CRC backs tariff wall for petrochem industry

The Center for Research and Communication (CRC) is in agreement on the need to provide temporary tariff protection for the petrochemical industry.

In a recent study completed last month, the CRC noted that the domestic petrochemical industry is experiencing hard times, due to external factors.

The first external factor, the CRC said, was the 1997 Asian crisis and the second is the slowdown in the US economy.

CRC also pointed out there is no naphtha cracker plant in the country and the industry is facing competition from increased smuggling.

As a result, the CRC said, two petrochemical plants have already shut down and the industry has incurred P7 billion in losses to date.

In contrast, the petrochemical industries in neighboring ASEAN countries are more mature and have, thus, been able to weather the current global economic slowdown.

The petrochemical industry of neighboring ASEAN countries enjoy government support in the form of high tariff walls.

The CRC also noted that the petrochemical industry of other ASEAN countries were integrated (they already had an existing naphtha cracker plant), assuring them of a regular supply of raw material which shielded them from fluctuations in international monomer prices as well as from foreign exchange risks.

The CRC acknowledged that "protecting a local industry is normally a risky proposition from a policy standpoint."

The CRC admitted that there is always the possibility that protected industries either become complacent or never become competitive, thus, becoming a drain on government resources and distorting the efficient allocation of resources in an economy.

The CRC argued, however, that "sometimes an industry could be worth nurturing, especially when it is only in its formative stage and holds the promise of becoming an important sector of the economy in the future."

The local petrochemical industry, the CRC observed, seems to be an important sector of the economy as demonstrated by its extensive forward linkages and impact on output. It is, thus, worth assisting being a strategic industry.

Citing as an example the Taiwan petrochemical industry, the CRC stressed that the domestic petrochemical industry holds much potential for the future, especially since the Philippines is behind most of its neighbors in terms of per capita plastics consumption and, thus, has a lot of ground to cover.