New motor vehicle program raises more questions than it answers

AUTO industry players have asked the Board of Investments (BOI) to clarify certain provisions of the proposed policies laid out for the revised Motor Vehicle Development Program (MVDP). “There are many questions that must be clearly answered, such as definitions, incentives and criteria, among others,” an official of the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) told The Manila Times.

On Friday, BOI and industry representatives again met to collate the private sector’s recommendations drawn from the previous week’s workshop.

Industry players want the following clarified, the source, who requested anonymity, said: how participants would be divided between the two levels of the program; how “low cost” and “mass market” would be defined, and how “high local content” would be determined in the case of so-called Philippine Brand Vehicles (PVB); the targets as to investments, volume and exports; the specific incentives to be given; and the scope of function and structure of the proposed National Authority in charge of the program.

Another industry source that attended Friday’s meeting told The Times that another “contentious” issue is the industry support fund for parts and components manufacturers.

An official of the Motor Vehicle Parts Manufacturers Association of the Philippines Inc., said in a text message: “Parts makers are basically all in support of BOI’s proposed amendment of MVDP. It really promotes local assembly and local parts manufacturing.”

Earlier, the BOI presented the following proposed policies for a re-structured MVDP:

• The new program will be two-tiered. Level 1 is composed of all current and new participants, and shall involve completely knocked-down (CKD) units with full benefits under Executive Order (EO) 156, while Level 2 would be composed of participants that have attained high localization rates, assembly two models each, and produce new parts or provide production/technical support to parts manufacturers. The BOI would determine the incentives for Level 2 participants. Also, a PBV category shall be added. PBVs would be for the mass market, are low cost, and characterized by high local content. They shall also be exempt from excise tax, and a special export program would be designed for them.

• The excise tax structure shall be reviewed to encourage local assembly operations.

• Exports of all completely built-up (CBU) units—passenger cars, trucks and buses, and motorcycles—as well as parts and components, shall be promoted for export.

• The new program shall “align the industrial development policy with environmentally sustainable transport policies and initiatives.”

• The ban on importation of used vehicles shall be continued.

• The new program shall develop and expand local parts and components manufacturing by providing more assistance and incentives, including tariff differential between local and imported parts, zero duty for raw/semi-processed materials for the local manufacture of parts and components, and the establishment of an industry fund that shall be administered by the BOI or another appropriate agency.

• A National Authority catering to the automotive industry shall be created and attached to the BOI.

A BOI official, who refused to be named, on Friday told reporters that some industry players “could not understand” why there shall be two levels of participation in the proposed program, and have instead proposed a single level.

“To qualify for the second level, manufacturers must produce [a model] that is not currently being manufactured here. Some auto players have asked, ‘what if we don’t have another new model [to manufacture locally], but we would increase our production [of what they currently have],’” the government source said.

He added that motorcycles and parts manufacturers have asked whether production would be based on value or volume, and which would get more incentives.

But he said some have acknowledged that a Level 2, which shall require at least two models to be assembled locally, would force their principals and parent companies to expand in the Philippines.

The industry source said participants want the BOI to quantify “how much is low” for “low cost,” and “how much is high” for “high local content” with regards to PVBs. “A criteria should be set,” the source said.

The BOI official said the industry is receptive to the idea of PVBs.

On exports, the government source said the auto players want a “realistic” and “reasonable” quota. He said players told the BOI that the requirement is “difficult to reach.”

Regarding the proposed parts and components fund, the industry source said the BOI must identify where funding would come from, and who would manage it—whether the government or the private sector.

The government source said players are apprehensive about putting up another body to oversee the industry. He said the present setup—wherein the BOI directly attends to the sector’s concerns—could be maintained.

The BOI would soon conduct a public hearing on the new program.

To put the restructured auto program in place, the agency would be coming up with a draft EO, which President Gloria Arroyo could sign before yearend or early next year.

A BOI review has shown that the present MVDP failed to meet its targets. Despite the existing program, “the industry has not yet reached pre-Asian Crisis sales levels; CBU sales dominated the domestic market; investments showed no expansion for the past 10 years; and industry capacity utilization only reached between 20 percent and 30 percent,” the BOI said.

Launched in late 2002, EO 156 or the MVDP was intended to revert the domestic industry’s performance to pre-Asian crisis levels and make the sector more investor-friendly.

The local auto industry sold 162,095 units in 1996, a feat it has yet to replicate. Last year, it sold 124,449 units.

EO 156 banned the importation of used vehicles, restructured the excise tax structure, promoted production for export, restructured tariffs on parts and components, and called for regional complementation through the Asean Industrial Comple-mentation Scheme. –BEN ARNOLD O. DE VERA REPORTER, Manila Times