JPEPA: Auto industry parity out the window?

MANILA, Philippines - Whether seen through nationalistic or pragmatic lenses, the Japan-Philippines Economic Partnership Agreement or JPEPA is here – signed by former President Gloria Macapagal-Arroyo and former Prime Minister Junichiro Koizumi in 2006 and ratified by the RP Senate.

Changes are forthcoming.

The bilateral FTA (free trade agreement) seeks to give a leg up to investments and trade of goods and services through relaxation of tariffs. The JPEPA is also geared towards easing the entry of Filipino nurses and caregivers to Japan.

Just as there are two signatory countries, there are two sides to the JPEPA story. Some condemn it as vastly disadvantageous to the Philippines, while others say it is a long overdue pact – particularly because other countries like Malaysia, Singapore and Thailand have inked similar deals with no ill effect.

Still, there is some distress and very vocal calls for restraint and vigilance – particularly in “vulnerable sectors” namely nurses, the automotive industry, and the environment – according to the movement Magkaisa Junk JPEPA.

Focusing on the automotive industry and its supposed vulnerability post JPEPA, local truck and bus manufacturers recently voiced their sentiment opposing tariff cuts earlier than 2013. Government needs more time, according to Truck Manufacturers Association chair Frank Nacua, to “place safeguards” to protect the industry and the environment – a sentiment he aired at a tariff hearing a couple of months ago.

The worries about JPEPA apparently stem from giving Japanese companies favored status that might unduly and unfairly give them advantage over local and other foreign companies such as manufacturers.

Other JPEPA rejectionists are concerned of a provision in the treaty that allows for the free entry of automobiles. It would, they say, endanger the RP government’s efforts for the motor industry – ultimately threatening the job security of more than 500,000 workers in the trade and allied sectors such as plastic, glass, electronics fabrication, metal, transport and services.

Meanwhile, automobile importers and distributors not from Japan are keenly observing the goings on. “From our perspective, the JPEPA has just changed the rules of the game in the luxury segment. Japanese brands will now have an advantage,” says Felix Ang, president of CATS Motors, official importer and distributor of Mercedez-Benz in the Philippines, even as he expressed confidence that MB will continue to be the top choice in the segment.

“Currently, the industry is divided between CKD (complete knock down) assemblers and CBU (completely built up) importers, with assemblers recently moving into CBU importation because FTAs like AFTA (ASEAN Free Trade Area), and now JPEPA has made it more viable to import than assemble.”

Amado del Rosario, corporate affairs director for PGA Cars, Inc. – importer of Audi and Porsche vehicles – declares flatly: “It gives undue and unfair advantage to Japanese imports – specifically CBU vehicles. Being a European brand CBU importer, we would like to have a level playing field.”

Toyota Motor Philippines Vice President for Corporate Affairs Rommel Gutierrez says otherwise. “There is no undue advantage to Japanese car manufacturers. On the other hand, the agreement gives opportunity for more investments in the local car industry.”

Gutierrez continues that “the ratification of the JPEPA shows the Philippine government’s commitment to the agreement, which is beneficial to both parties.”

The automotive industry uproar hinges on the fact that Japanese car importers can now slash their prices because of the tax break – effectively undercutting competition in a day of tighter and tighter price points.

Just recently, newly formed Alliance of Vehicle Importers and Distributors (AVID), representing selected major auto brands, appealed in a letter to President Benigno Aquino III to recall former President Arroyo’s Executive Order 877-A which, they say, favors cars made in the ASEAN region (mostly Japanese cars). AVID reveals the order levies higher tariffs on other manufacturers.

Motor Image-Subaru marketing manager Ariel de Jesus is cautious about commenting on the developments. “We have yet to see the complete implementing rules and guidelines of JPEPA, but we don’t see any advantage because of the small percentage and fluctuating exchange rates which affect pricing.” Subaru is a Japanese brand, a portion of which is owned by Toyota.

De Jesus maintains that only the Subaru Outback 3.6R is expected to be affected. “We sell an average of five units of the Outback a month, with a current selling price of P2.448 million.” He can’t, as of yet, give new figures post JPEPA.

Gutierrez, for Lexus, says: “Prices may correspondingly be adjusted, depending on how the Philippine government will implement the agreement.”

Ang, however, remains optimistic. “We hope that the new administration will pursue an honest review of the treaty and assess whether it will, in fact, bring real advantages to the Philippines,” he says. “We should find a provision within JPEPA to help create a true manufacturing sector for the automotive industry so that the roadmap set may be fulfilled. As long as it promotes the greater good of the Philippines, then I am all for it.”