RP move to defer cuts in petrochem duties may backfire

The Philippines is in danger of losing its preferential tariff concessions to other ASEAN countries because of its decision to defer the cut in duties on its petrochemical industry.

Malaysia, Singapore and Thailand claimed that the suspension of tariffs were tantamount to putting the product in the temporary exclusion list (TEL), the tally of products not covered by the mandatory cut in ASEAN duties to five percent and below.

By deferring the cuts in tariffs on petrochemicals, the three countries insisted that the Philippines should no longer enjoy tariff preferences. The three countries are the main petrochemical producers in ASEAN and they have demanded compensation from the Philippines for potential losses arising from the tariff cut delay.

But the Philippines has argued that the country’s goods should enjoy preferred duties on its exports to other Asean countries because both the CEPT Agreement and the CEPT-TEL Protocol were silent on the matter.

The issue was raised at the Coordinating Committee on the Implementation of the Common Effective Preferential Treatment Scheme for the ASEAN Free Trade Area.

Last December, Trade and Industry Secretary Manuel A. Roxas II filed a petition with the ASEAN requesting for a temporary suspension of tariff cuts on 21 plastic product lines such as polymers of ethylene, polypropylene, vinyl chloride, and styrene; plastic floor and wall coverings; and plastic ropes.

Instead of reducing the duties on these products from 15 percent to five percent under AFTA this year, the Philippines slashed the duties only to 10 percent to allow the domestic petrochemical industry to complete its restructuring and modernization. The Philippines will comply with its AFTA commitments by reducing the duties on these petrochemical products in two years.

Roxas cited the increasing imports of petrochemicals from $800 million in 1999 to $925 million in 2000; the decline in capital utilization from 53 percent in 1999 to 36 percent in 2001; the shutdown of operations of two petrochemical plants; and the projected loss of P3 billion in 2002.

Roxas also noted that the industry suffered from the ill effects of the Asian financial crisis of 1997 which led to a slowdown in the country’s economy (gross domestic product fell from 5.2 percent in 1997 to 3.2 percent in 2001), a rise in unemployment from 8.7 percent in 1997 to 11.1 percent in 2001, and the depreciation in the peso by 42 percent against the US dollar.