Unsafe

In last November’s issue of Vietnam Economic News, Associate Professor Dinh Trong Thinh of the Academy of Finance admitted that cement is being exported out of the country. The Academy of Finance is a component agency of Vietnam’s Ministry of Finance.

“In general,” says Dr. Dinh, “the Vietnamese cement industry’s technology remains poor compared with that in other countries in the region and the rest of the world.” He mentions the continued use of shaft kilns by some small- and medium-sized cement manufacturers in Vietnam. 

Cement produced from this shaft kilns are substandard. They are therefore unsafe for use, especially in critical structures such as high-rise buildings.

Cement manufacturers using antiquated technologies are discouraged from continuing production. Not only are the final products substandard, given the strict demands of modern infrastructures, manufacturing them adds to the pollution that has become an increasing problem in many developing economies.

Some of these obsolete manufacturing outfits continue to operate on the sly, however. And surely, their products figure in the imported Vietnamese cement currently flooding our country. About 70 percent of cement imported into our market originate from Vietnam. They are sold below the production costs of domestic producers.

This is akin to the antiquated steel mills in China that Beijing has tried to shut down in the face of a large glut in supply and the extreme pollution that hit many Chinese cities. Some of them continue to operate and produce substandard steel for export to countries like the Philippines. In order to avoid quality controls, the cheap but substandard steel products are smuggled in by unethical traders simply out to make easy money.

Although critical products used for construction are supposed to be tightly monitored to ensure standards are met, we know our agencies lack the manpower and the technical means to check all of them. Substandard products smuggled into our long coastline will surely avoid quality controls. 

Pervasive smuggling of substandard products not only put our people’s safety at risk. The illicit trade in substandard products evades payment of duties. Even worse, they derail the sustainability of our own manufacturing enterprises.

Domestic manufacturers put in hard investments in the domestic economy. They employ tens of thousands of Filipinos. They produce value for the local market.

The independent traders do none of the above. They do not create jobs or contribute value-added to the economy. They rake in profits while the going is good and then disappear with their cash when demand for their substandard products evaporates.

In their wake, they leave behind unsafe structures.

We saw this when an earthquake struck Bohol and neighboring provinces. On inspection, it turned out that many of the badly damaged structures used substandard construction materials. 

This is well documented: the steel reinforcement bars that may be easily bent by hand and concrete walls reduced to powdery dust simply by thumping one’s fist on the wall. 

Tariffs

To be sure, demand for construction materials rose swiftly over the past few years given the property development boom and government’s ambitious infrastructure modernization program.

In the case of cement, the rising demand is reflected in a surge of imported cement. From only 3,558 metric tons in 2013, imported cement spiked to 3,000,000 metric tons in 2017 and nearly 5,000,000 metric tons in 2018.

Taking advantage of our zero tariff arrangement with neighboring ASEAN countries, the market share of independent cement importers jumped from 0.02 percent in 2013 to 15 percent in 2017. 

The massive importation of cheap cement from neighboring countries did help keep the price of the commodity steady. Over the last couple of years, cement prices increased by only 1.1 percent. This is remarkable, considering our bout with elevated inflation last year.

But look at the other side of this coin.

Massive, tariff-free cement importation caused a sharp decline in the income of our domestic manufacturers. In 2017, revenues dropped by 49 percent. 

Local manufacturers, who invested billions to expand local cement production, now face an existential threat from unmitigated importation. The local cement industry directly employs 42,000 workers and indirectly contributes another 125,000 jobs along the value chain. Those jobs are now at risk.

The local cement industry account for P155 in value added. That is about 1 percent of our total GDP. It expects to double that contribution and employ directly or indirectly 400,000 workers by 2030. All these could be lost if we do not deal with the menace of cheap and very likely substandard cement imports.

Dr. Dinh, who we quoted above, warns in his policy paper “exporting cement at such a low price is not sustainable given production costs and the price of similar products in other countries.” In a word, he warns that in the rush for quick cash, Vietnam could end up exhausting its own supply and eventually import the same product at astronomical prices.

But there are greedy pirates on both sides of this equation: the pirate producers running their antiquated technologies to sell cement cheaply and the independent traders who do not give a damn about meeting product standards in the imports they bring here.

To arrest the surge in cement imports from Vietnam until we have the capacity to do complete product testing, the DTI imposed a temporary tariff on these imports. 

Given all that is at stake here in terms of ensuring public safety from substandard construction products, defending our own manufacturing capacity in the face of what amounts to dumping and allowing enough time to build up our capacity for product testing, the DTI might consider extending the tariffs for a longer period.