Safeguard duty versus imported cars seen soon

Published December 28, 2020, 7:00 AM

by Bernie Cahiles-Magkilat

The Department of Trade and Industry (DTI) is finalizing its report on its investigation on the surge in the importation of motor vehicles into the country, indicating that government is on its way towards the imposition of safeguard measure against imported cars to protect the domestic industry from the onslaught of imports.

Bureau of Import Services (BIS) Director Luis M. Catibayan reported that  its preliminary investigation was completed sometime in July-August this year, and that its report will be submitted to DTI Secretary Ramon M. Lopez “within the next few days.”

MB file

DTI Undersecretary Ceferino S. Rodolfo also said that part of the report will be a recommendation of what is the applicable safeguard duty rate on imported cars.

Catibayan, however, did not divulge their proposed provisional safeguard duty but said it would be an exact amount to be applied on each imported car or light commercial vehicles.   

Once the DTI Secretary concurs, he will issue an order to implement a provisional safeguard duty, which will take effect 15 days after its publication. 

While the provisional safeguard duty is in effect, the Tariff Commission will conduct its own public hearing to determine if there was, indeed, a basis for the imposition of the punitive safeguard duty.

Once it reaches a positive determination that, indeed, there has been a surge in imports and this has caused serious injury to the domestic industry, the TC will submit to the DTI their findings, including their recommendation for a definitive safeguard duty rate. The DTI Secretary though has the final say as to the definitive safeguard duty, which could be lower or higher than what had been proposed by the TC.

It could be noted that while the investigation by the BIS was completed in July or August yet, it has taken some time to finalize its recommendations to the DTI Secretary.

Rodolfo explained the delay to the fact that they to find a balance. On one hand, he said, the measure has to protect the domestic industry and on the other hand the DTI must also ensure that the imposition of safeguard measure will not hinder or dampen potential recovery of the industry, which sales plummeted to more than 40 percent.

Rodolfo explained that the safeguard measure, which is meant to protect the domestic industry, could also backlash and affect potential recovery of the domestic industry.

In addition, the DTI is also working against time because there are timetable requirements under the WTO and the timeliness of data.

 It could be recalled that the Philippines notified the WTO that it has initiated 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.

The Philippine document 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.

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 initial investigation 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 hikes 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 increased 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.

But plant capacity utilization among motor vehicle assemblers also fluctuated 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.