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Nov 19

The Explainer: JPEPA Battle

They tried to ruin me but they are ruined. They tried to ruin me, because they did not like what I have done. Do you like what I have done? (The mob cheers wildly.) Remember, it is not I who have won, but you. Your will is my strength, and your need is my justice, and I shall live in your right and your will. And if any man tries to stop me from fulfilling that right and that will, I’ll break him. I’ll break him with my bare hands, for I have the strength of many.

 

That was from “All the King’s Men,” where Willie Stark delivers a speech after he survives an impeachment effort.

Two sides want to be able to deliver this speech. One of them will be able to do so, after the Senate votes on the JPEPA. The pros and cons both say, they truly know what JPEPA is really about.

Tonight, we’re going to take a look at JPEPA, and who knows, at the end of it, you might know in your minds, which side will make this speech.

I’m Manolo Quezon. The Explainer.

 

I.   Quotas and Tariffs

 

Willie Stark, in “All the King’s Men,” was based on a real life politician, Senator Huey Long of Lousiana. As Philippine independence was being debated in the U.S. Senate, the real life Huey Long rose and made these remarks. Pat, care to read?

I am concerned about getting rid of these people, on a fair basis, but I am also concerned about taking care of the American people. We need to protect our own sugar industry. That is why we need to get them out of the way. We have no business being hooked up with them.

Sen. Huey Long of Louisiana, 1934

 

As this editorial cartoon shows, American economic self-interest remained America’s paramount consideration, even as our independence was being negotiated. And it was up to Filipino leaders to extract the best concessions possible for our country.

Then as now, nations protect their economies by two means: Quotas and Tariffs.

Quotas are limits on the quantity of a particular product that under official controls can be produced, exported, or imported. Tariffs are the taxes or duties to be paid on a particular class of imports or exports. Countries seeking the maximum opportunity vis a vis another country’s economy, do their best to negotiate high quotas and low tariffs. More often than not, if one country wants preferential treatment for say, its sugar exports, that country will permit similar treatment for products important for the target market, say machinery.

Some countries aspire for what’s called Free Trade. Free Trade is international trade left to its natural course without tariffs, quotas, or other restrictions.

But as another prewar cartoon also shows, even as we negotiated independence, the stability of that independence depended on a lot of external factors. Of equal importance to our post-independence relationship with America would be our relationship with the leading Asian power of the time, Japan.

Prior to World War II, Japanese economic expansion in our country became a hotly-debated topic. The setting up of Japanese Ramie plantations in Davao led to accusations it was being turned intro Davaokuo, a play on the name of Japan’s puppet state, Manchukuo. In 1940 we passed an immigration law still in force, and among its provisions was a limit, or quota, on Japanese immigration to our country.

Occupation turned the Japanese fully into the enemy; the Japanese proclaimed the Greater East Asia Co-Prosperity Sphere, but Filipinos wanted no part of it.

As far as we were concerned, we were part of the Allied cause,

And we remained the Fighting Filipinos, as far as Japan was concerned,

Long after our independence was recognized by the United States.

It wasn’t until the Garcia administration, and even then, grudgingly, that the Philippines signed the peace treaty with Japan.

Our early years of independence helps explain why treaties, of an economic nature, remain such contentious issues in our country.

President Manuel Roxas made economic cooperation with the United States a centerpiece of his administration. When the United States imposed a constitutional amendment, to allow Americans equal economic rights in our economy, he campaigned to have the country accept the condition.

The country supported him, only to be disappointed by the results. Filipinos got even more bitter when Japan reindustrialized, enjoying American support, while the Philippines failed to obtain similar support from the Americans.

But while being pro-Japanese could be a campaign issue until the Marcos years, since then, a new generation of Filipinos see Japan as a place of opportunity. We also see the Japanese as a source of investments, and of tourism. Japan has become one of the largest donors of aid and assistance to our government.

So when President Gloria Macapagal Arroyo and Japanese Prime Minister Junichiro Koizumi, signed a basic political agreement on a bilateral Free Trade Agreement — the Japan-Philippines Economic Partnership Agreement or “JPEPA” — on  November 29, 2004 at the ASEAN Summit in Laos, it’s not surprising that public skepticism ruled.

You might say our experience with trade issues continues to be negative.

For example, President Arroyo, during her stint in the Department of Trade and Industry, was at one time in charge of our textile quotas with the United States. That was when our garments industry was strong; when the USA opened up its textile quotas to other countries, our garments industry collapsed.

JPEPA is the Philippines’ first free trade agreement since the turn of the 20th Century, when Free Trade with the USA was established; on the other hand, it is Japan’s fourth (the others are with Singapore, Mexico and Malaysia) and so it seems understandable we’d assume Japan’s better at this game than we are.

The agreement will lower tariffs on more than 11,000 commodities from both countries. For an export-oriented, import-dependent country like the Philippines, it presents enormous opportunities.

When we return, the actual pros and cons of the JPEPA.

 

II. JPEPA pros and Cons

 

King: Royal wives!

Wives: Eek! He has the eye of a goat!

 

To

 

…so short a time.

King: Blah.]

 

That was from the musical, “The King and I” where a smooth-talking British diplomat saves the day for his ambassador.

After World War II, three major multilateral institutions were created to regulate the integrations of national economies; the movement of goods and services across national boundaries, under WTO; the IMF-WB to police and monitor fiscal and monetary systems of the differing national systems and, to a certain extent, the ILO which was meant to oversee labor mobility across national boundaries.

But following the collapse of the Doha round of negotiations at the World Trade Organization, governments have taken it upon themselves to stop waiting and to go ahead with FTA’s to negotiate bilateral trade pacts with important potential markets. So this is what JPEPA is all about.

Very early on,

The Pros:

http://pascn.pids.gov.ph/jpepa/

 

their allies in industries:

http://www.freshplaza.com/news_detail.asp?id=9302

 

and the Cons:

http://www.junkjpepa.org/

 

Drew the battle lines, planted their flags even in cyberspace, and fought it out in the battle over public opinion. It was a battle, oddly enough, the government found itself losing.

The problem is, how to save the day for JPEPA, as Yul Brynner might put it, is such a puzzlement for our government. In the Senate,

http://newsinfo.inquirer.net/breakingnews/nation/view_article.php?article_id=100432

 

Our Senators have expressed frustration over the government’s presentations. They’ve even had to coach the government on how to overcome legal obstacles that instill doubt as to the competence of our negotiators.

 

http://www.bworldonline.com/BW111707/content.php?id=051

 

Sec. Peter Favila said an exchange of notes would suffice, instead of a renegotiation. What he didn’t say, is that there is a precedent for diplomatic notes to supplement a treaty. When we negotiated our treaty of friendship with Spain in the 1940s, a diplomatic note was added, stating that Philippine jurisprudence would be respected by the Spanish government. This was enough to eliminate Senate reservations on the treaty.

 

http://globalnation.inquirer.net/news/news/view_article.php?article_id=101313

 

As far as the JPEPA goes, the latest news is that the Japanese have proven receptive, as Sen. Miriam Defensor Santiago claims, to a new round of clarifying diplomatic notes.

 

According to

 

http://www.bilaterals.org/rubrique.php3?id_rubrique=113

 

Bilaterals.org, provides a helpful backgrounder on the JPEPA, and how neither side got exactly what it wanted.

For example, in terms of healthcare workers, Japan reportedly first agreed to allow a limited number of nurses (100 in the first year) to stay beyond the current four-year time limit if they acquire a Japanese licence. In the final agreement, the quota was raised 400-500 per year. (The Philippines was arguing for a demand-driven, not quota-driven, approach.)

In agriculture, Japan agreed to lower tariffs on pineapples and bananas from the Philippines, while rice and sugar were left untouched, a victory for the Japanese.

Regarding investments, concessions were sought on steel trade and on creating better conditions for Japanese direct investment in the automobile and electronics industries in the Philippines.

So what does the actual agreement contain? We’ve done a survey of the pros and cons of the JPEPA-

Whether the two-part series by Cip Roxas,

http://www.manilatimes.net/national/2007/aug/26/yehey/top_stories/20070826top2.html

Here

http://www.manilatimes.net/national/2007/aug/27/yehey/top_stories/20070827top5.html

http://opinion.inquirer.net/inquireropinion/columns/view_article.php?article_id=92902

 

Or Winnie Monsod’s column, both noted economists being supportive of the agreement,

http://www.manilatimes.net/national/2007/oct/16/yehey/opinion/20071016opi5.html

 

Or the reservations of the Senate, as enumerated by Tony Lopez,

Or outright critics such as

http://www.businessmirror.com.ph/07102007/opinion07.html

 

Tania Lat of Junk JPEPA,

http://globalnation.inquirer.net/news/breakingnews/view_article.php?article_id=92786

 

and the The Health Alliance for Democracy (HEAD)

And we’re going to invite onstage Ambassador Manuel Teehangkee, to respond to all these.

So when we return, an ambassador in the hot seat, and why the Senate seems to be doing the executive branch’s homework.

 

III.         Interview

 

Let’s go through our list of pros and cons and ask Amb. Teehangkee to comment on each.

 

Industry/Sector Pros Cons
BIR Benefits estimated to be anywhere between P6.5 billion to P110 billion, due to an improved investment climate. P3.69 billion to P4.15 billion foregone revenues for the first year of implementation of the JPEPA.
Constitutionally Can be solved by means of diplomatic notes. Does not acknowledge areas (media, advertising, etc.) closed off to foreign ownership.
Electronics/Appliances electrical and electronics appliances and their parts, tariffs will be eliminated within 10 years. This will cement the Philippines’ supply position in Japan. No technology transfer, options for senior positions for Filipinos.
Textile/clothing Tariffs on almost all the goods will be mutually eliminated immediately. Few opportunities for gutted industry.
Foreign Direct Investment Japan is the biggest source of investments for the Philippines. Philippines still only attracts a small portion of total Japanese direct investments. 

Projected foreign direct investment from Japan amounting to P365 billion, plus more than 200,000 jobs, increasing as Japanese investors become comfortable and familiar with local partners

 

 

Jpepa effectively surrenders the authority of the Philippine government to regulate foreign direct investment to achieve specific national development goals. 

Under the Jpepa, the Philippine government cannot require Japanese investors to transfer technology, employ a certain number of Filipino nationals, or achieve a given level of research and development. Any technology-transfer or job generation thus becomes merely optional on the part of Japanese investors.

Professions Japan, for the first time, is opening this market through JPEPA to Filipino engineers, IT specialists, etc. Able to get outsourced jobs and contracts in engineering design, interior design, architectural services, motion picture production, particularly animation. Service personnel jobs in Japanese cargo ships will open up. Requires Nihongo. No guarantee of follow-through or success.
Nurses Market  opening up to health workers for the first time. Aging population means by 2010 Japan will need about 7.5 million health professionals. Not more than 400 nurses and 600 caregivers for the first two years of the Jpepa. 

Potential opens up in retirement communities in both Japan and the Philippines, nursing homes that are owned by Filipino health workers, and medical tourism catering to Japanese clients.

Requires spoken and written Nihongo and passing board exams in Japan. 

Only a temporary, three-year working permit. Filipino health workers will remain temporary workers in Japan and will be denied immigrant rights.

 

Their temporary status would deny them promotion and benefits enjoyed by regular workers, as well as important labor rights such as the right to security of tenure and the right to organize unions.

 

 

Environment Importation of hazardous waste is banned (by international as well as national fiat). Japan has signed a side letter to this effect. RP exports hazardous waste to Japan. By eliminating tariffs on waste products coming from  Japan, the Jpepa creates the market environment conducive for waste traders and investors to engage in such trade, thereby undermining the Toxic Substances and Hazardous and Nuclear Wastes Control Act (Republic Act 6969) and the Basel Convention. 

Moreover, Article 4 of the Jpepa states that the Philippines shall examine the possibility of amending or repealing laws and regulations—including the previously mentioned environmental safeguards—if they restrict trade under the Jpepa.

Automotive Auto and auto parts, tariff eliminations will enlarge domestic automotive market, and position the country as an emerging base for Japanese regional auto production. 77,000 workers will be displaced if JPEPA takes into effect.
Fruit Gradual tariff eliminations toward zero for fresh bananas, dried pineapples and fruits containing sugar. Same for dried bananas, guavas, mangoes, mangosteens, fresh papaya, copra, coconut oil, fresh coconuts, dried durian, jackfruits and rambutans Takes full effect only in 10 years. 

Japan refused to lift its quotas on Philippine pineapples.

 

Senorita, lakatan, latundan and bungulan bananas unfamiliar to the Japanese who only know the Cavendish variety.

 

Government must provide support services to Filipino exporters (e.g. agricultural exporters) to fully maximize the potential of increased market access to Japan.

 

Agricultural goods from Japan will also face zero tariffs in RP.

Fish Gradual tariff eliminations toward zero in products like frozen yellow fin tuna, canned tuna, shrimps, prawns, crabs Without the Jpepa, the tariff for Philippine tuna is already at a low 3.5 percent, while that for shrimp is at  zero. 

Japan denied market access to Philippine exports of sardines, mackerel, anchovies and seaweeds.

Beverages Immediate tariff elimination for coffee, beer and fermented drinks made from aratiles, bignay, calamansi, coconut, dalandan, guava and marang, etc. Most of this food items are new in the Japanese market and will require extensive marketing efforts. Product improvement and research and development have to be undertaken to make these foods acceptable to the Japanese.

 

IV. My view

 

It seems to me, that much of the opposition to JPEPA can be explained by two things. Low trust in our officials, whether elected or in the bureaucracy, and an allergy to jargon. I am less certain if the majority of younger Filipinos are still affected by the historical fear and mistrust of Japan common in their elders.

But what we should bear in mind, is that opportunity isn’t the same thing as a guarantee. It’s a chance, not a certainty. Governments enter into agreements in pursuit of their self-interest, but also out of the belief that cooperation can lead to mutual benefits.

JPEPA is an opportunity, perhaps not the golden ticket our government says it is, but wiser, calmer, people like Cip Roxas and Winnie Monsod say it certainly isn’t a one-way ticket to hell like its critics says it is.

What is the opportunity JPEPA offers, precisely? To get our foot in the door, and eventually gain more access to the Japanese economy. Or, we insist on being different from Mexico, Malaysia and Singapore, and insist that the door gets slammed in our faces.

The debate over JPEPA, then, is the kind between someone who says a glass is half empty versus someone who insists it’s half full. We can be content with what we have, or, take a calculated risk and see if we can’t have more. A society with a future takes those risks; a society that wants to self-destruct hates taking chances.

Our senators, political animals that they are, will be taking their cue from public opinion. We can only hope that the opinions expressed will be an informed one, from an informed citizenry.

 

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