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To keep the automotive industry competitive when the
elimination of import tariff for completely built units (CBUs) takes
effect in 2010, the government needs to provide temporary measures
and incentives to expand the industry’s market, the Philippine
Institute for Development Studies (PIDS) recommended.
Under the Association of
Southeast Asian Nation Free Trade Area-Common Effective Preferential
Tariff (AFTA-CEPT) scheme, the tariff on CBU imports by 2010 will be
0 from 5 percent in 2005.
As the Philippines is committed
to AFTA-CEPT, the PIDS said the government should design temporary
industry adjustment measures and incentives to expand the market for
both assembled vehicles and parts.
Meanwhile, the Board of
Investment, is set to endorse the “purely-assembly,
no-incentives” policy to Malacañang under the final draft of the
2008 Investments Priorities Plan.
The fiscal incentives will be
limited only to assemblers that will pour in money for parts and
components.
Elizabeth Lee, Chamber of
Automotive Manufacturers of the Philippines (Campi) president and
executive vice-president of Universal Motors, however, had opposed
the limited incentives to only those that will put up parts and
components plants. “Without completely knockdown assemblies [CKD]
there should be no opportunity for the makers of parts and
components,” Lee said.
PIDS added that the incentives
should be provided only to potentially viable domestic manufacturing
firms that are deemed capable of adjusting. “The incentives should
be based on manufacturing volume and conditioned on a firm’s scale
of operations. They should only be for a limited time to ensure that
only the most efficient firms will be given temporary support,” it
said.
At present, there are seven car
assemblers manufacturing eighteen models at a total of around 60,000
units. The average production per model is around 3,300 units which
is very small, thus it would be difficult to compete in a zero
tariff environment with this scale of production unless certain
adjustment measures and incentives are formulated.
Besides, giving incentives the
PIDS said that the government should have strong political will to
curb smuggling. “Without resolving the smuggling issue and
formulating an adjustment program to help the industry during the
transition process, the possibility is high that existing assemblers
might shift to CBU trading,” PIDS said, adding that this poses
potential dangers of further eroding the country’s manufacturing
base.
The PIDS said that the shrinking
domestically assembled CBU sales due to the unabated entry of
smuggled second-hand vehicles that are priced 30 to 50 percent lower
and the weak supplier base have been preventing foreign automakers
from seriously considering the Philippines for a more important role
in their global production networks.
--Darwin G Amojelar
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