US to file WTO suit vs RP over car program

The United States will lodge a formal complaint against the Philippines before the World Trade Organization (WTO) for its continued implementation of a local content requirement for the automotive sector.

Sources at the Department of Trade and Industry (DTI) told reporters that the US had reversed its initial position of not opposing the Philippine request for the extension of the local content requirement.

According to a source privy to ongoing talks at the WTO, the US is preparing to make representations before the WTO’s dispute settlement body even as the Council for Trade and Goods continues to discuss the country’s request for extension.

The local content requirement is contained in the Philippine Motor Vehicle Development Program (MVDP), which compels automotive manufacturers to used locally sourced raw materials for at least 40 percent of the total makeup of passenger cars and 45 percent for commercial vehicles.

The scheme expires this year but the Philippines filed a request for a five-year extension, citing "extreme difficulties" in phasing out the requirement as per its commitment to the WTO.

The local content requirement, a scheme also used by other countries in the region that host foreign automotive assemblers, is seen as a violation of the WTO’s Trade-Related Investment Measures (TRIMS).

The US had earlier indicated that it would not oppose the request provided that the extension would only be for three instead of five years. However, the source said that intense lobbying by Ford Motor Co. prompted the US to change its position.

The source said the Philippines has no objection to the phaseout of the local content requirement provided this is done gradually over a period of five years.

During the US state visit of President Estrada, US trade officials expressed concern over the Philippines’ request before the WTO, making veiled threats that they would protest the extension before the WTO, since the local content requirement effectively imposed a barrier to free trade.

In its official position, the Philippine government said it would bind its tariffs for automotive parts and units under the TRIMS of the WTO as long as there is an acceptable difference between the tariffs for completely built-up units (CBU) and completely knocked-down units (CKD).