Amending guidelines on Car, Commercial Vehicle, and Motorcycle Development Programs

Legal basis and related prior issuances

Memorandum Order No. 346 expressly references the prior issuance of M.O. 136 (December 1, 1987) for the Car Development Program (CDP).
M.O. 157 (February 9, 1988) is referenced as the source of the Commercial Vehicle Development Program (CVDP) Guidelines.
M.O. 160 (February 29, 1988) is referenced as the source of the Motorcycle Development Program (MDP) Guidelines.
Section 10.6 deems Section 9.4 of M.O. 136 (s. of 1987) as superseded/revoked due to foreign exchange liberalization.
Sections 5.5, 10.7, 14.2, 22, 26.3 tie import liberalization and tariff treatment to Executive Order No. 264, series of 1995, and to Monetary Board Circular No. 92, series of 1995.
Sections 5.5, 10.7, 14.2, 22, 26.3 require a Monetary Board Memorandum to authorize Agent Banks by defining “new” and the related processes.
Sections 7.5, 10.8, 16.6, 19.4, 24.4, 26.4 terminate certain foreign/local content requirements by reference to the Agreement on Trade-Related Aspects of Investment Measures under the GATT, and to the General Agreement on Tariffs and Trade framework.

Policy goals and program purpose

The primary objective of the CDP, CDP/CVDP/MDP industrial strategy is the development of a viable automotive parts manufacturing industry, with economies of scale achievable through increased exports (Section 1.1).
The programs are adjusted to place more weight on assemblers’ ability to offer more reasonably-priced passenger cars to the middle-income group (Section 1.2).
The CVDP aims to support accelerated rural development by providing suitable and affordable transport for goods, services and passengers (Section 11.1).
The CVDP and MDP aim to encourage development of the non-formal automotive industry with emphasis on safety, roadworthiness, and compliance with emission standards (Sections 11.2 and 20).
The CDP expressly advances support for development of the non-formal automotive industry in areas of safety, roadworthiness, and compliance with emission standards (preamble).
The Order promotes incentives for technology transfer through joint ventures by granting specified foreign exchange concessions (Sections 8, 17, 25).

Common institutional framework

The Department of Trade and Industry (DTI), through the Board of Investments (BOI), continues as the responsible agency for effective implementation of the CDP (Section 3).
The BOI may, after consultation with concerned parties, form, designate, or deputize another body, committee, or company to perform tasks or monitor aspects of program functions under existing government rules (Section 3).
Section 27 consolidates the Review Committees into a single consultative body composed of representatives of the dominant association representing motor vehicle assemblers and parts manufacturers and the BOI/DTI, with the Managing Head of BOI (or representative) as Chairman.
The consolidated consultative body is deputizable to oversee the motor vehicle development programs and is tasked to recommend measures concerning used trucks importers’ safety, roadworthiness, and emission standards (Section 27).
The consolidated consultative body may recommend measures that enhance the global competitiveness of local parts suppliers (Section 27).

Car Development Program (CDP) rules

The CDP retains the primary objective of building a viable automotive parts manufacturing industry driven by increased exports (Section 1.1).
The CDP weights assemblers’ capability to offer reasonably-priced passenger cars for the middle-income group (Section 1.2).
Section 2 modifies definitions:
- SKDs are semi-knocked down parts and components imported in partially-assembled condition, including semi-assembled vehicles and cars without tires and batteries when authorized by the BOI; for tariff purposes, those authorized SKDs are treated as CKDs (Section 2.1.1).
- CKDs are completely knocked-down parts and components imported disassembled; the CKD pack may include parts plus sub-assemblies and assemblies such as engine, transmission axle assemblies, chassis and body assemblies (Section 2.1.2).
- KD parts are parts forming part of the CKD pack that may be left out of the CKD importation; KD parts may be warranty parts or part of the CKD minus components to be locally sourced (Section 2.2).
Participants:
- Section 4.1 accepts BOI applications for participation in Categories I and II (previously closed) from Filipino-owned and foreign-owned companies organized under Philippine laws, provided the applicant obtains a technical licensing agreement with the foreign CKD supplier, assembles established quality passenger cars, provides adequate parts and support services, and qualifies under CDP rules and regulations.
- The BOI decides accepted applications within sixty (60) working days from the date of official application (Section 4.1).
New participants must meet CDP qualifications:
- They must not be participants in CDP Categories I, II or III as of approval of the supplemental guidelines (Section 4.2).
- They must be able to invest and/or bring investments equivalent to US$10 million for manufacture of motor vehicle parts and components for exports and domestic markets (Section 4.2.1).
- They must establish a new assembly facility or use an existing idle or operating assembly facility (Section 4.2.2).
- They must post a performance bond or bank guaranty to ensure fulfillment of commitments, with proportional reduction upon proof of plant build-up investments excluding land (Section 4.2.3).
Coverage categories based on engine displacement:
- Category I covers engine displacement of 1,200 cc or below with a reasonable price ceiling determined by the BOI; a car with larger engine displacement may be allowed if its selling price follows Category I price ceilings (Section 5.1).
- Category II covers above 1200 cc but below 2190 cc (Section 5.1).
- Category III covers 2190 cc and above and allows equivalent diesel engine displacement (Section 5.1).
The BOI may re-classify a participating model under Category I with engine displacement greater than 1200 cc into Category II, provided a replacement model of 1200 cc or below is registered under Category I; the replacement continues under the participant’s original Category I registration terms and conditions (Section 5.2).
Assemblers with models of 2190 and above registered under Category II may retain Category II or transfer registration to Category III, with continued participation governed by M.O. 68 (s. of 1992) (Section 5.2).
SKD import privilege timing (for domestic-only sellers vs exporters):
- New participants selling only to the domestic market may no longer be granted privilege to import SKDs while assembly facilities are being set up (Section 5.3).
- New participants exporting at least fifty percent (50%) of their CBU car production (and 70% for foreign companies) may be authorized to import SKD units for the local market portion as an incentive for setting up CBU production platform for car exports in the region (Section 5.3).
- The BOI may initially grant the SKD privilege for six (6) months, extendable for another six (6) months upon proof of CKD assembly operations pursued under the project timetable (Section 5.3).
The CDP covers electric (battery-operated) cars and other non-conventional-energy cars, and the BOI shall formulate participation guidelines at the appropriate time (Section 5.4).
Importation of brand-new CBU passenger cars is allowed consistent with Executive Order No. 264, series of 1995 and Monetary Board Circular No. 92, series of 1995; the Monetary Board issues the agent bank memorandum defining “new” and processes (Section 5.5).
Models and variants: no limitation on number of models and variants, provided they are registered with the BOI (Section 6).
Local content:
- Participants in the Program except those in Category III are no longer required to comply with vehicle local content higher than forty percent (40%) to qualify or remain in the CDP (Section 7.1).
- The BOI may grant a foreign exchange award equal to fifty percent (50%) of foreign exchange earned in the previous year to Category I and II participants that attain a weighted local content average of at least 50% of all participating models and variants (Section 7.1).
- BOI guidelines for the foreign exchange award become executory fifteen (15) days after publication (Section 7.1).
- The BOI may adopt policies encouraging continuous purchase and unhampered supply by autoparts manufacturers at competitive prices and quality to help achieve local content (Section 7.2).
- The BOI may designate or deputize a Technical Review Committee in consultation with concerned parties for local content determination and/or audit, and the BOI prepares the Terms of Reference (Section 7.3).
- A mandatory deletion list may no longer be used in pursuing CDP objectives (Section 7.4).
- The local content requirement terminates by the year 2000 under the GATT Agreement on Trade-Related Aspects of Investment Measures (Section 7.5).
Joint-venture foreign exchange concessions:
- For new joint-venture car assembly operations, the BOI may grant a foreign exchange concession equal to ten percent (10%) of net foreign exchange earnings (NFEE) required during the first two (2) years, if local equity is at least thirty percent (30%) (Section 8).
- For joint ventures between parts vendors and local autoparts manufacturers promoted by participants, the BOI may grant an additional concession equal to ten percent (10%) of NFEE of the parts manufacturing joint-venture during its first two (2) years, if local equity is at least thirty percent (30%) (Section 8).
CKD/CBU price monitoring: the BOI continues to monitor retail prices of participating models and variants and may review price composition of certain models and require documentation (Section 9).
Foreign exchange requirements:
- Participants in Categories I, II and III must earn foreign exchange credits through export of automotive products to import CKDs, and net foreign exchange earnings are recorded in the ledger without bonus (Section 10.1).
- The foreign exchange ratios (as % of CKD import value) for Category I are fixed by year (Section 10.2):
  - 1995: 5.0%, 1996: 5.0%, 1997: 7.5%, 1998: 7.5%, 1999: 15.0%, 2000: 15.0%.
- The foreign exchange ratios (as % of CKD import value) for Category II are fixed by year (Section 10.3):
  - 1995: 40%, 1996: 45%, 1997: 45%, 1998: 50%, 1999: 50%, 2000: 55%.
- Participants in Category III, and AUV participants, must earn seventy-five percent (75%) of their foreign exchange requirements for CKD importation (Section 10.4).
- The BOI may designate or deputize a Technical Review Committee to determine and audit net foreign exchange and prepare Terms of Reference (Section 10.5).
- Section 9.4 of M.O. 136 (s. of 1987) is deemed superseded/revoked (Section 10.6).
- The BOI continues to issue Certificates of Authority to Import allowing participants to import CKD requirements and avail of the three percent (3%) duty under E.O. 264, series of 1995 (Section 10.7).
- The foreign content requirement terminates by the year 2000 under the GATT agreement framework (Section 10.8).

Commercial Vehicle Development Program (CVDP) rules

The CVDP supports accelerated rural development through suitable and affordable transport of goods, services and passengers (Section 11.1).
The CVDP encourages and assists non-formal automotive industry development focusing on safety, roadworthiness, and emission standards (Section 11.2).
AUV definition: For AUV, besides M.O. 157 Section 2 definition, AUV body parts must be locally pressed or a major component such as transmission or engine must be locally manufactured (Section 12.1).
CKD and KD definitions follow the CDP definitions in Section 2 (Section 12.2).
Participants:
- The informal sector is integrated under the CVDP, with specific guidelines to be formulated by the BOI (Section 13.1).
- Section 13.2 accepts BOI applications for participation in Categories II (previously closed) and V (created under Section 14.1), and accepts within those rules applications in other categories as stated; applicants must obtain a technical licensing agreement with foreign CKD supplier, assemble established quality vehicles, provide adequate parts and support services, and qualify under CVDP rules.
- The BOI decides accepted applications within sixty (60) working days from date of official filing (Section 13.2).
- A new participant in the CVDP is one that is not a participant in CVDP Categories I, II, III or IV at approval of the supplemental guidelines (Section 13.3).
- New CVDP participants must invest and/or bring investments equivalent to US$8 million for parts and components manufacturing for exports and domestic markets (Section 13.3.1).
- New CVDP participants must establish a new assembly facility or use an existing idle/operating facility (Section 13.3.2).
- New CVDP participants must post a performance bond or bank guaranty with proportional reduction upon proof of plant build-up excluding land (Section 13.3.3).
- Specific qualifications for informal sector participants are determined by BOI (Section 13.3.4).
- Participation in the CVDP no longer requires the concurrence of the President due to liberalization (Section 13.4).
Coverage and categories:
- Category V is created to cover trucks with gross vehicle weight greater than 18 tons and Special-Purpose Vehicles such as fire trucks (Section 14.1).
- The CVDP allows importation of brand-new CBU trucks and buses, and brand-new CBU Light Commercial Vehicles (LCVs) and Asian Utility Vehicles (AUVs) under E.O. 264, series of 1995 and Monetary Board Circular No. 92, series of 1995; the Monetary Board issues a memorandum defining “new” and processes (Section 14.2).
Models and variants: no limitation if registered with BOI; BOI continues to monitor retail price ceilings for CVDP models (Section 15).
Local content:
- Participants in Categories I and II are no longer required to comply with local content higher than forty-five percent (45%) to qualify or remain in CVDP (Section 16.1).
- BOI may grant a foreign exchange award equal to fifty percent (50%) of foreign exchange earned in the previous year to participants attaining weighted local content average of at least 55% across all participating models and variants (Section 16.1).
- BOI award guidelines become executory fifteen (15) days after publication (Section 16.1).
- BOI may adopt policies to encourage continuous purchase and unhampered supply of autoparts at competitive prices and quality (Section 16.2).
- BOI may designate/deputize Technical Review Committee for local content audits using the same CDP Terms of Reference if applicable and using applicable CDP rules and regulations (Section 16.3).
- Participants in Categories III and IV continue to comply with the minimum local content requirement for year 3 under M.O. 157 (s. of 1988) (Section 16.4).
- New participants in Category V must comply with minimum local content for the truck unit used based on its GVW (Section 16.4).
- Trucks greater than 18 tons GVW must use the same local content as Category IV-D of the CVDP (Section 16.4).
- Mandatory deletion list may no longer be used (Section 16.5).
- Local content requirement terminates by year 2000 under the GATT agreement framework (Section 16.6).
Joint-venture foreign exchange concessions:
- BOI may grant a foreign exchange concession of ten percent (10%) of NFEE required during the first two (2) years for new joint-venture commercial vehicle assembly operations, with local equity at least thirty percent (30%) (Section 17.1).
- BOI may also grant additional concession of ten percent (10%) of NFEE of the parts manufacturing joint-venture during its first two (2) years for joint ventures promoted between parts vendors and local autoparts manufacturers, with local equity at least thirty percent (30%) (Section 17.1).
CKD/CBU price monitoring: BOI monitors retail prices of participating models and variants and may review price composition and require documentation (Section 18).
Foreign exchange requirements:
- Participants in Categories I and II must earn foreign exchange credits through export of automotive products to import CKDs; net foreign exchange earnings are recorded without bonus, and foreign exchange ratios are fixed by year (Section 19.1):
  - 1995: 5.0%, 1996: 5.0%, 1997: 7.5%, 1998: 7.5%, 1999: 15.0%, 2000: 15.0%.
- Participants in Categories III, IV and V must also earn foreign exchange credits to import CKDs; their net foreign exchange earnings are recorded without bonus, and their required foreign exchange ratio is five percent (5%) (Section 19.1).
- BOI may designate/deputize the Technical Review Committee for determining and auditing net foreign exchange attainment, using applicable CDP Terms of Reference and rules (Section 19.2).
- BOI continues to issue Certificates of Authority to Import for CKD imports and to avail the three percent (3%) duty under E.O. 264, series of 1995 (Section 19.3).
- The foreign content requirement terminates by year 2000 under the GATT agreement framework (Section 19.4).

Motorcycle Development Program (MDP) rules

The MDP supports accelerated rural development by providing cheaper alternative transportation units for goods, services and passengers in rural areas, in addition to the objectives in M.O. 160 (s. of 1988) (Section 20).
Participants:
- Section 21.1 accepts BOI applications for participation in Category A (previously closed), alongside applications for Category B, from Filipino- and foreign-owned companies organized under Philippine laws, provided applicants obtain a technical licensing agreement with foreign CKD supplier, assemble established quality vehicles, provide adequate parts and support services, and qualify under MDP rules and regulations.
- BOI decides accepted applications within sixty (60) working days from date of official application (Section 21.1).
- A new participant is one that is not a participant in MDP Categories A and/or B as of approval of supplemental guidelines (Section 21.2).
- New MDP participants must invest and/or bring investments equivalent to US$2 million for parts and components manufacturing for exports and domestic markets (Section 21.2.1).
- New MDP participants must establish a new assembly facility or use an existing idle or operating facility (Section 21.2.2).
- New MDP participants must post a performance bond or bank guaranty to ensure fulfillment of commitments, with proportional reduction upon proof of plant build-up excluding land (Section 21.2.3).
Coverage and importation:
- Importation of brand-new motorcycles is allowed under E.O. 264, series of 1995 and Monetary Board Circular No. 92, series of 1995, with the Monetary Board issuing a memorandum defining “new” and processes (Section 22).
Models and variants: no limitation in number, but models and variants must be registered with BOI and prices remain subject to BOI monitoring (Section 23).
Local content:
- Category A participants are no longer required to comply with vehicle local content higher than forty-five percent (45%) (Section 24.1).
- Category B participants must attain local content of thirty-five percent (35%) (Section 24.1).
- BOI may grant a foreign exchange award equal to fifty percent (50%) of foreign exchange earned during the previous year to participants that attain a weighted local content average of at least fifty-five percent (55%) across all participating models and variants (Section 24.1).
- BOI award guidelines are executory fifteen (15) days after publication (Section 24.1).
- BOI may adopt policies encouraging continued purchase and unhampered supply by autoparts manufacturers at competitive prices and quality (Section 24.2).
- BOI may designate/deputize Technical Review Committee for MDP local content audit using Terms of Reference and rules applicable to CDP/CVDP audits if applicable (Section 24.3).
- Local content requirement terminates by year 2000 under the GATT agreement framework (Section 24.4).
Joint-venture foreign exchange concessions:
- BOI may grant a foreign exchange concession to new joint-venture motorcycle assembly operations equal to ten percent (10%) of NFEE required during the first two (2) years, with local equity at least thirty percent (30%) (Section 25).
- Participants promoting joint ventures between parts vendors and local autoparts manufacturers may receive additional foreign exchange concessions equal to ten percent (10%) of NFEE of the parts manufacturing joint-venture during its first two (2) years, with local equity at least thirty percent (30%) (Section 25).
Foreign exchange requirements:
- Participants must earn foreign exchange credits through exports of automotive products to import CKDs; net foreign exchange earnings are recorded in the ledger without bonus, and foreign exchange ratios by year are fixed (Section 26.1):
  - 1995: 5.0%, 1996: 5.0%, 1997: 7.5%, 1998: 7.5%, 1999: 15.0%, 2000: 15.0%.
- BOI may designate/deputize Technical Review Committee for CDP/CVDP net foreign earnings determination and audit for MDP purposes, using the same Terms of Reference if applicable and applicable rules (Section 26.2).
- BOI continues to issue Certificates of Authority to Import to import CKD requirements and to avail the three percent (3%) duty under E.O. 264, series of 1995 (Section 26.3).
- The foreign content requirement terminates by year 2000 under the GATT agreement framework (Section 26.4).

Funds, awards, and government purchasing priorities

Fees and expenses: BOI may collect fees for assessment/verification/accreditation of net foreign exchange earned by assemblers and local content attained, and may grant honoraria to Technical Review Committee members and staff and incur operational expenses charged against these funds subject to Commission on Audit rules (Section 28).
Government/Government-authorized purchases:
- All government entities are enjoined to patronize and give priority to locally-assembled units when purchasing vehicles, particularly for foreign-funded projects (Section 29.1).
- The Department of Transportation and Communications must consider locally-assembled brand-new vehicles in subsequent taxi programs, where locally-assembled brand-new taxi models can be supplied at competitively-priced terms (Section 29.2).
Incentives/Awards:
- BOI may grant additional credits and/or awards in equivalent net foreign exchange credits for high local value added, research and development efforts, manpower skills training, and foreign investments received; BOI must formulate guidelines for determination and use, which become executory fifteen (15) days after publication (Section 31.1).
- BOI may grant a special package of incentives to Filipino assemblers who export at least fifty percent (50%) of their CBU motor vehicle production (and foreign companies exporting at least seventy percent (70%)), such as reduced NFEE and local content requirements (Section 31.2).

Penalties and compliance consequences

Penalties: aside from