Rice flare-up delays Asean hopes for tariff-free trade area

South-east Asia's hopes of completing its emerging tariff-free trade area were dealt a blow yesterday by a flare-up in long-standing tensions over rice between Thailand and the Philippines.

Six members of the 10-country Association of South-East Asian Nations achieved tariff-free trade for 99.1 per cent of goods from January 1, with the remaining four due to achieve zero tariffs by 2015.

Asean, which has a population of 580m and an economy bigger than India's, sidelined the rice dispute by agreeing to come back to the issue after the implementation of zero tariffs for the bulk of tradeable goods.

But the prospects for a deal receded yesterday when Manila announced that it would maintain a 35 per cent tariff on rice imports, while providing Thailand with a tariff-free allowance of 360,000 tonnes a year.

Manila's action is not a breach of the trade agreement, which lets rice be treated as a "highly sensitive" product until a deal is reached on a tariff cap.

The Philippines is the world's largest importer of rice, but Thailand's at-tempts last year to sell rice to Manila consistently lost out to government-to-government deals between the Philippine and Vietnamese governments.

Analysts said that the tariff-free quota was unlikely to be completely taken up by open market purchases because Thai prices were considerably higher than those of Vietnam.

Separately, Thailand, the world's biggest rice exporter, said it would restrict imports to low-quality "broken" rice used as a raw material, and insisted that imports would have to pass through six specified "checkpoints".

The commerce ministry said imports would be allowed only within two three-month periods at times when Thai production was low, and would be subject to licensing, quality inspections and proof of origin checks.

The Thai government is having trouble shifting the 6m tonnes of rice it has stockpiled as a result of an intervention-buying scheme designed to protect a key agricultural sector, and is wary of allowing in large quantities of cheap imports.

Thailand moved away from intervention buying last year to a direct support scheme for smaller farmers, and the stockpiles are set to fall in coming months.

Thailand's intervention pricing scheme made it an attractive destination for smugglers from surrounding lower cost producers such as Vietnam and Cambodia. But Kiat Sittheeamorn, Thailand's chief trade representative, said the switch to direct payments six months ago had cut illegal imports.

The measures illustrate the depth of antagonism to rice trading in the region, and the difficulty of negotiating a compromise on a common tariff regime.