Is the country's plastic industry in peril?

One of the fringe benefits I enjoy from running a television show and a business column is I get a lot of insights into issues not otherwise covered in the regular news. The businessmen we get to interview can get very candid, and their emotional state more evident than when you interview them for print where your parameters are limited by quotation marks.

Anyway, one recent interview was with the Philippine Plastic Industry Association (PPIA) and its ranking officers. They sought our assistance in bringing forth their sentiments on what specifically are the problems besetting the beleaguered plastic industry.

Foremost is the recent suspension of Executive Order 486 which reversed an earlier order, EO161. As a brief backgrounder, the old EO161 had stipulated tariff provisions which, even to a layman, seem onerous. Tariff for raw materials for plastic manufacture was fixed at 10 percent, while tariff for importation of finished plastic products was fixed at five percent. Indeed, how can our local manufacturers compete with foreign products that are taxed at five percent, while the manufacturers have to pay 10 percent, for their raw materials, and they still have to pay for labor, other supplies, factory space, other equipment, packaging, labeling, transport, etc.? Because of this, our neighbors in the ASEAN region have found a lucrative deal to dump their plastic products in the country, killing our plastic manufacturers.

This tariff distortion may have caught the attention of some officials in the tariff commission or whoever is in charge of stipulating levies and tariffs. Executive Order No. 486 was issued, I think sometime in late 2005 or early 2006 which effectively remedied the situation: tariff for plastic raw materials was reduced from 10 percent, to five percent, , while that of finished plastic products was kept at five percent, . Though this may still seem a bit prejudicial to the manufacturers, they were happy with this.

They reported that the industry grew steadily in 2006 up to the better part of 2008 which was when E.O. 486 was suspended by virtue of a court order from a Makati RTC.  

The figures that the association provided clearly indicated a steady rise in domestic production from 2006 to the first three quarters of 2008, and a slowdown of importation of finished products for the same period. In fact, for 2007, they posted a growth rate of nearly 25 percent, in the downstream plastic industry. Importation was obviously affected as figures show a reduction of 20 percent, in their volume for this same period. E.O. 486 somehow leveled the playing field here.

Some company, and I can only presume it’s a big importer of finished plastic products, filed a case challenging E.O. 486 in a Makati trial court. Apparently, this RTC upheld the complainant’s issues, hence the suspension of E.O.486. We’re now back to the old E.O. 161, and tariff for raw materials has been re-set to 10 percent, .

According to the association, they were invited to participate in the deliberation of this case-they were advised to file a case too against the company, but the association members said the prolonged litigation which they expect to happen will only cost them mega bucks. Individually, these manufacturers cannot stand up to big importers, and they now wish to make a collective stand as an association.

Plastic has many uses. Regular consumers like us may think of the industry as providing those food containers that cost about 10 percent, only of their more expensive cousins, the Tupperware. Plastic, an extensive consumer product, is used heavily for packaging, and this forms the bulk of their manufacturing business. With tariffs higher now, expect this to have a domino effect on other consumer industries whose packaging requirements they service. Your regular shampoo, vinegar, soy sauce, cooking oil, just about everything we have at home-these will all go up because the additional tariffs will not be absorbed by the manufacturers. It will be passed on to consumers.

I forgot to mention that the 10 percent, tariff on plastic raw materials is for those coming in from our ASEAN neighbors. However, the raw materials from these ASEAN countries are not nearly enough to cover our production targets, so the manufacturers are forced to import from non-ASEAN countries like Taiwan, Korea and even Japan. In this case, tariff is fixed at an astounding rate of 15 percent. How does this compare to the tariff rate of  five percent, for finished products?

Because of the easy  five percent tariff on finished plastic products, our ASEAN neighbors have found a dumping ground for their plastic products. Count on China and India to flood our markets with their plastic ware. These stronger economies are eagerly looking for new markets for their products. What agency is tasked to check on the quality of these products, by the way?

Another issue they would like to bring up is their vulnerability to raids by the anti-smuggling agency and surprise visits by BIR agents who they say are always on the lookout for more taxes to levy. I can’t say I blame the BIR because their targets have been set so unreasonably high, and the legitimate businessman has to bear the brunt. As for smuggling, this has always been the bane of most manufacturing industries, but we hope the zealousness and persistence of some of these agents do not lead to extortion at the end of the day.

The weakened consumer demand, a global problem really, has wreaked havoc on many industries, the plastic industry included. It is an oil-dependent industry, and this has resulted in roller-coaster pricing over the years. Prices of raw materials fell last year because of the low price of fuel, but then again, the manufacturers have stocked up on more expensive raw materials from the previous year when fuel was at an all-time high. Because of this, they are forced to sell at much lower prices, because the imports are steadily coming in and they have to remain competitive if they want to stay in business. The only consolation is most of their production is for local consumption, leaving only about 10 to 20 percent for export to the main markets which are the US and Japan. These two countries are reeling from recession now, but domestic consumption can still absorb the slowdown.

By May of this year, the country is poised to host the ASEAN Federation of Plastic Industries through the Philippine Plastic Industry Association. They are hoping that, before then, the tariff distortion can be resolved. The association has made proper representations with the Department of Trade & Industry, the Tariff Commission and even with the Office of the Solicitor General for their appeal to address this issue. The plight of the industry, with its hundreds of thousands of workers, is in peril.

Mabuhay!!! Be proud to be Filipino.

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