In principle I am for free trade. It makes no sense to protect local industries that have failed to be competitive for decades. Foreign competition encourages domestic industries to become more efficient and this benefits local consumers.
We have to avoid rent seeking that protects infant industries that never grow up. This is how the entrenched elite behind these non-competitive local industries use government protectionist policies to abuse domestic consumers.
But we must stand up against unfair competition from foreign manufacturers. We must not allow them to threaten the viability of local industries that are showing a lot of promise and are already making headway.
Dumping is one example of unfair trade. Dumping happens when imports are priced below reasonable manufacturing cost. China, for instance, subsidizes state owned manufacturers so they can afford to sell below production cost like what is happening in the steel industry.
President Duterte has said time and again that he wants a strong steel industry to serve as the cornerstone of our industrialization program. But will his words turn into action in the face of unfair competition from China?
The local steel industry is now asking President Duterte to stop smuggling and importation of dumped steel products from China. There has been a surge of rebars imported from China, even if there is sufficient local manufacturing capacity.
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Our steel industry is essentially steel rebar manufacturing that is slowly expanding to other products. Local industry capacity is around four million metric tons a year. In 2015, rebar demand was at 3.3 million metric tons but growing up until recently, only two percent of consumption was accounted for by imports.
Because the Duterte administration is scaling up the construction of infrastructure projects, the local steel industry is gearing up to expand. As a nation of over 100 million people and with a vibrant economy, we have so much pent up demand for steel products used for construction. We have become a very attractive market. No wonder technical or outright smuggling has surged.
Investors in our local steel manufacturing industry have managed to compete amidst such headwinds in the past. But the recent flood of foreign products threatens the viability of the industry. Corrupt personnel in Customs as well as in DTI’s Bureau of Product Standards have been conspiring to work against the interest of the public.
The local manufacturers are up in arms. They follow local specifications and standards, while the quality of imports is questionable. The imports are also subsidized by China allowing for unfair pricing. They want government to act.
It is the duty of government, even in this era of globalization and free trade, to protect local producers who deserve to be protected. Our leading steel companies have invested in modern facilities and adopted effective management systems and are competitive in a level playing field.
But Chinese competitors don’t play fair. We are the only major economy in South East Asia that has not responded to the issue of subsidized Chinese steel imports. If we do nothing, we may just lose what little we have by way of a steel industry.
In a letter to President Duterte, a manufacturer complains that “this lack of a level playing field is a dangerous accommodation that could have a severe impact on public safety, self-sufficiency, industrialization and job creation.”
Worse, a manufacturer that wanted to build the largest and most modern plant in the world was given a tough time getting government permits. The project has been delayed by two years already, and given rising demand, a shortage is a possibility.
Chinoy traders in Chinese steel are apparently working with LGU and national officials and even local Catholic bishops to discourage the investor in that modern plant. If the traders prevail, the country will be substituting local manufacturing with Chinese importation. Indeed, it is starting to happen.
In April this year, 5,000 tons of rebar entered the country through Subic. The Bureau of Product Standards quickly gave the shipment “provisional” documents.
Provisional? It is either the shipment meets standards or not. Do the product testing before releasing. Once the shipment is out of the port, good luck trying to trace where it is!
The steel industry umbrella group, Philippine Iron and Steel Institute, discovered and challenged the questionable documentation. The industry claims Customs released the questionable products despite non-compliance with the requirements under the Philippine National Standard for rebar (PNS 49:2002). It is entirely possible that sub standard rebars are now being sold commercially. Good luck with the next earthquake.
Last October, another 20,000 tons arrived again through Subic. Shipment was issued import commodity clearance without being tested, industry sources claim.
It was also discovered the declared freight and insurance was misdeclared at only $1.99 a ton compared to $18-25 per ton normally for shipments from China to the Philippines. This means government was short changed in the computation of duties.
Merely importing is easy and lucrative since it does not require any long-term investment. The company behind the recent Subic importations only has a paid up capital of P100,000. They figured having the proper connections with bureaucrats is all they need.
But, as the steel industry rightfully claims, allowing this kind of importation comes at the expense of our country’s development, public safety, the labor force and Philippine industrialists and investors. Eventually, our country’s manufacturing industries will be supplanted by a one-way flow of Chinese products into the country.
Actually, if the local steel industry gets really screwed by all the smuggling and questionable importation from China, we are going to lose more than just the jobs the local steel factories provide. We will lose the livelihood the industry provides to thousands of other Filipinos.
Scrap metal collectors/dealers and haulers of scrap and finished products depend on the local steel industry for survival. The local steel industry also provides top paying jobs to highly skilled OFW engineers who want to go back home and work close to their families.
The local construction industry will also lose a source of rebars whose quality they can depend on. Indeed, Ayala, Rockwell and other reputable developers source their rebar needs from one of the more reliable local companies. This same company has done well enough over the last 50 years so that it is planning to expand to products other than rebars, signaling the growth of the industry that the President envisions.
I was wondering why the PCCI isn’t raising a fuss about this situation. PCCI claims it is after job creation but importing rebars creates jobs in China, not here. PCCI should be fighting for and on behalf of local industry. But PCCI is compromised because the biggest traders are among their leaders.
It is time for President Duterte to make good on his pronounced desire for a local steel industry. Hopefully his new found love affair with China will not make him turn a blind eye to all these importing or smuggling of low grade Chinese steel products.
Presidential adviser RJ Jacinto who knows the local steel industry well has his job cut out for him. This will be his test.
Uber
I am so disappointed with Uber even if I have never tried its service here. Uber has been sending a sponsored post to my friends on Facebook purportedly from me and claiming that I like Uber. Strangely, I never saw the post until friends called my attention. For the record, I have never “liked” Uber on Facebook.
Come on, Uber. You are an international brand and shouldn’t be doing this sort of thing. If you guys think I am that influential, talk to me and let’s get an agreement. A sneaky free ride is not the way to go, Uber.
Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco
