In the last 6 months, the Philippine automobile market, an industry composed of vehicle manufacturers and vehicle importers/distributors, has been on the edge of their seats over one major issue: Safeguard Bonds.

On the first working day of the year, the Department of Trade and Industry (DTI) released an advisory that they are imposing a provisional safeguard (SG) bond on certain imported vehicles in the amount of PHP 70,000 for passenger cars and PHP 110,000 for light commercial vehicles. The said safeguards were prompted after a preliminary investigation conducted by the DTI which was acting on the complaint made by the labor unions under the Philippine Metalworker's Alliance (PMA) that imported vehicles are causing “significant injury” to locally manufactured models.

The imposition of these bonds caused much concern amongst the many players in the automobile industry as this would have a significant effect on the pricing of imported models. The move expectedly irked the traders of imported vehicles, but it also received criticism from companies that are involved in manufacturing cars in the Philippines.

The matter has been elevated to the Tariff Commission (TC) to conduct a full investigation as to whether imported vehicles need to have a protectionist-style bond or duty imposed. And now we have a copy of the staff report with the findings of that investigation.

Safeguard: Tariff Commission report could slam brakes on DTI bond image

The gist is this: the Tariff Commission found that both in terms of passenger cars and light commercial vehicles, the volume of imports “during the POI [period of investigation] cannot be considered recent, sudden, sharp and of such magnitude that can be deemed significant”.

In other words, they found no extraordinary spike or jump when they were examining import data which covers the period from 2014 to 2020; yes, even including the figures last year where industry sales plummeted due to the COVID-19 pandemic. The POI also covers the results of 2017 wherein industry sales skyrocketed because the market anticipated higher prices that were to be brought about by the tax reform law (TRAIN) that would affect excise taxes.

Safeguard: Tariff Commission report could slam brakes on DTI bond image

Safeguard: Tariff Commission report could slam brakes on DTI bond image

The data shows that the ratio between locally manufactured models versus direct competitors that have been imported as CBU (completely built-up) has remained relatively steady and that there were no unusual spikes. The largest variances of numbers happened during 2020 (pandemic-related) and during 2017 (tax-related), but both were industry-wide.

The Tariff Commission report does indicate that there is no basis for the DTI to impose safeguard duty on imported vehicles, which would be seen as a big win for the industry. However, the matter isn't over yet. The report, while comprehensive, is still not considered the end all be all.

The report is still considered preliminary and there are matters still to be discussed as parties concerned still have to submit comments on the report, and the Tariff Commission has to deliberate and hold public hearings. There are also important things to note like the fact that the comparison between imports versus locally made is on a direct competitor basis; meaning they will only factor in imported direct competitors of local models such Vios and/or Mirage. Apples versus apples, so to speak.

They will not factor in all imports versus all manufactured models, meaning an imported pick-up truck will not be factored in because there are no longer any locally made competitor models. Insiders say that the DTI has reservations about the matter with an argument that consumers don't always shop within the same category of vehicle (e.g. subcompact sedan) but can explore other types of vehicles within the same price range as well.

The important terms to know are injury and causal link. But given that the staff report makes it clear that there is no surge in imports vis-a-vis locally made models, then the previous should not be able to exist. Now it becomes a battle of legalese and arguments. But if the Tariff Commission's report stands, the SG bond that caused concern amongst the industry and the Filipino car buyer could come to an end.