By Bernie Cahiles-Magkilat
The Philippines has finally notified the World Trade Organization (WTO) making good of its threat to initiate a safeguard measure investigation on the surge of imported completely built up (CBU) motor vehicles into the country causing serious injury to the domestic motor vehicle manufacturing industry and the loss of jobs.
In its website post, WTO said “the Philippines notified the WTO’s Committee on Safeguards that it initiated on February 6, 2020 a preliminary safeguard investigation on motor vehicles.”
In a document submitted together with the notification, WTO said, the Philippines indicated that covered in the investigation are motor vehicles classified under ASEAN Harmonized Tariff Nomenclature (AHTN) Code 87.03, mostly passenger vehicles/cars.
The investigation was initiated on the basis of the petition submitted by members of the Philippine Metalworkers’ Association (PMA) that increased imports of motor vehicles are the substantial cause of serious injury to the domestic industry in terms of declining market share, production sales, capacity utilization, incurred losses, employment, price depression and price undercutting.
PMA is a juridical person belonging to the motor vehicle industry. It is registered with the Department of Labor and Employment, as a national union of automotive, iron and steel, electronics and electrical sectors, including affiliates in key automotive industry players.
The period of investigation (POI) in the preliminary safeguard investigation covered imported motor vehicles that entered into the Philippines from 2014 to 2018.
The DTI preliminary investigation was divided into two segments: Passenger cars, and commercial and light vehicles.
In the passenger vehicle/car segment alone, DTI found out that imports increased from 2014 to 2015. In 2016, imported motor vehicles increased by 32 percent over the 2015 level and continued to increase by 2 percent in 2017.
In 2018, imports experienced a decline of 15 percent over the 2017 level due to TRAIN law, that automotive taxes. In 2019 (Jan. to Sept.), imports were 74 percent of the 2018 level.
In addition, the share of imported motor vehicles to domestic production continuously increase from 295 percent (2014) to 349 percent (2016). In 2018, the share of imports vis-à-vis domestic production set a record high at 428 percent.
In terms of market size, 2015, the apparent Philippine market increased by 17 percent over the 2014 level. It continued to increase by 27 percent in 2016 and further by 5 percent in 2017.
In 2018, the total apparent consumption fell by 23 percent, as imports and domestic sales went down by 14 percent and 48 percent, respectively.
Share of imports to total Philippine market captured 75 percent to 84 percent of the market during the POI.
Domestic sales volume steadily increased by 16 percent in 2015 and by 13 percent in2016 and 2017. Sales value increased from 2014 to 2017 at 15 percent, 17 percent, and 18 percent, respectively. The motor vehicle industry could have sold more units but increased imports eaten up the market.
Total production of passenger cars increased from 2014 to 2017 at 15 percent to 13 percent, respectively.
Capacity utilization among motor vehicle assemblers also exhibited a fluctuating trend from 2014 to 2017. In 2015, capacity utilization increased by 11 percent but declined in 2016 by 6 percent. In 2017, it increased by 10 percent. It drastically declined by 46.91 percent in 2018.
The DTI also said noted of increasing trend in profitability among car companies from 2014 to 2017 at 48 percent, 15 percent, and 2 percent, respectively. The motor vehicle industry could have earned more profit, but due to increased imports resulted in a decline in profit.
Employment showed an increasing trend from 2013 to 2017 but started to decline from 2018 to 2019.
In the commercial and light vehicle segment, the DTI also found out that imports increased in absolute terms from 2014 to 2018. In 2016, imported motor vehicles increased by 32 percent over the 2015 level and continued to increase by 2 percent in 2017.
In 2018, imports experienced a decline of 15 percent over the 2017 level. In 2019 (Jan. to Sept.), imports were 95 percent of the 2018 level. Thailand is the source country for commercial and light vehicles during the POI.
In relative terms, the share of imported motor vehicles to domestic production continuously increase from 645 percent (2015) to 1,203% (2018- (Jan-Oct)).
The apparent Philippine market for commercial vehicles showed an increasing trend from 2016 to 2018. Share of imports to total Philippine showed a steady increase during the POI, 85 percent in 2015, 86 percent in 2016, 89 percent in 2017 and 93 percent in 2018 (Jan-Oct).
The domestic industry sustained increasing losses during the POI by 52 percent, 96 percent, and 4 percent, respectively. The highest loss was recorded in 2017.
Employment showed an increasing trend from 2013 to 2017 but started todecline from 2018 to 2019.
The DTI also noted of price undercutting. It said that the weighted average landed cost of imports from Thailand is lower by 30 percent than the domestic selling price of the domestic product.
Although the preliminary investigation covers all countries, the biggest exporter of CBU passenger cars to the Philippines in the last five years are Thailand (36-47 percent share of total imports), Indonesia (21-41%), Korea (8-11%), Japan (7-8%), India (2-9%) and China (1-3%). China’s notable volume was observed during the POI. In 2019 (Jan-Sept), China’s share climbed to 12 percent. For light commercial vehicles, Thailand and Indonesia were the major sources.
At present, CBU units from fellow ASEAN countries Thailand and Indonesia are at zero while Korea is at 5 percent.
Based on the above findings, Trade and Industry Secretary Ramon M. Lopez said there are indications that increased imports of motor vehicles are the substantial cause of serious injury to the domestic industry in terms of declining market share, production, sales, capacity utilization, incurred losses, employment, price depression and price undercutting.
“Wherefore, premises considered, the Department, finds prima facie evidence to initiate and conduct a preliminary safeguards investigation to determine whether motor vehicles (i.e. passenger and light commercial vehicles) are being imported into the Philippines in increased quantities and is causing serious injury to the domestic industry,” said Lopez.
Once a positive determination is made, the DTI Secretary has the power to impose a preliminary safeguard duty on imported CBUs while the Tariff Commission conducts a hearing whether or not there is basis to impose a permanent safeguard duty on imported motor vehicles.
A safeguard investigation seeks to determine whether increased imports of a product are causing, or is threatening to cause, serious injury to a domestic industry.
During a safeguard investigation, importers, exporters and other interested parties may present evidence and views and respond to the presentations of other parties.
A WTO member may take a safeguard action (i.e. restrict imports of a product temporarily) only if the increased imports of the product are found to be causing, or threatening to cause, serious injury.