CM Research Paper Series No 2 - 0

Capital Mobility Researcb Paper Series No 2
Capital Mobility in tbe Pbilippine Automotive Industry

and its Impact on Workers

Ecumenical Institute foi Laboi Euucation anu Reseaich, Inc. (EILER)
Pbilippines

Asia Monitor Resource Centre

Capital Mobility Researcb Paper Series No 2

Capital Mobility in tbe Pbilippine Automotive Industry
and its Impact on Workers

Fcumenicol lnstitute for lobor FJucotion onJ Reseorcb, lnc. {FllFR), Pbilippines

Fcumenlcul Inxtltute for Iubor FJucutlon unJ Rexeurch {FllFR) is on inJepenJent non-
qovernment orqonizotion boseJ in tbe Pbilippines wbicb focuses on workers eJucotion on tbe
bosic principles of qenuine troJe unionism for tbree JecoJes. FllFR's proqroms onJ services
for workers olso incluJe reseorcb onJ publicotion on workers issues onJ lobor policies, onJ
oJvococy compoiqn for lobor riqbts.

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Capital Mobility in the Philippine Automotive Industry and its Impact on Workers
By Ecumenical Institute for Labor Education and Research, Inc. (EILER), Philippines
March 2011

Edited by Asia Monitor Resource Centre
For ATNC Monitoring Network

Capital Mobility Research Paper Series is a collaborative work carried out by AMRC and the researchers
of Asian TNC Monitoring Network (ATNC). This collaborative research is one of ATNCs programmes that
develop the model of Asian Triangle Solidarity which intends to deal with the changing shape of Asian
capital and its impact on workers across Asia. This work is carried out by bringing together unions and
labour organizations in the region, taking up a collaborative work that equips them with better strategies to
cope with the trend of capital mobility. For further information about the work, please visit
http://amrc.org.hk/taxonomy/term/issue_2/49


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Asian Transnational Corporations (ATNC) Monitoring Network is an Asian regional network of trade
unions and labour organizations, which arose in 2002 to monitor the working conditions and management
strategies in Asian transnational corporations. The Network now focuses on building up the organizing
and educational capacities of its members, to monitor their own workplaces on the basis of their collective
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Presently the Network has three main sectoral focuses: garments, automobiles and electronics. For more
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Coordinator at coordinator@atnc.org.
Abstract

Tbe Pbilippine outomotive inJustry bos mony links to tbe qlobol outo ossembly onJ
outo ports inJustry, but for tbe most port it bos been unoble to benefit from troJe onJ
investment liberolizotion meosures, oimeJ ot Jevelopinq tbe inJustry over tbe post 60
yeors. At tbe some time, os o ployer ot tbe lower enJ of tbe ports supply cboin, tbe
inJustry bos often borne tbe brunt of neqotive trenJs in tbe qlobol inJustry. Tbe mojor
monufocturers {0FHs) in tbe qlobol outo inJustry, ofter yeors of unresolveJ
overcopocity problems onJ beovy Jebt levels, were porticulorly vulneroble to tbe sborp
Jownturn in tbe qlobol economy in 2008-2009. AJJinq to tbese problems were o
controction in morket JemonJ onJ risinq costs JeriveJ from biqber enerqy onJ row
moteriols prices, pressures to oJJress climote cbonqe issues, onJ consumer JemonJ
for tbe personolizotion of motor vebicles. Tbese problems were posseJ on to tbe
subsiJiories of tbe 0FHs onJ tbeir ports suppliers, olonq witb on intensificotion of tbe
trenJ to tronsfer more responsibility for R&B onJ its ottenJont costs onto tbe bolonce
sbeets of tbe portners onJ ports suppliers. AJJitionolly, tbe Pbilippine inJustry, wbose
only siqnificont comporotive oJvontoqe omonq ASFAN proJucers boJ been its low
lobour cost, wos moJe more vulneroble to trenJs in tbe internotionol economy by tbe
oJoption of tbe ASFAN Iree TroJe Aqreement {AITA) onJ otber troJe liberolizotion
pocts.

Bespite ottempts to put ploce protectionist meosures for tbe outomobile inJustry, tbe
locol inJustry remoineJ weok onJ unJerJevelopeJ, moinly Jue to limiteJ Jomestic
JemonJ {slow qrowtb in per copito incomes) wbicb resulteJ in o Jiseconomy of scole
omonq locol proJucers. Wbile locol JemonJ qrowtb remoineJ low, tbere wos little
impetus for sizeoble Jomestic investment in tbe tecbnoloqy onJ supportinq inJustries
neeJeJ to moke it competitive botb ot bome onJ obrooJ. A totol of 124 outo firms
{botb locol onJ foreiqn) were surveyeJ onJ clossifieJ boseJ on tbeir supply cboin role
onJ ownersbip. lncluJeJ in tbe somple were 14 subsiJiories of Asion outo qionts,
incluJinq Toyoto Hotor Pbilippines, EonJo Cors Pbilippines, Hitsubisbi Hotor
Pbilippines onJ lsuzu Pbilippines. Tbere ore olso componies tbot only Jistribute CB0s
{completely built-up), ossembleJ outsiJe tbe country, nomely Soutb Koreon firm
EyunJoi Asio Resources, lnc. onJ Cbinese compony Komo Trucks. Purposive somplinq
wos useJ boseJ on officiol list of outomobile firms from qovernment oqencies onJ
mojor inJustry qroups onJ cbombers.

BoseJ on tbe finJinqs, tbe locol outomobile inJustry corry out low tecbnoloqicol
proJuction processes onJ proJuce low volue-oJJeJ complimentory outo ports.
Component speciolists onJ inteqrotors comprise tbe mojority of oll tbe outo firms
sompleJ, witb proJucts onJ services ronqinq from stompinq onJ, molJinq to tbe
monufocture of, tronsmissions, cor seots, cor seot reclininq oJjusters, mufflers, broke
Jiscs, woter pumps, corpets, molJeJ rubber ports onJ otber non-core outomotive
ports. Tbe noture of unJerJevelopeJ proJuction in tbe outomobile inJustry is JefineJ
by foreiqn investments flowinq into tbe country, wbicb in most coses JiJ not result to
tecbnoloqy tronsfer. Honufocturinq octivities of existinq Asion TNCs in tbe country
bove borely exponJeJ wbile importotion of CB0s continues to surqe, especiolly witb
importotion of Cbinese outomobiles. Tbere boJ been no new investments to tbe
outomobile inJustry Jurinq tbe post JecoJe, sove for tbe foreiqn investments on
motorcycle proJuction. SboulJ tbe trenJ continue, Iilipino workers ore bounJ for
moss retrencbment onJ worse flexible lobour scbemes os componies Jownsize
operotions. Tbe finol section of tbe report Jetoils o number of recent lobour issues,
incluJinq union bustinq oction onJ serious beoltb onJ sofety issues in two componies,
Toyoto Hotor Pbilippines onJ Jomesticolly owneJ I-Tecb Pbilippines, wbicb proJuces
ports for EonJo onJ otber outo firms.

Contents

Abstiact
Intiouuction 1
1. ulobal Tienus anu Challenges in the Automotive Inuustiy 2
6lobol trenJs from tbe JemonJ-siJe S
6lobol trenJs on tbe supply-siJe 4
Automotive proJuction onJ morket in Soutbeost Asion Reqion 9
Tbe impoct of AITA on tbe outomotive proJuction in tbe reqion 9
2. The Philippine Automotive Inuustiy 11
Brief BockqrounJ of tbe Pbilippine Automotive lnJustry 1S
Problems of tbe sector: 'Biseconomy' of Scole onJ Eiqb ProJuction Cost 16
S. Cuiient uoveinment policies anu agieements ielateu to the automotive
inuustiy 18
4. Analyzing the local auto supply chain in the global context 21
Somplinq onJ fromework of onolysis 21
Hoppinq tbe proJuction system 26
S. Analyzing financial flows in the auto inuustiy S1
TrenJs in finonciol flows to Jevelopinq countries S2
Iinonciol flows to tbe Pbilippines SS
Sporse foreiqn investments in tbe Pbilippine outomotive inJustry SS
Bonks os stockbolJers in outo firms S7
6reosinq cor soles tbrouqb loons S8
Iocusinq on Toyoto Hotor Pbilippines S8
vI. Laboui issues in the auto inuustiy: Insiue Toyota anu F-Tech Philippines 41
vII. Conclusion 47
Appenuix S2

Tables and Figures

Table 1: Inteinational Cai Sales 199u to miu-2u1u S
Table 2: 0EN Suppliei Chaiacteiistics 6
Figuie 1: Piice Reuuctions Bemanueu fiom Assembleis 7
Figuie 2: Complementaiy netwoik of automobile manufactuieis within
ASEAN unuei AFTA 1u
Table S: Top 1uuu Coipoiations in the Philippines, 2uu9 12
Table 4: Nanufactuie of Paits anu accessoiies foi Notoi vehicles anu theii
Engines 1S
Table S: uoveinment Piogiams anu Policies on the Philippine Automotive
Inuustiy 1S
Table 6: Philippine Cai Paits (PCP) Local Content Requiiement, 1991-199S 17
Table 7: Piouuction Cost compaiison of automotive units piouuceu in the
Philippines anu }apan 17
Table 8: Bistiibution of Aveiage Piouuction Costs (%), 2uu7 18
Figuie S: Numbei of automotive inuustiy-ielateu Executive 0iueis pei yeai
(1997-2u1u) 19
Figuie 4: Executive oiueis pei }apanese company unuei the AIC0 scheme 2u
Figuie S: Auto fiims in the Philippines by countiy of oiigin 22
Figuie 6: Auto fiims by sub-inuustiy 2S
Figuie 7: Auto fiims by supply chain iole 24
Figuie 8: Fiamewoik foi mapping the auto supply chain 27
Table 9: Napping of the piouuction piocess of Toyota mouels Innova anu vios
(2u1u) 28
Table 1u: Napping of piouuction piocess of Bonua mouels Civic, City anu
Accoiu (2u1u) 29
Figuie 9: visualizing the Philippine auto tiaue Su
Table 11: Total Appioveu Foieign Biiect Investments by Piomotion Agencies
1996-2uu9 S4
Table 12: Foieign equity holuings in East Asia, Enu-2uuS S4
Figuie 1u: Net capital flows to the Philippines (2uu7-2u1u, Q1) SS
Figuie 11: Foieign investments in the Philippine cai maiket, 1974-1994 S6
Table 1S: Investments in the Philippine auto inuustiy S7
Table 14: Auto loans, Philippine banks, 2uu6-2u1u S9
AMRC - Capital Mobility in the Philippine Automotive Industry and its Impact on Workers
1
Introduction

Aftei almost six uecaues since the set-up of the fiist assembly line in the Philippines,
the local automobile inuustiy, as well as its contiibution to the uomestic economy,
has iemaineu small ovei the yeais. Bespite vigoious attempts to libeialize the
inuustiy thiough vaiious fiee tiaue agieements, taiiff aujustments, anu investment
incentives to encouiage moie playeis, the inuustiy has faileu to uevelop anu
maximize the supposeu benefits anu so calleu oppoitunities biought about by
globalization's piomises. This iaises questions as to what is the iole of capital in the
cuiient state of the inuustiy, what is goveinment's pait in biinging the inuustiy to
this pieuicament, anu finally, how aie the woikeis in the automotive inuustiy
affecteu.

This ieseaich papei aims to auuiess these questions by analyzing capital mobility in
the Philippine automotive inuustiy. This objective is achieveu by examining the iole
anu natuie of the investment capital of Asian tiansnational companies (TNCs) in
shaping the cuiient state anu geneial chaiacteiistics of the Philippine automotive
inuustiy, anu in uictating the iole of the Philippine automotive inuustiy in the global
supply chain.

This papei is piesenteu in six sections. The fiist section biiefly uesciibes the global
tienus anu challenges in the automotive inuustiy uuiing the global economic ciisis,
i.e., since 2uu8. The seconu section gives a biief histoiy of the automotive inuustiy
in the Philippines up to the cuiient state of affaiis. The thiiu pait uiscusses piesent
goveinment piogiams, policies anu fiee tiaue agieements anu theii impact on the
uevelopment of the inuustiy. The fouith pait gives a uetaileu insight on the inuustiy
thiough mapping the cuiient automobile companies owneu anu opeiating in
paitneiship with Asian tiansnational companies (TNCs) in the Philippines. The fifth
pait coveis some case stuuies of woikeis' situations in foui majoi automobile
companies. The last section piesents oui analysis, some conclusions, anu
iecommenuations foi fuithei ieseaich.

Bata anu infoimation weie gatheieu fiom inuustiy ieseaiches, iepoits fiom
associations of automobile companies, anu inteiviews with unionists, anu membeis
of ielevant goveinment agencies. The stuuy focuseu on automobile companies with
Asian capital, oi those companies which aie eithei subsiuiaiies of Asian TNCs, joint
2
ventuies of local anu Asian auto fiims, oi puiely Filipino-owneu.

I. Clobal Trends and Cballenges in tbe Automotive Industry

The global automotive inuustiy was one of the most seveiely affecteu sectois in the
ieal economy by the global economic anu financial ciisis in 2uu8. Bue to the
exposuie of many majoi playeis in the automotive inuustiy to vaiious financial
ueiivatives, the inuustiy immeuiately initiateu massive ietienchments of
autowoikeis woiluwiue, fiom vehicle assembly line woikeis to paits manufactuieis
anu ietaileis, the entiie supply chain was affecteu.. To pievent a total collapse of the
inuustiy in the 0S, the auto giants immeuiately ieceiveu bailout funus fiom the 0.S.
goveinment.

While global economic peifoimance inuicatois show that economic iecoveiy still
has a long way to go, automotive inuustiy analysts have iepoiteu ielative giowth in
the inuustiy in the emeiging maikets of China, Inuia anu Eastein Euiope.
Establisheu maikets in Westein Euiope, meanwhile, continue to show no giowth
uue to contiaction in uemanu foi automobiles.
1
Neanwhile, vehicle sales in Noith
Ameiica saw a tempoiaiy bounce biought about by fleet puichases fiom iental cai
agencies, coipoiate buyeis anu goveinment in the 0niteu States, anu incieasing
puichases by householus in Canaua.
2
0veiall global cai sales incieaseu by 6 peicent
fiom 2uu9 to miu-2u1u, leau by Asia with 1S peicent giowth, Noith Ameiica with a
9.S peicent inciease, South Ameiica 9 peicent, anu Eastein Euiope S peicent; Sales
in Westein Euiope contiacteu by 1u peicent uuiing the peiiou. (Please see Table 1
below).

Numeious inuustiy ieseaich iepoits have been ieleaseu on cuiient supply anu
uemanu tienus anu challenges in the global automotive inuustiy. These tienus can be
gioupeu in two categoiies: The fiist aie tienus that weie biought about by
piessuies fiom the maiket, anu the seconu, tienus in the piouuction anu the
iestiuctuiing of the global supply chain.

S
Table 1: International Car Sales 1990 to mid-2010
Souice: ulobal Auto Repoit, Scotiabank uioup, }uly 2u1u.

Clobal trends from tbe demand-side

In auuition to the oveiall unfavouiable macioeconomic anu financial ciicumstances
iesulting fiom the impact of the global economic ciisis, othei funuamental
maiket-uiiven tienus aie shapeu by the following piessuie factois accoiuing to
Schwaiz:
1. oveicapacity of maikets anu high cost of eneigy anu iaw mateiials;
2. piessuies aiising fiom global effoits to auuiess climate change; anu
S. consumei uemanu foi incieasing peisonalization of vehicle mouels.

The oveicapacity in the inuustiy is actually the manifestation of the inheient
stiuctuial pioblem of the global capitalist system of piouuction, that is, the ciisis of
oveipiouuction, wheie massive piouuction of commouities outpaces the capacity of
maikets to buy these commouities iesulting in falling iates of piofit foi companies.
This is cleaily seen in the huge gap between global vehicle piouuction anu global
vehicle sales. With iising global unemployment anu the uecieasing value of ieal
wages, the ciisis of capitalist piouuction will only woisen the pioblem of
oveicapacity of inuustiies.
4

This pioblem is aggiavateu by the incieasing global uemanu on limiteu iesouices of
eneigy anu iaw mateiials. Incieasing global uemanu hau causeu a continuous
upwaiu tienu in commouity piices in the global maiket, iaising the cost of
piouuction foi the automotive inuustiy in geneial. volatile fluctuations in cuiiency
exchange iates anu inteiest iates contiibute to this unfavouiable maiket
enviionment.
S

Piessuies cieateu by multilateial effoits to auuiess climate change, such as
emission-level taigets among countiies, aie foicing the inuustiy to focus its
piouuction on ieseaich anu uevelopment to meet these taigets. This enviionmental
oi "gieen" movement, togethei with the customei uemanu foi peisonalization
(using the iight piouuct foi a specific use) anu oiiginal equipment manufactuieis'
(0EN) builuing of new customei segments is encouiaging moie fiagmentation
(vehicle mouels) in piouuct offeiings. This inuustiy iesponse --cieating moie mouels
of vehicles to auapt to consumei peisonalization-- calls foi measuies to contiol
inciemental costs iesulting fiom this fiagmentation. 0ne iesponse has been
manufactuiing univeisal platfoims, mouules, anu components that can be shaieu
acioss mouels anu bianus.

Likewise, the uneven giowth in uemanu of uiffeient iegions necessitates 0ENs
ieuefine global supply chain stiategies, layouts anu opeiations. 0ENs anu theii
tiei-1 supplieis must establish theii local piesence in these emeiging economies to
benefit fiom the new giowth oppoitunities. Accoiuing to inuustiy analysts, 0ENs
anu tiei-1 supplieis must tap into the local supply base of these emeiging
economies to take auvantage of cost levels anu fulfil local content iequiiements.

Clobal trends on tbe supply-side

0n the supply siue, global tienus in piouuction aie piimaiily uictateu by the
peiennial neeu of automotive companies to ieuuce piouuction costs anu inciease
piouuction efficiency. Becisions on how to meet this neeu aie influenceu by
numeious factois. Some of these aie consumei piefeiences, as uiscusseu above,
that ueteimine cuiient styles, ieliability anu peifoimance stanuaius of vehicles.
uoveinment tiaue, safety anu enviionmental iegulations fuinish the enviionment
foi the automotive inuustiy in a countiy. Finally, a highly competitive maiketplace
S
pushes automotive companies to engage in ieseaich anu uesign innovations anu
upuate manufactuiing piocesses. The implications of these factois aie immense
anu aie spieau along the entiie supply chain of the automakeis.
4

Piouuction in the global automotive inuustiy can be classifieu into two (2) majoi
categoiies: the assembleis (0ENs), anu the supplieis. The opeiations of assembleis
incluue uesigning anu assembling cais while supplieis manufactuie the vaiious auto
paits anu components neeueu in the assembly. Tiauitionally, the supplieis weie
fuithei oiganizeu in multiple tieis. Fiist tieis woulu manufactuie anu supply
components uiiectly to the automakei. Seconu tieis woulu piouuce simplei
inuiviuual paits that woulu be incluueu in the component manufactuieu by fiist
tieis. The thiiu anu fouith tieis weie mostly supplieis of iaw mateiials.

But uue to the iestiuctuiing of the global supply chain anu the changing ioles of
supplieis in the inuustiy, a new categoiization among auto paits anu component
manufactuieis emeigeu. The foui tieis weie ieplaceu by 1) iaw mateiial suppliei;
2) stanuaiuizei; S) component specialist; anu 4) integiatoi. The illustiation below
shows the focus anu iesponsibilities of each categoiy, theii iequiieu maiket
piesence anu capabilities, anu types of components manufactuieu.

6
Table 2: UEM Supplier Cbaracteristics
Souice: Tbe Automotive Supply Cboin: 6lobol TrenJs onJ Asion Perspectives,
Asian Bevelopment Bank, 2uu2.

Accoiuing to a stuuy conuucteu by the Asian Bevelopment Bank (ABB), "The
Automotive Supply Chain: ulobal Tienus anu Asian Peispective," the uiiection of the
global automotive inuustiy is chaiacteiizeu by a change in the iole anu
iesponsibilities between the assembleis anu supplieis. The tienu towaius
outsouicing is still likely, with 0ENs uesignating moie iesponsibilities on the
piouuction siue to supplieis. The iationale behinu this change is that oveiall
ievenues fiom uistiibution anu aftei-sales seivice have exceeueu the ievenues
collecteu in the assembly business. Foi the 0ENs, the cai is evolving fiom being a
piouuct to being moie of a seivice. Theiefoie, it is moie piofitable foi 0ENs to
focus moie on cai-ielateu seivices anu uistiibution anu less on manufactuiing anu
assembly. This is also an effective way of coping with the huge costs associateu with
manufactuiing an evei giowing numbei of new mouules anu systems. Since the late
198us, 0ENs have giauually passeu on the iesponsibility of ueveloping,
manufactuiing, anu assembling impoitant sections of the cai to theii supplieis,
incieasing supplieis' iesponsibilities ovei piouuction.
S

7
Reseaich anu uevelopment costs foi components anu mouules have also been passeu
on to supplieis. Cost-wise, outsouicing is only efficient foi the 0ENs if the suppliei
uoes all the engineeiing woik, in complex components such as the automatic
biaking system (ABS) wheie the uevelopment cost is assumeu to be uistiibuteu to
all of the suppliei's clients (assembleis). Knowleuge shaiing has also been ieuefineu
uue to this ieveisal of ioles. In the past 0ENs weie conceineu with tiansfeiiing
best piactices in manufactuiing to theii supplieis. Now, they aie hoping to leain
fiom them. With this, the laige suppliei companies have become the key actois in
the global automotive inuustiy.

While a vast contiol ovei manufactuiing has been given to the laige suppliei
companies, 0ENs still exeicise powei ovei them since they aie the supplieis'
clients. In auuition, among the 0ENs, theie is a cleai stiategic goal towaius lessening
theii numbei of supplieis. Foi a single vehicle to be piouuceu, the numbei of
companies, both supplieis anu assembleis, engageu in its piouuction is estimateu to
be S,uuu. The uiiection nowauays, is to lessen the numbei of supplieis. Renault, foi
example, ieuuceu the numbei of its supplieis to SSu fiom 4uu in the yeai 2uuu.

0ENs have also uemanueu piice ieuuctions fiom theii supplieis by putting it
explicitly in theii contiacts. This passes on the piessuie of ieuucing high piouuction
cost to supplieis. The following figuie shows piice ieuuctions as uictateu by 0ENs
to theii supplieis.

Figure 1: Price Reductions Demanded from Assemblers
Souice: The Automotive Supply Chain: ulobal Tienus anu Asian Peispectives, ABB, 2uu2.
8

Technology is anothei factoi that ueteimines the couise of the auto inuustiy. Cais
nowauays have become moie ieliant on electionics anu less ieliant on mechanics.
Electiical systems, electionic sensois, anu actuatois aie integial in the contiol anu
monitoiing of cai peifoimance. They aie useu to tioubleshoot anu peifoim
uiagnostics, seive in navigational systems, anu function in the enteitainment
components. The numbei of electionic functions anu uevices in vehicles
manufactuieu touay has moie than tiipleu compaieu to vehicles manufactuieu two
uecaues ago. At least SS peicent of a vehicle's cost can be attiibuteu to its electionic
components. New technologies aie also shaping the way the automotive inuustiy
uoes business. Foi example, with e-commeice being moie accessible to consumeis,
the Inteinet is useu by buyeis to obtain infoimation about the cai they want to buy,
anu assembleis anu supplieis conuuct theii tiansactions on-line.

New business seivices ielateu to the automotive inuustiy have also emeigeu. The
ieseaich anu engineeiing seivices foi the uevelopment of mouels anu components,
anu ioles as aggiegatoi anu inteimeuiatoi foi fiims to systematize supply
ielationships aie some of the seivices that aie also outsouiceu in the automotive
inuustiy. Auuitionally, the buiuen of supply chain management is outsouiceu by the
0ENs.

0ltimately, assembleis still ietain the uecisive iole in setting the uiiection of the
global automotive inuustiy. The ABB stuuy, "The Automotive Supply Chain: ulobal
Tienus anu Asian Peispectives in 2uu2 uiscusseu the vaiious stiategies auopteu by
the assembleis. These incluue continuing theii global peispective in theii
opeiations. New mouels aie launcheu at the same time in uiffeient locations. They
have been tiying to ieplicate supply chain stiuctuies in locations wheie they
infuseu new investment anu uemanu that supplieis also be piesent in these new
iegions wheie they aie locateu. Anothei stiategy is the ieoiganization of theii
vehicle poitfolio aiounu piouuct platfoims anu cai mouules anu systems, focusing
on common platfoims anu inteichangeable mouules. This woulu lowei the cost of
piouuction while iesponuing to incieasing fiagmentation uue to consumei
piefeiences. Foi the supplieis, the path to giowth is to auvance fiom theii cuiient
tiei into the next highei tiei.

9
Automotive production and market in Soutbeast Asian Region

Automotive giants look at the iegion as one maiket anu not on a countiy-by-countiy
basis. This is because investing in any countiy in the iegion gives the investoi
access to neighbouiing maikets unuei the ASEAN Fiee Tiaue Agieement (AFTA)
which took effect in }anuaiy 2uuS. The iegion is also seen as a whole as none of the
economies in this iegion is laige enough foi an automotive inuustiy. Thailanu anu
the Philippines, even with combineu sales of 1.S million vehicles in 1996 (the
iegion's peak peifoimance pie-Asian Financial ciisis in 1997), is insufficient to
suppoit two to thiee efficient plants. Anu while iestiictive policies pievalent among
ASEAN membeis weie blameu foi this limitation in scale of piouuction in the past,
most of the assembly units in the iegion have not been competitive on an
inteinational level.

Peispectives foi the evolution of the auto inuustiy in the Asian iegion will mostly
uepenu on the uevelopment of the auto paits sectoi. The 0ENs' tienu to inciease
outsouicing to local maikets means that location uecisions will be ueteimineu by the
ability of local supplieis to pioviue low-cost quality paits, anu to take iesponsibility
foi uevelopment. Recommenuations aie theiefoie geaieu towaius upgiauing the
local auto paits inuustiy as the coie of the policy of any of the Asian goveinments.
With limiteu capital anu iesouices anu less auvanceu technology, few Asian fiims
outsiue }apan will be able to compete at the iealm of auto paits piouuction
accoiuing to the ABB stuuy.

Tbe impact of AFTA on tbe automotive production in tbe region

A close stuuy of the impact of fiee tiaue agieements on automotive piouuction in the
iegion woulu show that aiounu 2uuS, when AFTA was beginning to be piactically
utilizeu, theie was a iestiuctuiing of the piouuction anu piocuiement system in the
automotive inuustiy.
6

Befoie 2uuS, }apan-affiliateu automobile manufactuieis in ASEAN countiies weie
obligateu by taiiff baiiieis to piouuce components, iegaiuless of theii piouuction
volume. Bowevei, with AFTA, these manufactuieis have been able to concentiate
the piouuction of automobile paits in countiies that aie goou at piouucing them,
anu to complement each othei among the aiea, which iesulteu in incieaseu
1u
cost-competitiveness. 0nuei oiuinaiy ciicumstances, it woulu have been moie
efficient to piouuce an entiie vehicle at a specific base, such as in Thailanu, anu to
supply them to the iegion. Bowevei, because the withuiawal of automobile
manufactuieis, which have a veiy bioau base, woulu have maue a consiueiable
impact on the community, these manufactuieis ueciueu to stait concentiateu
piouuction anu exchange of ceitain components.

Figure 2: Complementary network of automobile manufacturers witbin
ASEAN under AFTA

Souice: Presentotion on tbe impoct of Iree TroJe Aqreements, Ibon Founuation, (Becembei
2u1u).

The automotive piouuction in the Philippines, in paiticulai, was affecteu by the
implementation of AFTA, because it signalleu the appioval of a seiies of goveinment
policies to facilitate libeialization anu taiiff ieuuctions unuei AFTA as uiscusseu
11
latei in this papei (See Chaptei III).

II. Tbe Pbilippine Automotive Industry

The cuiient status of Philippine automotive inuustiy is no uiffeient fiom the
geneial chaiacteiistics of the manufactuiing sectoi in the countiy. It is geneially
chaiacteiizeu by small-scale vehicle assembly plants, the manufactuiing of low
value-auueu components of local content auto paits, high piouuction costs ielative to
inteinational levels, anu a high iate of impoitation of iaw mateiials, components
anu completely built up units (CB0s). 0n the uemanu siue, the inuustiy seivest a
small anu slow giowing uomestic maiket.

The Philippine automotive inuustiy piouuces a full iange of vehicles: passengei
cais, light commeicial vehicles (LCvs), Asian utility vehicles (A0vs), tiucks, anu
buses. Theie aie also impoiteu cais anu cai paits, classifieu as
completely-knockeu-uown (CKB), semi-knockeu-uown (SKB), anu
completely-built-up (CB0) vehicles. SKBs aie semi-assembleu cais without tiies anu
batteiies. CKBs aie completely knockeu-uown units of paits anu components which
may incluue not only paits anu components but also sub-assemblies anu assemblies
like engines, tiansmissions, axle assemblies, chassises, anu bouy-assemblies.
7

Business playeis in the Philippine automotive inuustiy can be classifieu into thiee
categoiies: the assembleis, the manufactuieis of auto paits, anu the uistiibutois of
completely built units oi CB0s. The assembleis aie the leaueis in the automotive
inuustiies anu aie usually subsiuiaiies of global automotive giants. They aie
engageu in the assembly of completely knockeu uown (CKB) vehicles with local
content mateiials. Some aie also engageu in manufactuiing of local content anu in
uistiibuting CB0s in the local maiket. The manufactuieis of auto paits aie engageu
in low value-auueu manufactuiing of iaw mateiials anu components that aie useu to
assemble vehicles. The majoiity of them aie categoiizeu as small anu meuium-sizeu
enteipiises, while the leauing auto paits manufactuieis aie companies with uiiect
foieign paitneiship. The uistiibutois aie mostly local subsiuiaiies of the automotive
giants which aie not engageu in any foim of manufactuiing in the countiy. They
only impoit vehicles into the countiy foi sale.

12
Table 3: Top 1000 Corporations in tbe Pbilippines, 2009
{Manufacturers of Motor Vebicles]
Souice: Business Woilu Top 1uuu Coipoiations, 2uu9.

The auto paits anu components sectoi consists of companies opeiating in
metalwoiking (48 peicent), iubbei (1S peicent), seats anu tiims (1u peicent),
plastics (9 peicent), electiical (8 peicent), anu otheis (1u peicent). Some of the
paits that aie manufactuieu heie incluue:

1. Suspension systems: tiies, steel iims, aluminium wheels, leaf anu coil spiings
2. Inteiiois: caipets, seats
S. Electiical systems: wiiing hainesses, batteiies, lamps, ielays
4. Piesseu components: muffleis, iauiatois, seat fiames, seat aujusteis, oil anu
aii filteis, peuals
S. Rubbei anu plastic components: fan belts, iubbei hoses, small plastic paits
6. Nechanical paits: tiansmissions
7. Cast anu foigeu components: geai blanks, biake uisks, biake uiums

The leauing manufactuieis of auto paits anu accessoiies listeu in the Philippines
Top 1uuu coipoiations foi the yeai 2uu9 aie shown in the table below:

Gross Revenues
PhP Million Rank %change Net Income
Manufacture of Motor Vehicles
Toyota Motor Philippines Corp. 45088 19 3.8 2644
Mitsubishi Motors Philippines Corp. 12758 87 18.4 446
Isuzu Philippines Corp. 9715 122 5.9 410
Hyundai Asia Resources, Inc. 7813 148 20.1 88
Ford Motor Co. Philippines, Inc. 7685 150 35.5 61
Ford Group Philippines, Inc. 7584 153 -2.1 27
Universal Motors Corp. 4532 247 32.2 81
Columbian Auto Car Corp. 2481 457 62.3 71
General Motors Automobile Phils., Inc. 2211 502 24.9 -16
Nissan Motor Philippines, Inc. 2143 512 -6.5 -251
Pilipinas Hino, Inc. 1625 636 31.9 196
Total/ Average 103635 10.8 3759
1S
Table 4: Manufacture of Parts and accessories for Motor Vebicles and tbeir
Engines

Souice: BusinessWoilu Top 1uuu Coipoiations, 2uu9.

Brief Background of tbe Pbilippine Automotive Industry

Aftei Woilu Wai II, theie was no cai inuustiy in the countiy. All vehicles weie
impoiteu by goveinment offices. Impoitation of cais foi commeicial puiposes was
piohibiteu up to the yeai 19Su. A yeai latei, the assembly phase foi the Philippine
cai inuustiy was openeu with minimal local content iequiiements. Foieign
exchange allocation was gianteu only foi the impoitation of CKB units foi assembly.
By196u, twelve (12) local vehicle fiims weie opeiating, assembling Su bianus fiom
Westein Euiope, the 0niteu States, }apan anu Austialia. By 1968, the numbei of
playeis in the inuustiy hau iisen to 29 fiims which assembleu 6u mouels. Bowevei,
theie was insufficient uemanu in the local maiket with only 1u,uuu units pei yeai
solu at that time. With this oveisupply situation anu uwinuling foieign exchange
ieseives in the late 196us, the Cential Bank iefuseu to allocate auuitional foieign
exchange to the automotive inuustiy.
8

In 1971, the goveinment finally uiafteu a national uevelopment plan foi the
automotive inuustiy. 0nuei the fiist "Piogiessive Cai Nanufactuiing Piogiam", the
Boaiu of Investments implementeu the countiy's local content iequiiement
PhP Million Rank %change Net Income
Takata (Philippines) Corp. 7871 146 -14.2 1111
Continental Temic Electronics (Phils.), Inc. 7208 163 -8.6 117
Toyota Autoparts Philippines, Inc. 5709 201 35.3 313
Philippine Auto Components, Inc. 5215 218 -2.7 498
Isuzu Autoparts Manufacturing Corp. 4179 276 263.5 374
Mitsuba Manufacturing Batangas Corp. 4104 282 33 -123
Mitsuba Philippines Corp. 3905 295 -0.7 -134
Asian Transmission Corp. 3221 364 8.3 128
Honda Parts Manufacturing Corp 3114 373 -21.9 -65
Laguna Auto-Parts Mfg. Corp. 2634 439 -15.9 71
Visteon Phillipines, Inc. 2555 446 -1.4 368
Yutaka Mfg. (Philippines) Inc. 2063 526 -25.1 35
Furukawa Electric Autoparts Phil. Inc. 1968 554 6.5 57
Ryonan Electric Philippines Corp. 1481 678 -7.5 3
Imasen Philippine Mfg. Corp. 1336 748 15.9 61
TS Tech Trim Philippines,Inc. 1317 758 43.7 185
Keihin Philippines Corp. 1155 853 -24.7 98
14
piogiam. Key objectives of the piogiam weie to achieve foieign cuiiency savings
thiough the uomestic manufactuie of automotive components, establish
manufactuiing activity in vaiious small to meuium-sizeu enteipiises foi the
uomestic manufactuie of automotive components, anu the suige of expoits of
manufactuieu piouucts unuei the ASEAN automotive complementation piogiam.
The piogiam piohibiteu the impoitation of CB0 vehicles anu limiteu the numbei of
iegisteieu fiims alloweu to impoit CKB paits. 0nfoitunately, the piogiam faileu to
uevelop the inuustiy into a majoi expoitei. This piompteu the goveinment to lessen
piioiitization foi this piogiam. This situation was aggiavateu by the 198S
economic ciisis when the goveinment enfoiceu a foieign exchange ban on impoits
whose value was gieatei than an inuiviuual company's expoits. This iesulteu in a
neai collapse of the inuustiy, such that in 1984, only two fiims iemaineu--
PANC0R-Nitsu anu Nissan.
9

The goveinment initiateu subsequent cai uevelopment piogiams, but the iesults
have been mixeu at best. The table below summaiizes each cai uevelopment
piogiam launcheu by the goveinment fiom 197S to 2uu4. Accoiuing to a seiies of
stuuies on the Philippine automotive inuustiy's peifoimance, conuucteu by
Rafaelita Neicauo-Aluaba of the Philippine Institute foi Bevelopment Stuuies (PIBS),
unuei these piogiams, the automotive inuustiy uevelopeu within a system of
piotection, iegulation anu piomotion thiough high taiiffs, a high local content
iequiiement scheme, anu impoit iestiictions. This iesulteu in an inuustiy that hau
one of the highest levels of piotection in the manufactuiing sectoi. The package
faileu to piomote an efficient inuustiy capable of competing inteinationally. It
peifoimeu pooily in compaiison with assembleis in othei Southeast Asian
countiies.
1u

1S
Table 5: Covernment Programs and Policies on tbe Pbilippine Automotive
Industry

16

Souice: PIBS, Neicauo- Aluaba, Nicio-Stuuies: Philippine Cai Assembly Sectoi, 1997.

Problems of tbe sector: 'Diseconomy' of Scale and Higb Production Cost

Baseu on the PIBS stuuy, the funuamental obstacle that pieventeu the Philippine
automotive inuustiy fiom ueveloping piouuction efficiencies anu theieby global
competitiveness was the 'uiseconomy of scale' in piouuction. This is associateu with
piouuction that is oiienteu towaius an inteinal maiket that is veiy limiteu in size.
This pioblem is also integial to high piouuction cost issue. The goveinment-uictateu
local content piogiam iequiieu assembleis to souice at least 4u peicent of
components anu auto paits of Philippine cai paits (PCP) fiom uomestic
manufactuieis in 199u, uecieasing it towaius the next two yeais, which will be
iaiseu again to S1% by 199S.

17
Table : Pbilippine Car Parts {PCP] Local Content Requirement, 1991-1993
Souice: Aluaba, PIBS

This scheme inuiiectly imposeu a cost penalty on assembleis wheie they weie
foiceu to buy lowei quality auto paits anu components fiom local supplieis, but
ones which weie piiceu highei than impoiteu ones. This natuially incieaseu theii
piouuction costs. Tiaue anu investment policy iefoims to auuiess this uiu not
iemove the piotective measuies, faileu to contiibute to impiove efficiency, anu uiu
not succeeu in ieuucing the cost. The following table compaies the cost of
piouuction in the Philippines to }apan. A vehicle maue in the Philippines is Suu
peicent moie expensive than the same mouel anu bianu manufactuieu in }apan.

Table 7: Production Cost comparison of automotive units produced in tbe
Pbilippines and )apan
Souice: Aluaba, PIBS, 1997.

Table 7 shows the compaiison of piouuction cost of vehicles assembleu in the
Philippines (Pu) to compaiable vehicles manufactuieu in }apan (Pb). This table
cleaily shows that cais assembleu in the Philippines weie S times costliei than
those in }apan, at 41 peicent local content in 1994. Foi light commeicial vehicles,
18
piouuction costs in the Philippines iange 2.S7-2.S8 times moie than those in }apan,
at 44 peicent local content in 199S.

The small-scale piouuction anu high piouuction costs in the Philippine automotive
inuustiy ieflects the oveiall unueiuevelopment of the Philippine economy. The auto
paits anu components sectois aie uominateu by small anu meuium enteipiises.
They have limiteu access to capital anu technology. The auto paits anu components
sectoi is also highly impoit-uepenuent, as iaw mateiials aie also souiceu outsiue the
countiy. The economy lacks well uevelopeu locally baseu suppoiting inuustiies anu
basic inuustiies such as steel that woulu supply iaw mateiials to the auto paits anu
components manufactuieis. Bue to these factois, piouuction costs in the inuustiy
iemaineu high anu it faileu to establish its compaiative auvantage in the automotive
global supply chain. The table below gives the uistiibution of aveiage piouuction
costs anu cleaily shows the cost of iaw mateiials consuming 8S peicent of total
piouuction cost, of which 48.6 peicent aie uiiectly impoiteu iaw mateiials. The
high level of impoit content in the aveiage piouuction cost highlights the lack of a
local supply base foi iaw mateiials piouuction. 0n the othei hanu, the high cost of
iaw mateiials souiceu locally can be uue to the high cost of piouuction iesulting
fiom low technological levels anu small-scale manufactuiing.

Table 8: Distribution of Average Production Costs {3], 2007
Souice: Aluaba, PIBS (2uu8)

III. Current Covernment policies and agreements related to tbe automotive
industry

The libeialization of the Philippine automotive inuustiy unuei past auministiations
has been facilitateu thiough a combination of the executive issuances anu a numbei
of fiee tiaue agieements (FTAs) signeu by the goveinment with othei countiies,
19
mostly fiom ASEAN. Inueeu, the national goveinment uiu not simply take a back
seat as fai as opening up the auto inuustiy to foieign tiaue anu investment. It hau a
giip on the steeiing wheel.

0f all the pievious auministiations, it was uuiing foimei Piesiuent uloiia Aiioyo's
teim that full-scale libeialization of the auto assembly anu paits manufactuiing
inuustiy was pusheu thiough In fact, Aiioyo signeu 18 auto-inuustiy ielateu
Executive 0iueis (E0s) between 2uu2 anu 2u1u. But these acts only uefineu the
tiaue ioutes of ceitain cai paits in the ASEAN iegion. (See appenuix foi a list of
auto-ielateu E0s fiom 1997 to 2u1u). Foi instance, Aiioyo's E0 87 meiely
containeu the goveinment's appioval of the impoitation of ceitain auto paits fiom
Inuonesia anu Thailanu foi the local assembly of Toyota's Coiolla mouel.

Figure 3: Number of automotive industry-related Executive Urders per year
{1997-2010]

Souice of basic uata: Executive issuances as publisheu in the goveinment's 0fficial uazette,
www.gov.ph

Six E0s iefeiieu to Toyota Notoi's tiaue opeiations anu objectives in the iegion as
guaianteeu unuei the ASEAN Inuustiial Coopeiation (AIC0) scheme,
11
while five
E0s iefeiieu to Bonua Notoi Co.'s. The iest of the E0s iefeiieu to Benso,
Nitsubishi, Nissan anu Isuzu.
2u

Figure 4: Executive orders per )apanese company under tbe AICU scbeme

Souice of basic uata: Executive issuances as publisheu in the goveinment's 0fficial uazette,
www.gov.ph

In 2uu2, Aiioyo signeu E0 1S6, the Notoi vehicle Bevelopment Piogiam (NvBP),
which essentially phaseu out local content iequiiements in uomestic cai assembly
anu affiimeu the Philippines' commitment to the Woilu Tiaue 0iganization (WT0).
Anu with that E0, a floou of impoiteu CKBs anu CB0s fiom neighbouiing countiies
as well as }apan swampeu the uomestic inuustiy.

The countiy also enteieu into a numbei of FTAs that libeializeu its tiaue with othei
Asian countiies incluuing automotive paits. Among these FTAs weie the
ASEAN-Koiea Fiee Tiaue Agieement, ASEAN-China Fiee Tiaue Agieement, anu the
contioveisial }apan-Philippines Economic Paitneiship Agieement (}PEPA).
12

Bays befoie Piesiuent Benigno "Noynoy" Aquino took office, Aiioyo signeu
Executive 0iuei 887 (E0 887), the new Notoi vehicle Bevelopment Piogiam. The
oiuei was veiy similai to the pievious veision of NvBP, except foi the piovision on
the establishment of a council which woulu oveisee the automotive tiaue anu
21
inuustiy.

These numeious executive oiueis anu fiee tiaue agieements facilitateu the builuing
of a complementaiy netwoik of automobile manufactuieis in the iegion as shown
eailiei in Figuie 2 anu seiveu to facilitate the entiy of foieign capital anu setup of
cost-competitive iegional piouuction system at the East Asian iegion.

IV. Analyzing tbe local auto supply cbain in tbe global context

Sampling and framework of analysis

A total of 124 Asian companies engageu in the manufactuie of automotive paits
anuoi assembly of automotive vehicles (passengei cais, tiucks, motoicycles, etc.)
weie puiposely chosen as samples foi oui analysis of local auto fiims in ielation to
the local anu global piouuction system. Since the focus of the stuuy is the auto
supply chain of Asian TNCs anu theii capital flows in the iegion, Ameiican anu
Euiopean auto fiims weie not incluueu in the sampling. While the 124 companies
uo not iepiesent the total numbei of Asian auto fiims opeiating in the Philippines,
theii sales iepiesent aiounu 8u peicent of the automobile anu cai paits sales.

The Asian auto fiims weie chosen fiom the uiiectoiy of the Philippine Economic
Zone Authoiity (PEZA), an agency attacheu to the tiaue anu inuustiy uepaitment;
fiom the Chambei of Automotive Nanufactuieis of the Philippines, Inc. (CANPI),
the laigest association of auto assembleis in the countiy; anu fiom the uiiectoiy of
the Notoi vehicle Paits Nanufactuieis' Association of the Philippines (NvPNAP).

Samples weie classifieu baseu on the following: 1) by countiy of oiigin; 2) by plant
location; S) by sub-inuustiy; anu 4) by supply chain iole.

22

1. By country of origin

Figure 5: Auto firms in tbe Pbilippines by country of origin
Souice of basic uata: PEZA, CANPI anu NvPNAP

}apanese automotive companies piouucing vaiious auto paits anu cais uominate
the list, compiising S1.61 peicent (64 out of 124) of the total auto fiims sampleu.
Philippine companies iankeu seconu at S6.29 peicent, while joint ventuies of
Philippine anu }apanese fiims maue up S.6S peicent. Chinese auto assembleis anu
uistiibutois - ielatively new playeis in the local auto inuustiy - came in a close
fouith at 4 peicent, with piouucts ianging fiom motoicycles to mini vans, buses anu
tiucks. The iest aie subsiuiaiies of companies baseu in South Koiea, Bong Kong,
Thailanu anu Singapoie.

While }apanese fiims continue to top the assembly anu uistiibution of passengei
cais, commeicial vehicles anu Asian utility vehicles with bianus like Toyota anu
Bonua, Chinese companies aie cultivating theii niche in the Philippines by focusing
on the local assembly anu uistiibution of buses, minivans anu tiucks. An example is
Foton Notoi Philippines, which has solu hunuieus of pickup tiucks to vaiious
goveinment agencies anu local goveinment units.

2. By plantJoffice location

Save foi two companies baseu in Cebu,
1S
all the sampleu automotive fiims aie
2S
concentiateu on the majoi islanu of Luzon, with 77 companies baseu in southein
Luzon, mainly in the piovinces of Laguna anu Cavite. 0thei Luzon-baseu companies
can be founu in the National Capital Region (41 companies) anu in cential Luzon (S
companies).

A total of 64 automotive fiims aie locateu in special economic zones anu inuustiial
paiks. This concentiation can be attiibuteu to the national goveinment's policy to
pioviue incentives to opeiations in special economic zones anu inuustiial paiks
unuei the Special Economic Zone Act of 1994. Among the host of fiscal incentives is
1uu peicent exemption fiom coipoiate income tax.

It shoulu be noteu that Toyota Notoi Philippines Coip., the biggest auto
manufactuiei anu uistiibutoi in the countiy, has its own S9,144-squaie-metei
special economic zone () in Laguna, uesignateu by the national goveinment unuei
the chief executive's Pioclamation No. S2S.
14

3. By sub-industry

Figure : Auto firms by sub-industry


Eighty-six peicent of the sampleu auto fiims aie automotive paits supplieis, mostly
owneu by }apanese anu Filipinos. The iest aie classifieu as assembleis, uistiibutois
anu assemblei-uistiibutois, which aie uominateu by }apanese fiims.

24
Raw material supplier
Standardizer
Component specialist
Integrator
Assembler
Distributor
Assembler/Distributor
0 5 10 15 20 25 30 35 40 45

4. By supply cbain role

In uesciibing the supply chain iole of the sampleu auto fiims, the following
categoiies weie useu baseu on the tiei classifications
1S
by the Asian Bevelopment
Bank (ABB) with the auuition of assemblei, assemblei-uistiibutoi anu uistiibutoi
categoiies:

Raw mateiials suppliei - fiist tiei (aluminium sheets, steel bais, etc.)
Stanuaiuizei - seconu tiei (tiies, electiical units, anti-lock biake systems)
Component specialist - thiiu tiei (stamping, moluing, injection)
Integiatoi - fouith tiei (uoois, chassis, cai seats, aiicon units, auuio systems)
Assemblei (tiuck anu van bouies)
Bistiibutoi (limiteu to uealeiship)
Assembleiuistiibutoi (companies with assembly plants anu local uealeiship)

Figure 7: Auto firms by supply cbain role

Fouiteen Asian companies that assemble anu uistiibute motoi vehicles ianging
fiom passengei cais, commeicial vehicles, tiucks anu motoicycles aie iuentifieu in
the samples. Subsiuiaiies of global auto giants top this sub-inuustiy, such as Toyota
Notoi Philippines, Bonua Cais Philippines, Nitsubishi Notoi Philippines anu Isuzu
Philippines. Theie aie also companies that only uistiibute CB0s assembleu outsiue
the countiy, namely South Koiean fiim Byunuai Asia Resouices, Inc. anu Chinese
company Kama Tiucks.
2S

Six of the fouiteen assemblei-uistiibutois piouuce motoicycles, bianus such as
Bonua, Yamaha, Suzuki anu Kawasaki. A Chinese fiim, Sinski Notoicycle
Philippines, Inc., joins }apanese companies in the subcategoiy as it uistiibutes
motoicycles anu tiicycles assembleu in China. The piesence of motoicycle anu
tiicycle assemblei-uistiibutois in the countiy cannot be ignoieu as moie Filipinos
shift to cheapei moues of tiavelling. Bata fiom the Bepaitment of Tiaue anu
Inuustiy ieveals that aggiegate motoicycle sales climbeu to 6S6,792 units in 2uu9
fiom 2uu,uuu in 2uuu.
16

Filipino-owneu Centio Nanufactuiing Coip. stanus as the lone assemblei among the
sampleu fiims, assembling tiuck anu van bouies foi Nitsubishi anu Isuzu which will
in tuin complete the piouuction piocess anu uistiibute the finisheu unit.

Component specialists anu integiatois compiise the majoiity of all the auto fiims
sampleu, with piouucts anu seivices ianging fiom stamping anu moluing to the
manufactuie of tiansmissions, cai seats, cai seat ieclining aujusteis, muffleis, biake
uiscs, watei pumps, caipets, molueu iubbei paits anu othei non-coie automotive
paits.

Twenty peicent of the sampleu fiims, meanwhile, aie stanuaiuizeis, piouucing tiies,
biake system components anu electiical paits. Nost companies unuei this categoiy
manufactuie wiiing hainesses foi both uomestic assembleis anu foi expoit, such as
the Inteinational Wiiing Systems Coipoiation Philippines in Cential Luzon.

Nost of the stanuaiuizeis, component specialists anu integiatois in the countiy
caiiy out low technology auto piouuction piocesses (such as stamping anu manual
painting) to piouuce low value-auueu complimentaiy auto paits foi 0ENs' plants
outsiue the Philippines. As Aluaba puts it, theie is "a laige numbei of paits
manufactuieis consisting mostly of small anu meuium-sizeu enteipiises that have
low technology levels anu aie faceu with a lack of capital, low piouuctivity, anu a lack
of woikei skills.

Aluaba also points out that most of the auto paits manufactuieis "opeiate as
mom-anu-pop style supplieis with vaiying capabilities anu some ieal quality
pioblems," failing to uevelop uue insufficient capital anu technology that aie
26
necessaiy to impiove theii piouucts.

These fiims haiuly make it to the expoit scene uue to the pioblems pointeu out.
Exception is majoi playeis such as Asian Tiansmission Coip., Bonua Paits
Nanufactuiing Coip., Toyota Auto paits Philippines Inc., F-Tech Philippines
Nanufactuiing, Inc., anu Inteinational Wiiing Systems Philippines Coip, all of
which aie }apanese-owneu fiims.

0nly two automotive supplieis, Regal Netalciaft Coip. anu Steel Coip. of the
Philippines, piouuce iaw mateiials foi the auto piouuction system. Steel Coip.
iemains entangleu in a tussle with Banco ue 0io, the company's majoi cieuitoi
which is owneu by tycoon Beniy Sy, anu who iepoiteuly wants to take ovei the steel
company thiough a uebt-equity swap.

With essentially no uomestic iaw mateiial supply base, the Philippine automotive
inuustiy ielies heavily on impoits fiom othei Asian countiies, such as Thailanu,
Nalaysia, Inuonesia anu }apan. Bigh value-auueu auto paits aie also impoiteu since
theie aie also no auvanceu uomestic assembly plants capable of manufactuiing
engines anu othei coie paits.

Mapping tbe production system

To effectively illustiate the Philippine automotive supply chain anu its links to the
global auto piouuction anu tiaue, a fiamewoik foi analysis was taken fiom a unit
iepoit
17
of Nitsui & Co., Ltu., a global tiauing paitnei with notable links to majoi
automakeis, as guiue.

27
Figure 8: Framework for mapping tbe auto supply cbain

The upstieam piouuction phase incluues the souicing of iaw mateiials,
complimentaiy automotive paits, as well as the assembly of the taiget vehicle. The
miustieam phase iefeis to the uistiibution of the finisheu unit (whethei foi
uomestic maiket oi foi expoit), anu the uownstieam phase factois in uealeiship,
ietail financing (extenuing cai loans, etc.) anu othei stiategies to biiuge piouuction
with the taiget maiket.

In oiuei to analyze the supply anu piouuction chain of automobiles in the
Philippines, the piouuction piocesses of locally assembleu vehicles of Toyota anu
Bonua weie mappeu. Inteiviews with woikeis in the two companies, alongsiue uesk
ieseaich weie caiiieu out to aiiive at an oveiall pictuie of the entiie piouuction
piocess.

UPSTREAM MIDSTREAM DOWNSTREAM
Raw materials
OEM
Assembly
Distribution
Dealership
Retail Financing
28
Model UPSTREAM MIDSTREAM DOWNSTREAM
T
O
Y
O
T
A
Innova
Engine: Japan
Vios
Other OEMs: Malaysia
Wiring harness: International Wiring
Systems (C. Luzon)
ASSEMBLY:
Toyota Motor Philippines (S. Luzon)
DISTRIBUTION:
Philippines
DEALERSHIP:
Philippines
RETAIL FINANCING:
Metrobank, Toyota
Financial Services Phils.
car audio system: Fujitsu Ten Corp.
(S. Luzon)
Bracket, exhaust pipe, tube
Sub-assembly: Toyota Indonesia /a
Car seats: Toyota Boshoku
(S. Luzon)
Other OEMs: Toyota Malaysia /b
automotive clock:
Jeco Autoparts Phils, Inc. (Manila)
Systems (C. Luzon)
ASSEMBLY:
Toyota Motor Philippines (S. Luzon)
DISTRIBUTION:
Philippines
DEALERSHIP:
Philippines
RETAIL FINANCING:
Metrobank, Toyota
Financial Services Phils.
Engine: Japan
car audio system: Fujitsu Ten Corp.
(S. Luzon)
Car seats: Toyota Boshoku
(S. Luzon)
automotive clock:
Jeco Autoparts Phils, Inc. (Manila)
Table 9: Mapping of tbe production process of Toyota models
Innova and Vios {2010]
a Executive 0iuei 677, signeu by foimei Piesiuent uloiia Aiioyo in 2uu7
b Executive 0iuei 479, signeu by foimei Piesiuent uloiia Aiioyo in 2uuS

29
Model UPSTREAM MIDSTREAM DOWNSTREAM
H
O
N
D
A
Civic
Engine: Japan
Wheel assembly: Indonesia /c
Front, rear bumper: Thailand /c
shaft assembly: Malaysia
City
Engine: Japan
Other OEMs: Indonesia, Malaysia
Accord
Engine: Japan
Cylinder: Indonesia
Other OEMs: Malaysia
Systems (C. Luzon)
ASSEMBLY:
Honda Cars Philippines (S. Luzon)
DISTRIBUTION:
Philippines
DEALERSHIP:
Philippines
car loan for OFWs:
Honda CAREmittance
via RCBC, BPI
pedal and suspension:
F-Tech Phils. (S. Luzon)
Lever assembly, damper assembly:
Thailand /d
Systems (C. Luzon)
ASSEMBLY:
DISTRIBUTION:
Philippines
DEALERSHIP:
Philippines
car loan for OFWs:
Honda CAREmittance
via RCBC, BPI
Systems (C. Luzon)
ASSEMBLY:
DISTRIBUTION:
Philippines
DEALERSHIP:
Philippines
car loan for OFWs:
Honda CAREmittance
via RCBC, BPI
Table 10: Mapping of production process of Honda models Civic, City and
Accord {2010]
c Executive 0iuei 92, signeu by foimei Piesiuent uloiia Aiioyo in 2uuS
u Executive 0iuei 92, signeu by signeu by foimei Piesiuent uloiia Aiioyo in 2uu2

A numbei of similaiities can be spotteu in the piouuction chains of locally
assembleu Toyota anu Bonua mouels. 1) Both companies souice the engines foi
local assembly fiom }apan anu impoit coie auto paits fiom Nalaysia, Inuonesia anu
Thailanu. 2) Non-coie automotive paits, such as peuals anu cai seats, aie souiceu
fiom uomestic auto paits companies locateu within the same special economic zone
as the assembly plant. S) All assembleu vehicles aie uistiibuteu solely to the
uomestic maiket; theie aie no assembleu units foi expoit 4) the two subsiuiaiies
have set in place mechanisms to inciease uomestic cai sales by extenuing loans anu
othei foims financial assistance to taiget buyeis.

Impoiteu auto paits fiom Inuonesia anu Thailanu foi the assembly of the Bonua
Civic, foi instance, actually have low value-auueu complimentaiy paits souiceu fiom
the Philippines (not shown in the mapping). This auto tiaue ielation, as agieeu by
the contiacting paities unuei the ASEAN Inuustiial Coopeiation (AIC0) scheme,
essentially limits local auto paits makeis to meiely piouuction of complimentaiy
paits foi impoiteu cai paits.
Su

Quite pieuictably, Filipino fouith-tiei companies aie singleu out in the final phase of
piouuction of local Toyota anu Bonua mouels. Similai subsiuiaiies of }apanese auto
fiims (like F-Tech Philippines) with a highei level of technology than these SNEs aie
the ones engageu in the final phase, piesumably in keeping with ceitain vehicle
stanuaius.

Since piouuction is limiteu uue to pooi uomestic uemanu foi automobiles, local
mouels aie geneially less competitive in the maiket uue to theii highei cost. This is
asiue fiom the fact that the local cai assembleis have to contenu with the massive
impoitation of cheapei, completely built units (CB0s) of the same bianus. Cuiiently,
impoiteu CB0s outpace the sales of locally assembleu vehicles.

Figure 9: Visualizing tbe Pbilippine auto trade

In 2uu2, to facilitate sales of locally assembleu vehicles, the financial seivice unit of
}apan's Toyota Notois establisheu a subsiuiaiy in the Philippines, Toyota Financial
Seivices Phils. (TFSP). As foi Bonua Cais Philippines, it launcheu a cai loan
piogiam, Bonua CAREmittance, to finance cai puichases by 0veiseas Filipino
Woikeis (0FWs).

S1
As shown in the mapping of the supply chain of locally assembleu mouels, it
becomes cleai that the local auto inuustiy lies outsiue the majoi auto supply chain in
the Asian iegion, acting as a meie impoitei of CKBs fiom othei Asian countiies like
}apan anu Thailanu that will be useu foi the assembly of autos solely foi local
uistiibution. This highly uisauvantageu position in the iegional piouuction belt can
be attiibuteu to the lack of basic inuustiies in the countiy (such as a national steel
inuustiy) anu to the veiy low level of technological uevelopment. In auuition,
ueclining living conuitions uo not make the Philippines a viable expoit uestination of
motoi vehicles.

Iionically, the national goveinment, unuei piessuie fiom inuustiializeu countiies, is
fuithei unueimining the position of the auto inuustiy by affiiming lopsiueu tiaue
agieements. uoveinment policies, paiticulaily executive oiueis issueu by the
piesiuent, peimits impoitation of specific autopaits fiom select Asian countiies as
an official tiaue policy in compliance with the AIC0 scheme.

The iatification of the }apan-Philippine Economic Paitneiship Agieement (}PEPA)
in 2uu8 eliminateu taiiffs on impoiteu motoi vehicles anu auto paits, effective
}anuaiy 2u1u anu paveu the way foi the incieaseu impoitation of cheapei CB0s
anu auto paits which aie moie competitive that locally piouuceu ones. Local cai
assembleis anu pait makeis have alieauy sounueu the alaim by uemanuing the
uefeiment of }PEPA's taiiff-elimination scheme until 2u1S.

V. Analyzing financial flows in tbe auto industry

In touay's age of monopoly-finance capital,
18
wheiein financial activities beai
enoimous consequences to the ieal economy (as uemonstiateu in the global
financial ciisis), it woulu be iemiss to analyze the state of the Philippine automotive
inuustiy without unueistanuing its ielation to capital flows anu to the pievailing
financial tienus in the Asian iegion.

In this section, the ieseaich stuuy will seek to establish an oveiview of capital
mobility in Asia anu financial flows to the Philippines befoie pioceeuing to the
uiscussion of finance capital's movement along the automotive supply chain anu
within the maiket.

S2
Trends in financial flows to developing countries

Inueeu, measuiing anu tiacking cioss-boiuei financial flows in the highly libeializeu
global economy is a veiy uifficult enueavoui. What is cleai is that the volume of
capital ciiculating in the global financial economy has suigeu uiamatically ovei the
yeais uespite a numbei of financial ciises.

In a u-24 uiscussion papei, C.P. Chanuiasekhai stateu that uuiing the East Asian
ciisis (miu-1997), the inteinational asset position of banks iesiuent in 2S countiies
iepoiting to the Bank of Inteinational Settlement (BIS) stoou at $9.9S tiillion,
involving $8.6 tiillion in exteinal assets aftei aujusting foi local assets. "By }une
2uu7, when 4u countiies weie iepoiting, this hau iisen to $SS.71 tiillion."
19

Apait fiom this, Chanuiasekhai saiu non-financial fiims - pension funus, insuiance
companies anu mutual funus - have emeigeu as "impoitant inteimeuiaiies between
saveis anu investois," with the total financial assets of institutional investois
stanuing at $46 tiillion in 2uuS.
2u

In ueveloping countiies, net exteinal financing flows have iisen shaiply to $17S.S
billion in 2uu2 since 1997. Foieign uiiect investment (FBI) anu poitfolio
investments incieaseu fiom $1SS.8 billion in 2uu2 to $446.7 billion in 2uu6, while
net exteinal boiiowing iose fiom $1u.9 billion in 2uu1 to $294.S billion in 2uu6.
21

As iegaius FBI, fiims fiom inuustiializeu countiies aie the main investois in East
Asia. Bowevei, }apanese companies appeai to be the laigest investoi gioup in
miuule-income ASEAN countiies, paiticulaily Thailanu anu Inuonesia.
22
Accoiuing
to ABB Institute Biiectoi foi Reseaich Naiio Lambeite, intia fiim tiaue between
}apanese multinationals' affiliates in East Asia accounteu foi S9 peicent of theii
total tiaue within the iegion.
2S
(Nixing tiaue numbeis anu FBI numbeis.)Be auueu
that many coipoiations of Asia's newly inuustiializeu economies "aie setting up
similai piouuction netwoiks in the PRC anu ASEAN countiies, theieby contiibuting
to the giowing intia-iegional tiaue anu investment."

It shoulu be noteu, howevei, that in many instances, FBI uoes not necessaiily iesult
in a net movement of capital, as it is financeu in the host countiy. A case in point is
Toyota Notoi Philippines Coip., which hau a significant poition of its capitalization
SS
in 1988 financeu by Netiopolitan Bank anu Tiust Co., a local bank. This pievailing
tienu paitly explains why theie is veiy little capital flowing fiom iich to pooi
countiies.
24

Inteiestingly, financial flows to ueveloping countiies inuicate that theie is a bluiiing
of the line between FBI anu poitfolio flows oi hot money flows with the ielaxation
of iegulations on poitfolios in iecent yeais, the uiamatic inciease in acquisitions
motivateu by "poitfolio investment" has followeu.
2S
Accoiuing to Chanuiasekhai,
these acquisitions (whethei thiough stocks oi equities) have not been "necessaiily
uiiven by long iun investment consiueiations but by the uesiie to gainei laigei
ietuins fiom capital gains."

The iecent suige in capital flows to ueveloping countiies has also implieu the
accumulation of laigei speculative positions by investois. Noigan Stanley estimates
about $7uu billion in speculative money is paikeu in Asia thiee times the
amount that left the iegion in the Asian financial ciisis in 1997 anu fai highei than
Asia's $2uu billion annual tiaue suiplus.

As East Asian economies libeializeu theii financial systems, they also became pait
of a giowing iegional financial coopeiation anu integiation. Lambeite pointeu out
foui aieas unuei which initiatives foi iegional coopeiation can be gioupeu: 1)
policy uialogue anu suiveillance (as shown in the set up of ASEAN Suiveillance
Piocess); 2) liquiuity suppoit facility (shown in the launch of the Chiang Nai
Initiative in 2uuu); S) financial system stiengthening (as manifesteu in ASEAN's
Banoi Plan of Action); anu the 4) Asian bonu maiket (maikeu by the launching of
the Asian Bonu Funu in 2uuS).

Financial flows to tbe Pbilippines

Bespite the suige in financial flows in the Asian iegion, net flows to the Philippines
fell shaiply between 1998 anu 2uu7, i.e., the peiiou aftei the East Asian financial
ciisis anu befoie the 2uu8 global financial ciisis.
26
Accoiuing to the Philippine
Institute foi Bevelopment Stuuies (PIBS), the only exceptions weie in 1999 when
theie was a faiily laige amount of foieign investment in uebt secuiities, anu in 2uuS
when theie was a suige in poitfolio investments.
27

S4
Baseu on uata fiom the Bepaitment of Tiaue anu Inuustiy, total appioveu foieign
uiiect investment plungeu to P8u.S7 billion in 2uuu fiom P262.1S billion in 1997:
28

Table 11: Total Approved Foreign Direct Investments by Promotion Agencies
199-2009 {in million pesos]
By the enu of 2uuS, the Philippines hau only 0S$S billion of the total foieign equity
holuings of majoi economies in East Asia woith 0S$819.S7 billion.

Table 12: Foreign equity boldings in East Asia, End-2003 {in million dollars]

Contiaiy to the claims maue by the goveinment that the Philippines weie not
affecteu by the global financial cieuit ciunch, the countiies financial accounts alone
ievealeu otheiwise. (Notwithstanuing the mass ietienchments) which plagueu
Filipino woikeis fiom 2uu8 to 2uuu9. Exteinal financing fiom the same countiies
which weie seveiely hit by the ciisis pieuictably uioppeu, woisening the oveiall
uowntienu in capital flows since 1998. Foi instance, net uiiect investments uioppeu
SS
to 0S$166 million in the fiist quaitei of 2u1u fiom 0S$1.S billion in the same
peiiou in 2uu7. Neanwhile, poitfolio investments, which aie geneially flighty,
plungeu to a net outflow of 0S$S42 million in the fiist quaitei of 2u1u.

Figure 10: Net capital flows to tbe Pbilippines {2007-2010, Q1],
in million US dollars

Souice of basic uata: Special Bata Bissemination Stanuaius of the Bangko Sential ng
Pilipinas (BSP), www.bsp.gov.ph

Sparse foreign investments in tbe Pbilippine automotive industry

Bespite the libeialization of the countiy's financial sectoi, investments have been
flowing spaisely to majoi economic sectois. In 2uu6 foi instance, theie was no
new foieign investment in agiicultuie anu manufactuiing even as 0S$2S8.8 million
in FBI (mostly fiom the 0S) floweu to the business piocess outsouicing (BP0)
inuustiy, ioughly 7u peicent of the total FBI in that yeai. 0thei investments went to
softwaie uevelopment anu othei IT seivices accoiuing to a BSP iepoit.

In the case of the automotive inuustiy, theie weie no new investments fiom 2uu1 to
2u1u even though the numbei of paiticipants to the goveinment's Notoi vehicle
Bevelopment Piogiam (NvBP) incieaseu fiom 2S in 2uu2 to 47 in 2uu9.
29
This
tienu is consistent with the geneial uecline in investment fiom 1974 to 1994
(Figuie 1u). Fiom $84.S million in 1974, total foieign investment to cai
manufactuiing uioppeu to only $2.6 million in 1988 then slightly inching up to $8
S6
million in 1994.

Figure 11: Foreign investments in tbe Pbilippine car market,
1974-1994 {in millions of dollars]

S7
Year
2002 3 0.29
2003 1 0.12
2004 1 0.15
2005 2 3.41
2006 3 2.65
2007 8 4.29
2008 3 5.95
2009 /a 2 0.19
TOTAL 23 17.06
No. of New of
MVP participants
Investments (in
Billion pesos)

Table 13: Investments in tbe Pbilippine auto industry

a paitial

It shoulu be noteu, howevei, that new paiticipants to the NvBP weie mostly
motoicycle assembleis anu uistiibutois, whose capitalization was geneially lowei
than auto assembleis anu auto paits manufactuieis. 0nuei the NvBP, 0S$2 million
is the minimum iequiieu investment foi motoicycle assembleis, compaieu to 0S$8
million anu 0S$1u million foi commeicial vehicle assembleis anu passengei cai
assembleis, iespectively.

A look at how the Philippines faies in teims of cai sales in compaiison with othei
ASEAN countiies will paitly explain why the local auto inuustiy is not that attiactive
to investois. Bomestic cai sales stoou at 1S2,444 units in 2uu9, a fai ciy fiom
Thailanu's S1S,442 anu Inuonesia's SS2,172 units, even as the global ciisis hit theii
auto inuustiies. This level of local cai sales is not suipiising, consiueiing that 4S
peicent of the population lives on 0S$2 a uay, iesulting fiom goveinment policies
that uepiess wages in oiuei to attiact foieign investment.
Su

It iemains to be stuuieu whethei auuitional investment in the local auto inuustiy
mentioneu in Table 1S was financeu exteinally oi thiough local banks. Beteimining
this, howevei, can be a uifficult exeicise, since some local banks aie themselves
uiiect shaieholueis of in-countiy subsiuiaiies of the auto TNCs.

Banks as stockbolders in auto firms

Inueeu, Toyota Notoi Philippines Coip. (TNPC) is the only Toyota subsiuiaiy in the
S8
woilu that is "locally-contiolleu."
S1
When TNPC was establisheu in 1988, S1 peicent
of its capitalization was financeu by Netiopolitan Bank anu Tiust Coip.
(Netiobank), a leauing commeicial bank in the Philippines, while S4 peicent came
fiom its paient company, Toyota Notoi Coip. The iemaining 1S peicent was
financeu by }apan-baseu Nitsui Coip.

Netiobank has a univeisal banking license with significant equity owneiships
insiue anu outsiue of the countiy. It is also a majoi playei in the Philippine Stock
Exchange.

A closei look on TNPC's iecent bieakuown of shaies (as of 2u1u) will show that
Netiobank opteu to uiviue its S1-peicent shaie between itself (Su peicent) anu
Titan Resouices Coip. (21 peicent), a Filipino company which has the same auuiess
as that of Netiobank but which is not owneu by the lattei. Similaily, Nitsui ietaineu
its 1S peicent by uiviuing it between itself (6 peicent) anu Filipino company
Naximus Nanagement Boluings (9 peicent) which is linkeu to Nitsui }apan.
0bviously, such bieakuown of shaies is only meant to make it appeai that TNPC is
majoiity owneu by Filipino.

Anothei uomestic commeicial bank, Rizal Commeicial Banking Coipoiation
(RCBC), is entiencheu in at least two majoi automotive companies in the countiy.
RCBC owns 12.87 peicent of Bonua Cais Philippines anu 1S peicent of Isuzu
Philippines Coipoiation as of 2u1u filing to the Secuiities anu Exchange
Commission.

With banks contiolling significant shaies of majoi auto TNCs in the countiy,
assessing the natuie of auuitional oi new investment by paient companies to theii
subsiuiaiies in the Philippines becomes moie complex.

Creasing car sales tbrougb loans

Asiue fiom contiolling stocks in majoi auto companies, local banks aie also active in
goauing cai sales thiough auto loans. Baseu on cential bank uata, auto loans
uisposeu by univeisal, commeicial anu thiift banks giew by S8.29 peicent fiom
P68.44 billion in 2uu6 to P94.6S billion in 2uu9.

S9
Table 14: Auto loans, Pbilippine banks, 200-2010 {in billion pesos]

200 S9.S8 61.881 64.6uS 68.44
2007 7u.94 7S.u8 78.791 81.8u4
2008 76.S8 79.u84 77.171 78.618
2009 81.7S2 86.22 9u.627 94.646
2010 99.799 1uS.797 111.449 n.a.
Souice: Bangko Sential ng Pilipinas, www.bsp.gov.ph

The shaie of auto loans in the banking inuustiy's total loan poitfolio incieaseu fiom
S peicent in 2uu9 to 4 peicent in 2u1u. Neanwhile, the combineu auto loans of
univeisal, commeicial anu thiift banks have geneially incieaseu since 2uu6 save foi
the 16.SS peicent uiop in 2uu8. Fiom }anuaiy to Septembei in 2u1u, total money
lent to consumeis seeking to buy cais totalleu P111.4 billion, oi 17.8 peicent highei
than the combineu auto loans foi the entiie yeai of 2uu9. The cential bank
attiibuteu this giowth in cai loans to the aggiessive maiketing stiategy of banks
anu othei cai financing fiims.

Focusing on Toyota Motor Pbilippines

To obtain a closei pictuie of how capital moves along anu within the piouuction
piocesses of automobile fiims, the ieseaicheis analyzeu the financial statement of
Toyota Notoi Philippines Coip. (TNPC) foi the financial yeai enuing in 2uu9.
0bviously, a conclusive analysis on majoi capital movements towaius anu outwaius
TNPC anu the uiffeient foims anu moues of tiansfei of capital is not feasible with
only the FS as unit of analysis. At the veiy least, the exeicise will sheu light on the
company's piioiities anu some notable changes in the balance sheet in ielation to
the global economic ciisis.

Among the key points that weie examineu weie: 1) assets 2) liabilities anu equity S)
cost of sales anu 4) ievenues anu net income.

1. Assets

Compaiing the cuiient anu non-cuiient assets, it can be gleaneu that TNPC focuses
moie on the shoit-teim investments (which jumpeu fiom P21.92 million in 2uu8 to
4u
P6u1.72 million in 2uu9). These investments iefei to assets that can be ieauily
liquiuateu whenevei the neeu, ieal oi imagineu, aiises. Piesumably, the focus on
ueposits with matuiities of thiee to 12 months was a move to put a fiaction of the
company's assets in a liquiu position amiu the tuibulent global financial system at
that time.

The company's savings anu time ueposits giew by 16u peicent (fiom P2.41 billion
to P6.92 billion in 2uu9), iesulting in P2u9.S8 million in inteiest income in 2uu9.

It shoulu also be noteu that theie was a huge jump in the inventoiies sub-item,
most especially in iaw mateiials in tiansit (which incieaseu by 4S.7S peicent). This
can be assumeu as pait of Toyota }apan's plan to inciease its auto paits subsiuiaiy's
piouuction of manual tiansmissions yeai-on-yeai staiting 2uu7.
S2
This coulu also
be the company's builu-up to the iemoval of all taiiffs on impoits of iaw mateiials
anu CKBs in 2u1u as stipulateu unuei the }apan-Philippines Economic Paitneiship
Agieement (}PEPA).

2. Liabilities anu equities

TNPC's liabilities skyiocketeu to P 8,428,u24,2S6 in 2uu9 fiom P 6,929,718,S41 in
the pievious yeai. In teims of equity, the company's appiopiiateu ietaineu eainings
(which shoulu be S peicent of the paient company's net income foi the yeai) uiu
not change at all fiom 2uu8 to 2uu9 uespite obvious changes in the net income of
Toyota }apan uuiing the same peiiou. Its unappiopiiateu ietaineu eainings
meanwhile sliu uown.

S. Cost of sales

Appaiently, the company's cost-cutting measuies at the height of the global ciisis
weie ieflecteu in the cost of sales, which coveis wages anu benefits of iank-anu-file
employees, iepaiis anu maintenance, anu stockyaiu anu opeiational costs.

Foi instance, the cost of uiiect laboui (wages of iank-anu-file employees) was
slasheu by 24 peicent fiom P1SS.78 million to P1uS.68 million. Stockyaiu anu
opeiational costs (which is suipiisingly fai below uiiect laboui) fell by SS peicent.
The cost of iepaiis anu maintenance also uecieaseu by SS peicent. It can be
41
assumeu that significant uecieases in maintenance anu opeiational costs weie uue
to the company's ieuuction of woikuays foi the fiist six months of 2uu9.

4. Revenues anu net income

TNPC's net income sliu to only P1.6 billion in 2uu9 fiom P2.89 billion in 2uu8. The
sizable uiop was mainly uue to the steep uecline in gioss piofit fiom manufactuiing
activities, which uecieaseu fiom P1.S17 billion to P486.9 million. It can be infeiieu
that TNPC's locally assembleu mouels aie being outuone by impoiteu CB0s of the
same bianu that aie geneially cheapei, thus the highei piofits fiom tiauing than
fiom manufactuiing activities. Revenues fiom tiauing anu seivices ieacheu PS2.22
billion in 2uu9 fiom PS1.6 billion, fai highei than ievenues fiom manufactuiing
activities which stoou at P14.S6 billion in 2uu9. Shoulu the tienu continue, the
company woulu pieuictably uownsize manufactuiing opeiations anu ietiench
assembly line woikeis.

VI. Labour issues in tbe auto industry: Inside Toyota and F-Tecb Pbilippines

1. Toyota

Renowneu as the woilu's laigest automakei, Toyota Notoi Coip. has giaceu the
pages of iecoiu books aftei coming out with one blockbustei mouel aftei anothei.
Since the Toyota Coiolla hit the ioau in 1966, it has become the best-selling
automobile
SS
in the woilu, ieaching the SS-million sales maik in 2u1u. That
iepiesents 2,179 Coiolla sales eveiy uay, oi 9u units eveiy houi. Toyota also leaus cai
makeis in teims of enviionment-fiienuly autos with Piius - the fiist anu
best-selling mass-piouuceu hybiiu vehicle which hit one million sales woiluwiue in
2uu8.
S4

Nuch attention has also been paiu to Toyota's Piouuction System
SS
(TPS), which is
iegaiueu as the uevelopment of the Foiu mass piouuction system. Behinu the
company's global success anu piestige, Toyota woikeis at home anu abioau toil
unuei unjust woiking conuitions.

In 2uu2, a Su-yeai-olu quality contiol inspectoi who woikeu foi a Piius plant in
}apan's Toyota City uieu fiom oveiwoik.
S6
The woikei ioutinely unueitook 14-houi
42
shifts uay, often six uays a week, as uemanueu by his woik scheuule. Woise, theie
was no oveitime pay.

CoipWatch, a non-piofit investigative ieseaich initiative, saiu that almost a thiiu of
the assembly line woikeis at Toyota City aie tempoiaiy employees who eain an
aveiage of $12.1S an houi, almost half of the wages of iegulai woikeis eaining
$2u.49 an houi plus bonuses. The gioup auueu that Toyota's suppliei plants in }apan
also make extensive use of guest oi "tiainee" woikeis, mostly fiom China anu
vietnam "unuei conuitions that in some iespects qualify as human tiafficking."

In the Philippines, Toyota Notoi Philippines Coip's (TNPC) have eaineu not just
the ciiticism of woikeis' oiganizations nationwiue but also woikeis' gioups anu
inuepenuent bouies woiluwiue foi its gioss violation of laboui iights.. In the woius of
Toyota Notoi Philippines Coipoiation Woikeis' Association (TNPWA), the
company has wageu a wai against them. (no quotation maiks.)

Retrencbments, union busting

0n Naich 16, 2uu1, the company illegally uismisseu 227 woikeis in its Sta. Rosa,
Laguna plant, aiguing that they faileu to explain theii absence on Febiuaiy 22 anu
2S. But membeis of TNPCWA, which compiiseu half of the 948-stiong woikfoice,
saiu the uismissal was "sheei union busting, unpaialleleu in its magnituue anu
seveiity."
S7
The union launcheu a week-long piotest action which culminateu in a
stiike on Naich 28. Piioi to the mass ietienchment, Toyota woikeis weie also
piotesting the company's iefusal to iecognize TNPCWA anu entei into a collective
baigaining agieement (CBA) with the union.

Apait fiom ietienching woikeis, Suu on-the-job tiainees (0}T) weie aumitteu by
the company to ieplace the iegulai woikeis it ietiencheu. 0p to now, the company
continues to employ 0}Ts, anu iotates a new gioup in eveiy six months.
S8

The laboui issue tuineu into a couit battle which ieacheu the Couit of Appeals anu
the Supieme Couit. In Novembei 2uu7, the high couit affiimeu the uismissal of
woikeis, because it ueemeu the stiike illegal.

At the time the uecision which favoieu the company came out, TNPCWA hau
4S
alieauy exposeu the anti-woikei schemes of the automakei to the woilu.

TNPCWA, leu by its piesiuent Eu Cubelo, fileu theii complaint (Case No. 22S2) with
the Inteinational Laboui 0iganization (IL0) in Febiuaiy 2uuS. In Novembei, the
IL0 iecommenueu the ieinstatement of all 227 woikeis as well as the
commencement of the collective baigaining agieement. It pointeu to TNPC's
suppiession of fieeuom of association as "an illustiation of how a multinational
company, appaiently with little iegaiu foi coipoiate iesponsibility, has uone
eveiything in its powei to pievent iecognition anu ceitification of the Toyota Notoi
Philippines Coip. Woikeis Association."

But neithei the national goveinment noi TNPC buugeu upon ieceiving IL0's
iecommenuation. The company continueu to ueny woikeis theii jobs anu
baigaining iights.

The following yeai, TNPCWA fileu a complaint against TNPC anu Toyota Notoi
}apan foi violating 0ECB's uuiuelines foi Nultinational Enteipiises. In the couise of
the stiuggle, Cubelo met with iepiesentatives of vaiious woikeis' oiganizations
woiluwiue which gave theii suppoit to the campaign, incluuing the Inteinational
Netalwoikeis' Feueiation (INF).
S9

'Market-driven scbolarsbips'

In its effoit to sustain goou bianu ieputation, TNPC has engageu vaiious socio-civic
activities anu has paiticipateu in enviionmental piojects such as tiee-planting anu
coastal clean-ups thiough its coipoiate social uevelopment aim (Toyota Notoi
Philippines Founuation, Inc.). The company has also offeieu uonations to schools
anu univeisities, incluuing a P1uu-million uonation to the 0niveisity of the
Philippines (0P) Asian Centie foi the constiuction of the uT-Toyota Asian Centie
Auuitoiium.

Among its CSR unueitakings, TNPC's Toyota Automotive Euucation Piogiam
(TAEP)
4u
stanus as one of the most systematic - not only in sustaining goou PR but
in ieciuiting futuie woikeis foi its opeiations anu in boosting sales. TAEP's thiust is
"to sustain a pipeline of globally competitive Toyota Technicians by ieciuiting young
talent to the Toyota Netwoik".
44

In selecting piospective paitnei schools, the school must be locateu neai Toyota
uealeiships. Toyota Technology Centies will then be establisheu in chosen paitnei
schools. Full scholaiships will be awaiueu to five stuuents within the aiea of the
uealeiship. With bettei sales, moie stuuents will be suppoiteu by Toyota within the
locality, thus the set up of a "maiket-uiiven scholaiship'.
41

Effects of tbe global crisis

When the global financial anu economic ciisis mateiializeu in 2uu8, TNP
implementeu cost-cutting measuies in the foim of ieuucing the numbei of
woikuays. 0peiations at the Sta. Rosa, Laguna plant, which assembles vios anu
Innova foi the uomestic maiket, weie halteu at least one uay pei week to save on
electiicity, watei anu othei iesouices. This scheme took effect foi six months,
significantly ieuucing the piouuction output of the company.

Continuing tbe war against workers

Bespite the wiuespieau campaign mounteu against its unfaii laboui piactices,
TNPC yet again exposeu its gioss anti-woikei chaiactei when it teiminateu foui
union officeis on chaiges of piouuction sabotage on August 2, yeai, a uay befoie the
company's week-long anniveisaiy celebiation.

Among the uismisseu woikeis was Wenecito 0igel, TNPCWA vice piesiuent foi
inteinal affaiis who woikeu as a cai paintei foi the company foi 18 yeais.
Accoiuing to him, they weie uismisseu because they weie the ones active in
opposing the uemotion of one of theii co-woikeis to contiactual status.

0igel anu othei union officeis sought foi giievance piocess on the issue on Nay 28.
A week latei, nine woikeis - incluuing 0igel - weie helu iesponsible foi the
two-minute piouuction inteiiuption anu weie sanctioneu with pieventive
suspension.

"We weie chaigeu as guilty even though theie was no investigation yet," he saiu,
auuing that it was theii supeivisoi who intentionally tuineu off the switch of the
machine to justify the company's allegeu plan to ietiench moie woikeis.
4S

"Toyota wants to cieate a climate of feai among us. It wants woikeis to equate the
failuie to meet the uaily piouuction taiget with uismissal," 0igel.

The uaily piouuction taiget of Toyota's local assembly plant, which employs 1,6uu
iegulai woikeis anu moie than Suu contiactual in 2u1u, is 11u units of vios anu
Innova cais. This uaily taiget must be piouuceu uuiing two eight-houi shifts, which
means eveiy shift must piouuce SS units.

0igel auueu that the taigeteu time to assemble one vehicle is 7.SS minutes. "Eveiy
7.SS minutes an assembleu vehicle comes off the assembly line aftei going thiough
uiffeient piocesses like weluing, painting, anu integiation of uoois anu aii
conuitioning units."

"The woikloau in oui factoiy is stienuous anu uangeious as well. Iionically, the
company's concept of safety is just foi the finisheu vehicles, not foi us woikeis," he
saiu.

2. F-Tecb Pbilippines Manufacturing, Inc.

Insiue the plant of auto paits manufactuiei F-Tech Philippines Nanufactuiing, Inc. in
Laguna Technopaik, woikeis face the same iepiession of laboui iights iepiession
anu health anu safety conceins.

F-Tech Philippines, a piouucei of peuals anu suspension paits anu a subsiuiaiy of
}apan-baseu F-Tech Inc., piouuces 4,uuu peuals anu 1,Suu suspension paits uaily foi
Bonua's assembly plants in the countiy anu in }apan anu Thailanu, as well as foi
othei auto bianus. Noie than half of its S76 woikeis aie contiactual: Foi eveiy five
iegulai woikeis on a piouuction line, theie aie seven contiactuals on the same line.

Literally back-breaking

Nost of the piocesses insiue F-Tech's plant aie manually uone uespite the high uaily
piouuction taiget anu the stienuous piocesses involveu. In an eight-houi shift, the
company chuins out both peuals anu suspension paits which have passeu thiough
stamping, weluing, painting anu assembly piocesses When the plant fails to piouuce
46
its uaily taiget within eight houis (which often occuis), woikeis aie foiceu to woik
oveitime to meet the taiget.

F-Tech woikei Eugai Bilaga saiu some of them even woik 11 houis a uay foi seven
stiaight uays, especially those in the stamping uepaitment since they aie ones who
caiiy out the fiist piocess.

"Woikeis who fall ill oi acquiie a uisease aie simply tolu by F-Tech Philippines to
iesign because they aie useless to the company. In fact, one of oui co-woikeis got a
fiactuieu back fiom yeais of haiu woik in the company, only to be piessuieu by the
company to iesign," he saiu.

Black propaganda against tbe union

Befoie the ceitification election of the union in the fiist quaitei of 2u1u, Bilaga saiu
the company embaikeu on uiffeient foims of black piopaganua against the union
that they aie tiying to establish.

"F-Tech launcheu seminais with fiee foou to gathei woikeis foi its lectuie against
unionism. Those of us who actively campaigneu foi the iecognition of the union
weie calleu 'Reus' foi simply auvocating genuine tiaue unionism," the woikei saiu.

Foi Bilaga, this kinu of laboui iights iepiession is not new. In Naich 2uu1, he was
one of the 227 woikeis laiu off by his foimei employei Toyota Notoi Philippines foi
actively pushing foi a collective baigaining agieement.

The union faileu to mustei the majoiity vote in the ceitification election. The
oiganizeis attiibuteu this failuie to the management's anti-union ihetoiic anu
thieats of uismissal foi woikeis. But Bilaga pointeu out that unlike in othei
factoiies, they weie able to ieach the voting piocess as F-Tech's management faileu
to file a ceitification foi cancellation of union iegistiation.

Effects of tbe global crisis

At the height of the global economic slowuown in the fiist quaitei of 2uu9, F-Tech
Philippines imposeu flexible woik aiiangements, ieuucing the iegulai six-uay
47
woikweek to thiee oi foui uays by foicing woikeis to use theii sick anu vacation
leave. This"foiceu leave" scheme was one of the iecommenuations of laboui
uepaitment to supposeuly aveit moie layoffs at that time.

VII. Conclusion

vaiious associations of automotive companies in the countiy have been
applauuing the inciease in vehicle sales in the fiist half of 2u1u. 0fficial foiecast by
the Chambei of Automotive Nanufactuieis of the Philippines, Inc. (CANPI) on
annual vehicle sales foi 2u1u stanus at 147,uuu units, buoyeu by optimism fiom
the 67,uuu-unit sales in the fiist five months of the yeai. This optimism was even
hypeu up aftei a iecent stuuy on the piospects foi the Philippine Automotive
inuustiy was ieleaseu stating that the Philippines can be the 2nu iegional hub foi
the Southeast Asian iegion in the coming yeais.

The iising giowth iate of the economy, incieaseu iemittances fiom 0veiseas
Filipino Woikeis (0FWs), anu high hopes foi the new auministiation aie among the
factois being citeu foi the anticipateu suige in sales in 2u1u. The bullish outlook foi
the automotive inuustiy is also coupleu with the new auministiation's effoits to
ieview the cuiient Notoi vehicle Bevelopment Piogiam (NvBP).

These conuitions anu inuicatois, howevei, aie insufficient to spui auto inuustiy
giowth anu biing the Philippines onto the iauai of the global auto piouuction
system. Fiom oui ieseaich it is cleai that a favouiable business climate plus a new
cai uevelopment piogiam (NvBP) cannot unuo the cuiient pioblems of the auto
inuustiy which aie linkeu to the stiuctuial weaknesses of the Philippine economy.
The uomestic economy iemains pieuominantly backwaiu anu pie-inuustiial, while
the level of technology iemains veiy low. Theie aie no basic inuustiies that seive as
a founuation foi a local automotive inuustiy. With these featuies, auto piouuction
will iemain small-scale anu costly, yieluing low value-auueu piouucts anu ielying on
impoiteu iaw mateiials.

Fuitheimoie, continuing tiaue libeialization via fiee tiaue agieements (}PEPA,
AFTA), goveinment-issueu executive oiueis, anu ieuuction anu iemoval of taiiffs
will fuithei weaken the Philippine automotive inuustiy as it points to massive
impoitation of CB0s anu CKBs which aie cheapei than locally manufactuieu
48
vehicles. 0nuei the neolibeial iationale, it is not wise foi auto giants to continue
theii assembly anu manufactuiing opeiations in the Philippines wheie the cost of
piouuction is high compaieu to inteinational levels. Insteau of engaging in
manufactuiing, it woulu be moie piofitable foi auto giants to impoit anu uistiibute
CB0s in the local maiket while maintaining piouuction of veiy non-essential auto
paits in-countiy This is ieflecteu in the uecieasing investments of auto giants in
manufactuiing in iecent yeais. Pieuictably, scaleu-uown manufactuiing opeiations
in the countiy will leau to massive ietienchments of woikeis anuoi woise flexible
laboui aiiangements in the woikplace.

Even uomestic auto paits anu components manufactuieis will be seiiously hit by
the tiajectoiy of national anu iegional policies towaius fuithei libeialization since
they have no competitive auvantage against majoi inteinational global supplieis
who aie also subsiuiaiies anu affiliates of TNCs.
`
It is woith noting that capital mobility in the auto inuustiy has in pait uefineu the
cuiient state of auto manufactuiing anu tiaue in the countiy. Baseu on the finuings,
Asian auto TNCs confineu uomestic vehicle assembly anu auto paits manufactuiing
to small-scale piouuction, low value-auueu piouucts anu high cost of piouuction
thiough the amount of investment it biought into the countiy anu the moue of
capital flows. Foieign capital biought to the Philippines focuseu only on the lowest
enu anu lowest value-auueu piouuction. Bilateial anu multilateial tiaue agieements
have been instiumental in cementing the uisauvantages.

Significantly, key playeis in the automotive inuustiy also contiol financial capital
thiough theii tightly knit ielationship with the banks, with the lattei nestleu in
majoi auto companies as stockholueis. Becisively, banks in automobile companies
extenu influence in the mobility anu iestiiction of financial capital, which is not
uesigneu to finance manufactuiing but uomestic vehicle sales via aggiessive auto
loan uisbuisements. In effect, banks aie uiiectly anu inuiiectly suppoiting this
stiategy of small-scale anu low value piouuction while aitificially incieasing cai
puichases thiough loans foi piofit.

Asiue fiom constiicting the giowth of the automotive inuustiy, the spaise inflow of
foieign capital in the countiy spells out woise exploitation anu moie pionounceu
flexibilization of laboui. Without new investments foi expansion oi technology
49
tiansfei, automobile companies aie iaising piouuction taigets without tapping new
piouuction facilities anu machineiy. Insteau, companies aie imposing new foims of
flexible laboui aiiangements like compiesseu woikweek (as in the case of Toyota
woikeis) anu piolongeu houis of woik (as in the case of F-Tech woikeis) to extiact
a highei suiplus value fiom woikeis.

The conuitions of auto woikeis in the woikplace anu the issues they aie facing aie
ueteimineu also by the uiiection anu stiess of capital mobility of Asian automotive
TNCs. That means the uaily piouuction anu piojection of piouuction in each
companies aie in line with the iegional blue piint foi the complementaiy iegional
piouuction of the Asian automotive TNCs. Cost-cutting measuies, the level of
piouuction, anu plans foi expansion aie baseu on the uiiection set by Asian TNCs.

Since capital mobility within anu along Asian automotive TNCs significantly shapes
the cuiient status of the local automotive inuustiy anu its piospects, Asian
automotive TNCs aie also uecisive in influencing the fate of woikeis in the local
automotive inuustiy. Filipino woikeis iemain vulneiable to the capiices of capital
mobility, being on the biink of mass layoffs oi moie exploitative woik aiiangements
in the woikplace in the face of spaise capital investments.

As foi othei countiies favouieu by capital flows, theii auto woikeis aie victims of
the highly stienuous automotive piouuction anu exploitation. Thus, it is impoitant
foi woikeis anu theii oiganizations to conuuct iegulai analysis anu monitoiing of
capital mobility anu its tienus, to effectively lay uown conciete anu cleai
counteiactions anu lessen theii vulneiability to the negative impacts of capital
mobility. Regional anu global laboui actions among unions in the automotive sectoi
shoulu be foigeu to consoliuate laboui's iesponse to the ill-effects of global anu
iegional integiation of piouuction.

Endnotes

1
Nichael Schwaiz, TrenJs in tbe Automotive lnJustry: lmplicotions on Supply Cboin Honoqement
(CISC0 Inteinet Business Solutions uioup, Febiuaiy 2uu8).
2
Cailos uomez, Ileets Brive RebounJ in 0.S. Soles, But EousebolJs ore Tbe Cbouffeurs in ConoJo,
6lobol Auto Report (Scotiabank uioup, }uly 9, 2u1u).
S
Schwaiz, op. cit.
Su
4
Fiancisco veloso anu Rajiv Kumai, Tbe Automotive Supply Cboin: 6lobol TrenJs onJ Asion
Perspectives. FRB Workinq Poper Series No. S (Economics anu Reseaich Bepaitment, Asian
Bevelopment Bank, }anuaiy 2uu2)
S
Ibiu.
6
Ibon Founuation, lmpoct of 6lobolizotion onJ Iree TroJe Aqreements in tbe Pbilippines
{lecture) { Nanila, Becembei 2u1u).
7
Rafaelita A. Neicauo-Aluaba, Hicro StuJies: Pbilippine Cor Assembly Sector, Biscussion Poper
Series No. 97-21 (Philippine Institute foi Bevelopment Stuuies, Septembei 1997).
8
Ibiu.
9
Ibiu.
1u
1u Rafaelita A. Neicauo-Aluaba, lncreosinq 6lobolizotion onJ AITA in 200S: Wbot ore tbe
Prospects for tbe Pbilippine Automotive lnJustry? (Philippine Institute foi Bevelopment Stuuies,
Novembei 2uuu).
11
AIC0 scheme, signeu on Apiil 27, 1996, giants u-S peicent piefeiential taiiff iate foi all
piouucts iuentifieu in the appioveu AIC0 aiiangements exchangeu among contiacting paities.
12
}PEPA is a compiehensive bilateial tiaue anu investment agieement between }apan anu the
Philippines aimeu at incieasing tiaue anu investment oppoitunities between the two economies.
1S
Cebu-baseu fiims Philippine BKR Inc.,manufactuiei of geai sleeves anu univeisal joints, anu
Biitish Aimoi Nanufactuiing Inteinational Inc.,manufactuiei of aimoi foi aimoieu vehicles,
aieboth }apanese fiims.
14
Signeu by foimei Piesiuent uloiia Aiioyo in 2uu4
1S
Fiancisco veloso anu Rajiv Kumai, Tbe Automotive Supply Cboin: 6lobol TrenJs onJ Asion
Perspectives (ABB Woiking Papei, }anuaiy 2uu2), 1S.
16
Philippine Bepaitment of Tiaue anu Inuustiy, 0verview of tbe Pbilippines' Auto lnJustry Policy,
poweipoint piesentation (Febiuaiy 2u1u).
17
Nitsui & Co., Ltu. Notoi vehicle Business 0nit (Novembei 2u, 2uu8): 6.
18
}ohn Bellamy Fostei, Tbe Aqe of Honopoly-Iinonce Copitol, (Nonthly Review,Becembei 2uu9)
19
C.P. Chanuiasekhai, 6lobol liquiJity onJ Iinonciol Ilows to Bevelopinq Countries: New TrenJs
in Fmerqinq Horkets onJ tbeir lmplicotions 6-24 Biscussion Poper Series (Novembei 2uu8): 1
2u
Ibiu., p. S
21
Ibiu., p. S
22
Naiio B. Lambeite, An 0verview of Fconomic lnteqrotion onJ Cooperotion in Asio. Retiieveu
fiom www.aub.oig
2S
Ibiu., p.1u
24
Balia Naiin anu Nonika Schnitzei, Wben is IBl o Copitol Ilow? uoveinance anu the Efficiency
of Economic Systems (uESY) uiscussion papei (}une 2uu6): 1
S1
2S
Chanuiasekhai, op. cit., p. S
26
}osef T. Yap, Nanaging Capital Flows: The Case of the Philippines," Philippine Institute foi
Bevelopment Stuuies (PIBS) uiscussion papei (Febiuaiy 2uu8): 6
27
Ibiu., p. 6
28
Refeis only to investment pleugeu by foieign coipoiations oi goveinments within a given
yeai
29
Philippine Bepaitment of Tiaue anu Inuustiy, 0verview of tbe Pbilippines' Auto lnJustry
Policy, (Febiuaiy 2u1u)
Su
The ieseaicheis useu the olu Buman Poveity Inuex (uollai-a-uay) insteau of the new one
(which factois in the conuitions suiiounuing the ueliveiy of, anu access to, electiicity, watei, etc.)
since the foimei moie accuiately assesses puichasing powei
S1
Toyota }apan holus a majoiity stake in all its inteinational subsiuiaiies with the exception of
this unit in the Philippines.
S2
"Toyota to Inciease Nanual Piouuction anu Expoits," Toyota Notoi Philippines Coip.'s piess
ielease posteu in www.toyota.com.ph
SS
"Bappy Biithuay, Coiolla!" Businessweek (Sept. 6, 2uu6)
S4
"Toyota Piius sales hit 1 million woiluwiue," Reuteis (Nay 1S, 2uu8)
SS
TPS aims to eliminates waste by piouucing what is neeueu in the next piocess in a
continuous flow
S6
"The Toyota You Bon't Know: The Race to the Bottom in the Auto Inuustiy," National Laboi
Committee (}une 2uu8): p. 4
S7
"Toyota woikeis stage stiike," BusinessWoilu (Naich 29, 2uu1)
S8
baseu on an Aug. S, 2u1u inteiview with a Toyota woikei
S9
Foi the complete timeline of Toyota woikeis' stiuggle, see Inteinational Netalwoikeis'
Feueiation's (INF) Web site: www.imfmetal.oig
4u
TAEP is pait of Toyota's Technical Euucation Piogiam (T-TEP), its woiluwiue piogiam on
ieciuiting woikeis to its plants
41
Ronalu uaspai, "Toyota Automotive Euucation Piogiam," (Becembei 2uu9)

S2
Appendix

EU.1997-99
EXECUTIVE URDERJ
TITLE
CUVERACE MAIN CUNTENT
EFFECT UN
AUTU INDUSTRY
Executive 0iuei 4SS of 1997
N0BIFYINu TBE RATES 0F B0TY 0N
CERTAIN INP0RTEB ARTICLES AS
PR0vIBEB F0R 0NBER TBE TARIFF ANB
C0ST0NS C0BE 0F 1978, AS ANENBEB, IN
0RBER T0 INPLENENT TBE 1997-2uuS
PBILIPPINE SCBEB0LE 0F TARIFF
REB0CTI0N 0F PR0B0CTS TRANSFERREB
FR0N TBE TENP0RARY EXCL0SI0N LIST T0
TBE INCL0SI0N LIST 0NBER TBE NEW TINE
FRANE 0F TBE ACCELERATEB C0NN0N
EFFECTIvE PREFERENTIAL TARIFF SCBENE
F0R TBE ASEAN FREE TRABE AREA
(CEPT-AFTA)
(See also E0 71 s.1999)
> legal enactment to implement the
scheuule of taiiff ieuuctions fiom
1997 to 2uuS (ASEAN)

Executive 0iuei 168 of 1999
PR0vIBEB 0NBER TBE TARIFF ANB
0RBER T0 INPLENENT
TBE PREFERENTIAL TARIFF RATES 0N
CERTAIN PR0B0CTS 0NBER TBE ASEAN
> Thailanu
> Isuzu uiesel engines &
tiansmission
- Philippines will impoit uiesel engine
fiom Thailanu
- Thailanu will impoit tiansmission
fiom the Phils
- impoiteu engines will bove a taiiff of
S%

SS
INB0STRIAL C00PERATI0N (AIC0) SCBENE
0RBER T0 INPLENENT
TBE PREFERENTIAL TARIFF RATES 0N
CERTAIN PR0B0CTS 0NBER TBE ASEAN
INB0STRIAL C00PERATI0N (AIC0) SCBENE
annex a: orticles qronteJ preferentiol toriff
unJer tbe opproveJ oico scbeme of isuzu
motors osio

S4
EU.2000
EXECUTIVE URDERJ
TITLE
EFFECT UN
AUTU INDUSTRY
> Bonua AIC0
> Toyota AIC0
> fiom Inuonesia anu Nalaysia, 0EN
paits of Bonua Civic, City anu Accoiu;
fiom Philippines components of Bonua
Civic, City anu Accoiu
> fiom Nalaysia, 0EN paits of Toyota
Coiolla anu T0v

-Philippines will impoit vaiious
component paits fiom Inuonesia anu
Nalaysia foi the 0EN of Civic, City, anu
Accoiu
-Inuonesia will impoit ceitain
automotive component paits fiom the
Philippines foi 0EN of Civic, City anu
Accoiu

0nuei the Toyota AIC0 Aiiangement

-Philippines will impoit fiom Nalaysia
the 0EN of Coiolla anu T0v light
commeicial vehicles foi the tianspoit of
peisons anu goous.
-taiiff is u-S%

Executive 0iuei 21S of 2000
> Toyota AIC0
> fiom Inuonesia, Nalaysia anu
Thailanu, 0EN paits foi Toyota Coiolla
anu Camiy
> fiom Philippines, complementaiy
-Philippines will impoit fiom Inuonesia,
Nalaysia anu Thailanu 0EN foi Coiolla
anu Camiy
-Inuonesia, Nalaysia anu Thailanu will

SS
components foi Kijang, Coiolla, Camiy,
0nsei, Bilux anu Soluna
impoit complementaiy component
paits foi the 0EN of Kijang, Coiolla,
Camiy, 0nsei, Bilux anu Soluna
- u-S% taiiff
Executive 0iuei S19 of 2000
N0BIFYINu TBE RATES 0F
B0TY 0N CERTAIN INP0RTEB
ARTICLES AS PR0vIBEB 0NBER
TBE TARIFF ANB C0ST0NS
C0BE 0F 1978, AS ANENBEB, IN
0RBER T0 INPLENENT TBE
PREFERENTIAL TARIFF RATES
0N CERTAIN PR0B0CTS 0NBER
TBE ASEAN INB0STRIAL
C00PERATI0N (AIC0) SCBENE

>Toyota AIC0 agieement
> Nitsubishi AIC0
> fiom Inuonesia, Nalaysia, Thailanu
(Toyota Coiolla) 0EN auto paits
components in exchange foi (see onnex)
. electiics fans.!
- Philippines will impoit fiom Inuonesia,
Nalaysia, anu Thailanu 0EN automobile
paitscomponents foi Coiolla
- Inuonesia, Nalaysia anu Thailanu will
impoit electiic fans anu complementaiy
componentspaits foi the electiic fans
- u-S% taiiff

Nitsubishi Notois Philippines & Asian
Tiansmission Coipoiation AIC0
-Philippines will impoit fiom thailanu
0EN automotive paitscomponents foi
Lancei anu L2uu.
-Thailanu will impoit complementaiy
paitcomponents foi L2uu
- u-S% taiiff

S6
EU.2002
EXECUTIVE URDERJ
TITLE
EFFECT UN
AUTU INDUSTRY
> Toyota AIC0.
> fiom Inuonesia anu Thailanu, 0EN
paits foi Toyota Coiolla
> fiom Philippines complementaiy
components foi Toyota Coiolla anu
Kijang
-Philippines will impoit fiom Inuonesia
anu Thailanu ceitain 0EN automotive
paitscomponents foi Coiolla.
-Inuonesia anu Thailanu will impoit
complementaiy component paits foi the
0EN of Coiolla anu Kijang.

> Bonua AIC0

> fiom Thailanu, 0EN paits of Bonua
Civic
> fiom Philippines, complementaiy
paits of Bonua Civic
-Philippines will impoit fiom Thailanu
0EN automotivecomponents foi Civic
-Thailanu will impoit complementaiy
paits foi the 0EN of Civic
-u-S% taiiff

Executive Urder 15 of 2002
Notoi vehicle Bevelopment
Piogiam
> Passengei Cais: foui-wheel uiive
vehicles useu to tianspoit peisons
> Commeicial Cais: tianspoit peisons
anuoi goous
- motoicycles

-the assembly of motoi vehicles shall be
completely knockeu uown conuition only.
CKB: locally piouuceu oi impoiteu foi
assembly puiposes by a iegisteieu
paiticipant
Impoiteu CKBS: subpaitspaits anu
sub-assembliesassembliescomponents
minus local paits anu components as may
be ueteimineu by the B0I
-only bianu-new 0EN CKB paits anu
components foi assembly puiposes shall

S7
be alloweu foi impoitation unuei the
piogiam

-any foieign-owneu oi Filipino-owneu
companies oiganizeu unuei Philippine
laws that will engage in the
manufactuieassemble of motoi vehicles
shall qualify as paiticipant.
-each new paiticipant, ovei a peiiou of 1
yeai, shall invest anuoi biing in
investments in the manufactuie of motoi
vehicle paits anu components foi both
expoit anu uomestic maikets equivalent
to 0SB 1u million foi passengei cais oi
0SB 8 million foi commeicial vehicle oi
0SB 2 million foi motoicycle.

Investments shall be in any of the
following schemes:
1. Equity investment, eithei minoi oi
majoi stockholuings in new oi existing
motoi vehicle paits company
2. Investments in in-house motoi vehicle
S8
paits manufactuiing oi
S. Cost shaiing schemes with existing
companies in teims of tooling anuoi
moueinizationupgiaue of facilities oi
4. othei investments that B0I may
consiuei foi the uevelopment of the motoi
vehicle inuustiy.

-theie shall be no limitation in the numbei
of mouels that paiticipant may
assemblemanufactuie pioviueu the same
aie iegisteieu with the B0I. A paiticipant
may iegistei multi bianus oi motoi
vehicles

-The B0I shall not iegistei the same
mouel unuei 2 paiticipants

- the paiticipants shall continue to avail of
CKB taiiff iate unuei the CKB taiiff lines
as may be ueteimineu by B0I. The B0I
will issue a Ceitificate of Authoiity.

S9
-the BTI shall monitoi all impoitations of
useu motoi vehicles thiough a monthly
iepoit.

-excise taxes system will be iestiuctuieu.

EU.2003
EXECUTIVE URDERJ
TITLE
EFFECT UN
AUTU INDUSTRY
> unuei the Philippine Auto
Components AIC0 Aiiangement

> fiom Thailanu, fan assy anu shiouu
assy; evapoiatois foi aii conuitioning
machines, uppeilowei thanks AI
iauiatois, subassy, lowei tanks foi AI
iauiatois, anu coie subassy (AI
iauiatois)
> fiom Philippines, fuel pump moue
assembly
-Philippines will impoit fiom
Thailanu fan assy anu shiouu assy;
evapoiatois foi aii conuitioning
machines, uppeilowei thanks AI
iauiatois, subassy, lowei tanks foi
AI iauiatois, anu coie subassy (AI
iauiatois)
-Thailanu will impoit fuel pump
moue assy.
-S% taiiff

Executive 0iuei 24S of 2003
> unuei the Nissan AIC0
Aiiangement
> fiom Thailanu ceitain 0EN paits foi
Nissan Sentia
> fiom Phils., complementaity
components foi Nissan Sentia
- S% taiiff
6u
B0TY 0N N0T0R vEBICLES, AS
PR0vIBEB F0R 0NBER TBE
TARIFF ANB C0ST0NS C0BE 0F
1978 (PRESIBENTIAL BECREE
N0. 1464, AS ANENBEB), IN
0RBER T0 INPLENENT
PREFERENTIAL RATES
TBERE0N 0NBER TBE
A0T0N0TIvE EXP0RT
PR0uRAN.

61

EU.2004
EXECUTIVE URDERJ
TITLE
EFFECT UN
AUTU INDUSTRY
PR0vIBINu ANENBNENTS T0
EXEC0TIvE 0RBER 244, S. 2uuS,
"N0BIFIYINu TBE RATES 0F B0TY
0N N0T0R vEBICLES, AS
PR0vIBEB F0R 0NBER TBE
1978 (PRESIBENTIAL BECREE N0.
1464, AS ANENBEB), IN 0RBER T0
INPLENENT PREFERENTIAL
RATES TBERE0N 0NBER TBE
A0T0N0TIvE EXP0RT PR0uRAN
> puisuant to E.0. 1S6, seiies of
2uu2, establishing a Compiehensive
Inuustiial Policy anu Biiections foi
the Notoi vehicle Bevelopment
Piogiam
> amenument of whole Annex "B" of
E0 244 (Conuitions foi the
> special incentives foi the expoit of
ceitain completely built-up units
(CB0s) of motoi vehicles
> NEW: categoiization of CB0
expoits w theii minimum annual
volume of expoitation &
iespective minimum F0B value
pei unit (incentives. in $) (i.e.,
iegulai, uevelopmental, niche,
high value-low volume)
> Automotive Expoit Piogiam
calls foi the availment of
piefeiential taiiff iates by
paiticipants in theii impoitation
of CB0s on the basis of equivalent
foieign exchange eainings fiom
theii expoits of CB0s (open to all
paiticipants of Notoi Bev't
Piogiam)
> A qualifieu paiticipant will be
alloweu to impoit CB0s unuei the
Piogiam at an annual volume
equal to oi less than the sum of
1,uuu units pei mouel anuoi
*accoiuingly, expansion of
expoits of motoi vehicles
tianslates to impioveu
economies of scale leauing
to incieaseu global
competitiveness of the
automotive inuustiy
*anu the iecent anu
on-going uevelopments on
iegional integiation of the
automotive sectoi,
especially in the ASEAN,
cieate an enviionment
oppoitune foi the
manufactuie of othei
CB0s of motoi vehicles in
the countiy piimaiily foi
expoit, pioviueu
incentives unuei E.0. 244
aie extenueu to these
types of activities
62
Automotive Expoit Piogiam), see F0
244

vaiiant that it seeks to impoit. A
Piogiam paiticipant shall be
alloweu to impoit a combination
of mouels anu vaiiant pioviueu
the annual volume uoes not
exceeu the afoiementioneu
limit. The net foieign exchange
eaining (NFEE) chaigeable
against impoits (CIF basis) on a
pei unit basis shall continue until
the cieuit is exhausteu aftei which
the Piogiam paiticipant shall pay
the noimal taiiff iates on its
impoits.
> Impoiteu CB0s must not be
locally assembleu (mouel anuoi
vaiiant impoitations aie less than
1,uuu units pei yeai in Yeai 2uuS)
anu the paiticipating company
owns the bianus.
> Bepaitment of Tiaue anu
Inuustiy (BTI)Boaiu of
Investments (B0I) uuiing the

6S
affectivity of the Piogiam may
mouify the minimum volume anu
F0B value pei unit as the neeu
aiises upon consultation with
inuustiy anu conceineu
goveinment agencies.
> Net Foieign Exchange Eainings
(NFEE) phaseu uown eveiy S
yeais staiting at $4uu in 1st anu
2nu yeai in inciements of $1uu
yeai. Ninimum value must be
followeu, otheiwise, no NFEE
cieuiteu
N0BIFYINu TBE RATES 0F B0TY
0N CERTAIN INP0RTEB ARTICLES
AS PR0vIBEB 0NBER TBE TARIFF
ANB C0ST0NS C0BE 0F 1978, AS
ANENBEB, IN 0RBER T0
INPLENENT TBE PREFERENTIAL
TARIFF RATES 0N CERTAIN
PR0B0CTS 0NBER TBE ASEAN
INB0STRIAL C00PERATI0N (AIC0)
> Philippines (Bonua Cais
Philippines, Inc. anu Bonua Paits
Nanufactuiing Coipoiation) will
impoit fiom Thailanu (Bonua
Automobile (Thailanu) Co. Ltu.)
ceitain oiiginal equipment
manufactuie (0EN) automotive
paitscomponents foi Bonua Civic.
Thailanu (Bonua Automobile
(Thailanu) Co., Ltu. will impoit fiom
the Philippines complementaiy
paitscomponents foi the 0EN of
Bonua Accoiu, City, Civic, }azz
> in consonance with Aiticles S
anu 7 of the Basic Agieement of
the AIC0 (ASEAN Inuustiial
Coopeiation) Scheme of Api 1996,
paiticipating companies in the
appioveu Bonua AIC0
Aiiangements shall qualify foi u -
S% piefeiential taiiff iates to be
extenueu by Thailanu anu the
Philippines as paiticipating
countiies>> amenueu to S% on
paitscomponents as specifieu in
Column 6 theieof of ANNEX A (of
* Bonua as }apanese
company (AIC0 schemes
existing aie that of
}apanese companies -
Bonua, Toyota, Isuzu,
Benso, Nissan, Nitsubishi)
64
SCBENE, IN FAv0R 0F B0NBA
CARS PBILIPPINES, INC (B0NBA) -
(C0E N0. B0NBA2uu4S6

> in consonance with Aiticles S anu
7 of the Basic Agieement of the
AIC0 (ASEAN Inuustiial
Coopeiation) Scheme of Api 1996;
Bonua AIC0 scheme of 2uu4
anu CR-v
>implementation of the piefeiential
taiiff iates on ceitain piouucts
unuei the Bonua AIC0 scheme

wbot?! No link)
ANENBINu EXEC0TIvE 0RBER N0.
87, SERIES 0F 2uu2, ENTITLEB
"N0BIFYINu TBE RATES 0F B0TY
SCBENE, IN FAv0R 0F B0NBA
CARS PBILIPPINES, INC. (B0NBA) -
> unuei the Bonua AIC0
Aiiangement, the Philippines
(Bonua Cais Philippines) will
impoit fiom Inuonesia (P.T. Bonua
Piospect Notoi) anu Nalaysia
(Bonua Nalaysia Sun. Bhu. anu
Bonua Auto paits Nanufactuiing
|Nj Sun. Bhu.) ceitain 0EN
automotive paitscomponents foi
Bonua Civic passengei cais. In
exchange Inuonesia anu Nalaysia
will impoit fiom the Philippines
othei complementaiy paits
components foi the 0EN of Bonua
Civic.
> fiom Nalaysia: vaiious
PaitsComponents Face, Fiont
> applicable AIC0 Piefeiential
Taiiff on 0EN automotive
paitscomponents amenueu to
S%
* Bonua as }apanese
6S
(C0E N0. B0NBA 2uuu 1u A)" Bumpei, Face RR BPR
> Fiom Inuonesia: vaiious
PaitsComponents: Wheel
Assembly, Steeiing, Pau Comp Stig
Wheel

REB0CINu TBE RATES 0F INP0RT
B0TY 0N C0NPRESSEB NAT0RAL
uAS N0T0R vEBICLES ANB
NAT0RAL uAS vEBICLE
INB0STRY-RELATEB EQ0IPNENT,
PARTS ANB C0NP0NENTS 0NBER
SECTI0N 1u4 0F TBE TARIFF ANB
C0ST0NS C0BE 0F 1978
(PRESIBENTIAL BECREE N0. 1464),
AS ANENBEB

> Natuial uas vehicle Piogiam foi
Public Tianspoit (NuvPPT), which
was launcheu on 16 0ctobei 2uu2,
aims to enhance eneigy supply
secuiity in the tianspoit sectoi
> aiticles foi the conveyance oi
packing of goous, of plastics;
stoppeis, lius, caps anu othei
closuies, of plastics; containeis foi
compiesseu oi liquefieu gas, of iion
oi steel (e.g, seamless steel
cylinueis, except foi LPu);
aluminium containeis foi
compiesseu oi liquefieu gas;
spaik-ignition iecipiocating oi
iotaiy inteinal combustion piston
engines (anu paits theieof); aii oi
vacuum pumps, aii oi othei gas
compiessois anu fans; ventilating oi
iecycling hoous incoipoiating a fan,
whethei oi not fitteu with filteis;
centiifuges, incluuing centiifugal
uiyeis; filteiing oi puiifying
machineiy anu appaiatus, foi
liquius oi gases; taps, cocks, valves
anu similai appliances foi pipes,
boilei shells, tanks, vats oi the like,
> saiu aiticles shall be subject
to the Nost-Favouieu-Nation
(NFN) impoit uuty foi the
peiiou in accoiuance with the
scheuule inuicateu opposite
each aiticle (sbeJ not inJicoteJ
online)

66
thiough fuel foi tianspoit
incluuing piessuie-ieuucing valves
anu theimostatically contiolleu
valves; motoi vehicles foi the
tianspoit of ten oi moie peisons,
incluuing the uiivei (motoi buses);
instiuments anu appaiatus foi
measuiing oi checking the flow,
level, piessuie oi othei vaiiables of
liquius oi gases (foi example, flow
meteis, level gauges, manometeis,
heat meteis); gas, liquiu oi
electiicity supply oi piouuction
meteis, incluuing calibiating meteis
theieof; automatic iegulating oi
contiolling instiuments anu
appaiatus
REB0CINu TBE RATES 0F INP0RT
B0TY 0N
C0NPLETELY-KN0CKEB-B0WN
PARTS ANB C0NP0NENTS F0R
ASSENBLY 0F L0W ENuINE
BISPLACENENT ANB BYBRIB
vEBICLES

> in accoiuance to Executive 0iuei
No. 472, seiies of 1998,
>"hybiiu" oi paitly-electiical
vehicles which aie ueemeu moie
poweiful anu moie fuel efficient
> completely-knockeu uown (CKB)
paits anu components foi assembly
of low engine uisplacement anu
hybiiu vehicles (Notoi vehicles foi
the tianspoit of ten oi moie
peisons, incluuing the uiivei; motoi
cais anu othei motoi vehicles
piincipally uesigneu foi the
> saiu aiticles shall be subject to
the iates of impoit uuty NFN anu
ASEAN - Common Effective
Piefeiential Taiiff (CEPT) in
accoiuance with the scheuule
inuicateu in Columns 4 anu S
opposite each aiticle
> E0 effective thiough 1 yeai,
subject to ieview (wbot
boppeneJ?)

* NFN - Nost Favouieu Nation -
> The fuel conseivation
tienu. Bo we neeu this.!
67
institutionalizing the Committee on
Fuel Conseivation anu Efficiency in
Roau Tianspoit, anu which taigets
S% ieuuction in fuel consumption
by ioau tianspoit useis

tianspoit of peisons, incluuing
station wagons anu spoits iacing
cais; motoi vehicles foi the
tianspoit of goous e.g., loiiies, vans,
pick-up tiucks) incluuing CB0 foi
saiu vehicles.
> Components, paits anu oi
accessoiies impoiteu fiom one oi
moie countiies foi assembly of
motoi vehicles by in the motoi
vehicle uevelopment piogiam

1-S%
** CEPT - Common Effective
Piefeiential Taiiff - S%
*** Buty fiee foi the assembly of
hybiiu motoi vehicles anu motoi
vehicles with engine uisplacement
not moie than 1,uuu cc

68

EU.2005
EXECUTIVE URDERJ TITLE CUVERACE MAIN CUNTENT
EFFECT UN
AUTU INDUSTRY
TENP0RARILY INCREASINu TBE
RATES 0F INP0RT B0TY 0F BIuB
ENuINE BISPLACENENT
C0NPLETELY B0ILT 0P vEBICLES
0NBER SECTI0N 1u4 0F TBE
1978 (PRESIBENTIAL BECREE N0.
1464, AS ANENBEB)

> see E0 S97
>connecteu to Republic Act No.
8749 otheiwise known as the
Philippine Clean Aii Act of 1999
> Notoi vehicles foi the tianspoit of
ten oi moie peisons, incluuing the
uiivei; motoi cais anu othei motoi
vehicles piincipally uesigneu foi the
tianspoit of peisons, incluuing station
wagons anu spoits iacing cais; motoi
vehicles foi the tianspoit of goous e.g.,
loiiies, vans, pick-up tiucks;
motoicycles (incluuing mopeus) anu
cycles fitteu w an auxiliaiy motoi
with oi without siue cais; siuecais;
incluuing CB0 foi saiu vehicles.
> saiu vehicles shall be imposeu
the Nost Favouieu Nation
(NFN) iates of impoit uuty in
accoiuance with the scheuule
inuicateu opposite each aiticle
(2u-SS%)
> Executive 0iuei shall be
effective foi a peiiou of one (1)
yeai subject to ieview (wbot
boppeneJ?)
> Registeieu paiticipants unuei
Executive 0iuei No. 244 as
amenueu by Executive 0iuei
No. S12, otheiwise known as
the "Automotive Expoit
Piogiam," aie exempteu fiom
this Executive 0iuei (see 2004
F0s)
> supposeuly to piomote
the juuicious conseivation
anu efficient utilization of
eneigy iesouices theieby
auopting the most
cost-effective options
towaiu the wisei anu
efficient use of eneigy
N0BIFYINu TBE RATES 0F INP0RT
B0TY 0N CERTAIN INP0RTEB
> Philippines (Toyota Notoi
Philippines Coipoiation anu Toyota
Autopaits Philippines, Inc.) will impoit
> saiu aiticles shall be accoiueu
u% taiiff (but subject to
qualification unuei the Rules of
* Sub-compact compact
miu-size cais.
* Toyota as }apanese
69
ARTICLES AS PR0vIBEB 0NBER
TBE TARIFF ANB C0ST0NS C0BE
0F 1978, AS ANENBEB IN 0RBER
T0 INPLENENT TBE
PREFERENTIAL TARIFF RATES 0N
CERTAIN PR0B0CTS 0NBER TBE
ASEAN INB0STRIAL C00PERATI0N
(AIC0) SCBENE, IN FAv0R 0F
T0Y0TA N0T0R PBILIPPINES
C0RP0RATI0N ANB T0Y0TA
A0T0PARTS PBILIPPINES, INC.
(T0Y0TA) - C0E N0. T0Y0TA
2uuS S1

> Toyota AIC0
fiom Nalaysia (Assembly Seivices Sun.
Bhu.) ceitain oiiginal equipment
manufactuie (0EN) automotive paits
components foi Toyota Innova. In
exchange, Nalaysia (Assembly
Seivices Sun. Bhu.) will impoit fiom
the Philippines complementaiy
component paits foi the 0EN of
Toyota Innova, vios, Camiy anu
Coiolla
*inconsistency witb onnex o {Comry
onJ Corollo ports ore from Sinqopore
not Pbils)
> fiom Nalaysia, foi Toyota Coiolla
Passengei Cais >> muuguaius
(quaitei panel ii ih lh), lamp
assy,license plate (ih lh), fiont wipei
(aim, blaue, ih lh), amplifiei assy, aii
conuitionei, computei, engine contiol,
ielay
> fiom Nalaysia, foi Toyota Camiy
Passengei Cais>> link assy (powei
steeiing), mouluing foi fiont ieai
bumpei anu fiont ieai uooi ih lh,
inseits foi iespective uoois, fiont
0iigin foi the CEPT)
7u
wipei aim anu blaue ih lh, computei
engine contiol ielay

EU.200
EFFECT UN
AUTU INDUSTRY
INP0RT B0TY 0N C0NP0NENTS,
PARTS ANB ACCESS0RIES F0R TBE
ASSENBLY 0F BYBRIB, ELECTRIC,
FLEXIBLE F0EL ANB C0NPRESSEB
NAT0RAL uAS N0T0R vEBICLES
0NBER SECTI0N 1u4 0F TBE
1978, AS ANENBEB

> connecteu to Executive 0iuei 472
(s. 1998) taigeting a S% ieuuction
in fuel consumption by ioau
tianspoit useis; anu Executive
0iuei 1S6 (s. 2uu2) establishing a
"Compiehensive Inuustiial Policy
anu Biiections foi the Notoi vehicle
> Notoi vehicles foi the
tianspoit of ten oi moie
peisons, incluuing the uiivei;
motoi cais anu othei motoi
vehicles piincipally uesigneu
foi the tianspoit of peisons,
incluuing station wagons anu
spoits iacing cais; motoi
vehicles foi the tianspoit of
goous e.g., loiiies, vans, pick-up
tiucks
>>CB0s components, paits
anuoi accessoiies impoiteu
fiom one oi moie countiies foi
assembly of vehicles* by
paiticipants in the commeicial
vehicle uevelopment Piogiam
* hybiiu (electiic anu
> saiu piouucts shall be subject to the
iates of impoit uuty
|Nost-Favouieu-Nation (NFN) anu
Association of Southeast Asian Nations
(ASEAN) - Common Effective
Piefeiential Taiiff (CEPT)
* hybiiu (electiic anu gasolineuiesel),
electiic, flex-fuel (bio ethanol anu
bio-uiesel) anu Compiesseu natuial
gas (CNu) vehicles. aie accoiueu ZER0
taiiff but otheis -- NFN 1-S%, CEPT
S%
* Again, emphasis on
hybiiu cais as pei global
tienu> ielevance as Phil
economy anu even
enviionmental neeus.
71
Bevelopment Piogiam" pioviues foi
the uevelopment of the Philippines
as the manufactuiing hub foi
ceitain motoi vehicles, paits anu
components
gasolineuiesel), electiic,
flex-fuel (bio ethanol anu
bio-uiesel) anu Compiesseu
natuial gas (CNu) vehicles.
Executive 0iuei S26 of 200
N0BIFYINu TBE RATES 0F B0TY
SCBENE

> Basic Agieement on the AIC0
Scheme signeu in Singapoie on 27
Apiil 1996; Piotocol to Amenu the
Basic Agieement on the AIC0
Scheme signeu in Singapoie on 21
Apiil 2uu4
> Benso AIC0
> Philippines as a paiticipating
countiy in the appioveu AIC0
Aiiangement of Philippine Auto
Components, Inc. (PACI) along
with Thailanu
> inteimeuiate (motoi
assembly w fan, shiouu
assembly, fan assy, cooling unit
assy, evapoiatoi, coie
conuensei, pulley assy iule,
lowei anu uppei tank, coie
sub-assy) anu final (magneto,
staitei, glow plug) 0EN paits
fiom Benso Thailanu

> the Philippines (Philippine Auto
Components, Inc.) will impoit fiom
Thailanu (Benso (Thailanu) Co., Ltu.)
ceitain oiiginal equipment
manufactuie (0EN) paitscomponents
foi motoi vehicles, as specifieu in
Annex "A". In exchange, Thailanu
(Benso Inteinational (Thailanu) Co.,
Ltu.) will impoit fiom the Philippines
complementaiy paitscomponents foi
the 0EN of motoi vehicles unuei the
afoiementioneu ABTN heauings
> amenument specifieu aiticles to be
accoiueu u% piefeiential taiiff iate
* Benso as }apanese

72

EU.2007
EFFECT UN
AUTU INDUSTRY
PR0vIBEB F0R 0NBER TBE TARIFF
ANENBEB, IN 0RBER T0 INPLENENT
TBE C0NNITNENT T0 REB0CE TBE
C0NN0N EFFECTIvE PREFERENTIAL
TARIFF RATES 0F CERTAIN
PR0B0CTS T0 ZER0 PERCENT 0NBER
TBE ASEAN FRANEW0RK
AuREENENT F0R TBE INTEuRATI0N
0F PRI0RITY SECT0RS

> ASEAN Fiamewoik Agieement foi
the Integiation of Piioiity Sectois (Nov
2uu4 at vientiane), automotive
inuustiy being 1 of the 11 piioiity
sectois
~ orticles unJer Annex A not
ovoiloble
> aiticles uianteu Zeio (u%) AFTA-CEPT
Concession
> aiticles specifically listeu in Annex "A"
heieof (Aiticles uianteu Zeio (u%)
AFTA-CEPT Concession unuei the ASEAN
Fiamewoik Agieement foi the Integiation
of Piioiity Sectois), as classifieu unuei
Section 1u4 of the Taiiff anu Customs
Coue of 1978, as amenueu, shall be
subject to the ASEAN CEPT iate inuicateu
in Column 4 of Annex "A". The ASEAN
CEPT iates so inuicateu shall be accoiueu
to impoits coming fiom ASEAN Nembei
States applying CEPT concession to the
same piouucts puisuant to Aiticle 4 of the
CEPT Agieement anu its Inteipietative
Notes.

7S
C0ST0NS C0BE 0F 1978, AS
TBE PREFERENTIAL TARIFF RATES
0N CERTAIN PR0B0CTS 0NBER TBE
(AIC0) SCBENE, IN FAv0R 0F
T0Y0TA N0T0R PBILIPPINES
C0RP0RATI0N; T0Y0TA A0T0PARTS
PBILIPPINES, INC. (C0E N0S. T0Y0TA
2uu6 SS ANB T0Y0TA 2uu6 S6)

> Toyota AIC0
> Philippines (Toyota Notoi
Philippines Coipoiation) will
impoit fiom Inuonesia (PT.
Toyota Notoi Nanufactuiing
Inuonesia) ceitain oiiginal
equipment manufactuie
(0EN) automotive
paitscomponents foi Camiy
anu Coiolla. In exchange,
Inuonesia (PT. Toyota Notoi
Nanufactuiing Inuonesia)
will impoit fiom the
Philippines complementaiy
paitscomponents foi the
0EN of Kijang Innova
> fiom Inuonesia, 0EN
automotive paits
components foi Toyota
Coiolla passengei cai, Camiy
passengei cai, anu Innova
{see F0 677 onnex xcl)
> saiu aiticles shall be accoiueu the AIC0
iate of u%

C0ST0NS C0BE 0F 1978, AS
TBE PREFERENTIAL TARIFF RATES
>inteimeuiate paits of Bonua
Civic passengei cais {see F0
679 onnex xcl)
> the Philippines (Bonua Cais
Philippines, Inc.) will impoit
fiom Thailanu (Bonua
> saiu 0EN paits components shall be
accoiueu the AIC0 iate of u% on
paitscomponents of Bonua Civic as
specifieu in Column 7 theieof

74
0N CERTAIN PR0B0CTS 0NBER TBE
(AIC0) SCBENE, IN FAv0R 0F B0NBA
CARS PBILIPPINES, INC. (C0E N0.
B0NBA 2uu7 48)

> Bonua AIC0
Automobile (Thailanu) Co.,
Ltu.) ceitain oiiginal
equipment manufactuie
(0EN) automotive
paitscomponents foi Bonua
Civic. In exchange, Thailanu
(Bonua Automobile
(Thailanu) Co., Ltu.) will
impoit fiom the Philippines
complementaiy
paitscomponents foi the
0EN of Bonua Civic anu
CR-vs

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Capital Mobility in tbe Pbilippine Automotive Industry

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