Knocking car smugglers completely down?

MANILA, Philippines - One might say that serendipity allowed some members of the motoring media to see it with their own eyes. Who would have known that an innocuous drive up northern Luzon to test a Japanese marque’s portfolio of models would take us into the vicinity of Port Irene in Sta. Ana, Cagayan—that controversial entry point of used cars?

Here, far from the madding crowd and, perhaps, prying eyes, second-hand vehicles stream into the country to be snapped up by a very strong market eager for cheap vehicles and suddenly more affordable exotics.

That’s all and good? Certainly not for car companies, who have been railing against the supposed unfair advantage of the practice that many say has been long cloaked and sanitized through the Cagayan Special Economic Zone and Freeport. There seems to be impunity, they contend, in the practice which not only impacts the “legitimate” car industry, but deprives government of tax revenue. Dare we say the “S” word? Smuggling? There you go.

Well, the party seems to be coming to an end with the recent decision of the Supreme Court to uphold EO 156. The Executive Order, signed by then President Gloria Macapagal-Arroyo in 2002, “(bans) importation of all types of used motor vehicles and parts and components, except those that may be allowed under certain conditions.”

This was, among a myriad of issues and talking points, was on the table at the recent “Usapan sa AAP” forum hosted by the Automobile Association of the Philippines.

The guests certainly had something in stake EO 156.

“Even if prohibited, there seemed to be a continued importation of used vehicles,” lamented Board of Investments (BOI) Trade Development Group executive director Lucita Reyes, who appeared along with Chamber of Automotive Manufacturers of the Philippines (CAMPI) president Atty. Rommel Gutierrez (who’s also VP for Corporate Affairs of Toyota Motor Philippines), and Association of Vehicle Importers and Distributors (AVID) president and Hyundai Asia Resources Inc. president and CEO Ma. Fe Perez-Agudo

Collectively representing about two dozen players in the car industry, AVID and CAMPI are surely keenly watching what happens post affirmation of the EO. “We hope it’s for the protection of the industry,” said Perez-Agudo.

Forum moderator/host (and STAR columnist) Cito Beltran posited, however:

“I know for a fact that someone is very unhappy about the Supreme Court decision, and that it is going to basically roll into several issues.”

Beltran continued that there was some lobbying from CAMPI (before Gutierrez’ time) to have a fixed excise tax at P500,000 per vehicle brought in through Port Irene, and that “people on the other side may come back” at AVID and CAMPI to say how many members “are actually compliant (with) their tax payments.”

“I will not make any official statement on that,” Perez-Agudo declared, “(But) in terms of regulatory compliance, we believe that we are legitimate distributors. We have a brand to protect, we have a global image, and we have principals outside this country, and we want to promote our country as an investment destination that does not encourage corruption and unfair trade practices.”

Gutierrez added, addressing Beltran directly with a smile and a laugh: “I really don’t know where you got that chismis. As far as I know, at least during my term, CAMPI (did) not make a conscious effort (towards that end)… we have not instigated any move that will run after smugglers at Port Irene, but we welcome the Supreme Court decision.”

Interestingly, although the EO will curb used-vehicle importation, it lets used cargo and dump trucks (with a gross vehicle weight of 2.5 to six tons) and used buses (six to 12 tons) through the cracks.

Truth be told, some quarters contend that the Port Irene activities do not affect the sale of brand-new vehicles—merely the used car market. But the more salient issue here would be whether these imports funnel correct duties (if at all) to the government.

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AVID and CAMPI agree that 2012 was a good year for the industry. Perez-Agudo reported a growth rate of 11 percent achieved largely through passenger car sales, and quoted CAMPI’s figure of 14 percent (piggybacked on commercial vehicle sales). Consolidated sales growth, continued the AVID president, was pegged at 11.6.

Gutierrez said: “We remain positive that 2013 will still be another good year, confident that the growth of the economy will be sustained (on strength of GDP per capita growth).”

BOI’s Reyes, meanwhile, wants to focus on, among others, improving the local CKD (completely knocked down) to CBU (completely built up) ratio (which currently stands at 48:52 in favor of CBU). “The industry is saying that if nothing is done by government, by 2030 it would just be nine percent for CKD, and 91 for CBU).

This, of course, is bad news if you consider all the employment that car assembly provides. Reyes insisted: “We want to make sure that with the big share of the automotive industry and part and components industry, (representing 68,000 in its direct labor force) this moves forward.”

Reyes continued that this industry accounts for four percent of total manufacturing share in the country’s GDP, but is hobbled with a “14-percent cost handicap” compared to our ASEAN neighbors – owing to a small domestic market and “very limited local supply base.”

It will be difficult to stay competitive, she rued, when we are able to export Philippine-made parts that our local assemblers do not even use.

Surely, even as the local car industry continues to bask in an economy on the uptick, there remain important issues to face and hurdle before fully realizing how fast this car (brand new or otherwise) could really go.