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The Japan-Philippines Economic Partnership Agreement:

A Toxic Treaty

Prepared by: Atty. Tanya Lat Initiatives for Dialogue and Empowerment

through Alternative Legal Services, Inc. (IDEALS)

Introduction Last 09 September 2006, former Japanese Prime Minister Junichiro Koizumi and President Gloria Macapagal-Arroyo signed the Japan-Philippines Economic Partnership Agreement (JPEPA), a bilateral preferential trade treaty between Japan and the Philippines that seeks to remove barriers to investments and the trade of goods and services between the two countries.

The JPEPA covers a wide range of trade issues, including (1) trade in goods, (2) trade in services, (3) movement of natural persons, (4) rules of origin, (5) investment, (6) intellectual property, (7) government procurement, (8) competition policy, (9) customs procedures and paperless trading, (10) dispute avoidance and settlement, and (11) bilateral cooperation. The JPEPA is a combined Bilateral Investment Treaty and a Bilateral Free Trade Agreement, and has been described by international trade law experts Justice Florentino Feliciano and Prof. Meilou Sereno as a “mega-treaty” that is comparable to the North American Free Trade Agreement (NAFTA). Unlike the NAFTA, however, which took the United States, Canada and Mexico all of ten (10) years to negotiate, the JPEPA was concluded after barely 2 ½ years of negotiations.1 1 In her testimony during the hearing of the Special Committee on Globalization of the House of Representatives (hereinafter “the Committee”) on 31 August 2005, Prof. Sereno stated:

“x x x The JPEPA unlike the other bilateral investment treaties, is basically a very large, it’s a mega treaty which has the character somehow of the NAFTA. It takes off from a lot of the patterns of the NAFTA, and it comprises of (sic) three (3) major portions. The first major portion is the investment portion; the second portion is the trade portion; and, the third is a quasi-dispute settlement cooperative portion. Because it might even be so comprehensive in its impact on so many existing legislation in the Philippines, with more reason I think that this is one agreement that should not at all be hurried, but must be afforded all the scrutiny possible not only because of its impact on legislation, and that is one very big portion already on the existing legislation, but also because of the administrative and financial resource requirements in order that the Philippines can manage this now very complicated obligation and relationship it will have vis-à-vis Japan. So it may also require therefore that there be budgetary apportioning to handle these complications. So it is not a simple question of whether we are recognizing ordinary investor rights, but it may take on .. the character of the question may take on the nature of finding out the state of readiness that we have in administering a NAFTA-type treaty.” (underscoring supplied)

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What is so special about the JPEPA? The JPEPA, being a treaty, can potentially amend the Philippine Constitution and existing Philippine laws as well as other international agreements that the Philippines had entered into previously.

However, the JPEPA is no ordinary treaty: it is the first bilateral trade agreement that the Philippines has entered into since the 1946 Parity Rights Agreement with the United States. Thus, the JPEPA could very well set the tone for all the other bilateral agreements that the Philippines is currently negotiating such as the RP-US Free Trade Agreement, the RP-China Free Trade Agreement, the RP-South Korea Free Trade Agreement, as well as all other free trade agreements (FTAs) that the Philippine government may decide to enter into in the future.2 In his testimony during the Committee hearing on 12 October 2005, Justice Feliciano stated:

“x x x Sir, the JPEPA is an amalgam of two (2) distinct agreement. It is an amalgam of a BIT, a Bilateral Investment Treaty and a Bilateral Free Trade Agreement. So it is a combination of both. What that means, Sir, into (sic) my personal view, is that you must be twice as awake, twice as vigilant, make sure that you are able to examine very carefully the provisions of the agreement.

“Let me mention that this is the first so-called economic protection agreement

combining a BIT with a Bilateral Free Trade Agreement that Japan is seeking to enter. All the other agreements with the ASEAN countries are BIT or are Bilateral Free Trade Agreements. But we are the first one and I think they are experimenting with us to see how we will react to a combined treaty. I say, the difficulties are twice as large, twice as formidable.

“The example I have in mind is the NAFTA. NAFTA is the North American Free

Trade Agreement. That, Sir, is a combination of an investment agreement and a free trade agreement. There are only three (3) countries who are members of the NAFTA. That’s the US, Canada and Mexico. And that agreement took ten (10) years to negotiate. It was signed on the 11th year. And the US did not sign it until it came out with a statute, an act of Congress, identifying the requirements of … and the positions of the United States.

“So, if USec Aquino will forgive an unsolicited piece of advice, we should try to

separate the two (2) because each one is already sufficiently difficult to deal with. Let’s not make life too hard for ourselves. Let’s do it one by one.”

2 In her testimony at the Committee hearing on 31 August 2005, Prof. Sereno stated that:

“MS. MA. LOURDES SERENO (Professor, College of Law, University of the Philippines). x x x We believe that our review of the drafts is a review that … to a large extent must take into account the constitutional role that each Department plays in the matter of policy setting in the area of trade, as well as, in the matter of treaty execution. I refer not only to the fact that if there are major changes, for example, in the legal obligations of the

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Whatever concessions Japan is able to get from the Philippines under the JPEPA may also be demanded by other countries under future FTAs to be concluded with them.

Moreover, the outcome of the JPEPA senate ratification process will affect not just the

Philippines but even the entire international community. The JPEPA raises novel issues in international trade and environmental law which have not yet been resolved in municipal or international courts. How the JPEPA plays itself out, then, will have repercussions on other developing countries which are struggling with their own respective FTAs. The JPEPA will likewise influence the ongoing discourse on the disconnect between trade policy and other social and developmental concerns such as environmental protection, human rights, labor standards, poverty reduction, and gender issues, among others.

The JPEPA: a toxic treaty The JPEPA is objectionable on several compelling grounds:

(1) The JPEPA indicates a disturbing shift from the previously established national policy of multilateralism to one of bilateralism. Bilateralism exposes the Philippines to undue economic and political pressure from developed countries and compromises the country’s ability to negotiate terms favorable to it.

(2) The JPEPA was negotiated haphazardly and with undue haste,

resulting in a treaty that is extremely prejudicial to the Filipino people.

(3) The JPEPA was negotiated under extreme secrecy and without the participation of the Filipino people, in violation of the Constitution.

(4) The JPEPA will effectively legalize what is currently illegal,

particularly the importation of toxic waste from Japan, in violation of existing Philippine environmental laws and international commitments.

(5) The JPEPA is ultimately a relinquishment of Philippine

Philippines in the area of international law, and a bilateral treaty made with that, then, that is already … that must already be subjected to the scrutiny, principally of the Senate under the articles on Senate Ratification of Treaties and if there is going to be any change and it may even require full-Body legislation coming from both Houses of Congress. With that in view, we view this role of ours as being of a serious nature because it might possibly set the pattern of the review of all the other bilateral investment treaties that have been mentioned already in the House Resolution as being reported both by the Department of Trade and Industry, as well as those that have been physically counted as existing.” (underscoring supplied)

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sovereignty and policy space, and will result in the Philippines’ giving up its power to regulate economic activity to promote economic development and alleviate poverty. The JPEPA likewise violates the express provisions of the Constitution to promote the preferential use of Filipino labor, domestic materials, and locally produced goods.

(6) In the event that the JPEPA is approved by the Philippine Senate,

the administration of the treaty will create a bureaucratic and financial nightmare that will effectively wipe out whatever economic benefits may be had under the JPEPA.

(7) Ultimately, under the JPEPA, the Filipino people will be

subsidizing the Japanese people, uplifting their health, environment, and economy at the expense of our own.

Given the foregoing, the Philippine Senate must necessarily reject the JPEPA in its

entirety if it is to fulfill its mandate to uphold and protect the interests of the Filipino people. (1) Shift from multilateralism to bilateralism

The JPEPA indicates a shift from multilateralism to bilateralism, which is a dangerous course for the Philippines to take. Multilateralism under the World Trade Organization (WTO) – while it leaves much to be desired – at least offers the benefit of safety in numbers: developing countries have greater bargaining power against stronger developed countries when they negotiate collectively as a single developing country bloc.3 This is what happened with the WTO Doha Development round

3 In his testimony at the Committee hearing on 12 October 2005, Justice Feliciano made the following observations:

“MR. FELICIANO. x x x A third point and my last point, after this I will stop talking, Mr. Chairman, the JPEPA as it now exist absorb a (sic) certain provisions or many provisions of the WTO agreements. They reproduce or basically reproduce but not, sometimes, not in identical terms, provisions of certain agreements of the WTO.

“What does that mean? What it means, Sir, is the following: that we are incorporating

into a bilateral agreement, bilateral because it is between Japan and the Republic of the Philippines; provisions which are found in a multilateral agreement but the bilateral agreement between the Philippines and Japan has its own dispute settlement provisions. The result, Sir, would be that if a dispute arose which under the ordinary provisions of the WTO agreements should be brought … it should be brought to Geneva. That is to say, should be brought to a multi-lateral forum will become subject to the bilateral dispute settlement provisions of JPEPA.

“You may ask – What difference does it make, Mr. Chairman? The difference is this,

Sir – if you have recourse to a multilateral forum you are in a forum where there are 147, 148

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negotiations. Bilateralism, however, exploits unequal power relations between countries, as when a

stronger developed country such as Japan negotiates with a weaker developing country such as the Philippines. In such a setup, the developing country is inherently at a disadvantage, particularly when such country is dependent on the developed country partner for foreign direct investment, trade, and official development assistance, as is the case between the Philippines and Japan.4

other members. So, you don’t feel very alone. But if you are alone, facing either Japan, I hope there is no Japanese Ambassador here or diplomat, or the US or the EC, well, you know, that is a David and Goliath types (sic) Mr. Chairman. And it’s not so easy to … I’m not saying it’s impossible, all I’m saying it is very difficult to deal with it.

“So, I really am not so sure why we should do that. I’m not so sure that … well,

maybe Usec Aquino will clarify this, what special benefits can accrue to the Philippines because of this incorporation of multilateral provisions in a bilateral agreement. From the viewpoint of a simple minded lawyer like myself, Mr. Chairman, what it means is adding an optional and additional, optional forum, bilateral forum for what should otherwise go to a multilateral forum.” (underscoring supplied)

x x x

“MR. FELICIANO. x x x Now, let me mention, sir, that in principle, multilateral

agreements are always far suited to the requirements, to the needs of the smaller countries. In a bilateral agreement context, it is the … it is the respective bargaining leverage of each party that, in the end, matters. You forget about the very fine rhetoric that will be exposed, ‘no? Rhetoric is rhetoric but rhetoric is also (sic) will not fill the bellies of the … will not generate by themselves jobs, will not create income by itself. So … and besides, rhetoric is expected, you know, it’s part of the context, but let’s not be … let’s not kid ourselves, ‘no? At the end of the day, it’s not rhetoric that matters. It’s bargaining leverage. And there, as I’ve mentioned, the … if the major trading companies or major investment-exporting countries want to enter into a bilateral agreement, it must be because they think it will benefit them. Nobody enters into an agreement with the understanding it will be worked against their own interest. Nobody does that. Not even we do that, ‘no. If we do it, we think it’s going to help us. But sometimes our analysis is probably not as clear, is not as through as it should be. So we wind up in the short end, with the short end of the stake (sic). So, in principle, I always worry when a … if it’s a bilateral agreement because I know … sir, our negotiators, we come from a different culture. Our culture is different from the Western, very aggressive culture. Why? Because we treat strangers differently, you know. We go out of our way to be nice to strangers. It is a matter of face, of family honor, of tribal honor to be nice to … But in the bargaining table, you forget that. You forget that. You just go straight forward. We have to learn to say “no” at times. We almost never say “no.” We always (say) maybe or maybe next time, or, you know, that kind of thing. x x x The other thing, Sir, is that (in) bilateral free trade agreements, the other side will always exclude benefits which it owes to members of a regional organization, regional grouping x x x” (underscoring supplied)

4 Japan is the Philippines’ biggest source of foreign direct investments, the second biggest trading partner (DTI briefing paper on the Japan-Philippines Economic Partnership Agreement), and primary source of official

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That Japan was able to exploit such unequal power relations is apparent from the concessions

it was able to get under the JPEPA. The JPEPA covers investment, competition policy, government procurement, and trade facilitation - the so-called “Singapore issues” which have not made headway in the WTO talks due to the insistence of developing country members that the more fundamental and developmental WTO issues (such as subsidies in agriculture and non-agricultural market access) be satisfactorily resolved first. Because of this resistance on the part of developing countries, developed countries such as Japan have resorted to pushing their agenda on the Singapore issues through bilateral agreements such as the JPEPA.

With the inclusion of investment, competition policy, government procurement and trade

facilitation in the JPEPA, the Philippines has made commitments in the JPEPA over and above those committed under the WTO. Thus, what Japan was unable to get through the WTO, it was able to get through the JPEPA. (2) Haphazard and hastily concluded negotiations

The JPEPA was concluded haphazardly and with undue haste. The JPEPA was negotiated and signed just over 4 years from the time former Japanese Prime Minister Junichiro Koizumi proposed the creation of an ASEAN-Japan Comprehensive Economic Partnership in January 2002. Formal negotiations took just 2 1/2 years, commencing in February 2004 and ending with the signing of the JPEPA in September 2006. As mentioned previously, the JPEPA is comparable in nature and scale to the NAFTA which took Canada, the U.S. and Mexico – which have far more extensive experience and expertise in trade negotiations - 10 years to negotiate and complete.

While JPEPA negotiations were still ongoing, Justice Feliciano and Prof. Sereno had

already warned Congress in a committee hearing of the Special Committee on Globalization that the JPEPA would have difficulties that are “twice as large, twice as formidable” than if they were negotiated separately, and thus, the Philippine government needs to be “twice as awake, twice as vigilant” in determining whether the country is indeed ready to undertake a treaty of this nature. Prof. Sereno likewise stated that the Philippine government should not be rushed into concluding and ratifying the JPEPA, as its implications are “very far-reaching” and may possibly require full-bodied legislation and/or amendments to existing legislation. Despite these warnings, however, the Philippine government proceeded to sign the JPEPA after just 2 1/2 years of negotiations. The JPEPA negotiations were conducted very haphazardly and with very poor inter-agency coordination. The JPEPA trade policy-setting and negotiation functions were dispersed across several government agencies as follows:

development assistance. (Yap, Medalla & Aldaba (2006), “Assessing the Japan Philippines Economic Partnership Agreement”, Philippine Institute for Development Studies)

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Subject Matter Government Agency Responsible

• Overall Coordination DTI – Usec. Thomas G. Aquino (Chair of Coordinating Committee) DFA – Usec. Edsel Custodio (Co-Chair)

• Trade in Goods (industrial)

DTI, BOI

• Trade in Goods (agricultural) DA • Trade in Services, Movement of

Natural Persons NEDA, DOLE, POEA

• Investment DTI, BOI • Intellectual Property IPO • Customs Procedures and Paperless

Trading BOC

• Competition Policy TC • Government Procurement DBM • Bilateral Cooperation NEDA • Emergency Measures TC

Under this setup, there was no single independent government agency that was in charge

of harmonizing the different (and sometimes opposing) positions taken by the various government agencies with respect to the subject matter assigned to them. Even though overall coordination was done by DTI Undersecretary Tom Aquino, the inclination to favor the DTI position to the exclusion of other government agencies was a recurring theme throughout the negotiations.

This was most amply demonstrated by the DTI’s insistence on the reduction of tariff rates

on waste products such as sewage sludge, municipal waste, clinical waste, waste pharmaceuticals, ash and residues from the incineration of municipal waste, and other hazardous and toxic waste products to 0% immediately upon entry into force of the JPEPA. Despite the vehement objections raised by both the DENR and members of civil society during the Tariff Commission hearing held in February 2006, these objectionable provisions still found their way into the final text of the JPEPA.5

What is even more disturbing were the statements made by the representative of the

BOI/DTI during the February 2006 TC hearing. When the DENR representative pointed out that the proposal of the BOI/DTI would violate the country’s international environmental commitments under the Basel Convention as well as Republic Act No. 6969, Republic Act No.

5 Specifically Art. 29 of the Basic Agreement and the Philippine tariff schedule (Annex 1), particularly tariff heading nos. 2620.6000, 2621.1000, 3006.8010, 3006.8090, 3825.1000, 3825.2000, 3825.3010, 3825.3090, 3825.4100, 3825.4900, 3825.6100, 3825.6900, 3825.5000, 6309.0000 and 6310.0000.

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9003 and Republic Act No. 4653, she reasoned out that in that case, it should not matter if the tariff rates on waste products are slashed to 0% since the issue will be one of implementation anyway, and proper enforcement measures at the border will keep these prohibited shipments out.

This eloquently illustrates the fatal flaws of the current system. In truth and in fact,

members of the various government agencies are trained to focus only on their respective areas of specialization, and are not equipped to deal with issues outside of their focus areas. The BOI/DTI representative mentioned above may have been well-versed in matters relating to tariffs and investment policy, but she was certainly in no position to comment on environmental law or on customs laws and procedures. And yet, the BOI/DTI decision to allow the trade in toxic and hazardous waste took precedence over the expert advice of the government agency in the best position to comment on the matter.

This setup was likewise aggravated by the fact that even among the various government

agencies that were part of the JPEPA Coordinating Committee (as indicated above), there was very little inter-agency coordination and information dissemination. When Cong. Mario Joyo Aguja wrote to the various members of the JPEPA Coordinating Committee between June to November 2005 in an attempt to inquire into the exact status of the overall negotiations, all respondents consistently answered that they only knew the status of the subject matter assigned to them, and that Cong. Aguja should direct his questions to Usec. Aquino who was the overall coordinator. So even within government, it appears that there was no consensus-building, and information was centralized, not even with a single agency but with just a single official who, unfortunately, prioritized the agenda of his home agency to the exclusion of all other government agencies.

Inter-agency coordination and information-sharing within government is vital to the

success of any international trade negotiation. The first level of consensus must be built within government itself, and it is only through constant dialogue and discussions among agencies that government can craft a cohesive, consistent trade policy that will be implemented effectively by all agencies concerned. The absence of coordination, cohesion, and consensus even within government is apparent from the final text of the JPEPA, which is riddled with inconsistencies and contradictions that can be exploited by Japan to its advantage. Had the Philippine government approached the JPEPA negotiations with more prudence, caution, deliberation, and inter-agency coordination and cohesion, these fatal flaws could have been minimized, if not eliminated altogether. (3) Secrecy and lack of public consultation

The JPEPA negotiations were characterized by secrecy and very little public consultation.

With the exception of the Tariff Commission which conducted public hearings on the proposed tariff schedules for the JPEPA and the Department of Agriculture which routinely consulted

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with its stakeholders, the other government agencies involved in the JPEPA negotiations did not bother to elicit the comments and views of their stakeholders and of the Filipino public at large.

Moreover, the JPEPA government negotiating team led by DTI USec Aquino refused to

disclose the contents of the JPEPA even to members of Congress, who had to file a case for mandamus and prohibition with the Supreme Court to compel the DTI to divulge the status and contents of the JPEPA and to restrain the signing of the JPEPA until such time that full public disclosure and consultation had been done.6 However, the only time that the DTI gave a copy of the JPEPA to Congress was the first working day after the JPEPA was signed in Finland.

The secrecy, lack of public disclosure, and exclusion of stakeholders from the JPEPA decision-making process contravene no less than the Constitution, particularly Article XIII, Sec. 16 which provides for the right of the people and their organizations to effective and reasonable participation at all levels of social, political, and economic decision-making,7 Article III, Sec. 7 which provides for the right of the people to information on matters of public concern,8 and Art. II, Sec. 28 which mandates a State policy of full public disclosure of all its transactions involving public interest.9 It must be pointed that no less than the Solicitor-General, in his Comment in the case of Akbayan v. Aquino, practically admitted that the consultations relating to the JPEPA negotiations were woefully selective and inadequate. (4) Legalization under the JPEPA of acts that are currently illegal under Philippine law

The JPEPA will effectively legalize acts that are currently illegal under Philippine law.

(a) Importation of used right-hand drive vehicles

One such illegal act that will be legalized under the JPEPA is the importation of used right-hand drive vehicles from Japan. This is contained in Art. 27 of the JPEPA which states:

6 The case is Akbayan v. Aquino, G.R. No. 170516, which is still pending with the Supreme Court. 7 The full text reads: “Art. XIII, Sec. 16. The right of the people and their organizations to effective and reasonable participation at all levels of social, political and economic decision-making shall not be abridged. The State shall, by law, facilitate the establishment of adequate consultation mechanisms.” 8 The full text reads: “Art. III, Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law.” 9 The full text reads: “Art. II, Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest.”

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“The Parties shall cooperate with each other on the utilization of appropriate mechanism on the conformance with the importing Party’s safety and environmental standards, such as roadworthiness and vehicle emission standards, of used four-wheeled motor vehicles as may be agreed by the Parties, exported from the exporting Party.” (emphasis supplied)

It must be pointed out that this is expressly prohibited on grounds of public safety under

Republic Act No. 850610 and was even the subject of an en banc Supreme Court decision last February 2006. However, it appears that the JPEPA, being later in time, will effectively repeal R.A. No. 8506. Article 4 of the JPEPA likewise provides that the Philippines shall examine the possibility of amending or repealing its laws and regulations that affect the implementation of the JPEPA.11 (b) Importation of toxic and hazardous wastes

The JPEPA will likewise effectively legalize the importation of toxic and hazardous waste

into the Philippines despite Philippine laws and international law commitments that expressly prohibit this. Even though there are no provisions explicitly stating this in the JPEPA, such legalization is nevertheless implied by Art. 29 of the JPEPA and the Philippine tariff schedule annexed to the JPEPA. Article 29 of the JPEPA provides that the following products are to be considered as being wholly obtained or produced entirely in the Philippines or in Japan and therefore entitled to preferential treatment granted under the JPEPA:

“(i) articles collected in the Party which can no longer perform their original purpose in the Party nor are capable of being restored or repaired and which are fit only for disposal or for the recovery of parts or raw materials;

10 Section 1 of R.A. No. 8506, which is entitled “An Act Banning the Registration and Operation of Vehicles with Right-Hand Steering Wheel in any Private or Public Street, Road or Highway, Providing Penalties Therefor and Other Purposes”, provides: “Section 1. It shall be unlawful for any person to import, cause the importation of, register, cause the registration of, use, or operate any vehicle with its steering wheel right-hand side thereof in any highway, street or road, whether private or public or of the national or local government except such vehicles that are acknowledged as vintage automobiles, manufactured before 1960, in showroom condition, and/or are to be utilized exclusively for officially and legally sanctioned motorsports events, and off-road special purpose vehicles.” (emphasis supplied) 11 The full text reads: “Each Party shall examine the possibility of amending or repealing laws and regulations that pertain to or affect the implementation and operation of this Agreement, if the circumstances or objectives giving rise to their adoption no longer exist or if such circumstances or objectives can be addressed in a less trade-restrictive manner.”

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“(j) scrap and waste derived from manufacturing or processing operations or from consumption in the Party and fit only for disposal or for the recovery of raw materials;

“(k) parts or raw materials recovered in the Party from articles which can

no longer perform their original purpose nor are capable of being restored or repaired; and

“(l) goods obtained or produced in the Party exclusively from the goods

referred to in subparagraphs (a) through (k) above.” (emphasis supplied) The Philippine tariff schedule to the JPEPA enumerates the following specific waste products that will be given a preferential tariff rate of 0%:

o Ash and residues (other than from the manufacture of iron or steel), containing arsenic, mercury, thallium or their mixtures, of a kind used for the extraction of arsenic or those metals or for the manufacture of their chemical compounds (HS Code No. 2620.6000);12

o Ash and residues from the incineration of municipal waste (HS Code No.

2621.1000;13 o Waste pharmaceuticals (HS Code No. 3006.8010, 3006.8090);14 o Municipal waste (HS Code No. 3825.1000);15 o Sewage sludge (HS Code No. 3825.2000);16 o Clinical waste – adhesive dressings and other articles having adhesive

layer; wadding gauze bandages, surgical gloves (HS Code No. 3825.3010);17

12 Page 324, JPEPA Philippine tariff schedule. 13 Page 324, Id. 14 Page 346, Id. 15 Page 359, Id. 16 Page 359, Id. 17 Page 359, Id.

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o Other clinical waste (HS Code No. 3825.3090);18 o Waste organic solvents – halogenated and other (HS Code No. 3825.4100,

3825.4900);19 o Other wastes from other chemical or allied industries – containing organic

constituents, other (HS Code No. 3825.6100, 3825.6900);20 o Wastes of metal pickling liquors, hydraulic fluids, brake fluids and anti-

freeze fluids (HS Code No. 3825.5000);21 o Worn clothing and other worn articles (HS Code No. 6309.0000);22 and o Used or new rages, scrap twine, cordage, rope and cables and worn out

articles of twine, cordage, rope or cables, of textile materials (HS Code No. 6310.0000).23

These waste products – most of which constitute either hazardous or toxic waste - have been previously identified by the Tariff Commission as “goods of social and environmental concerns” whose importation is closely being monitored and controlled. Most of these waste products have very little recyclable value, if at all, and are generally intended for disposal. It must be pointed out that the Philippine government initially excluded these waste products from the list of tradeable goods under the JPEPA and gave them an “X” classification. (See proceedings of the May 31, 2005 public hearing of the Tariff Commission.) However, during the subsequent Tariff Commission public hearing on 22 February 2006, the DTI/BOI revealed that not only was it going to include these products in the list of tradeable goods, but it would even be reducing the tariff rates on such products to 0% immediately upon force and effect of the

18 Page 359, Id. 19 Page 359, Id. 20 Page 359, Id. 21 Page 359, Id. 22 Page 417, Id. 23 Page 417, Id. It is not disputed that these tariff lines were already pre-existing in the Tariff and Customs Code. However, it must be pointed out that the mere fact that these waste products have specific tariff classifications under the Harmonized System is glaring evidence of the disconnect between trade and environmental policy, and is the subject of much debate at the international level.

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JPEPA with an “A” classification.

It is of common knowledge that Japan has a serious problem with waste disposal and has in fact resorted to exporting much of its trash to developing countries such as India, Nigeria, and China.24 The immediate zero-rating of these waste products under the JPEPA creates the market conditions that will encourage and facilitate trade in toxic waste between Japan and the Philippines.

The zero-rating of these waste products under the JPEPA creates a prima facie presumption that these are permitted importations. There are no reference notes in Column 5 of the Philippine tariff schedule that would indicate any restrictions on or qualifications to the importation of such products (unlike, for example, the restrictions for goods pertaining to the automotive industry). Neither were there any express reservations made (unlike in Annex 7, which contains the reservations and exceptions to Chapter 8 of the JPEPA).25

The zero-rating likewise creates an obligation on the part of the Philippines to allow such

importation at rates that cannot go any higher than those designated in the tariff schedule, i.e. 0%.

Simply put, the reduction of tariff rates on these products to 0% under the JPEPA operates as a blanket invitation to both Japanese and Filipino businessmen to engage in trade on such hazardous and toxic waste products. Under the JPEPA, should there be importers wanting to bring in toxic waste shipments from Japan, the Philippines has no choice but to receive Japan’s waste products into the country. Moreover, the importers shall not be required to pay any customs duties on such shipments because of the 0% tariff rating under the JPEPA.26

24 The Basel Action Network paper dated 08 November 2006 entitled “JPEPA as a Step in Japan’s Greater Plan to Liberalize Hazardous Waste Trade in Asia” is very instructive in this regard. 25 In interpreting treaties such as the JPEPA, it is a general rule that the intention of the parties is to be determined according to what is expressed in the text of the treaty, in accordance with the ordinary meaning of such text, and in the light of the object and purpose of the treaty. (Art. 31, Vienna Convention on the Law of Treaties) Such meaning must emerge in the context of the treaty as a whole, including the preamble and annexes, and any agreement or instrument related to the treaty and drawn up in connection with its conclusion. From all indications, it appears that existing Philippine environmental laws and international commitments were not factored into the JPEPA negotiations, and thus cannot be read into the JPEPA. 26 It has been argued that tariff elimination under the JPEPA is nothing new, as tariffs on these waste products have also been reduced to 0-5% under the AFTA-CEPT. This is a non-argument. It must be emphasized that the AFTA-CEPT did not undergo Senate scrutiny as it was passed off as a mere executive agreement by the Executive Branch. (See DOJ Opinion NO. 71 s. 1992) The ASEAN-plus agreements and their bilateral counterparts with the Philippines (e.g., ASEAN-South Korea, ASEAN-China Early Harvest Agreement) which are currently being negotiated are likewise being passed off as mere executive agreements (see DOJ Opinion No. 035, s. 2005) despite the fact that these agreements are political, of a permanent nature, and amend existing national policy, and thus should properly be deemed as treaties that are subject to Art. VII, Sec. 21 of the

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(i) Can the existing Philippine laws and international environmental treaties act as

sufficient “firewalls” to prevent the entry of such toxic and hazardous wastes despite the zero-rating under the JPEPA? Proponents of the JPEPA are asserting that environmentalists have blown the toxic waste issue out of proportion, and contend that existing Philippine laws such as the Clean Air Act (R.A. No. 8749), the Toxic Substances and Hazardous and Nuclear Wastes Control Act (R.A. No. 6969), the Solid Waste Management Act (R.A. No. 9003), and the Basel Convention on the Transboundary Movement of Hazardous Wastes (the “Basel Convention”) will act as sufficient “firewalls” to prevent the entry of Japan’s toxic waste. Realistically speaking, however, experience has shown that these firewalls are not effective in keeping out toxic waste. The 1999 waste fiasco wherein 122 containers declared as "recyclable paper" but which turned out to be clinical waste fit only for disposal arrived at the Port of Manila happened in spite of the fact that the Basel Convention and R.A. No. 6969 were in full force and effect at the time. To argue that the issue is simply one of proper implementation of environmental laws is dangerous and naive and ignores the realities of our ports - the Philippines is an archipelagic country and shipments can enter just about anywhere - as well as the quality of law enforcement at our ports. Moreover, it would be the height of irresponsibility to overload an already struggling Bureau of Customs with an even greater burden to police incoming shipments of legally imported toxic waste.

It must likewise be pointed out that even though both Japan and the Philippines are

signatories to the Basel Convention which prohibits the export of hazardous waste from industrialized countries to developing countries, there remains a loophole which allows the export of hazardous wastes meant for recycling. While this loophole has been plugged by the Basel Ban, neither Japan nor the Philippines have ratified the Basel Ban. This means that at present, Japan can still export its hazardous wastes to the Philippines under the guise of recycling, and the Philippines can still receive such hazardous wastes into the country.

(ii) What are the legal implications of Art. 29 of the JPEPA and the zero-rating of the

toxic waste products under the JPEPA Philippine tariff schedule on existing Philippine environmental laws and the Basel Convention?

As admitted by Dr. Erlinda Medalla during the Senate hearing last 27 November 2006, the possible impact of the JPEPA on the environment and its attendant costs and benefits were not even considered in the negotiations, as can be seen from the inherent inconsistencies within

Constitution. The Philippine Senate therefore must not buy into the AFTA-CEPT argument being propounded by pro-JPEPA advocates, but must scrutinize why the AFTA-CEPT – with all its adverse effects on the Philippine economy and on Philippine industry – did not pass through the Senate before coming into force and effect.

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the JPEPA itself, and the contradictions between the JPEPA and existing Philippine environmental laws. This has serious legal implications, as tariff policy under the JPEPA will undermine or even negate and supersede Philippine environmental policy prohibiting the importation of toxic waste.

(a) Under Philippine law, binding treaties and international agreements constitute part of the law of the land and are in the same class as domestic laws.27 In the event of irreconcilable conflicts between the two, the rule of lex posterior derogat priori – the later enactment supersedes the earlier one - would generally apply. Therefore, because the JPEPA is later in time than R.A. 6969, R.A. 4653, R.A. 9003, and R.A. No. 8749, the JPEPA would effectively create an exception to the prohibition of importation of toxic waste under these laws. It must be pointed out that there is nothing in the JPEPA that states that it shall not amend or supersede existing law. In fact, Article 4 of the JPEPA expressly states that the Philippines shall examine the possibility of amending or repealing its laws to implement the JPEPA.28 (b) Under international law (particularly the Vienna Convention on the Law of Treaties, which both Japan and the Philippines are parties to), it is a fundamental rule that a treaty in force is binding upon the parties and must be performed by them in good faith.29 It is likewise a fundamental rule that all the provisions of a treaty must be given effect to the extent possible. Thus, Article 29 and the applicable provisions in the Philippine tariff schedule pertaining to toxic and hazardous waste cannot be deemed as mere surplusage but must be given effect; otherwise, it does not make sense that the Japanese and Philippine governments included them only to say that these provisions "do not matter." (c) In instances where two treaties such as the Basel Convention and the JPEPA have incompatible provisions, it is the general rule (as with domestic law) that the later treaty (the JPEPA) will prevail over the earlier treaty (the Basel Convention) concerning the same subject matter. However, Article 11 (4) of the JPEPA creates an anomalous situation whereby the non-negotiability of the obligations under the Basel Convention will become subject to negotiation since under such provision, Japan and the Philippines will “consult” with each other to find a mutually satisfactory solution.30 27 See Abbas v. COMELEC, 179 SCRA 287. 28 See note 11. 29 This is the principle of pacta sunt servanda. 30 Article 11 (4) of the JPEPA provides:

“4. In the event of any inconsistency between this Agreement and any agreements other than the WTO Agreement and the Treaty of Amity, Commerce and Navigation between the Republic of the Philippines and Japan, to which both Parties are parties, the Parties shall

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(iii) What could possibly happen if Art. 29 of the JPEPA and the zero-rating of the toxic waste products would be allowed to remain as is? (a) The “precautionary principle,” a fundamental principle of international environmental law, provides that when there is evidence of a significant or substantial environmental threat, the State must undertake immediate cost-effective measures to prevent environmental harm rather than rectifying the damage after-the-fact. The Philippine government must therefore do all means necessary to prevent the entry of toxic waste into the country – including the definitive and unequivocal resolution of all legal ambiguities and loopholes in the JPEPA that can be exploited by Japanese exporters and Filipino importers – and not simply hope that existing laws and current enforcement measures will keep these toxic wastes out.

Should the Philippine Senate approve the JPEPA in its current state, the JPEPA may eventually be struck down as unconstitutional by the Supreme Court, on the ground that the JPEPA violates the precautionary principle and the Filipino people’s Constitutional right to health31 and to a balanced and healthful ecology.32 (b) In the event that Philippine customs authorities prohibit the entry of Japanese toxic waste, the Japanese exporters and their Philippine importer counterparts can demand the entry of said toxic waste by suing the Philippine government either in local courts33 or in international arbitral tribunals.34 The Japanese government can also espouse the claims of its nationals and request for the establishment of an arbitral tribunal should Japan and the Philippines fail to resolve the issue through consultations. Should the Philippine government invoke the applicable Philippine environmental laws as defense, the Japanese exporters and Philippine importers can assail such laws as being non-tariff barriers which are prohibited under Art. 21 of the JPEPA.35 Although the Philippine

immediately consult with each other with a view to finding a mutually satisfactory solution, taking into consideration general principles of international law.”

31 Art. II, Sec. 15, Phil. Constitution. 32 Art. II, Sec. 16, Phil. Constitution. 33 Judicial remedies for the correction of actions taken by relevant authorities regarding matters covered by the JPEPA are provided for under Art. 7 of the JPEPA Basic Agreement. 34 Art. 153 of the JPEPA Basic Agreement provides for the establishment of arbitral tribunals in the event that the Parties fail to resolve a dispute through consultations. 35 Art. 21 of the JPEPA Basic Agreement states: “Non-tariff measures. - Each Party shall not introduce or

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government can say that such measures are necessary to protect human, animal and plant life and health and are permitted under Art. XX (b) of the GATT and Art. 23 of the JPEPA, the Philippine government has to prove that such measures are not trade-distorting; otherwise, such environmental measures can be deemed to be violative of the JPEPA.

It must be pointed out that such undue exposure to unnecessary and vexatious litigation will tax the already severely limited financial and personnel resources of the government. The last thing the Philippine government needs is to be subjected to litigation resulting from its negligence and lack of foresight. (5) Relinquishment of Philippine sovereignty and policy space

The JPEPA is ultimately a relinquishment of Philippine sovereignty and policy space,

and will result in the Philippines’ giving up its power to regulate economic activity to promote economic development and alleviate poverty. The JPEPA likewise violates the express provisions of the Constitution to promote the preferential use of Filipino labor, domestic materials, and locally produced goods. (a) Tariff elimination Under Philippine law, tariffs serve dual functions: tariffs serve as sources of much-needed government revenue, as well as means for regulating the conduct and flow of trade in goods. The elimination of tariffs on practically all tariff lines36 will decimate what little policy space is left to the Philippine government, not to mention throw away an estimated PhP3-9 billion which is badly needed considering the country’s fiscal deficit. Unlike under the WTO where the bound rates at least allow for some leeway for tariff recalibration in accordance with the exigencies of the economic situation, the JPEPA provides no such leeway since the tariff elimination will generally be absolute and irreversible.37 The decision of the Philippine government to eliminate tariffs on practically all tariff lines in alleged compliance with the “substantially all trade” requirement under Art. XXIV:8(b) of the GATT38 appears to be misinformed and misguided. The term “substantially all trade” has maintain any non-tariff measures on the importation of any good of the other Party or on the exportation or sale for export of any good destined for the other Party which are inconsistent with its obligations under the WTO Agreement.” 36 With the exception of 5 tariff lines pertaining to rice and 1 tariff line pertaining to salt. 37 Except for certain excluded tariff lines and rare instances when safeguard measures can be resorted to. 38 Art. XXIV:8(b) of the GATT states: “A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.”

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not yet been definitively defined under the WTO rules and jurisprudence, and there are divergent views as to the quantitative threshold, varying from a low of 80% to a high of 95% of all tariff lines.39 Assuming that there was a numerical requirement that needed to be complied with, why did Japan exclude a total of 238 tariff lines (202 agricultural tariff lines and 36 industrial tariff lines) when the Philippines excluded only a total of 6 tariff lines?40 Why was the Philippine government so reckless as to slash tariffs on 99.9% of all our tariff lines? Why did it not maximize the opportunity to classify goods as “X”, “R” or “S”? The Philippine government has a lot of explaining to do. (b) Prohibition on performance requirements for foreign direct investment Foreign direct investment (“FDI”) is a major source of capital and foreign currency reserves for the country. Japan is the country’s biggest source of FDI, and it is understandable that the Philippine government wants to entice even more Japanese to invest in the country. However, in the Philippine government’s zeal to attract more Japanese FDI, it has allowed unfettered FDI under the JPEPA by prohibiting the imposition of performance requirements, including:

o Requiring a certain amount of domestic content; o Requiring that a certain percentage of production be exported; o Requiring the purchase or use of goods or services from the Philippines; o Relating the volume or value of imports to the volume or value of exports; o Requiring the transfer of technology; o Requiring the employment of a certain number of Filipino nationals; and o Requiring a given level or value of research and development.41

The Philippines can potentially benefit from Japanese FDI through the transfer of

technology, generation of employment, and linkaging with domestic industries and service providers. However, with the prohibition of performance requirements, the Philippine government cannot compel Japanese investors to undertake these activities.

39 See, for example, Petros C. Mavroidis (2006), “If I Don’t Do It, Somebody Else Will (Or Won’t): Testing the Compliance of Preferential Trade Agreements with the Multilateral Rules”, 40 Journal of World Trade (1), 187-214. 40 See note 36. 41 Art. 93, JPEPA Basic Agreement.

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It must be pointed out that countries like China and Malaysia which have benefited greatly from FDI did not allow unfettered FDI but extensively regulated it. Moreover, studies have shown that a country is more likely to benefit from FDI if it is integrated into its national development and technological plans.42 This, unfortunately, will not be possible under the JPEPA, for the Philippine government will effectively surrender its power to regulate FDI and harness it for Philippine economic development, and instead give Japanese foreign investors free rein to conduct their business in the Philippines as they please. Not only is this imprudent: it directly contravenes the Constitutional mandate to promote the preferential use of Filipino labor, domestic materials, and locally produced goods.

It must be pointed out that investment is one of the Singapore issues that have not made

any progress under the WTO. The Japanese will be able to get under the JPEPA what they could not get under the WTO.

(c) Opening up of government procurement to Japanese business interests Government procurement is another Singapore issue that was successfully included in the JPEPA. The opening up of government procurement to Japanese business interests under the JPEPA by virtue of the principles of national treatment and most-favored-nation treatment43 will potentially displace Philippine enterprises which are currently supplying the government with goods and services. Many of these businesses are small and medium-scale enterprises which are supposed to be prioritized and strengthened pursuant to the Medium Term Philippine Development Plan 2004-2010. As with the prohibition of performance requirements, this is unconstitutional as it violates the Constitutional imperative to promote the preferential use of locally produced goods. (6) Administration of the JPEPA: a bureaucratic and financial nightmare

In the event that the JPEPA is approved by the Philippine Senate, the administration of the treaty will create a bureaucratic and financial nightmare that will effectively wipe out whatever little economic benefits there may be under the JPEPA.

The creation of new government offices or agencies is currently being discouraged in

view of the ongoing government reorganization efforts and the fiscal deficit. These are the

42 See, for example, Dunning, J., “Re-evaluating the Benefits of Foreign Direct Investment,” Transnational Corporations, Vol. 3, No. 1 (February 1994), 23-52; Freeman, C., “New Technology and Catching Up,” European Journal of Development Research, 1/1 (1989); Milberg, W., “Foreign Direct Investment and Development: Balancing Costs and Benefits,” International Monetary and Financial Issues for the 1990s, United Nations Conference on Trade and Development, Vol. XI (1999), 99-115; South Centre, Foreign Direct Investment, Development and the New Global Economic Order: A Policy Brief for the South (2000). 43 Art. 131, JPEPA Basic Agreement.

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grounds being invoked by the Executive Branch in resisting the creation of a Philippine Trade Representative Office that seeks to improve the trade policy-making and negotiation process and prevent the mistakes of JPEPA from ever happening again.

And yet JPEPA will effectively create not just 1 but at least 11 new government offices.

The JPEPA provides for the creation of a joint committee that will review the implementation and operation of the JPEPA,44 as well as the creation of at least 11 sub-committees,45 9 working groups,46 1 consultative group47 and 1 liaison office48 to administer the JPEPA.

By their very nature, the JPEPA sub-committees and working groups must necessarily be

staffed by the appropriate high-ranking, technically competent government officials who, it must be noted, are in short supply, and are currently overworked and underpaid. Will the JPEPA sub-committees require the hiring of new officials? Or will they add to the burden of the current bureaucracy? Were the financial and personnel costs of creating this entirely new bureaucracy even considered in the first place?

As pointed out earlier, the JPEPA is just the first of several bilateral agreements being

negotiated by the Executive Branch. If the JPEPA is approved together with its attendant bureaucracy, then in all likelihood, the U.S., China, South Korea, India, and all other future bilateral trading partners will insist – on the ground of the most-favored-nation clause - that similar offices be set up to administer their respective bilateral agreements. In such a situation, the Philippine government would be hard-pressed to not give in to their demands, thereby creating a bureaucratic and financial nightmare, not to mention rendering the Philippines extremely vulnerable to pressure from foreign governments. 44 Art. 13, JPEPA Basic Agreement. 45 Art. 13, JPEPA Basic Agreement. There are separate and distinct sub-committees for trade in goods, rules of origin, customs procedures, mutual recognition, trade in services, investment, movement of natural persons, intellectual property, government procurement, improvement of the business environment, and cooperation. Other sub-committees may be established as agreed upon by the Japanese and Philippine governments. 46 These working groups are for human resource development (Art. 23, JPEPA Implementing Agreement), financial services (Art. 30, JPEPA Implementing Agreement), ICT (Art. 33, JPEPA Implementing Agreement), Energy and Environment (Art. 36, JPEPA Implementing Agreement), Science and Technology (Art. 39, JPEPA Implementing Agreement), SMEs (Art. 47, JPEPA Implementing Agreement), Tourism (Art. 50, JPEPA Implementing Agreement), Transportation (Art. 53, JPEPA Implementing Agreement), and Road Development (Art. 56, JPEPA Implementing Agreement). 47 For improvement of the business environment (Art. 18, JPEPA Implementing Agreement). 48 On improvement of the business environment (Art. 19, JPEPA Implementing Agreement).

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(7) Subsidizing Japanese health, environment and economy at the expense of our own Ultimately, under the JPEPA, the Filipino people – saddled with a fiscal deficit, several trillions of dollars worth of debt, massive unemployment and poverty - will be subsidizing Japan’s high-income, highly-skilled but aging and declining population, protecting Japan’s health, environment, and economy at the expense of our own. The JPEPA will make it cheaper for the Japanese to export their waste to us and make the Japanese environment cleaner, but at the expense of our own environment. It will make the Japanese people healthier, but at the expense of the health and lives of our own people. And when the Filipino people become physically ill due to Japan's toxic trash, we will have less money for health care since the JPEPA gives us less revenue thanks to the elimination of tariffs. The JPEPA will likewise make the Filipino people subsidize the cost of health care of the Japanese people by allowing them to pay less for the labor of our nurses and caregivers. While our nurses and caregivers are compelled to go abroad to earn enough money to take care of their families, the JPEPA will not make it easier for Filipinos to work in Japan since they will have to undergo Japanese language training, pass the licensure exams given in Japanese, only to work as nursing aids or as caregivers. The JPEPA will also subsidize Japanese industries, by giving Japanese investors free rein to do as they please with the prohibition of performance requirements. For the sake of a few million yen, we will be surrendering the very few policy tools left for our economic development, and ultimately, our hope for a better tomorrow for future generations of Filipinos. In the final analysis, the JPEPA is a very toxic treaty, indeed. Does the Philippines really need the JPEPA for its economic development? The proponents of the JPEPA have asserted that the costs of non-participation in the JPEPA may be greater than the costs of actual participation in light of the changing international economic and political landscape.49

However, in truth and in fact, we do not need an FTA to spur our economic development. Countries in East Asia such as China have experienced high rates of economic growth without the benefit of an FTA or even membership in the WTO. The Philippine Institute for Development Studies (PIDS) put it quite succinctly:

“Policymakers in the Philippines should realize that FTAs are neither necessary nor sufficient for economic growth. Hence, there should be a de-

49 See Yap, Medalla & Aldaba, note 4.

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emphasis on the current trend to negotiate FTAs, most of which are knee-jerk reactions to the initiatives of other countries.”50 (emphasis supplied)

The same study states:

“It should be emphasized that the impediments to faster economic growth are largely internal. For example, the study of the East Asian miracle points to four main factors: outward orientation, a modernized agriculture sector, bureaucratic efficiency, and relatively equitable distribution of income. Moreover, outward orientation by these countries was not achieved through joining an FTA. (Neither was outward orientation a result of trade liberalization.) The Philippines is a clear example where unimpressive economic growth is largely due to internal factors. It is quite obvious that economic resources would be better allocated if these were channeled to agricultural productivity, improving governance, and strengthening institutions rather than finalizing the Japan-Philippines Economic Partnership Agreement, negotiating the China-ASEAN Free Trade Agreement, or pursuing an FTA with the US and other countries.”51 (emphasis supplied)

For all the supposed economic benefits that the Philippines will reap under the JPEPA, it is worth noting that a recent study published by the Asian Development Bank states that the JPEPA will have a negative impact on the Philippine economy, substantially reducing real income and firm productivity. The study likewise states that under an ASEAN-Japan FTA (of which the JPEPA is part), only Vietnam and Thailand (particularly their processed food industries) stand to benefit from the trade liberalization with Japan. The study likewise makes the pronouncement that the Philippines (together with India) will generally not benefit from trade liberalization under either an ASEAN-Japan FTA or an ASEAN-China FTA.52 Far from being a genuine economic partnership, the JPEPA is in truth and in fact a repressive agreement that sacrifices the health, the environment, the long-term economic development, and ultimately, the dignity and the sovereignty of the Filipino people at the altar of Japanese corporate and governmental interests.

We therefore urge the Philippine Senate to junk this toxic treaty, and uphold our right to chart the destiny of our country, as a sovereign nation that is self-reliant, independent, and entitled to all the blessings of independence, democracy, and prosperity.

50 Josef T. Yap, “The boom in FTAs: let prudence reign.” PIDS Policy Notes No. 2005-09 (December 2005). 51 Id. 52 Fan Zhai, “Preferential Trade Agreements in Asia: Alternative Scenarios of ‘Hub and Spoke’”, Asian Development Bank ERD Working Paper Series No. 83 (October 2006).

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Initiatives for Dialogue and Empowerment

through Alternative Legal Services, Inc. (IDEALS)

04 December 2006