THE INSIDE MAN

The Furor About Executive Order 877 and JPEPA

The Furor About Executive Order 877 and JPEPA image

Text: Tito F. Hermoso / Photos: | posted August 16, 2010 12:25

The controversial JPEPA

If one were to read numerous press releases and counter press releases about Executive Order 877, it would seem that it's one hell of an example of rushed legislation to support the controversial JPEPA (Japan-Philippine Economic Partnership Agreement). Like many of the unfinished business of the Arroyo administration, it's fraught with controversy and it just gets worse as the press picks ups misunderstood bits and pieces, mostly, hearsay. But it comes at a time when a change in administration is always followed by a witch hunt.

Importation vs. local manufacture

It's supposed to put an end to 'rampant' CBU importation, threatening the investment and jobs that long established manufacturers and assemblers have been loyally been nursing back to volume health. Its supposed to level the playing field by rejigging the tax and tax incentives to favor local CKD assembly and CBU exports. Its supposed to give the local assemblers a fighting chance against cost competitive manufacturers like Thailand and China. Or against subsidized export schemes like Korea's.

Blame it on success

The straw that supposedly broke the camel's back was the rapid rise of Hyundai to top three, overtaking several established assemblers in the process. Honda, Isuzu, Nissan - all CKD assemblers - were supposedly left at a disadvantage by the surge of Hyundai CBU imports, where not one is assembled here nor have parts that are imported from here. Rumors have been flying about making life difficult for importers and that long standing auto industry groupings are breaking up into opposing camps. The future devastating effects of the EO are all being presumed with the certainty of Biblical prophecies.

Noble aims

Like most bits of executive orders and legislation, EO 877's preamble is noble: it moves forward and grows the motor vehicle development program from where it left off from EO 156 and EO 226. It seeks to harmonize our regulations with the rest of ASEAN. It also sets global standards for our motor vehicle products. It seeks to ensure benefits for our local car industry vis-a-vis other countries that we have mutual free trade agreements with. It aims to improve incentives so local vehicle and parts manufacturing can export to other countries. It reiterates the ban on importing used vehicles. Part and parcel of all of this is a necessary review of current taxes and tariffs. As for it being a 'midnight' EO, the executive branch penned this legislation early in the year at the behest of the local car manufacturers who wanted to move forward.

Consultations

Like any piece of legislation, the EO, like any Batas Pambansa, goes through a series of public-private consultations which in this case, is with the MVIC or Motor Vehicle Industry Council. Its composed of heads of government agencies and representatives of the industry. The fruit of this consultation is the IRR or implementing rules and regulations that will be drafted by the concerned implementing agency, which in this case is the BOI. Now why this MVIC is being maligned in the press as an all-powerful group that will determine the life and death of an importer. This is pure conjecture.

S.O.P.

In previous occasions, the process has always been consistent: the legislative body or the executive branch passes a law on broad objectives and noble purposes, then the implementing government agency is given considerable discretion to draft the rules that they have enforce. Sometimes this can lead to a divergence between means and end or, lead to the wrong end. Herein lies the public's distrust for the discretionary power that is in the hands of the government agency that drafts the IRR.

Burned by previous experience

A recent example is the VAT on expressway tolls. On the principle of taxation, how can a value be added on a surcharge for passage? The toll itself is a surcharge and it is not a manufactured or created good as there is no input, the basis by which a value added tax is computed. And if the BIR press releases are to be understood, this VAT on tolls is retroactive, clearly another blasphemy on the principles of taxation. This VAT on tolls can even be interpreted as double taxation. True there is a deficit to be financed but it should not be achieved through such dubious means like double taxation. Implementing government agencies should not abuse their privilege to draft IRRs to chase revenue quotas at the expense of double taxation. Senate President Enrile, one of the more intellectual of our senators, is right in opposing this VAT, but the bigger wonder is why isn't opposition to this as vocal as opposition to SLEx toll increases? Incidentally, any new VAT on tolls will also translate into new toll fare hikes.

Power to who makes the IRR

Clearly, there is a lot of power vested in the agency tasked to make the IRR. In my experience working in the Bangko Sentral ng Pilipinas, the drafting and consultation stage, is the time to be heard. But one will only be heard if one does his homework and presents persuasive facts and assumptions, not rhetoric and self-serving emotional pleas. I recall that in those days, the Citibank lawyers and research staff were the most studied and convincing, while the bankers who were essentially mom and pop operations or diversification ventures of alleged ex-smugglers or pawnbrokers were those who could not argue their case intelligently, resorting instead to emotional pleas as underdogs. They can do worse by failing to be heard and not to pay attention to these consultative hearings. Or, just complain and rumor monger to the press.

Speak up or forever hold your peace

Meantime, the IRR are still being drafted, the time to be heard is still ongoing. All options are on the table to improve the competitiveness of the local car and parts industry. Instead of opposing the EO in the streets and pillorying the MVIC, the concerned parties must seek to be heard by the MVIC. No rabble rousing barrage of press releases and blind items can substitute for doing your homework and presenting well structured arguments to support your case.