DRAFT as of Aug 6, 2008,1100am

JPEPA
COMMITTEE REPORT

BY SENATOR MIRIAM DEFENSOR SANTIAGO

•Committee on Foreign Relations

•Committee on Trade and Commerce
6 AUGUST 2008
1
A. BASIC TERMS AND
FEATURES

2
 WHAT IS EPA?

An Economic Partnership
Agreement (EPA) is basically a
Free Trade Agreement (FTA).
The two states agree to engage in
open bilateral exchange of goods,
with zero or minimum tariffs.
3
 RP FTAs
• ASEAN FTA*
• ASEAN – China FTA
• ASEAN – Korea FTA
• Japan – Philippines
*In AFTA, RP joined collective
decision to enter into FTAs with China,
Japan, India, Korea, Australia/New
Zealand.
4
 EPA = FTA PLUS

EPA = FTA, Plus Cooperation in:

• Investment
• Movement of Natural Persons
• Competition
• Government Procurement
• Business Environment, etc.
5
 JPEPA IS HISTORIC

• Most important bilateral economic

agreement in last 50 years
• Immediate benefits to Filipino
exporters
• Easier entry of qualified Filipino
nurses and certified caregivers
6
 WHY JPEPA?
• Upon effectivity, 95%of RP exports to
Japan will face zero duties
• Ten years from effectivity, zero tariffs
on almost all industrial goods
• Agriculture is major potential gainer.
Positive impact on farmers,
fishermen, and food processors.
7
 WHY JAPAN?
• World’s second largest economy
• World’s 5th largest importer
• Included in world’s Top 5 sources
of Foreign Direct Investment (FDI)
• Market of 128 million people

8
 WHY JAPAN?
• RP’s largest source of ODA (Official
Development Assistance): JBIC loan
facility, US $4.7B in 2006, or 49% of total
ODA loans.
• RP’s second largest source of FDI: US
$938 M in 2002 - 2006
• RP’s second largest export market: US
$7.74 B in 2006
9
PRESENT EPAS WITH JAPAN
• Singapore 2002
• Mexico 2005
• Malaysia 2006
• Thailand 2007
• Chile 2007
• Brunei 2007
• Indonesia 2008

10
 ORGANIZATIONS FOR JPEPA
• Philippine Chamber of Commerce and Industry
• Federation of Philippine Industries
• Chamber of Automotive Manufacturers of the
Philippines, Inc.
• Philippine Association of Battery Manufacturers, Inc.
• Japanese Chamber of Commerce and Industry of
the Philippines
• Philippine Institute for Development Studies

11
ORGANIZATIONS FOR JPEPA
• Semi Conductor and Electronics Industries of
the Philippines, Inc.
• Trade Union Congress of the Philippines
• Management Association of the Philippines
• Chamber of Commerce of the Philippines
Foundation
• Makati Business Club
• Port Users Confederation
• Philippine Food Processors and Exporters
Association
• Cebu Chamber of Commerce and Industry
• Philippine Mango Exporters Foundation
• Philippine Okra Producers and Exporters 12
ORGANIZATIONS FOR JPEPA
• League of Provinces of the Philippines
• Liga ng mga Barangay
• Federation of Filipino Chinese Chambers
of Commerce and Industry, Inc.
• Confederation of Garments Exporters of
the Philippines
• Philippine Exporters Confederation
• Employers Confederation of the
Philippines
• Federation of Free Workers
13
 NGOs VS. JPEPA
• Magkaisa Junk JPEPA
• Pamalakaya
• Kilusang Mambubukid ng Pilipinas
• IBON Foundation, Inc.
• Kanlungan Center, Inc.
• Greenpeace International
• Fair Trade Alliance
• Alternative Law Group
14
 NGOs VS. JPEPA
• Alliance of Philippine Fishing Federation,
Inc.
• Association of Third Party Environment
Service Providers of the Philippines
• Automotive Industry Workers Alliance
• Philippine Association of Service
Exporters, Inc.
• Philippine Nurses Association
• Basel Action Network, etc.
15
 OUTSTANDING BENEFITS

• Bigger net equity investments

from Japan
• First time Japan will accept
Filipino nurses, caregivers

16
 ADDED JPEPA BENEFITS
• Transfer of technology
• Technical assistance
• Output growth, from increased
exports, inward investments, and
remittances. Estimated output:
1.73 to 3.03%.
17
 EXPORT GROWTH
• 2007 – 2011 RP exports to Japan will
grow 15-20%, instead of only 10%, to
$405 M or Php 559 B
• 2002 – 2006 Singapore exports grew
7.3%, compared to 5.8% in 1998 – 2001.
• 2005 – 2006 Mexican exports grew
10.3%, compared to -1.3% in 2001- 2004.

18
GROWTH IN RP EXPORTS
Fish ● Fruits ● Charcoal ● Iron ore
concentrates ● Non-ferrous metal ●
Silver platinum ores ● Crude
vegetables ● Wood manufactures ●
Office machine ● Travel goods ●
Handbags ● Watches, clocks ●
Zoo animals and pets
19
ZERO TARIFFS ON EXPORTS TO
JAPAN
Shrimps and prawns ● Leguminous
vegetables ● Dried bananas ●
Guavas Mangoes ● Mangosteen ●
Fresh papayas ● Coconut, copra ●
Dried durian ● Jackfruit ●
Rambutan ● Knitted and crocheted
fabrics
20
 PAST JAPANESE NET FDIs to
ASEAN (1995-2005)

• Thailand $ 13.3 M
• Indonesia $ 8.7 M
• Singapore $ 7.2 M
• Philippines $ 5.4 M
• Malaysia $ 3.0 M
21
 JAPAN FDI IN ASEAN 2006

• Thailand $ 1.98 M
• Indonesia $ 0.74 M
• Singapore $ 0.38 M
• Philippines $ 0.37 M
• Malaysia $ 2.94 M
22
 FOREIGN FDI TO RP
2000 - 2006

Japan - Php 143.5 B

U.S. - Php 112.2 B
South Korea- Php 74.1 B
Taiwan - Php 20.6 B

23
B. ISSUES

24
 ISSUE NO. 1: TOXIC WASTE
• Issue: Zero tariffs on 145 waste
products
• Reply: Zero tariffs will not encourage
importation, because RP LAWS AND
REGULATIONS ALREADY PROHIBIT
OR REGULATE THEM. ZERO
TARIFFS DOES NOT MEAN
UNREGULATED TRADE.
25
 RP LAWS ON TOXIC WASTE
• R.A. No. 6969 – Toxic
Substances and Hazardous and
Nuclear Wastes Control Act of
1990.
• R.A. No. 9003 – Ecological Solid
Waste Management Act

26
 DENR IRRs
Chemical Control Orders (CCOs) for:
Ozone Depleting Substances ●
Polychlorinated Biphenyls ● Mercury
and Mercury Compounds ● Cyanide
and Cyanide Compounds ● Ozone
Depleting Substances ● Importation of
Recyclable Materials Containing
Hazardous Substances ● Priority
Chemicals List
27
INTERNATIONAL TREATIES ON TOXIC WASTE
BINDING ON BOTH RP AND JAPAN

• WTO Agreements
• Basel Convention on the Control of
Transboundary Movement of
Hazardous Wastes and Their
Disposal of 1989: States shall
minimize transboundary movement of
hazardous wastes, and become self-
sufficient in wastes covered.
28
INTERNATIONAL TREATIES ON TOXIC WASTE
BINDING ON BOTH RP AND JAPAN

• 1994 General Agreement on

Tariffs and Trade.
• JPEPA: In case JPEPA is
inconsistent with any other treaty,
parties shall hold consultation.

29
 EXCHANGE OF NOTES ON
TOXIC WASTE
“I am pleased to confirm the statement
and commitment of Prime Minister Shinzo
Abe that Japan would not be exporting
wastes to the Philippines, as defined and
prohibited under the laws of Japan and the
Philippines, in accordance with the Basel
Convention, . . . .”

Taro Aso, Japan’s Foreign Affairs Minister

23 May 2007
30
 BASEL CONVENTION PREVAILS
OVER JPEPA
LAW ON TREATIES

• Rule : Later treaty does not prevail over

earlier treaty, except when the two treaties
cover the same subject matter.
• Rule : Special treaty prevails over
general treaty. Basel Convention is
special treaty, while JPEPA is general
treaty. Therefore, Basel prevails over
JPEPA.
31
RP EXPORTS WASTE TO JAPAN

Between 2001 to 2003, RP has

exported waste products to
Japan:
Ash, residue containing mainly
zinc, copper or metallic
compounds

32
JAPAN LENDS PHP 10 B FOR
ENVIRONMENT PROJECTS

Last July, Japanese Foreign

Minister Masahiko Komura said
Japan will extend Php 10.13 B as
ODA for the Environmental
Development Project, to preserve
RP natural environment.
33
ISSUE NO. 2: LOSS OF IMPORT
DUTIES
Issue : In 2008, RP would lose import duties
in sums of Php 3.2 to Php 4.7 B
Reply : Japan would also lose import duties
on RP exports valued at $720 M
Revenue loss compensated by export
earnings
Foregone tariff revenues retained in country
as savings
Boost consumer spending
34
 ISSUE NO. 3: SMES AND
DISPLACED WORKERS
Issue: Invasion of Japanese SMEs
would dislocate weaker Filipino SMEs
Reply: No competition, because main
market of Japanese SMEs is
Japanese multinational corporations
here.
Japanese multinationals now prefer to
subcontract with RP SMEs, to reduce
transaction costs.
35
 ISSUE NO. 4: BARRIERS TO
NURSES, CAREWORKERS
Issue: Requirement to learn Nippongo.
Reply: Japan pledged ODA to set up
Nippongo learning centers in Manila
No quantitative restriction on number of
natural persons.
Japan’s aging population. In 2035,
Japanese over 65 will be 30% of
population.
36
 ISSUE NO. 5: SINGAPORE
ISSUES IN JPEPA

• Government procurement
• Investment
• Competition policy

37
 SINGAPORE ISSUES VS. WTO
Issue: In WTO, RP joined developing states
in resisting inclusion of Singapore issues.
Reply: In WTO, we opposed Singapore
issues, because developed states refused
to make concessions to developing states,
i.e., concessions in agriculture, and
market access for non-agricultural
products.
In JPEPA, Japan makes concessions to
RP. 38
C. CONSTITUTIONAL
ISSUES

39
 TWO COMMITTEES

1. Committee on Foreign Relations

– Constitutional Issues
2. Committee on Trade and
Commerce – Trade Issues

40
 THREE CONSTITUTIONAL
ASPECTS
BASIC PRINCIPLES
• NATIONAL TREATMENT to Japanese
investors and their investments
• MOST-FAVORED-NATION
TREATMENT (MFN)
• PROHIBITION OF PERFORMANCE
REQUIREMENTS
41
 NATIONAL TREATMENT
“Each Party shall accord to investors of
the other Party and to their investments
treatment no less favorable than that it
accords, in like circumstances, to its own
investors and to their investments with
respect to the establishment, acquisition,
expansion, management, operation,
maintenance, use, possession, liquidation,
sale, or other disposition of investments.”
42
 MFN TREATMENT
“Each Party shall accord to investors of
the other Party and to their investments
treatment no less favorable than that it
accords, in like circumstances, to
investors of a non-Party and to their
investments with respect to investment
activities.”

43
 PROHIBITION OF
PERFORMANCE REQUIREMENTS

“1. Neither Party shall impose or enforce, as a

condition for investment activities in its Area of
an investor of the other Party, any of the
following requirements:
(a) to export a given level or percentage of goods or
services;
(b) to achieve a given level or percentage of domestic
content;
(c)to purchase, use or accord a preference to goods
produced or services provided in its Area, or to
purchase goods or services from persons in its Area;
Etc.”
44
THREE BASIC PRINCIPLES VS.
RP CONSTITUTION

National treatment, MFN treatment, and

prohibition of performance requirements
conflict with many provisions of RP
Constitution, which restrict economic
activity to Filipinos, or to corporations
owned by Filipinos 60%, 70%, or 100%; or
which gives preference to Filipinos and
Filipino products.

45
RP CONSTITUTION REQUIRES
FILIPINO CITIZENSHIP

Ownership of land ● Use of all natural

resources ● Use of marine resources up
to EEZ ● Operation of public utilities ●
Practice of all professions ● Ownership of
schools ● Ownership of mass media ●
Ownership in advertising industry ● Etc.

46
 PROBLEM NO. 1
JPEPA Annex 7 Parts 1 and 2 on the
Philippine Schedule gives RP the option to list
down existing non-conforming constitutional and
legal provisions which RP wishes to maintain as
in effect.
RP exercised its options, BUT THE
PHILIPPINE SCHEDULE IS NOT A
COMPLETE LIST OF ALL THE CURRENTLY
EXISTING CONSTITUTIONAL AND
STATUTORY PROVISIONS IN OUR LEGAL
SYSTEM.
47
EXAMPLE OF PROBLEM NO. 1

Japanese investor would have

right to insist on owning more
than 40% of equity of public utility
enterprise, despite constitutional
provision.

48
 PROBLEM NO. 2
JPEPA gives option to exclude from
operation of JPEPA, future non-
conforming measures.
RP exercised this option, BUT THE
PHILIPPINE SCHEDULE REFERS ONLY
TO EXISTING, NOT TO FUTURE, LAWS
AND REGULATIONS.

49
EXAMPLE OF PROBLEM NO. 2
As allowed by Constitution, Art. 11,
Sec. 10, suppose that in future, Congress
passes a law that limits the manufacture of
footwear or garments to RP citizens or
corporations owned 60% by Filipinos.
Japanese investors would have right to
insist on equal treatment with Filipinos.

50
JPEPA MIGHT LOSE IN SUPREME COURT,
AND RP MIGHT LOSE IN INTERNATIONAL
TRIBUNAL
Because Philippine Schedule is
incomplete, there is danger the Supreme
Court will rule JPEPA unconstitutional.
But under Vienna Convention on Law of
Treaties, Art. 27: “A party may not invoke
the provisions of its internal law as
justification for its failure to perform a
treaty.” Hence, RP would be liable in
international tribunal.
51
 JAPAN HAS ADVANTAGE
While Philippine Schedule is
INCOMPLETE, the Japan Schedule is
COMPLETE AND COMPREHENSIVE.
So are Malaysia Schedule, Indonesia
Schedule, and Thailand Schedule in their
respective EPA’s.

52
 FLASH!
KOMURA ORDERS SUPPLEMENTAL
AGREEMENT
After long negotiations during Senate break,
this August, Japanese Foreign Minister
Masahiko Komura authorized an Exchange of
Notes, with complete Philippine Schedule of
constitutional provisions. If possible, this
Supplemental Agreement shall be attached to
JPEPA, when Senate votes on JPEPA. This
removes problem of conditional concurrence,
because the condition has been met.

53
ISSUE OF CUSTOMS DUTIES
JPEPA provides that each state shall
eliminate or reduce customs duties.
This power belongs to Congress. But the
Constitution authorizes Congress to delegate
this power to President. Congress made
limitations and exceptions in 1957 Tariff and
Customs Code. But during martial law, 1978
Tariff and Customs Code removed all
quantitative and time limitations on President’s
tariff-setting power. This practice continues
today, despite 1987 Constitution.
54
 CONSTITUTIONAL ISSUE
1987 Constitution Art. 6 Sec. 28 para
2: “Congress may, by law, authorize
President to fix WITHIN SPECIFIED
LIMITS AND SUBJECT TO SUCH
LIMITATIONS AND RESTRICTIONS AS
IT MAY IMPOSE, TARIFF RATES . . . .”
Congress should pass law setting such
“limitations and restrictions.”

55
D. CONCURRENCE

56
 IF SENATE CONCURS
• RP exports to Japan will increase
15% to 20%:
2009 – US $13.86 B
2010 – US $16.59 B
2011 – US $19.86 B
• Compare with total RP exports growth
of 13%
57
 BENEFIT NO. 1
INWARD INVESTMENTS

Bigger net equity

investments from RP’s
second largest source of
FDI.
58
 BENEFIT NO. 2
INCREASED EXPORTS

Broader range of
agricultural and industrial
products to RP’s second
largest export market.
59
 BENEFIT NO. 3
HIGH-SKILLS WORK OPPORTUNITIES

With JPEPA, Japan has

opened its closed services sector
to: nurses ● caregivers ●
professional service providers ●
skilled specialists

60
 BENEFIT NO. 4
APPROPRIATE TECHNOLOGY
Enable certain segments of
multi-country production
processes to take place in the
country. Examples: integrated
circuit testing and design layout,
outsourced business processes,
etc.
61
 BENEFIT NO. 5
ECONOMIC COOPERATION, TECHNICAL
ASSISTANCE

Intensified cooperation in
ten economic fields
included in Medium-Term
Development Plan.
62
 BENEFIT NO. 6
INCREASED ECONOMIC GROWTH

• Additional output growth from

increased exports, inward
investments, and remittances
• Overall output (GDP) calculated
to grow from 1.73% to 3.03%
• Support poverty alleviation
63
 IF SENATE FAILS TO CONCUR
• RP export share in Japanese market
would go to ASEAN states with EPAs:
Singapore, Malaysia, Thailand,
Brunei, Indonesia, and Vietnam.
• RP would lose Japan FDI. We
cannot get FDI from Europe, because
they prefer to set up manufacturing
plants in Eastern Europe and
neighboring regions there.
64
IF SENATE FAILS TO CONCUR
• Professional service opportunities
in Japan will be opened to other
states, but not to RP.
• Other states would send strong
positive signal to major trading
partners on more open trading
environment, but not RP.

65
 IF SENATE FAILS TO CONCUR

• Gap would continue between RP

exports to, and imports from,
Japan, adding to huge trade
deficits.
• RP share of Japan’s trade would
get even smaller.

66
 YOUR COMMITTEES
RESPECTFULLY RECOMMEND:
• Concurrence with JPEPA,
accompanied if possible by
Supplemental Agreement consisting
of Exchange of Notes.
• Endorsement to the President of
ratification of Basel Ban Amendment,
which prohibits trade of wastes meant
for recycling.
67
 TIMETABLE FOR
INTERPELLATION

Trade : Starting Monday August 11

with Sen. Roxas
Legal : Starting Monday August 25
with Sen. Santiago

68
TARGET DATE FOR VOTING ON
JPEPA

September 2008

69