Vince Pornelos / Chevrolet, Hyundai, Kia, Volkswagen, Ford | August 27, 2013 15:49
A look at the AANZFTA, ACFTA and AKFTA
By now, you've heard of the different Free Trade Agreements that the Philippines and the Association of South East Asian Nations (ASEAN) are involved with. These FTAs allow various car brands in the country to import a variety of vehicles at lower prices making for better profitability, not to mention enabling many to bring in vehicles that wouldn't typically be as viable in the market.
The key one is ASEAN Free Trade Agreement (AFTA) which is also referred to as ASEAN Common Effective Preferential Tariff (ASEAN CEPT). AFTA, which took full 10 years ago, lowered tariffs from the original 20 to 30% depending on the automobile to just 5% starting in 2003. Automobiles manufactured within ASEAN then became widely imported and exported within the region, and thus we were able to get vehicles from our neighbors (particularly Thailand). In 2010, the next phase took effect and tariffs dropped to 0%.
The other one you've been reading about is JPEPA, or the Japan-Philippines Economic Partnership Agreement. In automotive circles, it means that certain cars have different tariffs particularly with regards to engine displacement.
For instance, for cars or SUVs that have an engine displacement of 3000cc (3.0 liters) or less, the original tariff of 30% on vehicles back in 2009 and earlier dropped to 20%. However, the most profound effect is on cars and SUVs with engine displacements of 3001cc or larger, as they have no tariffs at all.
When that took effect, vehicle prices of what could be considered 'luxury' vehicles dropped dramatically. Lexus was one luxury automaker that truly benefitted from JPEPA, with nearly the entire line (except for the CT200h) now made more affordable and with better specs. The Mitsubishi Pajero. Nissan Patrol Royale, Nissan Murano, among others. That's also the reason why the top of the line Toyota RAV4 2.5L VVT-i 4WD costs PhP 1,963,000 while the larger Toyota FJ Cruiser 4x4 with the 4.0L V6 engine costs PhP 1,798,000. What I find strange is that the Nissan R35 GTR or the 370Z still aren't offered officially, given that they fit the zero tariff JPEPA category.
There are more FTAs on the way; in fact there are three that concerns the auto industry.
ASEAN-Australia-New Zealand Free Trade Area
First up is the AANZFTA, or the ASEAN-Australia-New Zealand Free Trade Area as established back in 2009 in Thailand and subsequently signed by President Arroyo under Executive Order 851. Under the AANZFTA, cars manufactured in ASEAN, Australia or New Zealand began to enjoy a drop in import tariffs on passenger cars and SUVs from 30% to 14% in 2010, down to 7% in 2011, and down to 0% beginning in 2012.
Locally-speaking, the AANZFTA hasn't had much of an impact on the Philippine auto industry given that we do not import vehicles from nor do we export there given that Australia and New Zealand are both right-hand drive countries that manufacture in RHD only. The FTA was beneficial to several other RHD markets in ASEAN, being able to bring in the larger vehicles from and export vehicles to the land down under. Australia's auto manufacturing industry has also experienced a rather sharp decline, with Ford making an announcement that their primary plant there will shut down in 3 years time. The Territory (pictured above) and Falcon will both be discontinued.
ASEAN-China Free Trade Area
The next FTA could well have a very profound effect on the Philippine auto industry: the establishment of the ASEAN-China Free Trade Area, or ACFTA, which traces its roots to a November 4, 2002 meeting in Cambodia and was subsequently signed by President Aquino last year with Executive Orders 71 and 72.
Previously, cars and SUVs that had a displacement of 1499cc or below as well as ones that are 3001cc or larger had a 30% tariff. In 2012, that tariff dropped to 20%, and will again drop in 2018 to just 5%. Chinese-made vehicles that have engine displacements from 1500cc to 3000cc previously had a 30% tariff, but by 2018, that could drop to just 5% or even lower.
ACFTA could potentially have the biggest effect on the Philippine auto industry. People may scoff at the thought of cars like Geely, BYD, Chery, Chana, Foton, SAIC, Dongfeng, Lifan or the like, but keep in mind that the People's Republic of China has the biggest automotive industry in the world with local manufacturing from foreign brands.
China has manufacturing and assembly from Ford, BMW, Toyota, Nissan, Honda, Mitsubishi, Daihatsu, Mazda, FIAT, Isuzu, Mercedes-Benz, General Motors, PSA Peugeot Citroen with the biggest of all being the Volkswagen Group (and that includes Audi). That seems apt: the company that literally means 'Peoples' Car' is the biggest of the foreign brands in the People's Republic.
The newly reestablished Volkswagen Philippines was reportedly looking at sourcing vehicles from China, but given the rather small difference compared to European-made units, they opted for the latter. Perhaps ACFTA would change that.
Also, last year Chery entered into a joint venture to manufacture, well, Jaguar and Land Rover in China. Ditto for Volvo.
ASEAN-Korea Free Trade Area
The last one is quite interesting: the establishment of the ASEAN-Korea Free Trade Area, or AFKTA). This was actually signed in 2005 by then President Arroyo and in 2012 with Executive Order 74 by President Aquino.
AKFTA has actually just begun to take effect as passenger cars and SUVs that previously had a 30% tariff up to 2011 have had it reduced to 20% in 2012. In 2016 that tariff will drop even further to just 5%. The 5% tariff will also be in effect for vans, buses and all kinds of trucks. What's interesting is that there are no stipulations as to the size of vehicle's engines like JPEPA or ACFTA.
Just imagine the effect that AKFTA it will have on the Philippine operations of Hyundai and Kia.
Kia's pricing in the Philippines has been unusual, with several models being priced a bit higher than their Korean bigger corporate brother (but locally unrelated) Hyundai. AKFTA could see that pricing approach more competitive levels, not to mention open up the possibilities of more Kia models, such as making the Optima (and its hybrid variants) more mainstream.
Meanwhile, however, HARI's aggressive efforts in the market saw them rise to a solid 3rd place in terms of sales. The benefits of AKFTA in 2016 could see them nip at the comfortable lead that Mitsubishi enjoys in 2nd place overall.
Chevrolet Philippines would also experience the benefits as models like the Cruze, Orlando and Spark are all imported from Korea. It could also open up the market to the Chevrolet Malibu that is currently being manufactured at GM Korea.
Take note that the agreement is with South Korea, not North Korea... unless you envision yourself driving a tank from the DPRK in the future.
On second thought...