The last 48 hours have seen the wider Philippine automotive industry -one that is undeniably and largely comprised of automobile importers and distributors- has been outraged by the decision of the Department of Trade and Industry (DTI) to implement a safeguard bond against imported vehicles.
The decision of the DTI will see an imposition of a cash bond of PhP 70,000 for every vehicle classified as a passenger car (imported under AHTN Code 8703 such as cars, SUVs, etc.) and PhP 110,000 on every light commercial vehicle (imported under AHTN Code 8704.21.19 and 8704.21.29 such as pick-up trucks). These safeguards will be on a provisional basis for 200 days (presumably beginning on January 20, 2021) while the Tariff Commission investigates what to do on a more long term basis.
The move by the DTI is a reaction to the petition by the Philippine Metalworkers Alliance (PMA) to protect the domestic automobile manufacturing business, pursuant to RA 8800 which is a law that allows the government to safeguard local industries.
We had wanted to reach out to the Philippine Metalworkers Alliance regarding the matter, but we have yet to receive a response. So instead we reached out to another organization that shares the same sentiments: the Philippine Parts Maker Association (PPMA) which is headed by Ferdi Raquelsantos as president.
He was more than glad to give the organization's position on the DTI safeguards and gave a more thorough picture of what has been happening in the Philippine auto manufacturing industry versus the automotive importation business.
“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 Raquelsantos. “Back in 1997 [of the] total vehicle sales, only 20% were CBUs while the rest are all locally assembled CKD (Completely knocked-down) vehicles. For the year 2019, CBU sales [are] estimated to represent 88% of the market share and for CKD down to 12%.”
Raquelsantos isn't exaggerating. The influx of automobiles produced in countries we have free trade agreements with (i.e. ASEAN nations, and ASEAN with China, Korea, etc.) and preferential tax agreements with (i.e. Japan) have been largely unchecked in the past few years. Together with a business environment that is generally unfavorable to local manufacturing (i.e. energy costs, taxes, permits, infrastructure, etc.) that leads to an estimated USD 1500 cost handicap per vehicle manufactured, it was inevitable for the local manufacturing sector to face difficulties versus imports.
“With this big turnaround, local manufacturing for Auto Parts Making has drastically reduced. Company membership in our Association has gone down from 128 firms in 2015 to 49 companies by end of 2020. Moreover, some of these remaining companies are even on a 'No Commercial Operations' due to no production requirements by our clients. Our Vehicle Manufacturing Industry have been swallowed by all these Free Trade Agreements to the detriment of our workers.” continued the PPMA president.
An automotive factory doesn't just generate business and employment on a retail level but supports a wider economic ecosystem. If a car factory shuts down, the businesses that depend on it also shut down.
In early 2020, Honda decided to shut down the Sta. Rosa, Laguna factory that produced the BR-V and City due to low demand. Isuzu has also ceased production of the D-Max in Binan. In 2013, Ford also pulled out their manufacturing operations, though that factory was subsequently bought by Mitsubishi Motors. And automakers aren't lining up to set up manufacturing in the Philippines in the same manner as a Starbucks or Ministop.
“We understand that it is cheaper to import CBUs than to locally assembled these units. But how can we develop our supply base if we discourage local vehicle assembly? If not for the CARS Program of Toyota Vios and Mitsubishi Mirage, we probably won’t have passenger car assemblies, like what happened to Honda City and Honda BR-V.”
“These Safeguard Measures will address this concern. We need to sustain our local manufacturing and re-create jobs for our workers, whether in the Vehicle Assembly plant or in the Parts Maker side,” said Ferdi Raquelsantos, president of seatbelt manufacturer AutoFIR and the Philippine Parts Maker Association.
While the safeguards can undoubtedly make mass-market imported automobiles more expensive versus locally manufactured models due to the PHP 70,000 to PHP 110,000 bond, the short term effect is seen as the equivalent of rubbing salt in the open wounds of the already ailing auto industry dependent on imports.
This situation will definitely be something we'll be keeping our eyes on.