A recent duty imposition on a major ingredient in the production of detergents has made producing laundry soap, either in powder or bar form, too expensive. But increasing retail prices or passing on the added cost to consumers is out of the question because this would make imported detergents much cheaper than local ones.
Procter and Gamble Distributing (Phils.) imports in finished form most of the products that it sells in the Philippine market, except for two, one of which is detergents. Like other P&G subsidiaries, the Philippine office had to compete with subsidiaries in other countries in order to produce detergents here.
But whatever cost advantages the Philippines has in detergent manufacturing may soon be gone. P&G may be faced with no other option but to close down its detergent manufacturing plant in the Philippines, a decision that would not only mean a loss of thousands of jobs but also send another bad signal to the foreign investment community considering P&G’s influence in world business.
A Filipino company on one hand and a multinational on the other, which for many years had to compete with each other, together with other detergent manufacturers in the country, now find themselves in a tight fix – how to keep the business afloat when all indications show that it does not make sense to continue with it.
Local detergent manufacturers, including ACS, P&G, Unilever, Peerles, Royal Industrial, and Wellmade, have for decades been buying STPP from the only STPP producer in the country – Chemphil. However, a few years back, STPP prices worldwide dropped, except those of Chemphil, forcing these local manufacturers to import STPP from China and other sources.
In response to a dumping protest filed by Chemphil Albright and Wilson Corp. (CAWC) against the importation of STPP, the Department of Finance on June 17, 1999 imposed dumping duties on STPP imported from mostly Chinese sources for a period of five years. On April 14, 2004, the Department of Trade and Industry ordered the extension of the anti-dumping duties on imports of STPP from China for another three years. The dumping duties, which are on top of the seven percent regular import duties on STPP, were as high as $70.22 per metric ton, or around 13.5 percent, bringing the total duties paid on STPP imports from China to around 20.5 percent.
The dumping duties were imposed on account of alleged material injury to the domestic STPP industry as shown by the actual decline in output, sales, market share, and profits of the sole STPP producer in the Philippines — Chemphil.
Most, if not all, local detergent manufacturers still refused to buy from Chemphil and just swallowed the bitter pill of paying the increased duties on imports from China. Others bought STPP from other countries. While this meant lower margins, some of these detergent producers stayed on because even with the increased cost, they were still competitive vis-à-vis imported detergents that were coming in at a low three percent duty, mostly from Indonesia.
But the influx of imported laundry detergents as well as the additional duties on imported STPP forced at least six local manufacturers to stop producing altogether. These are Colgate-Palmolive, Team Industrial, Malabon Soap, Universal Robina Corp., Philippine Detergent Products, and International Pharmaceutical Industries.
The mandated use of coconut-based fatty alcohol in spite of the availability of equally biodegradable but cheaper alternatives imposed an additional burden on the industry.
Reason: The DTI, on top of the five to seven percent regular import duty on STPP and the 11 to 12 percent anti-dumping duty (for imports from China), has imposed another provisional safeguard duty on STPP amounting to a whopping 45 percent (P14.15 per kilo) for 200 days, again upon a complaint filed by Chemphil.
According to the DTI, it found that increased imports of STPP have caused serious injury to the domestic industry, particularly in terms of declining market share, domestic sales, capacity utilization, production, profitability, productivity, price suppression, and undercutting.
The case was transmitted to the Tariff Commission for a formal investigation to determine whether or not there is a need to impose a definitive safeguard duty and at what amount. The commission, which just concluded public hearings, is expected to recommend a definitive duty before the expiration of the 200-day period in February to the DTI, which can either adopt the recommendations or stick to its original determination.
It added that the surge of imported STPP is detrimental not only to the domestic STPP industry but also to the local detergent industry, which will be totally dependent on foreign suppliers in case the local STPP producer shuts down. It admitted in its submissions to the Tariff Commission that it is the only manufacturer of STPP in the Philippines.
It pointed out that its plant capacity of 49,500 metric tons per year is more than enough to supply the local demand for STPP estimated at 30,000 to 40,000 tons per year. However, its production output has declined by 48 percent last year due to very low sales volumes. In October to December 2005, it stopped producing.
Chemphil also noted that STPP imports last year grew 535 percent compared to imports in 2001 while CAWC’s sales volume declined drastically by 68 percent from 2001 to 2005. Of the 20,440 metric tons imported last year, around 10,506 came from China, followed by Vietnam with 4,548 tons, Spain with 3,195 tons, and Russia with 2,000 tons.
And the local detergent group claims that the only reason why it shifted its purchase of STPP to sources abroad is due to the prohibitively higher prices charged by CAWC. For instance, last year, while imported STPP was selling for $635.06 per metric ton, the domestic STPP price was $806.39 per ton.
The provisional safeguard duty imposed on STPP imports from all countries (except those where the volume of imports are de minimis or less than three percent such as Thailand and Taiwan), according to the SDAP, means a 45 percent increase in the cost of STPP. This will result in local manufacturers having to increase their prices by five to 12 percent. But since their net profit margin is only between five to 10 percent, this additional duty can mean only one thing — they will be producing detergents at a loss.
Passing on the added cost to the consumers is out of the question because local detergent manufacturers will be pricing themselves out of the market. The increased duty — a total of 61 percent duty paid on STPP — creates a distortion considering that finished soap and detergent products are imported into the Philippines at the rate of three percent duty if coming from ASEAN countries, and five percent duty from other sources. Since finished products are cheaper to import, then why produce in the Philippines?
[As of this writing, SDAP has been informed that on top of this 61 percent duty on STPP (some records place the combined effective duty at more than 73 percent), Chemphil is asking for additional dumping duties, but the amount has not been indicated.