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RP-Japan pact: Japan’s economic takeover

IBON Features | 14 October 2004


by Jennifer del Rosario-Malonzo
IBON Foundation

With the collapse of the WTO talks in Cancun, developed countries like the US, the EU and Japan are pursuing the “new issues” in bilateral and regional free trade deals, where individual or groups of developing countries are more vulnerable to pressure.

IBON Features — The Philippines and Japan are negotiating a bilateral free trade agreement, officially called the Japan-Philippines Economic Partnership Agreement (JPEPA). If the deal is signed, it will be the Philippines’ first bilateral free trade pact.

The JPEPA is expected to boost the Philippines’ gross domestic product between 1.7%-3% since Japan is the second largest trading partner of the Philippines, next to the United States. The Philippine government is especially keen on gaining access to Japan’s healthcare service industry and to improve access to automotive electronics and agriculture exports.

Meanwhile, Japan expects to expand its export and investment opportunities in the Philippines. The JPEPA also has political value for Japan, with its free trade ambitions assuming new urgency after China seen as an economic rival in Asia and the Association of Southeast Asian Nations (ASEAN) agreed to remove all trade barriers by 2010. Japan has been speeding up its campaign to liberalize trade in the Asian region through bilateral agreements and pursuing talks with the ASEAN.

Boosting RP-Japan relations?

The Philippines, like many other underdeveloped nations, has a vital role in the prevailing global economic system that serves the interests of industrial countries such as Japan. Thus, Japan cultivates a “partnership” with the Philippines to ensure that it remains useful to Japanese economic agenda. Relations are preserved through trade and investment linkages and the so-called official development assistance (ODA).

In 2003, Japan exported to the Philippines 1.0419 trillion yen (US$9.47 billion) worth of goods, mainly machinery and electronics parts. The Philippines’ exports to Japan, on the other hand, totaled 815.5 billion yen ($7.41 billion), led by bananas, mangoes and other fruits and farm products. Practically all Japanese exports to the Philippines are industrial goods. Agricultural, forestry and fishery products occupy only 0.31% of the entire export figure from Japan.

Japan is also the Philippine’s biggest investor. In 2002, the Philippine Board of Investments (BOI) reported that investment from Japan amounted to over P17 million pesos, or 37% of the total foreign investment in the Philippines.
Of the 416 transnational corporations (TNCs) in the top 1,000 corporations in the Philippines, 142 are Japanese companies.

Meanwhile, Japan is also the Philippines’ largest aid donor. Japanese ODA to the Philippines amounted to 41.76 billion yen ($379 million) in 2002, while the total amount of ODA since 1968 has reached 2.58 trillion yen ($23 billion).

In December 2003, as a sweetener for the JPEPA negotiations, Arroyo was rewarded with the signing of four loan agreements with the Japan Bank for International Cooperation worth $435.3 million. The loan would be used for power projects in the country and the establishment of a social fund for the Autonomous Region in Muslim Mindanao. Of the amount, $208.5 million is earmarked for three power projects, among them the creation of the Wholesale Electricity Spot Market.

By February 2004, JPEPA negotiations were in full swing. Trade officials agreed on the ground rules and subsequent negotiations were scheduled. To date, four rounds of negotiations have been hurdled, with three held in Manila and the latest held in Tokyo in September.

Liberalization of Trade in Goods and Services

During the second round of negotiations, trade officials agreed on achieving “high-level liberalization in goods and services.” Tariff reductions and elimination are deemed important in boosting Japan-Philippines economic relations. The JPEPA will be fully consistent with the General Agreement on Tariffs and Trade, which means that commitments will not be below WTO standards but can go beyond existing liberalization obligations.

Japan also wants the elimination of foreign equity limitation in the Philippines, which will require amendments to the Constitution and other laws.

Services liberalization is a major area of the JPEPA. The subject of trade in services in the JPEPA would be consistent with the WTO’s General Agreement on Trade in Services (GATS). Movement of natural persons (or mode 4 in GATS parlance) and specific sectors such as finance and energy are dealt with separately.

Movement of Natural Persons is considered as one of the most important areas of the JPEPA. Philippine negotiators have been vocal about the government’s keen interest in opening the Japanese labor market to Filipino workers, particularly in healthcare services and information technology.

As one of the world’s fastest aging societies, Japan is already facing a shortage of nurses and other medical personnel, especially in rural areas. The Japanese government, however, is conscious of public concerns that foreign workers could put Japanese people out of jobs. Thus, its demand that certain conditions be met, such as Filipino workers must be able to communicate in Japanese and meet local qualification standards, is already expected.

The Philippines also targets sending IT professionals and engineers to Japan for work in Japanese companies. Negotiators noted the difficulty of obtaining working visa for Filipino service suppliers to work in Japan. Present Japanese laws allow foreign skilled labor in limited fields and the Philippines wants conditions relaxed. Japan’s response, however, has been lukewarm as it pointed out the need to prevent the inflow of illegal immigrants and overstaying foreigners.

‘New Issues’

The controversial “new issues” in the WTO, also known as the Singapore issues, are all included in the JPEPA. These are investments, competition policy, government procurement and trade facilitation. In the WTO Framework Agreement agreed last July, only trade facilitation was included although developed countries have been pushing the four Singapore issues since 1996, the first Ministerial Conference in Singapore.

Majority of Third World governments have opposed the expansion of the WTO through the new issues, which became the last straw that broke down talks in the Cancun Ministerial last year. Thus, developed countries like the US, the EU and Japan are pursuing the new issues in bilateral and regional free trade deals, where individual or groups of developing countries are more vulnerable to pressure.

Talks are focused on “high-level” liberalization of investment and the promotion and protection of investments. Negotiators are discussing the establishment of investment rules that cover, among others, the National Treatment and Most Favored Nation (MFN) treatment in both pre-establishment and post-establishment phases.

These investment rules will not only prohibit restrictions on the free flow of investments, but will also provide high level of protection for Japanese investors, who will be treated as locals under the National Treatment provision and given special privileges under the MFN. The provision on pre-establishment implies that even without actual investments, or with merely the intent to invest, Japanese entities automatically enjoy the benefits accorded by the agreement.

The extent of investment liberalization that JPEPA aims to achieve is astounding. Not only does the proposed agreement covers investment in industrial and services sectors, it also wants to penetrate even into the small and medium enterprises (SMEs), the last bastion of local capital in the Philippines.

The agreement is seen to facilitate investments of Japanese firms in Philippine SMEs and vice-versa. But Filipino SMEs are generally lacking in both financial and technological resources to invest abroad. They are also currently under siege by competition from imported products as a result of economic liberalization.

Japan is also pushing to have the WTO Agreement on Government Procurement, a plurilateral agreement that the Philippine government is not a signatory of, as the ideal framework to be used in the JPEPA.

In the WTO, developed countries are demanding the liberalization of government procurement to give their companies the right to have a large share of the lucrative business of providing supplies to and winning contracts for projects of the public sector in the Third World.

Clearly, Japan wants to corner a bigger share of Philippine government project contracts, aside from those that are already reserved for Japanese companies because the financing came from Japanese ODA.

Beneficial for Filipinos?

Japan is already a dominant figure in the Philippine economy as illustrated by trade, investment and ODA figures. It is an important source of financing for a bankrupt Philippine government. But Japan also earns billions of dollars in exchange for whatever it decides to pour into the country. In 2002, Japanese corporations belonging to the top 1,000 corporations in the Philippines raked in nearly P595 billion in revenues.

The JPEPA, more than a trade agreement, is essentially about increasing and ensuring Japanese investments. Advanced countries like Japan have already ensured market expansion for their manufacturers, traders and service providers in developing countries. But, not content with this, Japanese corporations want comprehensive penetration, or the removal of remaining constraints in their entry and operation. In line with the efforts of major industrial powers, Japan wants to ensure the free entry and operation of investors in the Philippines by limiting the role of government in regulating investments.

Corporations and investors are increasingly moving or looking to Third World countries because they want to take advantage of lower wages and weaker labor, health and safety, and environmental measures. Further deregulation of investment through multilateral, regional or bilateral agreements such as the JPEPA, which aims to increase investor rights and benefits, will only be to the detriment of the underdeveloped countries like the Philippines.

The dominance of TNCs in the Philippines has already stunted the growth of domestic capital. More importantly, the economy has not benefited from the “economic partnerships” maintained through decades of subservience to the country’s former colonial masters such as the US and Japan.

 source: IMC Quezon City