Jpepa Committee Report - Sen. Miriam Santiago Aug 2008

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

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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

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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

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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.

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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 Indonesia Singapore Philippines Malaysia

$ 13.3 M $ 8.7 M $ 7.2 M $ 5.4 M $ 3.0 M 21

JAPAN FDI IN ASEAN 2006 • • • • •

Thailand Indonesia Singapore Philippines Malaysia

$ 1.98 M $ 0.74 M $ 0.38 M $ 0.37 M $ 2.94 M 22

FOREIGN FDI TO RP 2000 - 2006 Japan U.S. South KoreaTaiwan -

Php 143.5 B Php 112.2 B Php 74.1 B Php 20.6 B

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B. ISSUES

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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

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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 selfsufficient 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.

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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 38 RP.

C. CONSTITUTIONAL ISSUES

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TWO COMMITTEES 1. Committee on Foreign Relations – Constitutional Issues 2. Committee on Trade and Commerce – Trade Issues

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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.”

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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.”

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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.

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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.

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

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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.

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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.

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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

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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

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TARGET DATE FOR VOTING ON JPEPA

September 2008

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