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A
government think tank pushed for the crafting of
“temporary measures” and the development of the local
automotive parts industry to enable the auto industry to
cope with the impending full liberalization under the
Asean Free Trade Area (Afta) by 2010.
In a
“Policy Note” published by the Philippine Institute for
Development Studies, institute senior fellow Rafaelita
Aldaba said there is a need to focus on the auto
industry given the fact that tariffs for imported
completely built units (CBUs) will go down to zero by
2010.
Aldaba
warned that minus the “temporary measures” that would
allow the local assemblers to cope with liberalization
under Afta, there is a danger that manufacturers would
resort to just trading CBUs. This could result in
thousands of job losses.
“[The
government should] immediately craft temporary
adjustment measures in preparation for the zero- tariff
environment under the Afta by 2010,” she said.
“Equally
important is the need to formulate, in coordination with
the industry, a comprehensive program and a coherent set
of policies to help the industry adjust efficiently and
benefit from the globalization process,” she said.
Aldaba
noted that in terms of market size, the Philippines
pales in comparison with Thailand. In 2007 the
Philippine automotive industry sold a total of 117,903
vehicles but Thailand sold more than 1 million units in
2006.
Aside
from its stable macroeconomic environment, good
infrastructure, relatively large domestic market and the
presence of an extensive network of components
manufacturers, Aldaba said that Thailand’s success in
integrating with the global production networks of
foreign auto companies has been the product of its long
years of policy reform.
“From a
highly protected industry orientation, Thailand was able
to successfully shift its trade and industrial policy to
an export-oriented one in the early 1990s,” she said.
Aldaba
noted the wide disparity between Thailand and the
Philippines when it comes to the cost of manufacturing
vehicles. “The cost differences and inefficiency of the
vehicle assembly industry in the Philippines may be
explained by the firms’ low-volume production and the
absence of a strong supplier base,” she said.
Vehicles
assembled in the
Philippines
tend to be more costly than those assembled in
Thailand.
With a smaller scale of operations and with only 23
percent local content, production costs for the
Philippines run about 1.4 times higher than those in
Thailand
where local content accounted for a much higher rate at
67 percent of total production cost.
Aldaba’s
recommendations include the development of the local
automotive parts industry and the stronger
implementation of Executive Order 156, which prohibits
the importation of all types of used motor vehicles and
parts and components.
To
enable firms to cope with a zero- tariff environment by
2010, though, the government needs to design temporary
industry adjustment measures and incentives to expand
the market for both assembled vehicles and parts and to
improve the firms’ performance and competitiveness.
“The
measures should enable the industry to face competition
arising from zero tariffs from Afta by 2010, as well as
to facilitate its integration into the regional/global
production networks of foreign automakers,” she said.
Aldaba,
however, said 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. |
