IT is a common principle in economics that when the supply of certain basic commodities in the local market is dangerously low, you allow or encourage imports to come in. That is what the government does whenever our stockpiles of rice, sugar and corn fall below safe levels.

But there are disturbing signs that this elementary principle may be conveniently disregarded by government authorities as they are now tinkering with the idea of scrapping the 5-percent tariff on imported cement.

Needless to say, a zero tariff will open the floodgates for the inflow of imported cement.

Local industry players and stakeholders are up in arms against this move because it would not only cause them huge losses. Worse, it would spell the death of the cement industry at a time when it is gradually recovering from the slump that hit it years ago.

With seven manufacturers and three importers, there is sufficient competition in the cement industry today. The industry’s 18 integrated plants are capable of producing 18.5 million tons of clinker and 26 million tons of cement a year. In contrast, the domestic supply of cement for the past five years has been averaging at 12 million metric tons.

The elimination of the 5-percent tariff will leave the local cement industry unprotected from foreign competition. This, when the government should be nurturing its growth to complement the rebound of the construction industry, which is among the bright spots in the economy that could help the Arroyo government achieve its goal of hitting (or even exceeding) a 7-percent growth in gross domestic product this year.

This move doesn’t make sense considering that neighboring Asian countries impose high tariff rates for imported cement. To wit, Malaysia imposes 50 percent, Vietnam 25 percent and Thailand 10 percent.

With the existence of a virtual glut in the supply of local cement, the alleged high price of this construction material is now being used to justify the removal of the 5-percent tariff.

If the scrapping of the tariff is the antidote to the high price of cement, then we say scuttle the tariff on other imports used in construction as well.

Let’s take a look at the figures of the National Statistics Office on the price movements of various construction materials.

Over a seven-year period since 2000, cement prices posted an average increase of 6.3 percent. If you think that’s too much, think again. The prices of other construction materials have been rising much faster.

For instance, reinforced steel bars have registered an average yearly increase of 17.3 percent, more than double the growth of cement prices. Clear glass prices are rising by 12.8 percent annually, structural steel by 10.6 percent and asphalt by 11.1 percent.

The cement price hike is also way below the increases in energy cost, which constitutes 40 percent of production cost of these construction materials.

According to industry players, they could not jack up prices to cover costs because of weak demand and the competition among the seven independent companies and three importers.

Contrary to misleading reports, cement prices in the Philippines are not the highest in Asia. Available data from the industry show that the country’s cement prices are in the higher mid-range category. Price per metric tons of cement in the Philippines, delivered to retailer before sales tax, for the fourth quarter of 2006, was $73. This was lower than Japan’s $89, India’s $84 and Brunei’s $96. The Philippines had higher prices than other Association of Southeast Asian countries because of the expensive power rates, which account for 40 percent of production cost. Power cost in the Philippines is $0.11 per kilowatt hours, almost double the $0.06 per kwh power cost in other Asean countries.

Given all these factors, the Tariff Commission appears to have acted irrationally when it reportedly started discussion on the possible zero tariff for cement.

And why is the commission singling out this industry? Your guess is as good as mine.

The proponents of this ill-conceived plan, however, are not ready to give us the real score. However, our informants are saying there is a high-powered lobby directed at the executive branch under the sponsorship of a cement importer.

The planned reduction of cement tariff to zero has elicited adverse reactions from various business and cause-oriented groups because of its potentially harmful effects in terms of killing the industry and causing job losses and imperilling lives due to the feared entry of inferior quality cement.

“This issue is extremely vital to the very survival of the Philippine cement industry, as well as to public welfare and safety,” says lawyer Rafael de la Torre, chief advocacy director of the Center for Organizational Studies and Advocacy.

If industry players are forced to further cut production costs and cement plants are shut down, a huge fraction of over 120,000 industry workers would be displaced.

The move is also prejudicial to investors who poured in more than P100 billion into the cement industry contributing over P6 billion in annual taxes to the national coffers. These investors came at a time when the industry was precariously on the brink of collapse, prompting the government to flash the SOS signal across the international business community.

Federation of Philippine Industries chairman emeritus Meneleo Carlos warned that the proposed zero tariff for cement would mean “changing the rules of business” in midstream. It would send the wrong signal to foreign investors.

“Such move would be tantamount to a betrayal of trust and confidence of global corporations which positively responded to government invitation to invest in the local cement industry at a time when Filipino manufacturers were encountering financial difficulties,” Carlos says.

Former Senator Wigberto Tañada, lead convenor of the multi-sectoral advocacy coalition Fair Trade Alliance, says cement-producing countries like China, Japan and Taiwan couldn’t be happier with a zero-tariff policy in the Philippines because it will all but solve their problems about warehousing deficits without lifting a finger.

“There is no more room for this quick-hardening surplus cement in these countries’ silos and warehouses. The factories in China, Japan and other countries would ship them out [to the Philippines] at artificially low prices. They have little to lose,” Tañada says.

• by Fel V. Maragay 
• read more @ http://www.manilastandardtoday.com