New perks, stricter rules for qualified auto firms

CAR ASSEMBLERS and parts manufacturers will be eligible for incentives such as lower power rates and even a moratorium on strikes under draft implementing rules for the new Motor Vehicle Development Program (MVDP).

The added perks, however, come with new paperwork/fees for manufacturers and even local content thresholds for certain vehicle types, a copy of the proposed rules provided BusinessWorld show.

Also, specifics on much-awaited changes to tariffs, excise taxes and export incentives earlier promised to favor locally made vehicles and parts were not featured in the draft.

The proposed rules were circulated last Friday at an industry consultation staged by the Board of Investments (BoI). Executive Order 877-A issued last month requires that the implementing rules be ready by August.

Industry leaders have warned that domestic manufacturing operations were under threat as vehicles could now be traded duty-free among the 10 members of the Association of Southeast Asian Nations (ASEAN).

The new MVDP is expected to protect local firms via added perks, measures to expand the market, and strengthened support industries and government services.

The new incentives may include “preferential power and water rates schemes for [vehicle] assembly and manufacture of parts and component,” the draft rules state.

“[And] to focus on the expansion of locally manufactured… vehicles in the domestic market, the Labor department shall issue a directive declaring a five-year moratorium on strikes in companies that are MVDP participants,” it adds.

The draft rules further require government agencies to favor locally made vehicles by patronizing these in their procurements and also having state-owned financial institutions offer car loans for Philippine-made cars.

The Alliance of Vehicle Importers and Distributors, which includes importers of Hyundai, Mercedes Benz, Audi, General Motors vehicles, has warned that the new incentive package might violate World Trade Organization rules which prohibits governments from discriminating against foreign suppliers. The so-called Uruguay rules, however, allow developing countries to seek exemptions.

The draft also reiterates changes already laid down in the more general EO 877-A to further restrict the entry of imported secondhand vehicles and thus ensure better sales of brand-new vehicles.

These include the addition of another bureaucratic layer to authorize the entry of used cars and parts that were earlier exempt from the import ban, and the imposition of safety standards.

Participants under the older industry program will be able to enjoy the new incentives, if approved, as the rules state that “existing participants under… predecessor programs shall remain as members of the MVDP and may continue to avail of the privileges hereof, provided they are in good standing.”

But the rules also impose new hurdles for firms seeking perks, including, for instance, the payment of a “performance bond” for applicants which will be reimbursed once manufacturing operations start.

The bond, to be posted with the Government Service Insurance System, will cost 1% of the promised investment.

For assemblers of “Philippine utility vehicles (PhUVs),” the draft rules require the car to have 40% value-added during the manufacturer’s first year of operation, rising to 60% by the third year. This is to be computed by dividing the total cost of raw materials and utilities by gross sales, BoI officer-in-charge Efren V. Leaño said in a text message.

The draft rules further require firms to turn in monthly sales reports instead of the previous practice of annual submissions, new notifications on local parts purchases and employment records, and even market studies for motorcycle assemblers.

It also grants “visitorial powers” to the BoI to check up on assembly plants and punishes delays in investment timetables with a canceled registration.

No details on the EO’s provisions to restructure excise taxes and tariff rates and to grant export incentives were included in the draft.

The BoI has said this would be up to the 15th Congress to issue as it has the prerogative over tax policies.

The draft also shies away from appointing private sector representatives to the newly established Motor Vehicle Industry Council, which is described as the “central policy coordinating body tasked to ensure the accelerated development of the Philippine motor vehicle industry.”

Malacañang, instead, will be the one to name the four representatives that will join government officials in the panel.

Sought for comment, the Philippine Automotive Competitiveness Council, Inc. (PACCI) — a group of car assemblers and parts makers — lauded the progress made and said it was waiting for developments regarding other perks.

“BoI has been very diligent in the ongoing consultative process and we look forward to making more progress in our joint collaboration with them,” PACCI Executive Director Benjamin C. Sevilla said in a telephone interview.

The Motor Vehicle Parts Manufacturers Association of the Philippines, Inc. (MVPMAP), for its part, said it supported the local content requirements for PhUV assembly and was amenable to the stricter application process.

“The objective was to encourage local content. We want to encourage investments and create more jobs,” MVPMAP President Rafael G. Villareal said.

The new paperwork and performance bond requirements, meanwhile “is okay”, Mr. Villareal said, “to prevent abuse of the incentives.”  –JESSICA ANNE D. HERMOSA, Reporter, Businessworld