Government mulls tariff hike on CBUs

Government plans to increase the tariffs on completely built-up (CBU) automotive units from 30 percent to 50 percent to get even with the US for lodging a complaint against the Philippines in the World Trade Organization in the dispute over local content requirements.

Industry sources said the government is deliberating on the proposal to adjust CBU tariffs while the dispute over the country’s local content requirement is pending under the Tariff-Related Investment Measures (TRIMS) of the WTO.

CBUs are complete automotive units imported by automotive assemblers. When a CBU unit arrives, only the battery needs to be installed and the unit is ready for sale.

The source said the tariff would be effective until the WTO rules on the complaint filed by the US against the Philippines, alleging that its domestic auto policy is in breach of free trade rules.

According to the source, the government is trying to take advantage of the dispute settlement period, especially since the TRIMS is taking time to decide on the Philippines’ request for the extension of the local content requirement scheme.

The source said the government is hedging against the US whose objective is the ultimate reduction of Philippine tariffs on automotive units and parts even if the actual dispute is a non-tariff issue.

The US lodged the formal complaint against the Philippines before the WTO for its continued implementation of the local content requirement for the automotive sector.

The local content requirement is contained in the Philippine Motor Vehicle Development Program (MVDP), effectively compelling automotive manufacturers to source 40 percent of their requirements for car assembly from local sources and 45 percent for the manufacture of commercial vehicles.

The scheme would have expired this year, but the Philippines has filed a request for a five-year extension, citing "extreme difficulties" in phasing out the requirement as per its commitment to the WTO.

Local content requirements, a scheme also used by other countries in the region that host foreign automotive assemblers, is seen as a violation of the WTO’s Trade-Related Investment Measures (TRIMS).

The US action against the Philippines was prompted by intense lobbying by Ford Motor Co. which operates an assembly plant in the Philippines. The company is directly affected by the requirement to source its materials locally instead of being able to import 100 percent of its requirement.

According to the source, the WTO rules allow the Philippine government to increase its tariffs for CBUs to as much as 60 percent or 100 percent of its existing 30 percent tariff.

The source said the industry would oppose the government’s position, since this would affect local automotive manufacturers that import CBUs under the MVDP. Most automotive firms that are registered under the MVDP use CBUs in varying degrees.

In its official position, the Philippine government said it would bind its tariffs for automotive parts and units under the TRIMS of the WTO as long as there is an acceptable difference between the tariffs for completely build-up units (CBU) and completely knockdown units (CKD).

The DTI said the government has agreed on a maximum position of extending the TRIMS schedule for another five years for all motor vehicles, including motorcycles.

This means that all tariffs on motor vehicle parts and units would remain at present levels until 2005.

According to the DTI, the Philippine negotiating panel has also agreed on a minimum position of extending the TRIMs for another four years and binding for motor vehicles while progressively reducing the net foreign exchange earning (NFEE) and local content requirements.

Under the minimum position, CBUs rates would be bound at 50 percent which means that the rate could go below but not above the 50 percent bind. CKD trariffs, on the other hand, would be bound at 30 percent.

The DTI said the automotive industry had agreed to the binding tariff rates since the industry did not expect the Philippine government to reverse its tariff liberalization program.