Safeguard duty: Boon or bane?

The Department of Trade and Industry has become more resolute in protecting domestic manufacturing industries with its aggressive move to exercise the right of the government to impose safeguard duty to stop the surge of imports of certain products as provided under the Safeguard Measures Act.

The process is long and tedious with two government agencies – DTI and the Tariff Commission (TC) — trying to balance the implication of imposing a penalty against an imported product and to protect domestic industries. Local and foreign manufacturers, importers, and exporting countries are also involved in the process.

Upon preliminary determination, the DTI imposes provisionary duty while the TC conducts its own final determination of whether it should go with the DTI or recommends a negative recommendation. A negative TC recommendation would force the DTI to issue an order lifting the six-month provisional safeguard duty.

The most recent DTI orders involved the cement and motor vehicle sectors.

In the case of cement, it was easy because the TC agreed with the DTI findings. Now on its second year of the three-year safeguard duty, imported cement is slapped with a safeguard duty of ₱9.80 per bag.

But the DTI and TC clashed over the imposition of the safeguard duty on imported passenger cars and light commercial vehicles (LCVs). The DTI imposed ₱70,000 per unit of imported passenger cars and ₱110,000 per unit of imported LCVs. However, the TC in its final determination said there was no surge in importation, no serious threat to the domestic industry, and as such, there is no need for the safeguard duty.

Now, the refund issue of the collected duty becomes confusing because the safeguard duty is an indirect tax and passed on to the cost of the products and then to the buyers. The Bureau of Customs collects the duty from the importer.

In the case of the safeguard duty on cars, it is easier for the importer to refund each buyer. But for small ticket items, such as cement, consumers are at the losing end. The consumer suffers from a higher price from the passed on duty, with no course for refund. This is a loophole that merits revisiting of the Safeguard Measures Act.

Nevertheless, the Safeguard Measures Act has all the good intentions. It is a very good tool at balancing the interest of a country’s domestic industries and compliance with its commitment under the global trade liberalization efforts under the World Trade Organization (WTO).

WTO allows a member to take a “safeguard” action to restrict imports of a product temporarily to protect a specific domestic industry from too much imports of any product which is causing, or which is threatening to cause, serious injury to the industry.

On one hand, the wisdom of the Safeguard Measures Act is to provide temporary increased protection to give affected industries time to prepare itself for the competition that it will have to face after the temporary protection is removed. The definitive measures including any extension are applied for a maximum period of 10 years.

On the other hand, importation is balancing tool to provide competition to a domestic industry in case of higher prices and monopolistic tendencies.

Competition is good because it puts manufacturers on their toes and ensures efficiency of operations. It is also good for consumers because it brings in choices at lower prices.

But first, a review of the Safeguard Measures Act is a must to ensure that the objectives of protecting domestic industries and consumers are achieved.