The Grey Chronicles

2009.July.8

JPEPA Has Landed!



Last 11 December, this blog warned readers to Watch out for JPEPA!, and ended the post with this ominous words: For Global Steel, is this the dreaded ‘writing on the wall’?

A week ago, at least two national newspapers carried news articles about this writing on the wall. The lead paragraph of both news articles used almost similar words, such as:

“Philippine-based steel producers asked the government to allow importation under the Japan Philippines Economic Partnership Agreement (JPEPA), saying Indian steel firm Global Steel Philippines Inc. will not fulfill local market demands.” (GMANews.TV, 2009)

“Local steel fabricators have asked the government to allow the importation of raw materials from Japan despite opposition from Global Steel Philippines Inc., citing the inferior quality and the limited volume of the country’s sole producer.” (Manila Standard, 2009)

After Global Steel Philippines Inc. blocked an importation by a local steel company, A. Chan of Cebu City, another news article highlighted a letter from the Filipino Galvanizers Institute Inc. [FGI] to the Bureau of Import Services [BIS] of the Department of Trade and Industry [DTI] director Luis M. Catibayan, which states:

“The downstream industry has been unduly prejudiced by the undeserved tariff protection granted to GSPI under Executive Order 375. We believe the government must not continue to abet a monopoly operated by a foreign-owned company at the expense of the domestic manufacturers.” (Manila Bulletin, 2009)

Furthermore, in that letter, FGI president Salvio Perez cited salient provisions of DTI Department Administrative Order [DAO] No. 0903:2009 issued last 17 April 2009 after the effectivity of JPEPA. The DAO provides the implementing rules and regulation on the tariff rate quota availment, i.e., zero duty, for Philippine imports of tin plates, hot rolled coils [HRC] and cold rolled coils [CRC] from Japan. The applicable items of Section 4 of the DAO 0903:2009, states:

Item 3 “In the event that the local industry is unable to produce the said items or is unable to meet the quantity, quality, price and delivery requirements of the user, DTI-BIS reserve the right to allow importation.”

Item 4 “Importation of products that are locally produced may nevertheless be allowed if the local product in question does not meet (a) the required quantity; (b) the required quality; (c) reasonable price; and (d) timely delivery.”

Prior to all these, in 2005—which coincidentally is exactly four years ago to the day—FGI already criticized the poor quality and inadequate volume of steel being produced by Global Steelworks International Inc. (GSII), as GSPI was known then.

“GSII’s CRC products have very limited product applications and cannot be used for pre-painted roofing, general fabrication, vehicle assembly and appliance product applications. ” (The Philippine Star, 2005)

FGI also complained then that GSII, now GSPI, has not established commercial operations as it claims but enjoys a 7 percent tariff shield on imported steel products that the government granted as soon as it declared the company was in commercial operation.

What was surprising was the fact that even DTI Secretary Peter B. Favila revealed GSPI’s admission that it has been operating on order basis only since early this year. Early this year? Maybe a thousand GSPI employees only dreamt that the plant declared on 04 December 2008 a forced leave as a result of operating on order basis months earlier than that? Aha! a once-in-a-lifetime collective dream, I suppose! Or maybe whoever was Secretary Favila’s source, he/she might still have been in the REM-stage of sleep?

Philippine Steel Imports 2008According to BIS steel importation data, for the whole year of 2008 (Manila Standard, 2009), GSPI only provided the domestic market 11,742 metric tons [MT] (about 6%) compared to 187,407 MT of imported CRCs. This fact positively proved the effect of GSPI’s operations on order basis for the whole of 2008! Although the total imported CRC volume for 2008 is smaller compared to the steel imports between 1997 to 2004, averaging about 275,000 MT annually; yet GSPI’s CRC production is only about 9.5% of NSC’s CRC production in 1999 when it closed shop (refer to a previous post’s Table 1). Malaysian-owned NSC produced 123,853 MT for CRC alone, aside from 91,601 MT HRC and 26,924 MT of tinplates prior to closure.

The FGI letter further claimed:

“Due to GSPI’s poor financial condition, their practice is to generate sales order, require customers to open Letters of Credit [LC] and assign customers LC to back to the financier of their raw materials, which is slabs. Additionally, the downstream industry is very much aware that before GSPI operate their hot mill they require a campaign run of 8,000 MT and likewise a campaign run of 4,000 MT for their cold rolling mill to produce the CRC orders of their customers.” (Manila Bulletin, 2009)

Nostalgic as it might seem, between 1995 to 1999, Malaysian-owned NSC then was processing 40,000 MT CRCs per month prior to the Asian Financial Crises, and between 10,000 to 20,000 MT thereafter. Thus, with 4,000 MT GSPI’s cold rolling mill would only run at most five days!

In 2007, a technical group of the government committee led by Trade Senior Undersecretary Thomas Aquino certified that Global Steel was qualified for tariff protection after it found the company is already operating as mandated by Executive Order 375 (Business Mirror, 2007). These conditions were that at least 50% of the company’s registered capacity with the Board of Investments [BOI] should either HRC or CRC, and that production as it pertains to its operations should meet 50% of its average total imports of subject products for the three years prior to start of operations (The Manila Times, 2007).

It should be recalled that when GSHL took over NSC in 2004, the Philippine Chamber of Commerce and Industry [PCCI] supported the downstream steel industry’s clamor against “indiscriminately altering” the tariff schedule citing that higher tariffs did not guarantee NSC’s protection against liquidation:

“If any tariff changes are being planned in relation to NSC’s reopening, these must be viewed in an overall context — taking into account complicated interlinkages within the industry, the country’s tariff structure, as well as the country’s commitment to multilateral agreements such as WTO and AFTA. … All companies should compete normally without special favors. As in the case of NSC, Global should not be allowed to raise tariffs and then adopt an import-parity pricing system … Rather, prices should be based on normal market forces… and other relevant factors such as cost efficiency, terms, quality and service.” (Manila Standard, 2004)

NSC, furthermore, played a significant part of the Philippine steel industry while it was fully operational but remained “just part of the industry,” claimed PCCI, adding:

“Alongside NSC, there are other steel manufacturing companies whose contribution to both revenues for government and employment are more significant than that of NSC. There are an estimated 65,000 employed in the downstream industry against NSC’s 2,500 persons before it shut down in 1999,” PCCI concluded. (Manila Standard, 2004)

The failure of NSC was not the fault of the 2,500 local employees but rather could be attributed to its premature privatization to a technically-incompetent winning bidder, which Joker P. Arroyo (2005) described as “an undercapitalized Malaysian firm which, in turn, borrowed heavily from local sources.” In addition, the contagion of the Asian Financial Crises and the onslaught of cheaper steel imports sealed NSC’s fate. With GSPI, the question is: Whose line is it anyway?

With the present global financial crises, if [and that’s a big IF] Global Steel Philippines follows NSC’s path to the dust bin, there is no guarantee either that the existing local labor force could be readily absorbed by the downstream steel industry, some have also reduced manpower count. If history is a guide, majority rule—the good of majority versus the right of the minority—almost always prevailed. Woe to us, who remained stuck here because of age albeit technically experienced, destined for yet another round of foreign-induced Gethsamane.


Notes:

Alanguilan, Elaine Ramos (2009). Japan steel imports sought, Online. Manila: Manila Standard Today, 29 June 2009. back to text: 1 | 2

Arroyo, Joker P. (2005). Journal of the First Special Session, Thirteenth Congress. Manila: Senate of the Philippines, 05-07 January 2005. back to text

Cahiles-Magkilat, Bernie (2009). Steel industry seeks zero-duty import under JPEPA. Online. Manila: Manila Bulletin, 28 June 2009. back to text

de Leon, Max V. (2007). Higher steel tariff favors GSPI but will hurt local galvanizers. Online. Manila: The Business Mirror, 02 July 2007. back to text

Go, Marianne V. (2005). Galvanizers complain about poor quality of steel produced by GSII, Online. Manila: The Philippine Star, 06 July 2005. back to text

GMA News (2009). Steelmakers want to import, criticize Global Steel, Online. Manila: GMA Network Inc., 28 June 2009. back to text

Manila Standard (2004). NSC protection won’t just go away. Online. Manila: The Manila Standard, 23 July 2004. back to text: 1 | 2

Valdez, Katrina Mennen A. (2007). Lobby group pushes for Global Steel’s suspension. Online. Manila: The Manila Times, 21 May 2007. back to text

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 LicenseDisclaimer: The posts on this site do not necessarily represent any organization’s positions, strategies or opinions; and unless otherwise expressly stated, are licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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