Protecting the future of local cement industry

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The Constitution of the Philippines explicitly provides that “the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.” Towards this end, it logically follows that local industries are entitled to state protection, especially when the operations of importers threaten Filipino dominance and control in those industries.

In fine, any diminution of Filipino control in any industry, particularly in vital industries, is inimical to the national interest. Thus, the government is expected, or more precisely, obligated to protect local industries that are threatened by foreign imports because the national interest requires it.

State protection of local industries, in turn, is accomplished by the imposition of customs duties and import controls designed at maintaining a balance in trade. Saturating the country with cheap imports kills local industries. Banning imports outright makes local industries complacent. The equitable solution is to have reasonable tariffs that level the playing field in the country, where local industries are protected from cutthroat competition from cheap imports.

The Bureau of Import Services (BIS) is the Department of Trade and Industry’s (DTI)’s arm for monitoring and analyzing import levels and prices on sensitive materials. Cement is one such item the BIS monitors. In 2018, the BIS noted that increased imports were causing serious injury to the industry.

More particularly, cement imports soared in the past five years from 3,558 metric tons in 2013 to more than 3 million metric tons in 2017, and reaching almost 5 million metric tons in 2018. As a result, local cement manufacturers lost their market share from 2013 to 2017, and the cement plants’ capacity utilization declined and their earnings decreased by 40 percent in 2017.

An investigation conducted by the Tariff Commission validated the DTI’s finding that serious economic injury has been visited on local cement manufacturers by the sudden, sharp and significant increase in cement imports since 2016. The validation means the safeguard duties are justifiable and necessary.

The latest monitoring discloses that cement imports rose by 64 percent in the first quarter of 2019, compared to the same period in 2018. More alarmingly, cement imports rose from 1.06 million metric tons (MMT) in the first quarter of 2018 to 1.74 MMT in the first quarter of 2019. The local cement industry considered this enough reason for the Tariff Commission to impose a higher tariff rate for imported cement.

President Rodrigo Duterte’s remaining three years in office is focused on infrastructure development through his now-famous “Build, Build, Build” program. To state the obvious, that program depends on a continuing supply of cement, and at stable prices.

The current tariff rate imposed on imported cement has not been effective in curbing the cutthroat competition posed by imported cement. That is precisely why a tariff rate higher than the existing one must be imposed on imports. It is a measure which levels the playing field, and makes the local cement industry competitive.

State protection to the local cement industry by way of increased tariffs is a measure authorized by the World Trade Organization as a safeguard measure against importation that harms local industries and businesses.

In addition, state protection to the local cement industry is reciprocated as seen in the employment it generates and the revenues in terms of corporate and individual income taxes it realizes for the government.

Safeguard measures also protect investors and the cement industry and consumers from price manipulations by foreign suppliers. Confidence in the industry leads to a periodic increase in the volume of plant capabilities, and old plants and machinery are replaced with newer, sturdier and more efficient ones. This means more employment opportunities (42,000 estimated new jobs), and more tax revenues (P24 billion).

From an economic perspective, safeguard measures will guard against dependence on foreign imports and the unpleasant effects of a trade deficit. Undoubtedly, a local cement industry dependent on foreign imports does not generate substantial employment in the country. Allowing cement imports with no tariffs or minimal customs duties translates to zero or near-zero tax revenues for the country.It’s time for the DTI and the Tariff Commission to increase the tariff on imported cement. Public interest is at stake here.

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