Trade Barriers - Philippines And Thailand Engaging In Trade Of Rice

Trade involves the exchange of goods and services between countries around the world. There are several benefits of trade. Trade can increase the global production of goods through the process of specialization. This is because countries can take advantage of differences in factor endowments i.e the quality and quantity of factors of production and level of technology. This is the reason for Philippines and Thailand engaging in trade of rice. Although almost every country engages in trade, they use trade protectionism to either protect an infant industry from large-scale international firms or maintain health, safety and environmental standards. Philippines also employs trade protectionist measures such as tariffs and quotas on rice imported from Thailand. Their reason for these barriers is that rice is "a highly sensitive good". This would suggest that rice is a staple diet and is required by almost everyone hence if Philippines opens it's markets to more efficient foreign producers than the domestic production of rice would become extremely low as the inefficient domestic producers cannot compete with the foreign producers. This could lead to severe dependence of rice, which in certain circumstances such as war could lead to no availability of rice in the domestic market.

An import quota is a limit on the quantity of a good that can be imported into a country over a period of time. A quota has different impacts on different stakeholders. This adversely impacts the foreign producers, as their supply to another country is restricted. The domestic consumers are also worse off as the price of the good increases. The only benefiters are the domestic producers as their quantity supplied in the domestic market increases. The domestic employment increases as producers increase their output.

Tariffs are taxes on imported goods and are the most common form of trade barriers. Philippines levies a hefty 40% tariff on Thai rice. By doing this Thai rice loses its market share, as even though the cost of production is lower, its market price becomes high due to the tax hence making it less competitive with the inefficient domestic producers. Tariffs have different impacts on different stakeholders. There is a negative impact on the foreign producers as the commodity becomes less competitive due to the onset of tariffs. Consumers are worse off as they have to purchase the good at a higher price. There is global misallocation of resources as the production shifts away from the more efficient producers to inefficient producers. The domestic producers gain from tariffs as their market share increases, they are willing to supply more at higher prices. The government benefits through the collection of tariff revenue, as it is easy to monitor the transport of goods.

The organization that monitors trade activity across the world is known as the World Trade Organization. There are currently 153 member countries, which engage in discussions involving trade conflicts between themselves. There is a conflict between Thailand and Philippines. Thailand wants the import quota of rice to increase to more than 100,000 tons. This would lead to an increase export revenues for Thailand and contribute to an increase in it's Aggregate demand. On the other hand Philippines is reluctant to increase the quota limit and is keen on maintaining a high tariff of 40% on Thai rice beyond the import quota. This is because quotas do not provide any revenue for the Philippines government where else tariffs would increase the government revenue. There are several countries that are willing to export rice to Philippines. Hence due to the availability of options Philippines is not compelled to change its foreign policies towards Thailand. Philippines and Thailand have undergone economic integration by forming a free trade area called ASEAN. A free area consists of a group of countries that agree to gradually eliminate trade barriers amongst themselves. The reason many countries are moving towards free trade is that trade is considered as an engine for growth and the lesser the trade barriers the more countries can take advantage of economies of scale and achieve greater efficiencies in production.