By Roy Stephen C. Canivel
Vehicle manufacturers and importers, including market leaders Toyota and Mitsubishi, expect an already difficult environment during the pandemic to get worse, after the government further taxed imported cars to protect local workers in assembly and manufacturing plants.
In separate statements on Tuesday, the Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi) and the Association of Vehicle Importers and Distributors, Inc. (Avid) aired their disappointment over the safeguard duty.
Although they both support local manufacturing, taxing imported cars, they essentially said, is not the way.
“As if the adverse impact of the pandemic is not enough, the decision to impose provisional safeguard measures against imported vehicles is yet another blow to the automotive industry. This will further derail the recovery efforts of industry players and stakeholders,” said Campi President Rommel Gutierrez.
“While Campi supports the development of local vehicle manufacturing, it has consistently opposed to the imposition of safeguard duty against imported completely built-up units or CBUs,” he said.
On Monday, the Department of Trade and Industry (DTI) said they have decided to impose provisional safeguard duties on imported vehicles, particularly P70,000 per unit of imported passenger cars and P110,000 per unit of imported light commercial vehicles. The DTI order was published in a newspaper on Tuesday.
These temporary duties will take effect for 200 days — or about six months — once the Bureau of Customs issues an order. It might also last longer, if the Tariff Commission validates the DTI’s findings after a 120-day formal investigation. The decision was based on the industry’s performance in 2014 to 2018.
Safeguard measures are trade remedies imposed by the government if a surge in imports seriously injured the local industry, or at least threatened to leave a serious injury. But unlike previous safeguard measures, this move is not supported by local big players.
For the first time, safeguard duties have been imposed because of a petition filed by unionized workers. Through labor group Philippine Metalworkers Alliance (PMA), they asked the DTI in 2019 to impose a safeguard measure, after a surge in imports have hurt local jobs.
PMA argued that car companies will not feel the harm of lower vehicle production in favor of imports. These multinational companies, in the end, would still benefit, even if they imported more.
The same could not be said for local workers, however. A smaller vehicle production means less work for local workers, which could then lead to job cuts.
This was further corroborated by the DTI, after it cited official data that showed the jobs in the manufacturing sector of motor vehicles saw an 8 percent drop in 2018 from the 90,275 workers in 2017. This was just one of the several harms that the DTI found to have been caused by a surge in imports.
The issue, however, got more complicated because of the pandemic. There is a world of a difference between what the industry was years ago — when the surge happened — to what it is experiencing now. Even before the duty was imposed, the industry was already in a bad shape as the pandemic dampened the demand for new units.
Although the sales report for 2020 had not been released yet, Campi expected the entire industry to end the year with 240,000 units — or around 42 percent lower than the 416,000 units sold in 2019. Gutierrez said they now project even lower sales this year, which run the risk of downsizing their workforce.
“We project further reduction in sales volume which in turn poses risk of employment downsizing, not to mention government revenue loss. This will also encourage revival of grey market/used vehicles. With much uncertainty, investments in dealer expansion and parts localization may be deferred,” said Gutierrez, who is also a top executive in Toyota Motor Philippines Corp.
“The risk in the short term will be disruption in regional production and supply. In the medium to long term, this will further slowdown regional economic growth because of chain reaction to other industrial sector. Furthermore, this could potentially weaken trade and economic relations triggered by retaliation by concerned exporting countries to the Philippines,” he added.
Campi’s sentiments were echoed by Avid, a group of vehicle importers that also corner a significant portion of the market. Avid President Ma. Fe Perez-Agudo, who also heads the official distributor of Hyundai vehicles in the country, said this will hurt an already weak demand.
“The move to impose provisional safeguard measures on imported vehicles is like pulling the rug from under the auto sector that is still struggling to get back on its feet with a 40 percent drop in sales in 2020,” she said.
“This further dampens the recovery outlook of the industry at a time when all players and stakeholders are appealing for government support. The measure will aggravate the already anemic demand and make it harder for Filipinos to afford personal mobility with the projected price hikes,” she added.
She said Avid always aimed for the long term development of the sector, including the advancement of manufacturing. However, she warned that slapping more taxes will not convince companies to invest more in local production.
“We have clearly and consistently expressed our position that penalizing imports will not trigger investments or create more jobs, much less address issues on the regional competitiveness of our local manufacturing sector,” she said.
“Alternatively, we call for long-term policies that will further improve the ease of doing business which would open opportunities for investments, create jobs for our workers, and provide the Filipino reliable and affordable means of transport,” she added.