Petrochemical producers oppose zero MFN tariffs

By Bernie Cahiles-Magkilat

Local petrochemical producers have opposed moves by finished plastic products manufacturers to further extract the tariff lines and impose a zero duty from 10 percent on their raw material input stressing this will open avenues for technical smuggling to the detriment of the developing domestic petrochemical industry and government revenues.

In a counter petition submitted to the Tariff Commission, the Association of Petrochemical Manufacturers of the Philippines (APMP) enumerated various reasons for their opposition to the request of the Philippine Plastics Industry Association (PPIA) for the extraction of tariff lines for low density polyethylene (LDPE) under AHTN 2017 39.01, and the reduction of the MFN (most favored nation) tariff rate from 10 percent to zero percent.

“If enacted, it will again provide a tempting loophole for some importers to request Tariff Commission rulings so as to be categorized under these tariff lines, or even for some to outright misdeclare their goods, to enjoy zero duties,” stated the APMP position paper submitted to Tariff Commission Chairman Marilou P. Mendoza and signed by its chairman Patrick Henry Go and president Concepcion I. Tanglao.

LDPE is used to make many thin, flexible products from plastic bags shrink-wrap and stretch film for food and medicines as well as coatings for paper cartons for liquids and disposable beverage cups. Manufacturers also use LDPE to create thin container lids, squeezable bottles and some toys.

PPIA told the Tariff Commission that the imposition of zero duty from 10 percent on LDPE, the raw material used in the production of plastic packaging materials and which is not locally produced, will reduce their cost and make them stay competitive.

APMP countered that further extraction for LDPE under AHTN 3901 will further complicate the already complicated multiple tariff lines for the many types of PE resins with specific gravities less than 0.94.

In fact, the association pointed out that despite the previous extraction of Linear Low Density Polyethylene (LLDPE)" resin, which has a specific gravity of less than 0.94 and so falls under AHTN 3901.10, many importers still chose to use 3901.90.90, defined as "- - Other," as their tariff line when importing LLDPE, because 3901.90.90 had the lowest tariff duty for PE at 3 percent versus the 10 percent specified for LLDPE under 3901.10.12 and 3901.10.92.

The same is true with the extraction of “ethylene-alpha-olefin copolymers," which is a more direct description of their resins rather than 3901.90.90's but importers still chose "- - Other" because it is easier to justify even with just documentary evidence.

APMP claimed that they were not even consulted when the previous tariff extractions for LDPPE resins and the lowering to 3 percent MFN tariff were made.

With very small difference in resin gravities under various tariff lines, APMP warned the situation to become an avenue for “misdeclarations and/or reclassifications to those headings.”

With this current petition for LDPE to be given a 0 percent duty, even lower than 3 percent, APMP foresees the same pattern arising. The said petition requests to provide two tariff lines with 0 percent duty for MFN under AHTN 3901, both of which are defined as “ - - Other”.

“Removal of tariffs for LDPE sourced from MFN will only impact a small portion of total LDPE importation, but can potentially expose other tariff-related revenue to vulnerability due to possible misdeclarations under a zero tariff line,” stated the APMP letter.

APMP further noted that the amount of imports from 2015-2018from MFN countries only summed up to 27,419 MT or just 18 percent of total 153,007 MT imported. Value-wise, the cost impact of removal of the 10 percent duty was only $3.8 M for the past 4 years, as compared to the total LDPE imports of $198 M dutiable value.

ASEAN LDPE is still lower, but APMP feared that once the MFN rates are lowered to zero they will just jack up their prices to match the MFN countries, largely the Middle Eastern producers.

“Once made non-dutiable, MFN resin pricing will likely come in at parity with ASEAN,” the group said.
Lastly, APMP said, the domestic petrochemical industry is currently at a developmental stage, and LDPE is still one of the petrochemical derivatives that is being considered for future local production.

With that possibility in the future, the local petrochemical industry also asked the Commission if there is an assurance that the lowered MFN tariffs be reverted back to 10 percent once a local company starts to manufacture LDPE.