliers to China, the Philippines exported more than 300 thousand metric tons of fruits to the mainland of China in 2003, accounting for 30% of China’s total fruit import, and showing an increase of 21% over that in 2002. Your fruit export to China last year generated an avenue of US$82 million, representing a 30% increase over that of the year before. At present, The Philippine banana export to the Chinese mainland last year accounted for 89% of China’s import of bananas. Other Philippine fruits such as mango, papaya, and pineapple are also popular on Chinese market. Now, China’s MFN tariff rates for imported mango, papaya and pineapple are 16%, 27%and 15.2% respectively. By participating in the Early Harvest Program, the import tariff of these fruits is reduced to 10% by January 2004, and to 5% by January 2005, and by 2006, these products will enjoy tariff-free access to the Chinese market, thus enlarging the market share of Philippine fruits in China by a big margin. Besides the Philippines, Vietnam, Thailand and Malaysia are also competitive suppliers of tropical fruits, all of which have already signed the Early Harvest Agreement with China and are now enjoying the preferential tariff rates for their tropical fruits export to China. If the Philippines continues to be indecisive on the Early Harvest Program, I am afraid, the Philippine tropical fruits will be edged out from the Chinese market by those more competitive ASEAN countries. This is certainly not in the interest of the Philippines.

Secondly, Early Harvest means that your coconut products will enjoy more and easy access to Chinese market. The Philippines is one of the world-leading producers of coconut products with a planting area of more than 3.1 million hectares, accounting for 26% of the agricultural lands. About 3.5 million households or 250 million people directly or indirectly rely on coconut products for a living. Coconut products, such as coconut oil, coco peat and copra, are the Philippine’s most important export products, representing 30% of the country’s total agricultural export products. In recent years, China’s demand for coconut oil has been increasing rapidly. In 2003, China imported 60 thousand metric tons of coconut oil from the Philippines, 48% more than that in 2002. Now, China is studying the feasibility of using coconut fiber for combating land erosion and anti-desertification. These coco products have a good future on the Chinese market. Now, our MFN tariff rates for coconut oil and coconut fiber are 10% and 5% respectively. After the establishment of China-ASEAN Free Trade Area, all the participating states will enjoy tariff-free trade with China, thus creating favorable conditions for exporting the Philippine coco products to Chinese market. However we should be aware that Indonesia, Vietnam and some other countries are also exporting coconut products to China, and Indonesia has already included its coconut oil on the list for gradual tariff reduction under the Early Harvest Program. If the Philippines is still hesitant to join the Early Harvest Program, then it will find much more difficult to export its coconut products to China very soon.

Thirdly, Early Harvest means that your aquatic products and seafood will enjoy more and easy access to Chinese market. China is a large producer of aquatic products and seafood as well as a large consumer of these products. We import US$2.5 billion worth of these products annually, of which the Philippines has only taken a small proportion. Statistics of China’s Customs show that China imported only US$5.74 million worth of aquatic products from the Philippines in 2003. At Present, our MFN tariff rates for tuna, frozen shrimp, frozen crab and canned fish are 12-14%, 20%, 20%, and 17.2% respectively. Under the Early Harvest Program, the tariff rates of these products will be rapidly reduced. Having joined the Program, the Philippines will be able to export more of its aquatic products and seafood to China.

3. Early Harvest Program will not seriously affect the Philippine export of agricultural products.

People may worry that the Early Harvest Program may produce adverse effects on the Philippine’s export of its agricultural products. Let’s me share with you my views on this point:

Firstly, China and the Philippines are supplementary in agricultural products. As for the Philippine agricultural products export to China in 2003, the major products exported to China were: tropical fruits mainly banana, mongo and papaya accounting for 63.5% of the country’s export total, vegetable oil (mainly coconut oil) accounting for 24%, raw rubber accounting for 6.3% and aquatic products accounting 4.3%. Meanwhile, the country’s imports from China were: grain and cereal products (29.5%), vegetables and fruits (28.6%), rapeseeds and oil-contained nuts (9.4%), aquatic products (8.4%), tobacco (6.1%), beverage (4.7%) and meat (3.4%). So we can see what the Philippines imported from China are mainly those the Philippines does not produce or do not produce enough to satisfy its domestic needs. Furthermore, although the Philippines import a large quantity of agricultural products, yet it imports most of agricultural products from other countries except some fruits from China. The Philippines’s import of the Chinese agricultural products takes up only a small proportion of its import total and the imported Chinese products are those in short supply in the Philippines.

Secondly, Early Harvest allows some sensitive products to be placed on an exclusion list for transitional protection. In accordance with the terms of the Early Harvest Program, ASEAN countries and China may include on an exclusion list some of their sensitive products that may at a later stage be included in the Program after a grace period. This is designed to prevent certain less competitive products of some countries from being seriously affected after the import and export restrictions are lifted. Some sensitive products of the Philippines may be placed on an exclusion list for protection in a transitional period. At the same time, it is advisable for this country to increase agricultural productivity so as to make local products more competitive.

4. It is of key importance to improve farm management and technology to enhance the competitiveness of the Philippines agricultural products in the world market.

Protection of any kind is only of an expedient nature. After all, free trade is a “give-take” business. If there are only “take” and no “give”, there will be certainly no trade deal. Long-term protection will only protect backwardness and reduce competitiveness. As a result, the agricultural and industrial sectors cannot develop further and they will find themselves in a very difficult position in the increasingly competitive international market. It may be advisable to take positive measures to overcome these difficulties.

First, to increase agricultural productivity so as to make local farm products more competitive. The Philippines is bestowed with rich soil and suitable climate for agriculture. Low output and high production cost are the main causes for low competitiveness of some local agricultural products, which could be improved through both policy and technology support. For instance, the animal feed cost accounts for 60-70% of the total cost of livestock production. Corn is the major animal feed in the Philippines. If the per hectare corn yield can be increased, the feed price would be reduced by a large margin and the cost of livestock production will decrease as a result so that local meat products will accordingly be more competitive. At present, the corn production in this country is only 1.8 metric tons per hectare, while per hectare output of hybrid corn in China is about 7-9 metric tones. Now, Chinese experts have successfully cultivated 29 varieties of Chinese hybrid corn in 21 places across the country. If China’s hybrid corn seeds could be introduced together advanced farm technology to this country, it would not be difficult to reduce both the cost of animal feed and the price of meat products. The same applies to local vegetables.  For example, in China, the average output of cucumber is 50-60 metric tons per hectare, and the output may reach 200 tons if cultivated in green houses. China has suitable vegetable seeds and farm technology and we would like to help our Philippine friends in this regard.

Second, to strengthen the customs control to curb smuggling. The best way to protect local products is to tighten the customs control so as to stop the illegal entry of smuggled products into this country. Obviously, smuggling does not only reduce the country’s tax revenues, but also badly disturb the normal market order, thus seriously hindering the development of both local agricultural and relevant industrial sectors.

The leaders of ASEAN countries and China have agreed to establish a Free Trade Area by the year 2010. This ASEAN-China FTA will cover an area with 1.7 billion consumers, total GDP of 2 trillion USD, and trade volume of 1.2 trillion USD according to the present-day statistics. It will be the largest free trade area of developing countries. The Early Harvest Program is one of the concrete steps taken by ASEAN countries and China towards the future FTA. As close neighbors, China and the Philippines have enjoyed time-honored friendship. As the world’s largest potential market, China represents an important opportunity for Asia. China and the Philippines can, as developing countries, supplement each other in many areas. The ASEAN-China FTA and the Early Harvest Program will certainly bring enormous business opportunities to this country. As a friend of the Philippine people, China does not want to see our Philippine friends stay out from the economic integration process.

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