Decades ago, the Philippines was one of Asia's centres for automotive and parts manufacturing, providing employment and contributing to export revenues.

However, years of political inattention, increased taxation, and high manufacturing costs have led to a decline in the sector's competitiveness compared to other ASEAN countries.

To address this, a lawmaker has proposed legislation intended to support motor vehicle production, increase employment, and develop a domestic automotive manufacturing sector that could contribute to the country's Gross Domestic Product (GDP).

The Philippine Motor Vehicle Manufacturing Industry (PMVMI) Act

Senator Mark Villar has filed Senate Bill (SB) 3004, titled the Philippine Motor Vehicle Manufacturing Industry (PMVMI) Act. The bill outlines four main components to support the development of the automotive and parts manufacturing sector:

1. National roadmap

The bill requires the creation of a National Motor Vehicle Manufacturing Development Roadmap - a six-year plan intended to guide the industry's growth. This includes setting targets related to manufacturing capacity and export output.

2. Government support

The Department of Trade and Industry (DTI), through the Board of Investments (BOI), will act as the lead agency. A new body, the Motor Vehicle Industry Development Office (MVIDO), will be formed to implement the roadmap.

The bill also proposes the establishment of the Motor Vehicle Manufacturing Development Council (MVMDC). This council would consist of officials from the Departments of Finance, Transportation, Energy, and Science and Technology, as well as representatives from the private sector and academic institutions. The council's role would be to identify sectoral issues, recommend policy responses, and provide guidance on industry-related strategies.

3. Incentives

Motor vehicle and component manufacturing will be classified as priority investment areas. This classification would make these activities eligible for tax incentives and other government support measures. The goal is to attract investment from both domestic and foreign sources.

4. Buy Filipino policy

The bill includes a localisation provision. It would require national and local government agencies, including government-owned and controlled corporations (GOCCs), to prioritise the purchase or lease of vehicles manufactured in the Philippines. At least 50 per cent of their fleet must be locally sourced, except where suitable local alternatives are not available, such as for emergency or defence-related applications.

Policy context and considerations

The full text of SB 3004 is available for public consultation. The bill has been introduced at a time when the Government is preparing to eliminate tariffs on certain United States-manufactured goods, including vehicles. Further details of this policy are expected.

This situation raises questions about the feasibility and economic implications of supporting a local automotive manufacturing industry under a zero-tariff framework for foreign imports.

Supporters of SB 3004 maintain that, while the removal of tariffs may benefit certain imports in the short term, developing a domestic manufacturing sector could lead to long-term effects such as employment generation, lower trade deficits, and improved industrial capacity.