The Philippines today slapped a provisional safeguard duty against imported passenger cars and light commercial vehicles (LCVs) to protect the domestic motor vehicle manufacturing industry from the onslaught of imported vehicles, a move that will hit Thailand and Indonesia the most being the top sources of LCVs in the country.
Trade and Industry Secretary Ramon M. Lopez issued an order imposing provisional safeguard duties in the form of cash bond amounting to P70,000/unit of imported passenger cars and P110,000/unit of imported light commercial vehicles.
The provisional safeguard measures will take effect 15 days from publication tomorrow, Jan. 5, in a newspaper of general circulation. The measure will be in place for 200 days from the issuance of an order by the Commissioner of Customs and while the case is under formal investigation by the Tariff Commission, which will determine if there is merit to impose a definitive safeguard measure or not.
At present, cars imported from ASEAN have zero duty but these vehicles must have at least 40 percent local content or 40 percent of components are made within the ASEAN region. Cars from South Korea are slapped a 5 percent tariff. Under the Japan Economic Partnership Agreement, CBU car imports from Japan with more than 3 liter engine displacement and vehicles with seating capacity of 10 and above have zero duty. Most of the country’s car imports come from Thailand, Indonesia and Korea.
All the rest or the most-favored-nation or members of the WTO are slapped with 30 percent tariff.
Lopez said the imposition of the provisional safeguard duty was a result of the DTI preliminary determination on the petition for safeguard measures filed by the Philippine Metalworkers Alliance. The DTI preliminary investigation found that increased importation of passenger cars and light commercial vehicles is a substantial cause of serious injury to the domestic motor vehicle manufacturing industry.
DTI’s preliminary determination also found that critical circumstances exist where delay in the imposition of a measure would cause damage to the industry which would be difficult to repair. For this reason, DTI decided to the imposition of provisional safeguard duties in the form of cash bonds.
“The Philippines has one of the most open markets relative to our ASEAN neighbors. While we generally do not restrict products coming into the market, we also need to ensure the level playing field for our local industry,” Lopez said.
“The provisional safeguard measures will provide a breathing space to the domestic industry which has been facing a surge in importation of competing brands. To clarify, importation is not being banned, and consumers will still have the options to choose, but imported vehicle models covered by the rule shall have safeguard import duties.”
“With that being said, it will also facilitate the structural adjustment of the local industry to be more cost efficient and technologically advanced,” he explained.
Under Republic Act 8800, the Safeguard Measures Act, any person, whether natural or juridical, belonging to or representing a domestic industry may file with the Secretary of Trade and Industry a verified petition requesting that action be taken to remedy the serious injury to the domestic industry caused by increased imports of a like or directly substitutable product. The petitioner is the Philippine Metalworkers’ Alliance, which is a national union of automotive, iron and steel, electronics, and electrical sectors, including affiliates composed of key players in the automotive industry.
DTI’s findings show that imports of passenger cars have increased by an average of 35% during the period of investigation (POI) from 2014 to 2018 while the share of imports relative to production showed that imports exceeded domestic production from 295% in 2014 to 349% in 2018. Imports of light commercial vehicles which includes pick-up trucks, on the other hand, significantly increased during the POI from 17,273 units in 2014 to 51,969 units in 2018. Likewise, its share of imports relative to domestic production also significantly increased from 645% in 2015 to 1,364% in 2018.
Despite the efforts of the domestic motor vehicle industry to defend its market share and compete with foreign motor vehicle suppliers by increasing its domestic production and sales, it was not able to take full advantage of the growth of the domestic market that occurred during the period. The market share of domestic passenger cars’ sales contracted to a range of 22% to 25% while the share of imports captured more than 70% of the market. The share of the light commercial vehicles shrank from 18% in 2014 to 7% in 2018 while imports accounted for an increasing proportion at about 82% (2014) to 93% (2018) of the Philippine market. The domestic industry lost sales even as the market grew. Further, data from the Philippine Statistics Authority show that employment in the manufacturing sector of motor vehicles which includes the manufacture of motor vehicles, bodies, parts and accessories decreased by 8% in 2018 compared to the 2017 level of 90,275 employment.
“Safeguards are imposed to protect local manufacturers and producers and to prevent other companies from leaving the country. If we recall, the discontinuation of the production of Isuzu D-Max in July 2019 and the assembly plant closure of Honda Motors Philippines in the first quarter of 2020 affected local jobs and the Philippine economy. It may also attract vehicle manufacturers to operate in the country and create more jobs,” Lopez said.
Overall, the domestic industry suffered declining market shares, sales, employment, as inventories accumulated. It also sustained increasing losses over the period which affected their cash flows and ability to invest. It also has been faced with excess and increasing production capacity in countries such as Thailand, Indonesia, and China.
Records of the case will be forwarded to the Tariff Commission which will conduct a formal investigation including public hearings in the next several weeks after which it will submit its findings and recommendations to the DTI Secretary.