DTI: No safeguard duty on imported petrochemicals

Published September 26, 2021, 10:15 PM

by Bernie Cahiles-Magkilat

The Department of Trade and Industry (DTI) has decided not to impose provisional safeguard duty on imported petrochemical products amid inconclusive findings in its preliminary investigation.

Instead, DTI Secretary Ramon M. Lopez has referred to the Tariff Commission for formal investigation the petition for safeguard duty for both high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE), both raw materials for downstream plastic products manufacturing.

Trade and Industry Secretary Ramon M. Lopez

In two separate decisions on Sept. 17, 2021, the DTI preliminary determination finds that a causal link exists between increased imports of both products (HDPE and LLDPE) under consideration and serious injury to the domestic industry. However, the findings also showed that petitioners led by the country’s lone integrated petrochem company JG Summit Petrochemical Corp. failed to establish “critical circumstances” to warrant the imposition of provisional safeguard measure.

“No safeguard duty. We would like first to have full blown hearing in TC among stakeholders in the case. We have to be very careful because of the impact to downstream industries,” Lopez said in a text message.

He, however, clarified that the petition for safeguard duty has not been denied per se. “There is a surge, but inconclusive to prove there is critical circumstances which is the basis for imposing provisional safeguard duty,” he added. “Critical circumstances” is where a delay can cause serious or irreparable damage to the industry. “Thus, we referred to TC for further consultation and to open the matter for public hearing where all parties can be heard,” he said.

For HDPE, the DTI findings point to serious injury to the domestic industry caused by the increased imports based on the significant increase in imports volume from 2015-2016. Imports increased by 16,245MT or 26 percent, slightly declined by about 1,840MT or 2 percent in 2017. Imports were up again by 10 percent in 2018 and 28 percent in 2019, in 2020 (Jan– Sep) imports reached 69,360 MT, or 65 percent of the 2019 level.

Likewise, the share of imports relative to domestic production significantly increased during the investigation period (from 36 percent share in 2015 to its peak at 67 percent in 2019) preceded serious injury to the domestic industry.

The conditions of competition showed that the market share of the domestic product decreased during the period of investigation from 63 percent in 2015 to 54 percent in 2019, as the share of imports in the domestic market significantly increased.

The industry suffered declines in sales, production, utilization rate, profitability and employment. Inventory increased by 169 percent in 2018. In terms of prices, price depression and suppression were also recorded during the POI as the industry is already selling below cost resulted in negative earnings before interest and taxes (EBIT).

Based on these, the DTI concluded there is existence of a causal link between increased imports of the products under consideration and serious injury to the domestic industry. However, “Petitioner failed to show that critical circumstances exists which would warrant the imposition of a provisional safeguard measure while the petition is under formal investigation.”

For LLDPE, the DTI findings showed that serious injury to the domestic industry was caused by the increased imports.

Philippine imports of LLDPE showed a significant increase in volume from 2018- 2019, imports increased by 30,790MT or 39 percent, and were up again by 9 percent in 2019, in 2020 (Jan– Sep) imports reached 76,354 MT, or 63 percent of the 2019 level. Likewise, the share of imports relative to domestic production significantly increased during the investigation period (from 104 percent share in 2015 to its peak at 220 percent in 2019) preceded serious injury to the domestic industry.

The conditions of competition showed that the market share of the domestic product decreased during the period of investigation from 46 percent in 2017 to 21 percent in 2019, as the share of imports in the domestic market significantly increased. The industry also suffered declines in sales, utilization rate and negative EBIT. In terms of prices, price depression and suppression were also recorded during the POI in trying to maintain some market commitments, the local producer has tried to produce and sell LLDPE despite the poor financial returns.

Likewise, the DTI findings showed existence of a causal link between increased imports of the products under consideration and serious injury to the domestic industry but the petitioner also failed to prove critical circumstances exist to warrant the imposition of a provisional safeguard measure.

Petrochemicals is a strategic sector of the economy that could anchor the country’s industrial development. Because of its strong linkages upstream, midstream and downstream, the sector provides robust multiplier effects on other main sectors of the economy such as construction, electronics and computer, medical services, transportation and automotive, packaging, education, telecommunications, electrical and water distribution, agriculture and fishery, and furniture, among others.

The industry’s objective is to achieve self-sufficiency in strategic resin supply and increase the petrochemical sector’s contribution to total Philippine GDP from P44 billion in 2010 to P113 billion in 2018 and P215 billion by 2025 through the progressive integration of upstream, midstream and downstream components of the sector.

Such progressive integration will involve the entry into various other petrochemical branches that will provide exponential value addition in different industries, spurring domestic and export growth and potentially contributing up to 5-10 percent of GDP by 2025.

 
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