./.RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/170
17 December 1999
(99-5473)
Council for Trade in Goods
PHILIPPINE REQUEST PURSUANT TO ARTICLE 5.3
OF THE AGREEMENT ON TRIMS
Reply to written questions from the European Communities
1. Why does the Philippines ask for an extens ion of all elements of their TRIMs? The
extension of the Foreign Exchange balancing element needs a specific justification. Are
BOP considerations at the basis of this request?
The elements of local content requirement and foreign exchange balancing subject of the
Philippine request for extension of TRIMs are complementary and must be applied simultaneously ifthe TRIMs are to achieve their purpose.  Hence, the justification for the request for extension of
TRIMs is integral and indivisible from the rationale behind the inclusion of the balancing element in
the request.
While a more favorable balance of payments position may result as a consequence of the
inclusion of the balancing element, this does not necessarily underlie the basis for the latter's inclusionin the TRIMs request.
2(a) We would appreciate an explanation why the TRIMs are an essential element in
restructuring the automotive sector.
An extension of the transition period, pursuant to Article 5.3 of the TRIMs Agreement, would
allow the Philippines to mitigate the adverse effects brought about by the massive contraction in the
market base of the automotive sector.  As previously noted, the Asian financial crisis, which started in
July 1997, had already resulted in the lay-off of 4,524 workers in the automotive parts sectors alone.Some of the remaining 40,181 workers have to contend with shortened and staggered working days.
The vehicle assembly sector, which experienced a drastic 50 per cent drop in sales volume in 1998
compared to the 1997 levels, is expected to face a further reduction of about 10-12 per cent in sales
volume in 1999.  In light of the fact that capacity utilization has been reduced to 40 per cent, the
industry expects that the removal of TRIMs, coupled with the continuous contraction of the vehiclesales volume, will result in the retrenchment of an additional 10,000 employees out of the remaining
40,181.  The social impact of such prospects cannot be overemphasized.  It is in the context of the
task of ensuring the preservation of the market for existing participants, not to mention the survival of
families dependent on the continued employment of breadwinners employed in the automotive
industry, until such time that economic recovery is well under way, allowing for a less painful andsocially-manageable phaseout of the TRIMs, that the Philippine request is deemed essential.
(b) If protection of the sector is needed fo r some time, have other means been explored?
As previously noted, the Philippine government decided to request for extension of the
TRIMs only in October 1999 after having determined that the industry will not recover from the
effects of the Asian financial crisis and be able to adjust to a TRIM-less environment with a minimumof social and financial dislocation.  Prior to this decision, the Philippines had sought to comply withG/C/W/170
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TRIMs in a timely manner.  In the meantime, the Ph ilippine government has endeavored to conduct
continuous consultations with the affected sectors to determine appropriate alternative and WTO-
consistent policy measures.
3. Could you provide separate explanations for the requested TRIMs extension for each of
the sectors concerned, i.e. for motorcycles, commercial vehicles and cars?  Have thesectors been affected in the same way by the Asian crisis?  Are the employment
implications the same for all sectors?
It would be difficult to differentiate the sectors for purposes of the TRIMs request since the
market for passenger cars, commercial vehicles and motorcycles is integrated and non-distinguishable
across sectors.  If we track the data on domestic sales of the three sectors over the past three years, it
appears that sales of passenger cars declined by 14.8 per cent from 1996 to 1997, and by 54.2 per cent
from 1997 to 1998.  It is projected that sales in this category will decline by a further 21 per cent forthe period 1998 to 1999.  Sales of commercial vehicles on the other hand decreased by 6.1 per cent
from 1996 to 1997, and by 33.7 per cent from 1997 to 1998.  It is expected that sales volume will
again decrease by 4.1 per cent from 1998 to 1999.  With regard to motorcycles, while sales volume
increased by 3.4 per cent from 1996 to 1997, this caught up with the same pattern of declining sales
by 1998, exhibiting a decrease of 12.7 per cent at the end of said year.  Based on projections, itappears that from 1998 to 1999, sales of motorcycles will again decrease by 6.7 per cent.
While it may be true that the pattern of declining sales in the motorcycle sector is not as
severe as that in the other sectors, the fact remains that the former is vulnerable to the same variables
as the latter sectors, and that the employment implications are similar.
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