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The Bureau of Customs (BOC) is pushing to collect a provisional safeguard duty of PHP3 per kilogram on imported ceramic floor and wall tiles. In support of the Department of Trade and Industry’s imposition of the safeguard duty on ceramic floor and wall tiles from abroad, the BOC has issued Customs Memorandum Order (CMO) 28-2019.The safeguard measure is being imposed following a preliminary investigation initiated by the Department of Trade and Industry (DTI) to determine whether increased imports of ceramic floor and wall tiles were causing or threatening to cause serious injury to the local players.

As per DTI’s investigation, the share of imports to domestic production increased from 4% in 2013 to 542% in 2018. As a result, the market share of domestic manufacturers declined from 96% in 2013 to 15% in 2018. Additionally, the operating income of the domestic industry showed a declining trend posting 157% drop as of 2018. With the provisional safeguard duty, prices will increase by 20% to 30% per kilo on the low-end and 15% to 20% on the high-end products. The measure is effective for a period of 200 days from the date of issuance by the BOC.

However, according to the traders, the increase in the import volume of tiles is due to the surge in demand for tiles on the back of the property and construction expansion. The imposition of the safeguard measure on imported tiles may either create a shortage in supply or unduly increase the prices of tiles in the market. The DTI imposed a similar tariff on cement products earlier this year due to the same circumstances brought about by the surge in imports.

As of May 2019, construction prices have picked up by 3% YoY. Taking that into account, as construction costs increases, we expect the real estate sector to absorb it with ease in the short run. High-end residential prices in Metro Manila are in a rebound with 4Q/2018 prices improving by 9.3% YoY compared to 8.2% YoY in 4Q/2017. Absorption rates for high-end residential units are still high with limited new launches in the pipeline.

In the long run, the government shouldn’t prolong its protection of ceramic tile manufacturers. Other than augmenting market dynamics, consumers would bear the brunt of these measures. Ceramic tiles are a key construction component of residential housing – from high-rise condominiums to single-detached homes. We believe a sustained implementation of the tariff will be detrimental to the overall residential market.