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America’s response to the demand for Phl independence

CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat - The Philippine Star

We shift perspective to examine how the United States as colonial master responded to the final demand for independence by Philippine leaders.

Policy tools for colonial consolidation and for political separation. The major trade and economic policy tools employed during the consolidation and buildup of American power were pretty much the same as those employed to end the closure of that political control over the colony.

Throughout the period of Philippine history covering the first half of the 20th century, American economic policies manifested themselves in the use of these important policy vehicles: (1) Tariffs for protection. (2) Discriminatory tariffs. (3) Quantitative quotas. (4) Export taxes. And, (5) Excise taxes.

The policy measures were used during the pacification and occupation to promote economic growth and overall development in the image of American political and economic objectives in the territory. Altogether such policies succeeded in promoting high economic growth.

The path for full and complete independence for the Philippines also meant, to American policy-makers, that the preferential ties that were fostered through the decades would come to an end. They made that plain enough through the economic provisions of the independence law.

Ultimately, this meant the end of preferential access to the American market within a foreseeable defined time period.

In practical immediate terms, measures of dependence on that access had to be dismantled during the 10 year transition period of the Commonwealth and during the early years of political independence.

Thus, the very basis of economic relations would have to be redefined, and those major industries that had grown big and robust would face a new and changing world.

Tariffs for protection. As a historical point, since the founding of the United States of America, tariff protection was applied to insulate new manufacturing industries in the domestic economy. In general, however, tariff protection had not been too high or as prohibitive as in many developing countries of recent years.

However, they shielded American industry from excessive import competition and enabled their infant industries to grow. The American economy grew into a great competitive economy. The “free trade area” was the sum total of all the economic markets of the American states. That huge market provided the needed scale that enabled industries to become highly competitive in the production of goods and services.

Tariffs could also be zero-rated to enable the importation of food and raw materials more cheaply available in other countries. This made it possible to acquire cheaper consumption goods not produced at home and more important raw materials for industry.

Discriminatory tariffs. Now, turning to the Philippines, that access to the American economy through duty-free trade gave it a large market to grow on.

From the very beginning of the American conquest and occupation, the colony was treated as an external territory of the US not entitled to the privileges of American states, which were self-governing commonwealths and members of the American Union. In this sense, the Philippines was simply an intrusion into the American body politic.

As a colony, however, discriminatory tariffs favorable to exports from the Philippines meant an advantage over other foreign country suppliers. The first of these advantages were tariff preferences granted to tobacco and sugar exports from the Philippines to the US. These were initially equivalent to a 25 percent preference.

Then as time evolved and more liberal policies ensued, tariff free access became the rule. This was in the 1920s until the effect of the economic provisions of the independence law went into effect. This was the “free trade phase” of Philippine development as a colony.

In essence, the free trade was only “free” to the colony because American tariffs were zero- or preferentially rated to it. As already explained, this induced Philippine economic growth go higher and sustained.

In time with political independence on the horizon, the “free trade status” would end. The Philippines would not enjoy tariff preferences anymore.

Quantitative quotas. Quantity quotas were a fashion to enable specified quantities of Philippine exports to enter the US free-of-duty. The amounts of the quotas, however, were subject to administrative manipulation. They could be enlarged or contracted.

When “free trade” was adopted for some commodities, enlargement of economic opportunities happened. As preferential tariffs ended, the contraction of duty-free quotas followed until they eventually disappeared.

This would affect the basis of Philippine economic prosperity. It would hit particularly the established industries: the sugar sector, coconut, abaca, and tobacco industries that involved major processing industries based on expanding agriculture.

Export taxes. The US could impose export taxes on American goods destined for other countries, but it hardly undertook to employ that policy. Instead, the government relied on internal taxes and regulatory measures to create impact that mattered differentially. The US constitution prohibits states of the American Union to impose border or trade taxes within the Union. This is why the US is a big “free trade area” by itself.

However, in the Tydings-McDuffie Law, one of the provisions [section 6 (e)] stated: “The government of the Commonwealth of the Philippines shall impose and collect an export tax on all articles that may be exported to the United States” from the Philippines. The proceeds of the export tax were also to be applied to pay for the retirement of Philippine external debt.

In this case, a self-governing commonwealth government was required by colonial authorities to install the export tax which was within its jurisdictional power.

Excise taxes. Excise taxes on coconut oil (in May 1934) and on refined sugar (in 1937) imported from the Philippines were imposed by US revenue authorities in the US. These were essentially discriminatory taxation on processed manufactures from the Philippines to protect processors of coconut oil and refined sugar in the United States.

Like the export taxes that were collected by the Philippine authorities (mentioned above), the proceeds from the excise taxes were also kept as accounts in the US Treasury to be remitted to the Philippines to meet certain special expenditures of the Commonwealth.

 

 

For archives of previous Crossroads essays, go to: Philstar.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

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