Dr. Yap is president, while Dr. Medalla and Dr. Aldaba are senior research fellows of the Philippine Institute for Development Studies (PIDS). This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, November 5, 2007 edition, pages S1/4 and S1/5.
Cost-benefit analysis shows that on the whole, JPEPA (Japan-Philippines Economic Partnership Agreement) would be advantageous for the economy. It is a dynamic agreement with provisions for improvements so that any prevailing weaknesses and limitations can be remedied. If managed carefully and strategically, JPEPA could provide opportunities that could serve as catalysts for sustaining the country’s growth.
Apart from greater market access, JPEPA emphasizes cooperation. Economic cooperation programs with Japan are important in helping in the country’s catch-up process. These cooperation initiatives cover a wide range of areas such as human resource development (HRD), financial services, ICT (information and communications technology), energy and environment, science and technology (S & T), trade and investment promotion, small and medium enterprises (SMEs), tourism, transportation, and road development. Even now, various government agencies are drawing up, and some are ready with, concrete plans for specific development cooperation initiatives.
Despite significant economic gains, opposition to the agreement denounces it as bad for the environment and as a voluntary surrender of our rights. These positions are unfounded for several reasons.
First, JPEPA is clearly for environment protection and sustainability, as explicitly articulated in the joint statement and various provisions in the agreement, including a chapter on cooperation in energy and the environment. It definitely will not result in “free trade” and dumping of hazardous wastes. Zero tariffs do not mean that a commodity will be traded, just as large tariffs do not imply that the commodity will not be traded. Free trade in the importation of toxic and hazardous waste will not arise because the country has import controls and a regulatory system in place. Republic Act 6969 prohibits hazardous wastes such as municipal ash and residues and regulates fly ash, waste and scrap of cast iron, and electronic assemblies which are intended for recycling and serve as inputs to the manufacturing industry. Both the Philippines and Japan are signatories to the Basel Convention. JPEPA recognizes the obligations of both Parties in multilateral agreements such as this one.
Second, the country has local processors and recyclers of wastes and scraps. If the recycling industry is damaging the environment, this is better handled by direct import and environment regulations. However, if these companies have the proper technology to handle waste recycling, zero tariffs on wastes and scraps would serve as an incentive for these companies to ensure proper waste treatment. In the same manner, if Philippine capacity and capability to treat hazardous wastes is limited, it would be beneficial for us to export these duty-free to Japan. Indeed, Japan has allowed our exports of hazardous waste such as copper sludge and printed circuit boards, due to the absence of reliable facilities in the country.
Third, the provisions on national treatment and most-favored-nation (MFN) treatment for Japanese investors are not inconsistent with the Philippine Constitution and other existing domestic laws and regulations. No limitations on foreign ownership were removed. Under services, the Philippines made standstill commitments. For other sectors, reservations were made to ensure that we stay within constitutional limits and restrictions under various national codes and regulations. Exemptions on national treatment, MFN treatment, and prohibition of performance requirements were also made in manufacturing (covering land ownership, SMEs, cooperatives, export requirements), water rights, small-scale mining, ownership of condominium, lease of private lands, domestic shipping, matters related to ownership of all lands of public domain, and natural resources. Reservations were also made on fisheries, land covered by CARP (Comprehensive Agrarian Reform Program), lease of public land (forest, timber lands, agricultural and foreshore lands) and utilization of marine resources.
Fourth, the prohibition of performance requirement is a common feature of economic partnerships. Similar commitments are already under the WTO-TRIMS (World Trade Organization-Trade-Related Investment Measures). With respect to export performance requirement, reservations were made for activities under various Republic Acts, particularly the Foreign Investments Act, the Omnibus Investments Code, and Special Economic Zones. On technology transfer, it should be made clear that the prohibition is on the requirement, not technology transfer. Many studies show that the use of market forces is more effective than the conventional technology transfer requirement. Our own experience is a clear indication. There has been no such prohibition in the past and this has not made any difference.
Finally, on the Singapore issues. Having a more rational competition policy, transparent investment measures, competitive government procurement, and trade facilitation measures will be good for the country. These issues are difficult to deal with at the WTO level because of the large number of countries involved, with varying degrees of policies and implementation in these areas and thus, dilated focus for our own sensitivities and concerns. In a bilateral setting such as the JPEPA, the focus is on principles, transparency, capability building, and constitutional constraints.
The JPEPA is not perfect—but no negotiated agreement ever is. As we work toward trade and investment expansion and cooperation to boost economic growth and job creation, should we allow imperfections to carry more weight than the significant gains to be generated from the agreement? While JPEPA is not the answer to our development problems, it can provide us with market access and other opportunities arising from the improved investment climate and cooperation. The cost of non-participation may be great in terms of our industries losing their international competitiveness and weakening our linkages with the East Asian Region, especially since Thailand, Indonesia, Malaysia, and Singapore have already forged their economic partnership agreements with Japan.
Ratifying the JPEPA reflects our own self-confidence and will to fully participate in the process of regional integration. In particular, it signals that the Philippines is on board with the rest of East Asia in building a community with its vision of peace and stability, shared prosperity, and reducing development gaps.