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Landmark Japan-Philippines trade deal: a recap

Business World | Thursday, January 8, 2009 | MANILA, PHILIPPINES

Landmark Japan-Philippines trade deal: a recap

By Emir M. Castro

Part I

In the first part of this article, the issues that hounded the ratification of the Japan-Philippines Economic Partnership Agreement (JPEPA) will be discussed, as well as the Senate Resolution that led to ratification.

The JPEPA experienced a rough ride in the Senate due to three major issues, namely: constitutional/statutory issues, environmental issues and trade/services issues.

The constitutional and statutory issues that arose alarmed the Senate in the sense that, in the event that the JPEPA would be challenged before the Supreme Court, it would be declared unconstitutional. They did not want to ratify an agreement which would eventually be hamstrung by the Judiciary.

These issues pertained, among others, to the grant of national treatment and most favored nation clause to Japanese investors to which the Philippine negotiators made very few reservations or exceptions.

As a result, the Philippines failed to claim sufficient protection for education, media, advertising, public utilities and practice of all professions.

The contentious section concerned Annex 7 of the agreement pertaining to the Philippine schedule, which gave our government the right to enumerate those constitutional and legal provisions which it wishes to remain in effect in the light of the reservation clause for existing and future measures in the JPEPA.

Unfortunately, the Philippine schedule did not provide a complete list of existing constitutional and statutory provisions, unlike the Japanese schedule which was complete and comprehensive.

By implication, said Annex allows foreign ownership by Japanese nationals of private lands in virtually all sectors, except in manufacturing and services, as said Annex makes no reservation in respect to the national economy and patrimony provisions of the Philippine Constitution prohibiting foreign ownership of such lands.

In addition, JPEPA allows foreign exploitation of our maritime wealth in the form of deep-sea fishing, contrary to the constitutional provision which solely reserves all the archipelagic waters, territorial sea, and exclusive economic zones, for the exclusive use and enjoyment of all Filipino citizens.

The negotiators sought to distinguish "Filipino citizen" as including juridical entities such as Filipino-owned- and -controlled corporations. The senators, however, were of the view that the term should be strictly interpreted as contemplating only natural persons in accordance with the stance of many respected constitutionalists.

These are examples of the problems posed by the ambiguities present in the agreement.

In response, the Senate stipulated that an exchange of notes would first be made before they would agree to ratify the agreement. Under the Vienna Convention on the Law of Treaties, an exchange of notes, if so intended, is in itself binding on the treaty.

This exchange of notes was meant to embody in written form the constitutional and legal concerns of the senators. The Philippines sent its letter on August 22 last year, while the Japanese government accepted the exchange of notes on August 28, 2008.

The exchange of notes confirmed that JPEPA will not result in a violation or amendment of any nationalistic provision, notably the ownership of lands of public domain and exploration, development, and utilization of all waters, minerals, coal, petroleum oils, all sources of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources.

It will respect the reservation to qualified Filipinos of all preferential rights, privileges, and concessions on the national economy and patrimony.

Furthermore, it will not amend any existing law protecting Filipinos from unfair foreign competition, regulation foreign investments, promoting preferential use of Filipino labor and domestic materials or regulating the transfer of technology.

The exchange of notes also emphasized the JPEPA provision that the treaty may be amended by an agreement between the parties, in order to allow for the effectivity of future Philippine laws which might not conform to JPEPA.

Environmental concerns raised pertain to the possibility that toxic and hazardous waste could be exported to the Philippines. Article 29 of the JPEPA recognizes the possibility of importing scrap/waste which may be toxic/hazardous. Moreover the Philippine Tariff schedule gives a preferential rate of zero percent to items which may be considered as hazardous by the Basel Convention and local laws.

In order to dispel such fears, an exchange of notes between the Philippines and Japan was entered into, whereby it asserted that the Basel Convention would be complied with along with all Philippine laws regarding the exportation of toxic wastes. In addition, any future measures, agreements and national laws may be adopted, regardless of provisions related to such topic in the JPEPA.

Finally, on the trade and services issues, a study of the commitments and concessions of both parties reveals that the JPEPA is lopsided and is in favor of Japan. While Japan insisted on excluding, for purposes of protection, more than 200 (651 tariff lines) of its products (mostly agricultural and fisheries), the Philippines only chose to protect two of its products (6 tariff lines) by way of exclusion (rice and salt). Moreover the Philippines did not seek protection for its fishery and agricultural products.

It was also contested whether JPEPA will have an effect on electronics, semi-conductors, auto parts and furniture industries due to tariff reduction as such items currently enter Japan at zero tariff rates.

The JPEPA has clear national treatment provisions in the chapters for trade in goods, services, and investment.

However, the treaty does not have a similar provision in the movement of natural persons. This was pointed out to be a major hindrance for nurses and caregivers entering Japan.

Despite clear prohibition in Executive Order 156 regarding the importation of used motor vehicles and a Supreme Court case affirming such EO, such importation may now be allowed in the JPEPA.

In Article 93 of the JPEPA, the Philippines waived its right to require Japanese investors to transfer technology to their Filipino partners, which is a contravention of the intellectual property law regarding voluntary and mandatory licensing.

The Philippines also surrendered the right to require Japanese investors to hire a certain amount of Filipinos in their companies.

Eventually, the Senate brushed aside such trade and services issues out of economic necessity.

Although many were not convinced of JPEPA’s real gains, specifically that there would be a freer trans-border flow of goods, persons, services and capital, the overwhelming concern was on the effect of non-ratification.

The Senate noted that the loss to be incurred by non-ratification was quantifiable and definite. This stemmed from the fear that the Philippines would lose its competitiveness, as compared to its Southeast Asian neighbors, for the Japanese market. Non-ratification would lead to the exclusion of the Philippines from the emerging free trade area between Japan and members of the Association of Southeast Asian Nations.

(To be continued.)

(The author is a consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Feedback is welcome. Readers may call 8452728.)

 source: BW