Philippine-Japan Trade Pact Harmful to Local Economy?
Japan-Philippines Economic Partnership Agreement (JPEPA) seeks to expand
trade and investment relations between the two countries. However, it
contains provisions that, in the recent past, were opposed by various
Third World countries at the World Trade Organization (WTO) meetings. Is
this a case of industrialized countries like Japan going “bilateral”
after failing to hammer out preferred agreements at the WTO level?
JENNIFER DEL ROSARIO-MALONZO
Posted by Bulatlat
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
The JPEPA is expected to boost the Philippines’ gross domestic product
(GDP) between 1.7 percent-3.0 percent since Japan is the second largest
trading partner of the Philippines, next to the United States (U.S.). The
Philippine government is especially keen on gaining access to Japan’s
health care service industry and to improve access to automotive
electronics and agriculture exports.
Japan aims to expand its export and investment opportunities in the
Philippines. The JPEPA also has political value for Japan, given that
China –an economic rival in Asia and the Association of
Southeast Asian Nations (ASEAN) – agreed to remove all trade barriers by
2010. Consequently, Japan hastened its campaign to liberalize trade in the
Asian region through bilateral agreements and pursuing talks with the
cultivates a “partnership” with the Philippines so that the latter
remains useful to the Japanese economic agenda. Relations are preserved
through trade and investment linkages and official development assistance
In 2003, Japan exported to the Philippines 1.0419 trillion yen ($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 account for
only 0.31 percent of the entire export figure from Japan.
Japan is also the Philippines’ biggest investor. In 2002, the Philippine
Board of Investments (BoI) reported that investment from Japan amounted to
over P17 million pesos ($301,178, based on an exchange rate of P56.445 per
U.S. dollar), or 37 percent of the total foreign investment in the
Philippines. Of the 416 transnational corporations (TNCs) in the top 1,000
corporations in the Philippines, 142 or 34 percent 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, President
Gloria Macapagal-Arroyo was rewarded with the signing of four loan
agreements with the Japan Bank for International Cooperation (JBIC) 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 (ARMM). Of this amount, $208.5 million is earmarked for three
power projects, among them the creation of the wholesale electricity spot
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 were held, three of them in Manila and
the latest in Tokyo last September.
of trade in goods, services
the second round of negotiations, trade officials agreed on achieving
“high-level liberalization in goods and services.” Tariff reductions
and elimination were deemed important in boosting Japan-Philippines
economic relations. The JPEPA will be fully consistent with the General
Agreement on Tariffs and Trade (GATT), which means that commitments will
not be below WTO standards but can go beyond existing liberalization
Japan also wants the elimination of foreign equity limitation in the
Philippines, which will require amendments to the 1987 Constitution and
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 health care services and information
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, it comes as
no surprise that it imposes certain conditions like the Filipino
workers’ ability to communicate in Japanese and to meet local
qualification standards, is already expected.
The Philippines also targets sending engineers and information technology
(IT) professionals to Japan for work in Japanese companies. Negotiators
noted the difficulty of obtaining 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 stressed the need to prevent
the inflow of illegal immigrants and overstaying foreigners.
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 WTO’s first Ministerial
Conference in Singapore.
Most Third World countries have opposed the expansion of the WTO through
the new issues, which resulted in the failure of talks in the Cancun
Ministerial last year. In the process, developed countries like the U.S.,
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 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
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.
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 ($10.54 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. Posted
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