TWN Info Service on Free Trade Agreements

15 June 2007


CAP on Rice and US-Malaysia FTA

Below is a response from the Consumers’ Association of Penang (CAP) on why rice should not be included in the FTA talks between Malaysia and the US following the statement by the US that it should be part of the talks. (see TWN FTA Info: US Wants Rice to be Included in FTA with Malaysia dated 12 June 2007)

According to CAP, should the present 40% tariff on US rice imports was to be removed under the FTA, American rice would be very competitive in the local market. Farmers would be affected as many Malaysians are likely to switch over to US rice.

CAP also points out that as long as the high subsidies given to US farmers and exporters are in place, which gives US rice exports an unfair advantage, the tariff on US rice should remain in place. It therefore urged the Malaysian government to maintain its present position to exclude rice from the FTA talks.

CAP’s analysis which appeared in the local press is reproduced below. It was also published in the following media:

The New Straits Times - http://www.nst.com.my/Current_News/NST/Friday/Letters/20070615082235/Article/index_html

Malaysiakini.com - http://www.malaysiakini.com/letters/68618




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(http://thestar.com.my/news/story.asp?file=/2007/6/15/focus/18029204&sec=focus

Friday June 15, 2007), The Star

Exclude rice from FTA

WE WISH to refer to a news report that Washington wants KL to open its rice mart for FTA.

According to the report, the Assistant USTR made it clear that rice needed to be included in the on-going talks on the US-Malaysia Free Trade Agreement (Mufta).

The US does not believe that the inclusion of rice in the FTA would pose a threat to Malaysian farmers.
This belief appears to be supported by International Trade and Industry Minister, Datuk Seri Rafidah Aziz, who is of the view that concerns that the US rice will adversely affect Malaysian rice farmers are “unfounded” as the US long grain rice that is imported is expensive and will never be grown locally.

However, our own investigations show that there is much cause for concern and the fears of farmers being adversely impacted by US rice imports are real and with basis.

In the FTA negotiations, the US will ask for rice tariffs to be reduced to zero (perhaps over some years) and for non-tariff barriers to be dismantled, which could include the quota and import monopoly currently in place by Bernas.

At present, there is not much import of US rice into Malaysia. This could be due to the 40% tariff that is imposed on imported rice and the quota maintained by Bernas.

If the 40% tariff is removed and US rice is allowed to compete freely, its price may become competitive with local rice, thus affecting local rice farmers.

Firstly, it is important to appreciate that the US rice is heavily subsidised. Between 2000-2003, the cost of production and milling of milled rice was US41cents per kilo while the export price was US27 cents per kilo. The export price was thus 34% below the cost of production. Without the subsidy, US rice would not be globally competitive.

Secondly, in February 2007, the US export price of long-grain milled rice was equal to RM1.43 sen per kilo. If there is a 40% tariff, the US rice would not be competitive in the Malaysian market.

However, with a zero tariff, it would be competitive as local rice varieties are retailing at RM1.70 to RM2 per kilo (depending on the rice variety).

In any case, it is most unfair to allow the tariff on US rice to be reduced or even eliminated, when there is such a huge subsidy given to US rice growers and exporters.

The position that rice should be excluded from the FTA commitments should be maintained, as expressed by the Agriculture Minister.


By S.M.MOHAMED IDRIS,
President,
Consumer Association of Penang.