Wednesday, 26 May 2010

Zero tariff on oil, steel approved

Manila Bulletin

ANGELES CITY, Pampanga – The government will lose as much as P4 billion in annual revenues following the Arroyo administration's decision to impose zero tariffs on imported petroleum products and midstream steel products in a bid to stabilize supply and lower their prices in the domestic market.

President Gloria Macapagal Arroyo approved Tuesday the recommendation of the Cabinet-level inter-agency Committee on Tariff and Related Matters (CTRM) on tariff reductions of said products during a National Economic and Development Authority (NEDA)-Cabinet meeting at the Angeles University Foundation here.

The President’s approval of the schedule of tariff cuts on rice, coconut oil, sugar, and other raw materials for detergents and yarns in compliance with trade commitments with the Asian regional bloc will further reduce the government's revenue base.

Apart from correcting tariff distortions arising from free trade pacts with the Association of Southeast Asian Nations (ASEAN), Finance Secretary Margarito Teves Jr. said the reduced tariffs on the said products sought to promote economic activity as well as ease the burden of the public from high prices.

Teves, speaking to reporters after the Cabinet assembly, said the most favored nation rate of imported crude oil, refined petroleum products would be slashed from 3 percent to zero under the ASEAN Trade in Goods Agreement.

In slashing the oil tariff duties, the government must also follow the provision of the Oil Deregulation Act, which mandates a “single and uniform” tariff for petroleum products, according to Trade Secretary Jesli Lapus.

The temporary lifting of the 7 percent duty on hot rolled coils (HRC) and cold rolled coils (CRC) also meant as relief for the local galvanizing industry, Lapus told reporters. He noted that steel companies earlier threatened to raise their prices by 3 to 5 percent amid surging prices of ore in the world market.

Teves said the steel tariff, however, would revert back to the 7 percent rate once the country's lone HRC/CRC steel producer, Global Steel Philippines Inc. (GSPI), returns to normal operations. GSPI has been unable to supply the Filipino Galvanizers, Inc. (FGI) with HRC and CRC due to financial problems and high world prices of steel.

He said the tariff removal on HRC and CRC would also result in savings in raw material costs to the downstream sector. The Philippines is a net importer of HRC, CRC as well as galvanized iron sheets.

With the elimination of import tariffs, Lapus said oil and steel companies are expected to slash the prices of their products to benefit the consumers and “not necessarily pocket their savings.” “This is a revenue loss for the government but a gain resulting in a lower cost of living for the public,” he said.

As part the country’s trade commitment to ASEAN, Teves also announced that the Arroyo government has committed to maintain a tariff of 40 percent on its imports of rice from the ASEAN until January 1, 2015, when the rate shall be reduced to 35 percent.

Tariffs on sugar imported from ASEAN countries will also be kept at 38 percent until 2011 and will be lowered to 28 percent in 2012, 18 percent in 2013, 10 percent in 2014, and 0-5 percent in 2015.

Teves said the NEDA-Cabinet board also approved the tariff reduction of mixed alkylbenzene (raw material of detergents) and mixed alkylnaphthalene from 3 percent to 1 percent as well as monofilament yarns from 10 percent to 1 percent.

Tariff on refined coconut oil will be slashed from 10 percent to zero, Teves said. “This product will also be moved from the sensitive list to the normal track of preferred tariff in consistent with the tariff reduction agreement among members of the ASEAN,” he said.

Teves admitted that the government would lose P3 billion in revenues from the implementation of the oil tariff cuts and another P400 million to P1 billion in the tariff reduction of other materials.

To replace the foregone revenues, he urged the incoming leadership to be keep an open mind and remain “flexible” in endorsing a number revenue generating measures, such as higher taxes on alcohol and tobacco products and sales tax on goods and services.

He said the next administration should also look into the improving tax administration and collection as well as intensifying the campaign against smuggling to boost revenues.

Despite its failure to balance the budget, he assured that Arroyo government would leave a “manageable” fiscal situation to the administration of presidential frontrunner Sen. Benigno Aquino III.

With Aquino's wide popular support, he said the incoming leader could adequately explain to the public about the need to stabilize the government's finances to rein in the budget deficit during his “honeymoon period.”

The President is expected to issue the executive orders to formalize the implementation of the tariff cuts in the coming days, Teves said.

Petron Corporation earlier pushed for the removal of the 3 percent most favored nation (MFN) tariff on petroleum products. The company has complained that importers of refined oil products in Association of Southeast Asian Nations (ASEAN) are in better shape since they can bring in their products from other Southeast Asian countries at zero tariff under an ASEAN free trade area. The local oil firm on the other hand pays 3 percent duty on the crude oil imported from the Middle East and incurs additional cost for the refinery.

Savings from the duty-free importation, meantime, are expected to result in lower cost of production estimated at $68.64 or P3.088 per metric ton CRC for galvanizers. This may be passed on to consumers at estimated 5 percent price reduction per sheet.

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