TWENTIETH CONGRESS ) 2 Te JUL 108
REPUBLIC OF THE PHILIPPINES.) -£ OATE
First Regular Session ) We 7D)
BY gy
HOUSE OF REPRESENTATIVES 8
<A AY

Introduced by Representative Rufus B. Rodriguez and 0 ino
Representative Maximo B. Rodriguez, Jr.

House Bill No. 1807
EXPLANATORY NOTE

This bill was approved by the House of Representatives during the 19" Congress.

The motor vehicle manufacturing industry has extensive downstream linkages, mainly
with basic and critical heavy industries (e.g. iron and steel, chemicals, rubber); and upstream
linkages with tertiary industries such as transport services and distribution of goods. Thus, a
progressive motor vehicle manufacturing industry is considered a key driver of industrialization
and economic development.

In developed countries like the United States, Japan and Germany, the vehicle
manufacturing industry forms the core of its industrial strength. The importance of the industry
was even more highlighted during the 2008 Global Financial Crisis, when these developed
economies quickly took to action and implemented measures in support of the vehicle
manufacturing industry. The emerging economies Brazil, Russia, India and China also put
high priority on developing a domestic vehicle manufacturing industry.

in ASEAN, member-states with manufacturing capabilities such as the Philippines,
Thailand, Malaysia and Indonesia continuously develops and implements strategic
development programs/ policies for motor vehicle manufacturing as a key strategy for
industrialization.

The Philippines first implemented its motor vehicle development program in 1973.
‘Among others, the program was aimed at developing a local vehicle manufacturing industry
that would effectively encourage the development of vehicle parts manufacturing and auto-
supporting industries. The government envisioned the industry as a major source of
manufacturing value-added, and therefore has potentially high economic contributions.

Since the implementation of the Motor Vehicle Development Program (MVDP),
substantial investments estimated at Php100 billion were put in place in manufacturing
operations, about 75,000 jobs were generated and the annual export revenues from locally-
produced parts reached over US$3 Billion in 2010. At the same time, technology transfer has
significantly contributed to the improvement of production process and product quality; and
automotive skills development programs have raised the levels of Filipino workmanship and
capabilities. It is clear that the motor vehicle manufacturing industry plays an important role in
socio-economic development.

However, the Philippines was not able to develop the competitive capacities of its
motor vehicle manufacturing industry. The small domestic market base did not support
‘economic scale in manufacturing operations.” Moreover, policy inconsistencies and the weak
regulatory framework have eroded the market base for new vehicles and consequently, the
parts manufacturing industry.

‘As a result, investments have been limited and the parts manufacturing and auto-
supporting industries were not fully-developed.” Majority of parts manufacturers are classified
as small and medium enterprises (SME), with limited market access opportunities. In fact,
about 90% of the total export revenues from vehicle parts and components are generated by

1.2009 Domestic Market Volume: Thailand ~ 548K; Indonesia ~ 486K; Philippines — 132K.

2 Comparative number of parts suppliers: Thailand ~ 1,800; Indonesia — $64; Philippines -256


Multi-National Companies (MNCs), which account for less than 10% of local parts
manufacturers.

In contrast, other ASEAN automotive industries benefited from a large domestic market
base and generally consistent automotive policies, and therefore, a more attractive investment
destination for vehicle manufacturing. In comparison to our ASEAN neighbors, the Philippines
lagged in terms of cost-competitiveness. Structural inefficiencies and the increasing pressure
from trade liberalization continue to put tremendous pressure on the domestic vehicle
manufacturing industry. In 2010, it was estimated that the cost of locally manufactured vehicle
is higher by 15% in comparison to vehicles produced in other ASEAN production bases.

The vehicle manufacturing industry offers exceptional growth opportunities. A study
conducted by the University of Asia and the Pacific showed that the motor vehicle
manufacturing is a key industry in the Philippine economy, with one of the highest output,
household income and employment multiplier effects. The study estimated that an additional
Php100 billion investments in motor vehicle manufacturing would result to Php357 Billion
additional output, Php27.2 Billion household income and 169,000 jobs. Such is the potential
contribution of vehicle manufacturing because it creates production complementarities among
many industries in the economy.2’

A study conducted by Deloitte Touche Tohmatsu also reached the same conclusions,
i.e. the development of a world-class vehicle manufacturing industry will substantially increase
real gross domestic product, real aggregate investments, real exports and real wages leading
to increase in employment.’

However, these potential economic benefits may only be reaped by improving the
competitiveness of the domestic vehicle manufacturing industry. The continued viability of the
industry will primarily depend on the effectiveness and sustainability of the policy and business
environment, an important government role highlighted in a study conducted by the Philippine
Institute for Development Studies.

Considering the foregoing, the immediate passage of this proposed measure is
earnestly sought.

RUFI . Re IGUEZ

MAXIMO B. RODRIGUEZ, JR.

Y Terosa C.,2010. “Economie Impact of the Philippine Automotive Manufacturing Industry: Production Linkages & Multiplier
Effects”, University of Asia and the Pacific, Philippines,

4 Stanford J., 2009. “Five Minutes to Midnight: The Future of Philippine Automotive Industry”. Deloitte Touche Tohmatsu,
Australia,

¥ Aidaba R., 2008. “Globalization and the Need for Strategic Government-Industry Cooperation in the Philippine Automotive
Industry”, Philippine Institute for Development Studies, Philippines.



‘TWENTIETH CONGRESS
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus B. Rodriguez and
Representative Maximo B. Rodriguez, Jr.

1807

House Bill No.

ANACT
STRENGTHENING THE COMPETITIVENESS OF THE PHILIPPINE MOTOR VEHICLE
MANUFACTURING INDUSTRY

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

ARTICLE |
GENERAL PROVISIONS

SECTION 1. Title. - This Act shall be known as “The Philippine Motor Vehicle Manufacturing
Industry Act’

SEC. 2. Declaration of Policy. - The State shall develop the national economy by promoting
industrialization through competitive industries and by encouraging the participation of private
enterprise.

Recognizing that the Philippine Motor Vehicle Manufacturing Industry forms the core
of the country's industrial strength and plays a vital role in economic development and nation-
building, the following are the declared policies of the State:

(a) The State shall develop a comprehensive policy that shall accelerate the sound
development of the Philippine Motor Vehicle Manufacturing Industry thereby
contributing to industrial capital formation, technology transfer, technical skills
development, and employment generation;

(b) The State shall ensure a balanced transition to open trade by fully developing
the competitive capacities of the Philippine Motor Vehicle Manufacturing
Industry and promoting greater participation in global value chains,

(c) The State shall promote the maximum scale integration of vehicle
manufacturing and the manufacture of its parts and components; and

(4) The State shall integrate motor vehicle manufacturing into the overall transport
sector policy to encourage objective market conditions for locally-produced
vehicles in the expansion and upgrading of the country's vehicle fleet.

SEC. 3. Scope. - This Act shall apply to the range of activities in the Motor Vehicle
Manufacturing Industry as defined under Section 4(e).

SEC. 4. Definition of Terms. — As used in this Act, the following terms are defined as follows:
(a) Board of Investments (BO)) refers to an attached agency of the Department of

Trade and Industry created under Republic Act No. 5186, otherwise known as
the “Investment Incentives Act’;


(b) Department of Trade and Industry (DTI) refers to the government agency
created pursuant to Executive Order No. 133, series of 1987, "Reorganizing
the Department of Trade and Industry, its Attached Agencies, and for Other
Purposes",

(©) _ Fiscal Incentives Review Board (FIRB) refers to the Government Agency
reconstituted under Republic Act No. 11534, otherwise known as the Corporate
Recovery and Tax Incentives for Enterprises Act (CREATE), which administers
the grant of tax incentives to registered business enterprises;

(d) Motor Vehicle Manufacturing Industry refers to enterprises that are engaged in
the manufacture of brand new motor vehicles, bodies (coachwork) for motor
vehicles, and parts, components, accessories and systems of motor vehicles;

(e) National Transport Policy refers to the long-term development framework for
the transportation sector formulated by the National Economic and
Development Authority (NEDA), which shall be used by stakeholders as
guidance in transport development, management, operations and use;

() Philippine Development Plan (PDP) refers to the master plan for economic
development implemented by the NEDA, which identifies priority sectors with
the greatest potentials to contribute to realizing the PDP goals for the next six
(6) years and defines the programs, policies, strategies and action plans to
attain economic development goals;

(9) Philippine Export Development Plan (PEDP) refers to the export development
plan prepared by the DTI, which defines the country's annual and medium-term
export thrusts, strategies, programs and projects jointly implemented by the
government, export and concerned sectors; and

(h) Strategic Investments Priorities Plan (SIPP) refers to the overall plan
formulated by the BOI, in coordination with the FIRB, Investment Promotion
Agencies, and other government agencies pursuant to the guidelines set forth
in the CREATE Law.

ARTICLE I
ORGANIZATION, INSTITUTIONAL SUPPORT, AND STRATEGIES

SEC. 5. Lead Agency. - The DTI through the BO! shall be the lead agency mandated to
implement the provisions and attain the objectives of this Act.

In order to strengthen its capacity to implement this Act, the DTI is hereby authorized
to create the Motor Vehicle Industry Development Office (MVIDO) in the BOI, which shall be
headed by a Director. The Secretary of the DTI shall determine the organizational structure
and staffing pattem of the motor vehicle industry development office, in accordance with the
revised compensation and position classification system subject to the evaluation and
approval of the Department of Budget and Management and in compliance with the civil
service laws, rules and regulations, and other pertinent laws.

SEC. 6. National Motor Vehicle Manufacturing Development Plan. - The President of the
Republic of the Philippines shall approve a six-year National Motor Vehicle Manufacturing
Development Plan, hereinafter referred to as the “Plan’, prepared by the BOI in consultation
with concerned stakeholders and endorsed by the Motor Vehicle Manufacturing Development
Council


The Plan, which shall be integrated into the PEDP and the PDP, shall define the
Industry's annual and medium-term manufacturing and export targets, key industry issues,
and programs and strategies to support manufacturing and export thrusts. The Plan shall also
identify priority development products and/or niche models, which shall be characterized by
high manufacturing value-added and with high potentials for economic efficiency, as the
primary focus of incentives. Annual updates shall be done to monitor the results and targets
identified in the Plan.

SEC. 7. Motor Vehicle Manufacturing Development Council. - For the purpose of
coordinating the formutation and implementation of policy reforms to support the Plan, the
Motor Vehicle Manufacturing Development Council, hereinafter referred to as the "Council",
shall be created to act as the central planning, coordinating and monitoring body and national
advisory committee for the comprehensive and integrated policy on motor vehicle
manufacturing industry development.

SEC. 8. Composition of the Council. - The Council shall be composed of the following:

(a) Secretary of the DTI as Chairperson;

(b) Vice Chairperson and Managing Head of the BO! and Undersecretary for
Industry Development and Trade Policy of the DT! as Co-Vice Chairperson;

(c) Director General of the National Economic Development Authority;

(4) Secretary of the Department of Finance;

(e) Secretary of the Department of Environment and Natural Resources;

(f) Secretary of the Department of Energy;

(g) Secretary of the Department of Transportation;

(h) Secretary of the Department of Science and Technology;

() Secretary of the Department of Public Works and Highways;

() Commissioner of the Commission on Higher Education;

(k) Commissioner of the Philippine Competition Commission;

() Director General of the Technical Education and Skills Development Authority,

(m) Four (4) representatives from the private sector, one of whom shall be
appointed as Co-Vice Chairperson: Provided, That the representatives shall
have a proven track record of direct involvement in manufacturing and the
development of the motor vehicle industry; and shall be nominated in a process
determined by key industry players and/or organizations representing the
motor vehicle manufacturing industry; and

(n) Two (2) representatives from the academe/research community: Provided,
That the representatives shall each be of recognized competence in fields of:
(1) automotive industrial, economic and trade policies; and (2) automotive
engineering and technology.

Except for the representatives from the private sector and academe/research
community, any member of the Council may designate an alternate with a rank not lower than
Undersecretary or its equivalent to represent their respective offices in the Council: Provided,
That the designated alternate must be fully authorized to decide on behalf of the members.

Upon the effectivity of this Act, the President of the Republic of the Philippines shall
appoint the four (4) representatives from the private sector and the two (2) representatives
from the academelresearch who shall serve for a term of two (2) years. Only citizens of the
Philippines shall be members of the Council. In case of vacancy, the appointed successors
shall serve only the unexpired portion of the term of his predecessor.

Other heads of executive agencies, private organizations, or individuals may be called
upon by the Council to attend any Council meeting and to assist the Council to resolve issues
and problems that concern their respective offices.


Likewise, heads of executive agencies, private organizations or individuals shall
respond to the queries of the Council within two (2) weeks from the time such queries are
received.

SEC. 9. Duties of the Council. - The Council shall function solely as a central planning,
coordinating and monitoring body and national advisory committee to the DT! as the lead
implementing agency of this Act.

The Council shall have the following duties:
(a) Advise the DTI Secretary on the implementation of the Plan;

(b) Periodically review and assess the performance of the Plan and prospects of
the industry;

(©) Provide a forum for discussing and proposing solutions to motor vehicle
manufacturing industry-related problems, and emerging industry issues;

(d) Recommend measures to support the positioning of the Philippines as an
alternative production and export hub in the ASEAN region;

(e) Recommend measures that would hasten the development of innovative
technologies, niche products and high-value added manufacturing activities;

(f) Recommend measures to increase the domestic market performance of the
motor vehicle industry;

(g) Recommend measures to address constraints in the development of the motor
vehicle manufacturing industry; and

(h) Perform such other acts as may be necessary or incidental to the exercise of
its functions and discharge of its duties.

‘SEC. 10. Meetings of the Council. - The Council shall meet at least once every quarter:
Provided, That the Chairperson may convene the Council anytime whenever it is deemed
necessary.

The members of the Council shall not receive any compensation: Provided, That
appointive members shall be entitled to per diem for each meeting actually attended at the
rates to be formulated by the Council

SEC. 11. Operation of the Council. - The Council shall immediately convene and function
one (1) month after the effectivity of this Act.
The MVIDO created under Section 5 hereof shall act as the Secretariat for the Council

ARTICLE Ill
INCENTIVES

SEC. 12. Fiscal Incentives. - The Philippine motor vehicle and motor vehicle component
manufacturing industries are hereby declared as priority investment sectors that shall form
part of the country's four (4) successive SIPPs registered business enterprises of the
Philippines and motor vehicle component industries shall be entitled to pertinent fiscal
incentives granted under Title XIll (tax incentives) of the national internal revenue code of
1997, as amended.

SEC. 13. Industry Development Programs. - The DTI, through the BOI, in coordination with
the FIRB and other pertinent government agencies, shall recommend an incentive strategy to


the FIRB for approval, similar to Executive Order No. 182, series of 2015, otherwise known as
the “Comprehensive Automotive Resurgence Strategy Program.”

The incentive strategy shall provide time-bound, targeted, performance-based and
transparent fiscal support to integrated vehicle manufacturing and automotive supporting
industries. Such programs shall be endorsed by the Council and approved by the President:
Provided, That fiscal support granted under this Section shall be non-taxable, non-negotiable
and applicable up to its full amount: Provided, further, That the budget for fiscal support shall
be indicated in the annual National Expenditure Program and deemed automatically
appropriated.

In addition, the DTI through the BO! and in coordination with the aforementioned
government agencies, shall formulate and implement programs to support the development
‘of motor vehicle manufacturing supporting industries

ARTICLE IV
PRIORITIZATION OF DOMESTICALLY MANUFACTURED VEHICLES IN PUBLIC
PROCUREMENT

SEC. 14. Government Procurement of Motor Vehicles. - Subject to pertinent laws, rules
and guidelines on the procurement of motor vehicles, the national government, including
government-owned or controlled corporations (GOCCs), and focal government units (LGUs)
shall prioritize the procurement of domestically manufactured motor vehicles which shall be at
least fifty percent (50%) of their existing motor vehicle fleet, unless when no such motor
vehicles meeting the required specifications and possessing the capabilities and desired
quality of the procuring entity are manufactured or produced in the Philippines.

Likewise, subject to existing laws, rules and guidelines on the lease or rental of
vehicles, the national government, including GOCCs and LGUs shall give preference to the
lease or rental of motor vehicles from service providers that can provide a motor vehicle fleet
of at least fifty percent (50%) domestically manufactured vehicles acquired in the five (5) years
preceding the date of procurement, unless no such vehicles meeting the required
specifications and possessing the capabilities and desired quality of the procuring entity are
manufactured or produced in the Philippines.

ARTICLE V
FINAL PROVISIONS

SEC. 15. Implementing Rules and Regulations. - Within three (3) months after the effectivity
of this Act, the DTI through the BO! shall, in consultation with all the stakeholders concerned,
promulgate the Implementing Rules and Regulations of this Act.

SEC. 16. Oversight Committee. - There is hereby created a Congressional Oversight
Committee, hereinafter referred to as the Philippine Motor Vehicle Manufacturing Industry
Congressional Oversight Committee (PMVMI-COC), with representations from the Minority,
to be composed of five (5) members from the Senate, which shall include the Chairpersons of
the Senate Committees on Trade, Commerce and Entrepreneurship; Public Services; and
Appropriations, and five (5) members from the House of Representatives, which shall include
the Chairpersons of the House of Representatives Committees on Trade and Industry;
Transportation; and Appropriations. The PMVMI-COC shall be jointly chaired by the
Chairpersons of the Senate Committee on Trade, Commerce and Entrepreneurship and the
House of Representatives Committee on Trade and Industry. It shall meet at least every
quarter of the first two (2) years and every semester of the third year after the approval of this
Act to review the implementation thereof, and recommend the necessary remedial legislation
or executive measures: Provided, That the PMVMI-COC shall cease to exist after five (5) years
upon the effectivity of this Act.


The Council shall submit the Plan and a report on the implementation of this Act to the
PMVI-COC not later than the first day of December every year.

The Secretariat of the PMVMI-COC shall be drawn from the existing personnel of the
‘Senate and House of Representatives Committees comprising the PMVMI-COC.

SEC. 17. Appropriations. - The amount necessary to carry out the initial implementation of
this Act shall be charged against the current year's appropriations of the DTI. Thereafter, such
amount as may be necessary for the continued implementation of this Act shall be included in
the annual General Appropriations Act.

SEC. 18. Repealing Clause. - Any law, presidential decree or issuance, executive order,
administrative rule or regulation contrary to or inconsistent with the provisions of this Act is
hereby repealed, modified or amended accordingly.

SEC. 19. Separability Clause. - If any provision of this Act is held unconstitutional or invalid,
the remainder of the Act or the provisions not otherwise affected shall remain valid and
subsisting.

SEC. 20. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a newspaper of general circulation

Approved,