Sabotaging the infrastructure program

posted July 18, 2017 at 12:01 am
by  Victor Avecilla
First, it was expensive garlic.  Now, it’s expensive cement.

Senator Cynthia Villar revealed that a cartel of garlic importers accredited by the Bureau of Plant Industry is behind the sudden meteoric  rise in the price of garlic in the local market.  

Like garlic, a looming cartel has been attempting to manipulate the price of cement in the Philippines, with the connivance of unscrupulous elements from the very government agencies supposedly regulating their trade.

​The Department of Trade and Industry is mandated by law to regulate big industries—the cement industry included—for the protection of the public against substandard or hazardous products, unfair competition, and the manipulation of prices of consumer goods and industrial products.

As a rule, the DTI discourages the importation of products which can be manufactured by Philippine industries.    

 ​Under the economic principle of supply and demand, when the existing supply of products is less than the existing demand for those products, the price of the product increases.  The converse is also true—where the supply is greater than the demand, the price drops.  

​Whenever the supply of a product fails to meet the demand for it, the DTI allows the importation of the product.  This way, importation stabilizes both the available supply and the price of that product.

​Importation also discourages the local manufacture of substandard products.  When manufacturers of substandard products know that better-quality imported versions of the same product are available in the local market, they are compelled to improve the quality of their products if they want to stay in business.

​Thus, importation stabilizes the prices of products, and fosters improvement in the quality of locally manufactured goods.

​Cement is vital to the local construction industry.  If the supply of cement in the country does not meet the demand, the DTI authorizes the importation of cement.  This way, cement users are protected from price manipulation and exorbitant prices.  

​In the Philippines today, the supply of cement is the business of two local sources.  The first consists of manufacturers-importers – big enterprises which operate integrated cement plants in the country, and which are authorized by the DTI and the Bureau of Customs to import cement to augment the volume of their production.  The second consists of pure importers—small and medium-scale local companies which do not manufacture cement locally, but are authorized by the DTI and the BOC to import cement to stabilize the local supply.    

​Unfortunately, a looming cartel made up of several manufacturers-importers working in collusion with some  elements in the DTI and the BOC now is angling to control the price of cement in the country.

​The looming cartel keeps the price of cement expensive because that means bigger profits for the cartel.  To accomplish this objective, the looming cartel keeps the volume of locally manufactured cement so low, and makes it extremely difficult for the pure importers to import cement.  This way, the low supply jacks up the price of the cement, and the inability of pure importers to import cement keeps the price up.      

​More specifically, the looming cartel has managed to get the DTI through some  officials to impose very strict requirements on the importation of cement by pure importers. Under the DTI’s Department Order No. 17-02 (as amended by DAO No. 17-05), pure importers are required to secure an import commodity clearance (ICC) prior to importation of the cement on top of PS marking, ostensibly for quality control.  Manufacturers-importers, however, are exempted from this requirement.

The exemption afforded to manufacturers-importers is an anomaly because manufacturers-importers and pure importers import their cement from the same foreign suppliers.  It’s the same cement!  

Securing the requisite ICC is a bureaucratic nightmare.  Consequently, the cement brought in by a pure importer is detained at the port of entry for several months.  Thus, cement having limited shelf life is in danger of getting wasted. 

​Prior to the issuance of DAO No. 17-02, the price of cement in the country was stable. In 2015, a bag of cement cost around P300.  With the advent of cement imports which increased in 2016, the price decreased to P219.  Prior to DAO No. 17-02, the price hovered to P197.  

​An estimated 720 million bags of cement are needed in the country annually—a volume that local manufacturers cannot meet.  Evidently, resort to importation is unavoidable.  

​The legality of DAO No. 17-02/05 is being challenged. It is argued that DAO No. 17-02/05 violates due process of law because it is oppressive and capricious, and it was issued without proper consultation with interested parties.  It also violates the equal protection clause of the Constitution because it gives an undue advantage to manufacturers-importers who are exempted from securing an ICC.  This special treatment for manufacturers-importers likewise violates statutory prohibitions against unfair competition and unfair trade practices.    

Furthermore, since DAO No. 17-02/05 is a non-tariff barrier to free trade, it is prohibited under the World Trade Organization Agreement of 1994 and the Asean Trade in Goods Agreement.  The Philippines is a signatory to both trade treaties.  

In defending DAO 17-02/05, the Solicitor General argued that unduly large importations of cement will saturate the market.  The counter-argument: These can be prevented by limiting the volume of imports during a given period.  The ICC requirement does not solve the problem.  

 President Rodrigo Duterte has embarked on a Build, Build, Build program to achieve a “golden age of infrastructure” in the Philippines.  With the looming cartel attempting to manipulate cement prices through some  DTI officials, there are bound to be unnecessary delays in the implementation of his project.

 ​Heads must roll in the DTI and the looming cement cartel controlled by the oligarchs must never be allowed to flourish.

Topics: Victor Avecilla , infrastructure program , Senator Cynthia Villar , cartel of garlic importers , price of cement , Department of Trade and Industry
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