Will bonds shift demand locally?
On January 4, 2020, the Department of Trade and Industry announced the imposition of a safeguard duty or tariff on imported cars in response to a petition made by the Philippine Metalworkers Alliance (PMA).
The provisional safeguard duty will be in the form of a cash bond amounting to PhP70,000 per unit for imported passenger cars (PCs) and PhP110,000 per unit for imported light commercial vehicles (LCVs). The Bureau of Customs (BOC) will collect the duties for 200 days while the Tariff Commission (TC) studies the situation to determine a more permanent solution.
The safeguard duty is meant to create a more competitive environment for locally-made vehicles that use Philippine metal products by imposing a penalty on vehicle distributors for every vehicle imported.
Auto brands opposed
Automotive brands, however, appear to have been caught blindsided by the announcement. In official statements, the Chamber of Automobile Manufacturers of the Philippines, Inc. (CAMPI) and Association of Vehicle Importers and Distributors (AVID) Inc. — the country’s top associations of vehicle manufacturers and distributors — expressed their disappointment over the new duty.
“While CAMPI supports the development of local vehicle manufacturing, it has consistently opposed to the imposition of safeguard duty against imported completely built-up units or CBUs. We project further reduction in sales volume, which, in turn, poses risk of employment downsizing, not to mention government revenue loss. This will also encourage revival of grey market/used vehicles. With much uncertainty, investments in dealer expansion and parts localization may be deferred,” said Atty. Rommel Gutierrez, the president of CAMPI.
“AVID has always aimed for the long-term development of the automotive sector, including the advancement of manufacturing as an inclusive means for growth. We have clearly and consistently expressed our position that penalizing imports will not trigger investments or create more jobs, much less address issues on the regional competitiveness of our local manufacturing sector,” said Ma. Fe Perez Agudo, president of AVID.
Parts makers show support
In contrast, the Philippine Parts Maker Association (PPMA), composed of various parts producers and suppliers for locally-assembled vehicles welcomes the development.
“The Philippine (Auto) Parts Maker Association welcomes the DTI’s imposition of the Safeguard Measures on the importation of Completely Built Units (CBU) of Passenger Cars and Commercial Vehicles,” said PPMA president, Ferdi Raquelsantos. “Our vehicle manufacturing industry has been swallowed by all these free trade agreements to the detriment of our workers. We understand that it is cheaper to import CBU’s than locally assembled these units, but how can we develop our supply base if we discourage local vehicle assembly?”
Balm or bane?
The safeguard measure was imposed in response to a petition for it from the Philippine Metalworkers Association. In its preliminary investigation, the DTI found a decline in auto workers from close to 100,000 to 86,000 jobs now because of the influx of CBU importation. The other goal of the measure is to support the government’s effort to revive local auto manufacturing.
However, even Toyota Motor Corporation (TMC) of Japan — whose local subsidiary, Toyota Motor Philippines (TMP) assembles the Vios and Innova locally — believes this measure will not stimulate local manufacturing.
“The imposition of safeguard measures will not lead to increased CKD (completely knocked down) production or localization of CBU models,” TMC stated.
TMC made these comments in response to the questionnaire of the Department of Trade Industry for its preliminary investigation for purposes of the implementation of the safeguard measure.
Rather than adopting restrictive trade measures, TMC recommended that Philippines adopt a progressive approach to improve competitiveness to support long-term, sustainable manufacturing operations.
It urged the DTI to consider the automotive sector holistically across the whole value chain from upstream network that includes parts suppliers and auto-supporting industries to vehicle manufacturers to the downstream network that includes auto dealerships and service centers, insurance and financing companies.