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Ban on used-car importation: Protection rocket

By: Conrado R. Banal III, February 21st, 2013 02:38 AM

We all know the reason behind the government-imposed ban on the importation of used cars: protectionism.

The ban is now the hottest issue this side of business town, at least based on media reports, as the Supreme Court issued recently a ruling that, in effect, affirmed the legality of the ban.

The ban was laid down in EO 156, issued by the cute administration of Gloriaetta more than 10 years ago in 2002. The order spelled out a new “motor vehicle development program,” which has undergone several revisions since it started some 50 years ago in the 1970s.

But the order also did not hide its intention to protect the car companies here. They were all foreign companies, by the way, claiming to employ thousands of Filipino workers.

Let me quote the order: “to accelerate the sound development of the motor vehicle industry in the Philippines, the government has declared (as a policy) … to ban the importation of all types of used motor vehicles and parts and components, except those that may be allowed under certain conditions.”

There—the government simply wanted to protect the motor industry against competition from cheaper second-hand cars from abroad. It so happened, at that time, the car companies were claiming massive smuggling of used vehicles into the country. They claimed that the importation of used vehicles—second-hand cars, in particular—could kill them.

In this country, smuggling already killed several industries—textile, tire manufacturing and shoe making. Fighting for dear life at the moment, in the face of onslaught from smuggling, are several other manufacturing industries such as the ceramic tile and steel manufacturing sectors.

Based on official figures, for instance, the total value of our “declared” importation from China, year in and year out, was only less than half of what China reports as its exports to the Philippines.

It is a proof of massive smuggling. That is why local industries are dying. There are no executive orders to protect them. I guess the car companies are just better lobbyists.

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The Cagayan Special Economic Zone (CSEZ), located in the sleepy town called Santa Ana in Cagayan province, was established as a “free port” in 1995 by Republic Act 7992. It is managed by the Cagayan Economic Zone Authority (Ceza).

For almost 10 years since its creation, the development of CSEZ was rather slow. The customs bureau, for instance, reported collections of only about P500,000 a year from 1995 to 2004. Things changed in 2005.

That year the BOC collection at the port started to go up, until it reached P500 million a year. The bureau even created a separate customs district in Santa Ana, which jumped from a fifth-class municipality to first-class. The growth rate of the local economy in the town was the highest in the entire country.

Also, the LTO office in the town topped the earnings among LTO offices throughout the country.

A big factor behind such a fast economic climb was, of course, the importation of used vehicles, which were actually repaired and refurbished in the town by locators in CSEZ called Aric, or the Automotive Remanufacturers in Cagayan.

Unfortunately, the government does not recognize motor vehicle reconditioning as a legitimate economic sector. In the eyes of the government, such an activity was nothing but smuggling.

From what I gathered, however, the taxes and duties that members of Aric paid for the imported used cars were assessed not in the BOC office in Santa Ana, but in the main office of BOC in Manila. The BOC in Santa Ana only collected the money.

Yet, the BOC office in Manila claimed that the assessments were based on the market value of the imported used cars—not on the value declared by the importers—the usual tactic in smuggling!

From what I gathered, the imported used cars passing through CSEZ were mostly three-year old since these were the sellable models. Thus, the duties on such relatively new vehicles were almost the same as the duties on brand-new cars sold here by the car companies.

The car companies by the way mostly sell here imported CBUs—or completely built units. We have no real car “manufacturing” industry, to begin with.

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Please allow me to refer you to a study done by the foundation called Eiler, which stands for Ecumenical Institute for Labor Education and Research, based here in the Philippines, claiming to espouse “genuine” trade unionism.

In 2011, Eiler did a study for the Asian Monitor Research Centre, a Hong Kong-based NGO focusing on labor concerns in Asia, and the study looked into the motor industry in the Philippines.

According to the study, the manufacturing side of the so-called motor “industry” in the Philippines hardly had any expansion, both in terms of manufacturing facilities and investments, due mainly to the importation of CBUs by the car companies.

A big boost to the importation of the brand-new CBUs was this thing called Jpepa, or the Japan-Philippine Economic Partnership Agreement.

In 2008, the cute administration of Gloriaetta signed the agreement with the Japanese government, which provided for the reduction of tariffs on imported motor vehicles and auto parts starting in January 2010.

Thus, imported CBUs became cheaper. Also, imported auto parts became more competitive than locally produced ones.

In its study, Eiler revealed its rather gloomy assessment of the motor vehicle industry here. For one, the industry produced only low value-added parts, and they mostly used low technology production processes.

Thus, for the past several decades, or since our beloved government pampered car companies with protectionism under the various motor industry development programs, there was hardly any transfer of technology in car manufacturing into the country.

The study noted that we are only making things like suspension parts, carpets and seats, wiring harness, fan belts, rubber pedals and mufflers.

In terms of the basic automotive parts, we have been limited to the production of transmissions for the past several years.

It makes me wonder, what “local” motor industry is our government trying to protect? Like, the so-called industry is heavy into rocket science or something!

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