The Department of Trade and Industry (DTI) has just issued a statement with a policy that could protect what is left of the local vehicle manufacturing industry (mostly assembly) and adversely affect the imported automobile distribution business.
The DTI says they are taking action on a petition for safeguard measures that was filed by the Philippine Metalworkers Alliance (PMA) against the increasing number of imported passenger cars (PCs) and light commercial vehicles (LCVs) in the market. In the petition, the PMA stated that the domestic motor vehicle manufacturing industry is being seriously harmed by the influx of imported vehicles.
As such, the DTI is imposing a cash bond of PhP 70,000 for every imported PC (i.e. Corolla, Civic) and PhP 110,000 per imported LCV (i.e. Montero Sport, D-Max).
The provisional safeguard measure will take effect 15 days after the DTI publishes its policy tomorrow, January 5, 2021. That means the cash bond will be in effect for a period of 200 days from January 20, 2021 while the Tariff Commission investigates further.
“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,” Trade Secretary Ramon Lopez said in the statement.
The DTI is citing Republic Act 8800, the Safeguard Measures Act, with regards to this new action. It says that 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. In this case, the petitioner is PMA.
“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,” continued Lopez.
In the last few years, the importation of vehicles into the Philippine market has increased significantly, consistently dwarfing the sales of locally assembled models. By our calculations, for every 5 vehicles sold in the Philippines in 2019, 4 of those are imported while only 1 is locally made. That is a staggering ratio of imported versus locally built models.
It comes as no surprise that car manufacturing -specifically assembly- in the Philippines is in trouble because of the high costs (i.e. energy) of manufacturing here versus importing from other markets with higher economies of scale. Last year, Honda Cars Philippines shut down their factory that produced the City and BR-V, opting instead to import vehicles from Thailand and other factories in the region. Likewise, Isuzu also ceased the local assembly of the D-Max model in favor of importing from Thailand as well.
Given that the provisional safeguard measure will likely cover all imported vehicles, it doesn't seem to matter whether the vehicle comes from Thailand, Indonesia, Malaysia, Japan, China, India, Korea, Europe, or North America. All will be hit by the safeguard bond.
As to how much of the PhP 70,000 per passenger car or PhP 110,000 per LCV will be passed on to consumers, we are not quite sure yet. But we can reasonably hypothesize that sales of imported vehicles -sometime after the 200 day period starts- may be adversely affected as prices will increase if the bond is passed on to consumers.
This will be something we will be keenly keeping our eyes on.