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The Japan- Philippines Economic Partnership Agreement (JPEPA)

Research Project

PIDS-CPBD Economic Forum House of Representatives

21 April 2004

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Background on Regional Trade Agreements

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Economic Union -common market

status plus harmonization of

fiscal and monetary policies

Common Market -

customs union status plus free

movement of labour and

capital

Customs Union- free trade among

members and adopt common external trade

policies

Free Trade Area –all trade barriers in goods removed among members but each retains own barriers with the rest of the world

Preferential Trading Area –lower trade barriers among

members

Levels of Economic Integration

Source: Low (2000); Das (2001)

• AFTA •proposed JPEPA

• GSP • BANGKOK

AGREEMENT

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Types of Regional/ Bilateral FTAs

• Closer Economic Partnership– eg Singapore-New Zealand–

• New Age Economic Partnership– eg Singapore-Japan

• Comprehensive Economic Partnership– eg proposed ASEAN-Japan

• Free Trade Area: Bilateral/ Trilateral/ Regional – eg ASEAN

• Closer Economic Relations – eg proposed ASEAN-Australia-New Zealand

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Current Trends on RTAs• The drive towards the conclusion of RTAs

continues unabated.• 33 RTAs have been notified to the WTO since

November 2001. If the current trend continues WTO estimate that 300 RTAs will be in force in 2007.

• Countries traditionally favouring MFN liberalization are increasingly being drawn into RTAs.

• The main focus of RTA activity has shifted away from Europe in the last two years towards Asia Pacific.

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Growth of Regional Trade Agreements in the World, 1948-2002

Source: WTO Secretariat

Number of RTAs

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Cross Regional Cross Regional RTAsRTAs are a growing phenomenonare a growing phenomenon

Source: WTO Secretariat

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The Japan- Philippines Economic Partnership Agreement (JPEPA)

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Brief Background

• On December 4, 2002, Japan’s Prime Minister Junichiro Koizumi and Philippines’ President Gloria Arroyo discussed during her visit to Japan the establishment of a Japan –Philippines Economic Partnership (JPEP)

• Envisaged partnership to include a possible free-trade agreement and other components covering services, investment, human resources development and other forms of cooperation

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Brief Background

• Has begun the second round of talks on a bilateral free trade agreement in Tokyo, Japan (April 15, 2004)

• In February, Malacañang said the two countries could forge an accord before the end of the year.

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JPEPA Objective: Promote a more comprehensive cooperation

• To include not only common elements of FTA

• To include other issues in need of improvement such as:– Non-tariff barriers to goods, services and

investment– Other areas such as information technology,

support for SMEs, and tourism

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Basic Principles• Should be driven/guided by our own

reform objectives– Global competitiveness– Sustainable growth– Resource allocation efficiency– Poverty reduction

• Keep within the principles of multilateralism– Ideal approach to bring about optimum welfare

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Reasons for pursuing a bilateral approach– As a testing ground– As a step to multilateralism– As a defensive mechanism

Potential risks to a bilateral approach– Trade diversion– Resource diversion– Political diversion

Basic Principles

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Intellectual Property10Government Procurement11Competition12

Movement of Natural Person9Investment8Trade in Services7Mutual Recognition 6Paperless Trading5Customs Procedure4Rules of Origin3Trade in Goods2General Provisions1Preamble--

ObjectiveChapter Title Chapter No.

LIBERALIZATION AND

FACILITATION

Elements of the JPEPA

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Final Provisions23Dispute and Avoidance Settlement22Tourism21Broadcasting 20Small and Medium Enterprises19Trade and Investment Promotion18Human Resources Development17Science and Technology16Energy15

Information and Communications Technology

14Financial Services Cooperation13

ObjectiveChapter Title Chapter No.

ECONOMIC PARTNERSHIP

ENHANCEMENT

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Three Levels of Study

On the whole economy

Sectoral concerns

Special issues

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Three Main Concerns

Economic Impact

Social Impact

Process Impact

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SituationerTrading environment

Levels and structureTariffsComparative advantageImplications on points for negotiation

Investment environmentLevels and structureMajor impedimentsImplications on points for negotiation

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Source: PC-TAS

In 2000, Japan is the 2nd largest trading partner of the Philippines– 14.73% of Philippine exports – 19.10% of Philippine imports

Philippines remains an important potential market for Japan– 2.14% of Japanese exports– 1.9% of Japanese imports

Trade levels and structures

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Philippines as top exporter to Japan

FreeOther cameras, for roll film of a width of 35‡o10.4FreeOther inductors11.9FreeInputs or output units11.9FreeRead only memory (ROM)18.5FreeIgnition and other wiring sets for motor vehicles25.8FreeMicroprocessor unit27.9FreeOther semiconductor devices31.92FreeMagnetic disc units28.9FreeCased MPR(Microperipheral)49.93.9Carpentry, of wood51.4

20/25Bananas, fresh73.717Pineapples, fresh96.11

Tariff CommoditiesShareRank

Trade levels and structures

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FreePrinted circuits11.7FreeCased other monolithic integrated circuits8.1

3Asparagus, fresh or chilled17.3

FreeIron ores and concentrates,other than roasted iron pyrites

4.4

FreeOther apparatus, for carrier-current line systems or for digital line systems

6.8FreeParts/accessories of auto data processing machine7.24

FreeParts used solely with electrical line telephonic or telegraphic apparatus

6.8

FreeFixed electrical resistors18.9FreeStatic converters,other than rectifiers and apparatus19.5FreeRadio-broadcast receivers used in motor vehicles20.6FreeNickel ores and concentrates26.13

Tariff CommoditiesShareRank

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Market Positioning

Restructuring (-), (-)Lost opportunity (-), (+)Falling (-)

Low potential but competitive (+), (-)

High potential and competitive (+),(+)Rising (+)

Falling (-) Rising (+) Trend

Share of Japan Imports

from the Philippines

Share of Japan Imports from the World

JAPAN IMPORT SHARE: Phil vs World

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Market Positioning

97 JICC*10 %**

39 JICC*26%**

Falling (-)

16 JICC*1.4%**

65 JICC*58%**

Rising (+)

Falling (-) Rising (+) Trend

Share of Japan Imports

from the Philippines

Share of Japan Imports from the World

JAPAN IMPORT SHARE: Phil vs World

* 4-digit JICC level** % of Phil Exports to Japan

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High Potential and Competitive Products

(65) High Potential 58.23%Code Description Ph Exports7764 Electronic microcircuits 1,477,8367527 Storage units,data proc. 916,2329310 Special trans not classd 319,9077526 Input or output units 271,4637763 Diodes,transistors etc. 139,4817712 Oth.elec power mach,part 119,8416353 Buildrs.joinery,wood etc 89,1107843 Other parts,motor vehicl 86,1007722 Printed circuits 70,8307522 Digital computers 59,2087725 Switch.apparatus,<1000v 53,8907768 Elctrn comp pts,crystals 44,5867786 Electrical capacitors 42,8907529 Data proc equipment,nes 40,9578841 Optc.fibr.lens etc.unmnt 39,399

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Tariffs

6,126.5895.59Totals

5,065.28217.20265.0388.3390.90389.756.493.60

79.033.394.141.381.426.080.100.06

01-34-56-1011-1516-2021-2526-30

Absolute Values (MUS$)2001

Proportional Philippine Exports to Japan per

Tariff Bracket (percent)

Tariff Rates of Japan (in percent ad valorem)

Structure of Philippine Exports to Japan and Structure of Japanese Tariffs

Note: tariffs pertain to applied, and ad valorem associated with specific tariffs, 2001The sum of proportional Philippine imports do not sum to 100% because of the exports subject to specific tariffs were not included Philippine Exports to Japan in 2001

Source: Manzano, 2003 (WTO Integrated Database)

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Tariffs

6,450.295100.00 Totals

3,289.242,099.06186.26657.12128.6640.070.0049.89

50.9932.542.8910.191.990.620.000.77

01-34-56-1011-1516-2021-2526-30

Absolute Values (MUS$)2001

Proportional Japanese Exports to Phils per Tariff

Bracket (percent)

Tariff Rates of Philippines (in percent ad valorem)

Structure of Japan Exports to RP and Structure of Philippine Tariffs

Source: Manzano, 2003 (WTO Integrated Database)

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Investment levels and structureJapan is the top foreign direct investor in the Philippines

Note: Figures in million PesosSource: BOI (2002)

46,048.70All18,841.90All6,742.40All

1,764.00Switzerland725.7Sweden340.8Germany

2,554.90Germany1,322.50Australia584.7Netherlands

3,627.00U.S.A.1,671.90Japan759.6Hong Kong

12,197.80Taiwan2,858.30U.S.A.1,818.50Japan

17,053.80Japan9,407.70Singapore2,413.90U.S.A.

2002Country2001Country2000Country

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SOME CONCLUSIONS AND

RECOMMENDATIONS

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Impact on the economyCororaton• Non-growth CGE model

– Impact on households– Poverty impact

Japanese studies (Kawasaki, Kiyota & Urata)• GTAP model

– Inter-country response– Captures capital accumulation and capital movement

Do not capture impact of enhanced features

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Price Effects of a Japan-Philippines FTA (% change)

Sector Import Prices

Domestic Prices

Composite Commodity

PricesOutput Prices

Local Prices

Crops 0.00 0.15 0.15 0.14 0.15Livestock 0.00 0.11 0.11 0.11 0.11Fishing 0.02 -0.02 -0.02 -0.02 -0.02Other Agriculture 0.00 0.38 0.37 0.38 0.38

AGRICULTURE 0.00 0.13 0.13 0.12 0.13Mining 0.00 0.24 0.05 0.13 0.24Food Manufacturing -1.15 -0.02 -0.12 0.02 -0.02Non-food Manufacturing -1.90 -0.59 -1.26 -0.11 -0.59Construction 0.00 0.04 0.04 0.04 0.04Electricity, Gas and Water 0.00 -0.10 -0.10 -0.10 -0.10

INDUSTRY -1.70 -0.25 -0.71 -0.05 -0.25Wholesale trade & retail 0.00 0.11 0.11 0.09 0.11Other Services 0.00 -0.18 -0.16 -0.15 -0.18Government services 0.00 0.00 0.00 0.19 0.00

SERVICES 0.00 -0.08 -0.08 -0.07 -0.08TOTAL -1.51 -0.12 -0.39 -0.02 -0.12Source: CGE Stimulations (Cororaton 2003)

Key Findings: Cororaton

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Volume Effects of a Japan-Philippines FTA (% change) Sector Imports Exports Domestic

SalesComposite

CommodityTotal

OutputCrops 0.14 -0.37 -0.18 -0.17 -0.19Livestock -0.01 -0.22 -0.17 -0.17 -0.17Fishing -0.28 -0.14 -0.18 -0.18 -0.17Other Agriculture 0.40 0.00 0.08 0.09 0.08

AGRICULTURE 0.09 -0.25 -0.16 -0.15 -0.17Mining 0.91 0.13 0.47 0.78 0.31Food Manufacturing 1.30 0.18 -0.21 -0.09 -0.17Non-food Manufacturing 1.55 2.14 0.11 0.81 0.84Construction 0.28 0.20 0.24 0.24 0.24Electricity, Gas and Water -0.47 0.18 0.05 0.05 0.05

INDUSTRY 1.48 1.75 0.01 0.46 0.40Wholesale trade & retail 0.00 -0.20 -0.06 -0.06 -0.09Other Services -0.47 -0.06 -0.27 -0.29 -0.24Government services 0.00 0.00 0.00 0.00 -0.19

SERVICES -0.47 -0.12 -0.20 -0.19 -0.19TOTAL 1.27 0.99 -0.09 0.16 0.09Source: CGE Stimulations (Cororaton 2003)

Key Findings: Cororaton

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Key Findings: KawasakiMacroeconomic Impact

(%)

(Mil. US Dollars)

(Mil. US Dollars)

(%)

(%)

(%)

0.01

1,159

22

0.32

0.19

0.01

Japan

Capital Stock

Equivalent Variation

Trade Balance

Import Volume

Export Volume

Real GDP

Capital

3.31

1,038

-331

3.78

3.99

1.73

Philippines

Using Capital Movement Simulation

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Key Findings: KawasakiSensitivity to Model Structures

- Impact on Real GDP (%) -

Japan

0.000.010.020.030.04

Static Model

Capital Accumula...

Capital Movements

Productuvuty G

r...

The Philippines

0.01.02.03.04.0

Static Model

Capital Accumlation

Capital Movements

Productivity

Growth

• Inter-country response• Captures capital accumulation and capital movement

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Sectoral impact• Key sectors affected

– Movement of Natural Persons• Health services• IT

– Tourism/Retirement industry– SMEs– Electronic Industry– IT industries – Export sector– Agriculture (esp. fresh fruits and vegetables)

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Social Impact• Differential impact on households and

sectors• Impact on poverty and income distribution:

Positive impact, on the whole, on poverty reduction but slight deterioration in the GINI ratio

• Impact on employment; on overseas employment

• On health services -- some possible trade-offs

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Findings: CororatonTable 12: Poverty Indices without FTA versus with FTA, percentage changeTABLE 1: All Philippines Index all tot_female fem_low fem_high tot_male mal_low mal_highheadcount i -0.9% -1.0% -1.1% 0.0% -0.9% -0.8% -1.1%pov_gap -1.1% -1.1% -1.1% -1.4% -1.1% -1.0% -1.3%pov_severity -1.2% -1.2% -1.2% -1.4% -1.2% -1.2% -1.4%TABLE 2: National Capital Region (NCR) headcount i -3.8% -2.1% -2.9% 0.0% -4.0% -4.8% -2.9%pov_gap -3.2% -2.9% -3.1% -1.8% -3.2% -3.6% -2.6%pov_severity -3.4% -2.7% -3.1% -2.1% -3.7% -4.1% -3.2%TABLE 3: All Urban headcount i -1.4% -2.0% -2.3% 0.0% -1.6% -1.3% -1.3%pov_gap -1.2% -1.3% -1.2% -2.0% -1.1% -1.2% -1.4%pov_severity -1.4% -1.6% -1.5% -1.8% -1.3% -1.3% -1.5%TABLE 4: All Rural headcount i -0.5% -0.4% -0.5% 0.0% -0.5% -0.5% -0.6%pov_gap -1.0% -0.9% -0.9% -0.9% -1.0% -0.9% -1.1%pov_severity -1.1% -1.0% -1.1% -1.1% -1.1% -1.1% -1.3%TABLE 5: Population and difference in number of poor people: (-) less/(+) morepopulation 67,430,864poor (- 227,377)

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TRADE FACILITATION PAPERLESS TRADING CUSTOMS CLEARANCE PROCEDURES

CAPABILITY BUILDINGHRD cooperationMRA -- Conformity Assessment BodiesCoping with Sanitary/Phytosanitary regulations --e. g. Improved procedures for claim verification and accreditation for private testing centers of food products.Joint Ventures/ Investment Promotion

Process Impact

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Some General Conclusions• Tariff for tariff, Japan has more to gain

• On the whole, there is potential net positive but small impact of the FTA provision of JPEPA on the economy

• Impact becomes significant under the capital movement simulation and more so with productivity assumption

Question: how to make this happen

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Some General Conclusions

• Need for enhanced features of the EPA that would bring about the potential benefits

• More than market access issues involving tariffs

• More important: Potential benefits from services, HRD, capability building provisions, MRA, Technical Support for SPS, Trade facilitation, paperless trading, language and EcoTech programs

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Some General Conclusions

• Human Resource Development is also a key element

• Potential areas of cooperation in language proficiency trainings, technical assistance in skills upgrading, mutual personnel exchange and fellowship programs, and research and development in S&T

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The JPEPA research project

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2. CGE analysisDr. Cesar Cororaton, Philippine Institute for Development Studies

1. Situationer and OverviewDr. Erlinda Medalla, Philippine Institute for Development Studies

On the whole economy

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3. Toward a Strategy for Manufactured Exports to JapanDr. Peter Lee U and Dr. Ferdinand Maquito, UA&P

2. Prospects and Problems of Expanding Trade with Japan: A Survey of Philippine Exporters

Dr. Rosalina Tan, Ateneo de Manila University

1. An Analysis of Industry and Sector-specific Impacts of a JPEPA

Royce Escolar, AIM Policy Center

Sectoral concerns

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7. Toward a Philippines-Japan Economic Cooperation in Agriculture

Dr. Zenaida Sumalde and Dr. Amelia Bello, UP Los Banos

6. Prospects of Services Trade Liberalization in Japan- RP Bilateral Agreement

Dr. Gloria Pasadilla, PIDS

5. Prospects and Impediments to Tapping the Japanese Market for the Philippine Retirement Industry

Prof Winston Padojinog and Cherry Lyn Rodolfo, UA&P

4. Movement of Natural Persons Between the Philippines and Japan: Issues and Prospects

Dr. Tereso Tullao Jr. and Mike Cortez, DLSU

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11. The Dynamics of Philippines-Japan Economic Cooperation: The Case of Japan’s ODA in the Philippines

Jose Camacho, Jr., UP Los Banos

10. Exploring the Potentials of a Japan-Philippine Economic Partnership in Human Resource Development

Department of Economics, UP Los Banos

9. SME Development Experience and Policy in Japan and the Philippines: Lessons and Policy Implications

Dr. Cielito Habito, Ateneo de Manila University

8. Philippine-Japan Economic Linkage: A Case Study of Cebu

Dr. Victorina H. Zosa, University of San Carlos

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3. Philippines-Japan Economic Partnership: Where is the Philippines in Japan's Plan?

Dr. Lydia N. Yu-Jose, Ateneo de Manila University

2. A Comparative Study of the Bilateral FTA Arrangements: Applications to the Philippines

Prof. John Lawrence Avila, UA&P

4. Understanding Japan’s Motivation in Formulating an Economic Partnership with the Philippines

Ronald Rodriguez, Foreign Service Institute

1. Preferential Rules of Origin for the Japan-Philippines Economic Partnership

Dr. George Manzano, UA&P

Special issues

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Thank you.

website: http://pascn.pids.gov.phemail: pascn@pidsnet.pids.gov.ph