Petrochemical sector in a bind

Not all good intentions achieve their desired effect. In the particular case of the recent tariff restructuring in the petrochemical industry, the unhappy reaction of the different players is a perfect example of a compromise gone awry.

Government recently decided that it would not totally bring down tariff barriers as earlier agreed with ASEAN neighboring countries. Instead of bringing tariffs from between zero to five percent, the Philippine government bargained for a slowing down of its reduction and eventually arrived at a compromise that set the levels at between seven to 10 percent.

And yet, reacting to the announcement, upstream players or those who produce resins felt that the tariff walls were still insufficient. Downstream businesses like the makers of plastics, packaging, and appliances, on the other hand, believed the tariff distortions between raw materials and finished products still needed to be addressed in order to achieve a level playing field.

Narrowed tariff differentials are discomforting

The Plastics Union Labor Alliance and the Association of Petrochemical Engineers and Technicians say that the government should have maximized the ASEAN Free Trade Agreement (AFTA) protocol and delayed any tariff cut on petrochemical products for as long as it could.

The Alliance of Downstream Industries and End-Manufacturers argues that failure to correct the tariff distortions between raw materials and finished goods might prompt some companies to downsize if not close shop.

Local producers of plastics and appliances, on the other hand, feel they are disadvantaged especially when expensive raw materials are subject to tariff of between seven and 10 percent while imported finished products come in only at a five percent duty.

Already, downstream players are saying that the tariff distortion has made their products less competitive against imports so much so that plastic products made from China, Korean, and Thailand, but not the Philippines, now flood the local market.

Some sectors that have made substantial investments in factories and processing plants feel that the existing tariff differentials are not sufficient to make them competitive. Particularly at this time when the economic slowdown being felt in the region is causing cutthroat price war on polymers, resins and even finished products. In their view, since business conditions are not favorable, they want protection.

Temporary truce

While all sectors of the petrochemical industry are not happy about the "win-win" solution of government, the worst is still to come. After all, Executive Order 161 that Malacañang issued last Jan. 9 changing the tariffs on resins and plastics is only temporarily.

Already, other ASEAN countries are complaining and opposing the Philippines’ bid to invoke Article 1 of the Common Effective Preferential Tariffs (CEPT) Exclusion List. Under the agreed AFTA framework, tariff should go down to between zero to five percent, from as high as 15 percent.

While the Philippines is arguing that it is not suspending tariff liberalization, albeit just slowing down the imposition of more stringent tariff rules to protect thousands of jobs as well as billions of investments that the local industry still have not recovered, our neighbors are understandably not happy.

How the government will defend its position against the strong pressure by our ASEAN partners will be seen in the next few months. Again, it is obvious that while we were quick to accept the call for trade liberalization, the government and local industries were not up to speed in preparing local companies to meet competition as the market starts opening up.

It is apparent that some of these sectors are smug in the feeling that eventually government will step in and provide them protection, especially now that elections is just around the corner.

Warnings on LPG marketing malpractices on TV

Starting this week, "Isyung Kalakalan at Iba Pa" on IBC-13 News (5 p.m. and 10:30 p.m., Monday to Friday) will tackle issues related to existing malpractices in the LPG industry. One of the biggest problems of the industry is the proliferation of sub-standard and defective LPG cylinders that are serious safety hazards. Added to this is the prevalent practice of under-filling LPG cylinders that defrauds housewives close to one billion pesos annually. Watch it.

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