DTI’s cement tariff ‘counter-intuitive’
Credit to Author: The Manila Times| Date: Fri, 08 Feb 2019 16:47:36 +0000
STARTING today (February 9), a “safeguard tariff” of P210 per metric ton will be imposed on imported cement as a result of a decision by the Department of Trade and Industry (DTI). We agree with the view expressed by the Management Association of the Philippines (MAP) that the tariff is “counter-intuitive” and unnecessary, and urge that it be canceled at once.
As it stands now, the tariff will be in place for at least the next 200 days, or until August 28. The Tariff Commission may extend the tariff for three to four more years, depending on the outcome of a review it is conducting; that decision is expected sometime in May.
The tariff will raise the retail price of a 40-kilogram bag of cement by P8.40, or about 3.8 percent, based on the current average price of P220 per bag.
The DTI’s basis for imposing the tariff would appear to be justified at first glance. According to trade data, cement imports increased by nearly a thousand times between 2013 and 2017, from about 3,500 metric tons (MT) per year to over 3 million MT. As a percentage of total imports, cement rose from just 0.02 percent to 15 percent during the same period.
Those kinds of figures are usually an indication of “dumping,” a flood of imports of a particular product, usually priced significantly lower than the domestically produced variety. Obviously, that situation is very harmful to Philippine businesses, and preventing it from happening is the responsibility of the DTI.
Other data from the DTI, however, showed that this is not the case with the Philippine cement industry, as MAP also pointed out. Over the period 2015-2017, domestic cement production fell short of domestic demand by more than 5 million MT (73.12 million MT production versus 78.88 million MT demand). Under those circumstances, local cement producers are not being harmed by imports in any way, and thus a protective tariff is unnecessary.
To explain the contradiction, the DTI suggested that the tariff was intended to push local cement makers to expand their production.
That policy position is financially unsound and perhaps even over-reaching in regulatory terms. The logic behind it seems to be that since cement prices will increase due to the tariff, local cement manufacturers will want to invest in expanding their operations in order to take advantage of those higher prices.
However, cement manufacturing can only be expanded if the supply of raw materials is increased. That requires the expansion or opening of new quarrying operations, an environmentally sensitive issue; even if permitted, expanding quarrying operations requires years of effort to navigate the sea of red tape involved.
Cement manufacturers are undoubtedly aware of the unbalanced demand, and are already considering ways to meet it, but are doing so based on reliable projections of demand and price for years in the future — not within the short timeframe offered by the “safeguarding” tariff.
Ironically, the tariff may, in fact, encourage cement manufacturers to expand — but only after it expires. In the meantime, with the full output of their existing operations being sold in spite of millions of tons of imports, they can enjoy higher revenues without having to do anything differently. When the tariff expires, they can use the extra earnings to invest in more production then, if demand still justifies it.
In effect, the DTI efforts to “safeguard” an industry that does not need protection inadvertently has provided that industry with an indirect subsidy, at the expense of the consuming public which now must pay higher prices for cement and anything built with it. That is not the right reason to impose a tariff, and it should be withdrawn.
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