THE application by the Philippine Metal Workers Alliance (PMA) for a “safeguard tariff” against imported automobiles is completely unnecessary, potentially puts the country at risk of being penalized under World Trade Organization (WTO) rules and should be quickly rejected by the Department of Trade and Industry (DTI).
The PMA is a labor group representing a broad alliance of workers from the automotive, iron and steel and electronics and electrical industries, and its application for the safeguard tariff covers imports under the Harmonized System (HS) code 8703, which essentially covers any sort of motor vehicle intended to carry fewer than 10 passengers, except for motorcycles.
A safeguard tariff is a remedy allowed under WTO rules to address an increase in imports of some commodity that causes “injury” to a domestic industry. A recent example is the safeguard tariff imposed by the DTI on imported cement in September, when it was determined that a surge in cement imports amounted to unfair competition for the Philippines’ own cement industry. Thus, the PMA is claiming that the importation of motor vehicles is causing similar market disadvantages for the industries it represents, primarily the automotive industry.
It is hard to imagine what injury the importation of automobiles is causing the local industry, as the most recent data from the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) and Truck Manufacturers Association (TMA) showed that vehicle sales — passenger cars and commercial vehicles — posted a modest increase in September, and that sales of passenger cars for the first nine months of 2019 were fewer than 1,000 units less than the similar period in 2018.
Sixty percent of the vehicle market is dominated by Toyota Philippines and Mitsubishi Philippines, and the biggest single part of both those companies’ sales are vehicles they assemble here in the Philippines, the Toyota Vios and the Mitsubishi Mirage G4. By contrast, vehicles that are imported are generally of a higher price class since the costs of importing are already quite high. Economy-class cars like the Vios and the Mirage are much less profitable if they are imported; although, for the sake of accuracy, it should be noted that Mitsubishi was importing the Mirage but has been steadily reducing imports as the Philippine assembly line takes over local supply. In any case, Mitsubishi’s local market share is about 17 percent compared with Toyota’s 42-percent share, meaning that the impact of its imports is somewhat diminished.
The only conceivable reason why the Philippines might consider some kind of punitive tariff on automobile imports is as a measure to reduce the volume of cars on Philippine roads. But that is not permitted under WTO rules and could result in trade sanctions being imposed on the country.
In any event, that objective, at least to the extent it was possible to do so, was already achieved with the substantial increase in vehicle excise taxes imposed from the beginning of 2017; since imported cars tend to be more expensive models, these taxes increased their prices by a larger proportion than more economical locally assembled models. In effect, what the PMA is requesting from the DTI has already been implemented, although any benefit to their local industries is indirect.
But while the application for a protective tariff is unreasonable, the larger implied point of the PMA’s approach to the DTI is not. Automotive and related enterprises are fertile ground for the industrial development the country’s economy needs; they provide a large number of jobs and create very long value chains, raising the profile of other businesses as they expand. Even if it might not be the best idea to increase vehicle sales volume here in the Philippines due to congestion issues in urban areas, the export market provides opportunities for other kinds of growth.
If what the PMA is requesting is simply a tariff to provide some artificial protection for the local industry, that is shortsighted; but if its real intent is to encourage greater government support for developing and expanding the local industry, that is a worthwhile goal. In rejecting the PMA’s tariff claim, the DTI should explore other ways in which that support can be increased.