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JPEPA: Anatomy of a (Bad) Trade Deal

JPEPA: Anatomy of a (Bad) Trade Deal

Jan 14, 2012

JPEPA: Anatomy of a (Bad) Trade Deal

by Joseph Purungganan

Examining the trade negotiation process

The Development Roundtable Series Thematic Working Group on Trade and Industrial Policy decided in 2008 as part of its efforts to deepen the discourse and develop concrete recommendations on trade and industrial policy to examine trade policy making in the context of international trade negotiations. Furthermore, the on-going debates in the Senate on JPEPA also provided additional impetus to the research.

The overall objective of the study is to determine how the Philippines conducts trade negotiations and how the government pursues national trade and development interests through various international negotiations for free trade and economic partnership agreements.

The Japan-Philippines Economic Partnership Agreement was an easy choice for the case study. JPEPA was the very first bilateral FTA entered into by the Philippines and as such how the deal was negotiated had set the precedent for future bilateral FTA negotiations. While the Senate ratified JPEPA with a majority vote, the deliberations exposed how the Executive did such a poor job negotiating the deal with Japan, fuelling early on calls for renegotiation of the agreement.

Results of the Study: The JPEPA Process
On October 8, 2008, with a majority vote of 16-4, the Philippine Senate ratified the Japan-Philippines Economic Partnership Agreement thus paving the way for the implementation of the controversial trade and investments deal with Japan.

The JPEPA negotiations went through at least five major stages of negotiations.

Political and Economic Dialoguewas the exploratory stage of the process. The highlight of this stage was the series of high level political meetings between the leaders of Japan and the Philippines that took place between 2002 and 2003. These high level meetings provided the political push for the negotiations and gave broad indication of the political and economic motivations of both parties; their level of commitment; and how the mechanism and architecture of the whole negotiations process were defined.

Japan’s ASEAN outlook

What was apparent at this point was that Japan had a clearer perspective of its goals and intentions in pursuing the FTA negotiations.  In his speech in Malacañang, then Japanese Prime Minister Junichiro Koizumi highlighted the strategic and historic relationship between Japan and ASEAN and defined what he called his “new diplomatic vision” for East Asia where he referred to ASEAN as the “core of the region”.[2] The main agenda of Japan was clearly to have a deal with ASEAN.  Even the reference to the Japan-Philippines Partnership Program, a framework for improved economic and political relations between the two countries that encompassed JPEPA, was made in the context of strengthening coordinated efforts for greater regional stability.

Having secured the nod from the Philippines and the rest of ASEAN, Japan went full steam in trying to actualize these commitments in a series of formal and informal meetings.

By 2002, following a visit by then President Gloria Macapagal Arroyo to Japan, her first since expressing support to Japan’s proposal for an ASEAN-wide economic agreement, a working group on JPEPA composed of representatives from concerned government agencies of both parties was formed. The task of the working group was to study the possible content, substance, and the coverage of a mutually beneficial economic partnership between the two countries, including the possibility of forming a free trade agreement. [3]

It was evident even at this early stage that both parties were eyeing an ambitious agreement that would cover other areas such as services, investments, human resources development and other forms of economic cooperation.[4] Through five meetings of the Working Group—four in Manila and once in Tokyo—between October 2002 and July 2003, both parties tossed around proposals for possible elements of the agreement.  Among the proposals discussed early on was access to Japan’s labor market particularly in the fields of nursing and caregiving. An initial obstacle identified was the language issue. This was later resolved through proposals for the establishment of Nippongo language schools or centers.

By April 2003, with strong indication from the Working Group of the common desire of both parties to proceed, separate independent studies to assess the sustainable impact of JPEPA were initiated.

Research Utilizing their respective national research units or centers, the two governments then initiated researches that examined a whole gamut of issues surrounding the terms and nature of trade and economic partnership between the two parties. The main aim of the national researches was to determine and assess aggressive and defensive interests of both countries, which would form part of the country’s negotiating agenda.

Two things were relevant for the Philippines in terms of the process of defining its national negotiating agenda. The first was the formation of the Philippine Coordinating Committee on JPEPA to coordinate and consolidate the efforts of the various national government agencies in putting together our national agenda and to define our negotiating framework; the second was the JPEPA Research Project of the Philippine Institute of Development Studies.

Philippine Coordinating Committee on JPEPA

Executive Order 213 established the Philippine Coordinating Committee[5] to study the feasibility of JPEPA. The PCC is an interagency committee co-chaired by the Undersecretary for International Economic Relations of the Department of Foreign Affairs and the Undersecretary for International Trade of the Department of Trade and Industry. The PCC was tasked to represent the country in meetings, consultations and negotiations, the formulation of the recommended Philippine positions; to conduct consultations with other government agencies and private sector representatives (as necessary); and to draft a proposed framework for JPEPA and its Implementing Agreements (IA).

PIDS Studies

From June to December 2003, the Philippine Institute for Development Studies[6] initiated a research project to study the feasibility and desirability of JPEPA. The overall aim of the project was to address the fundamental question should the Philippines enter into a Japan-RP Economic Partnership Agreement? PIDS proposed to answer this question by conducting specific researches guided by the basic principles of first, the Philippines’ agenda and reform objectives, and second, the issue of multilateralism versus bilateralism.

The feasibility of JPEPA was judged by the PIDS studies against the principal objectives of reforms defined as (1) global competitiveness, (2) sustainable growth, (3) efficiency in allocation and (4) poverty alleviation. According to PIDS, “If within the proposed economic partnership these objectives of reform are workable, then there should be no impediment in entering into such kind of agreement.”[7]

A total of seventeen (17) research projects were undertaken under the Japan-Philippines Economic Partnership Research Project. Two (2) were impact analysis on the whole economy, nine (9) were analyses on specific sectors and concerns (agriculture, manufacturing, services trade, tourism, movement of natural persons) and six (6) were special studies on such topics as Japanese ODA, rules of origin, and human resource development among others. (Please refer to annex for summary of recommendations)

At least 14 out of these 17 studies were prepared for, or in coordination with, the Philippine APEC Study Center Network [8] and PIDS.  At least seven (7) of these studies were funded by the Japan International Cooperation Agency and at least four (4) were funded through the Ministry of Economy, Trade and Industry of Japan.[9]

A report of the Joint Coordinating Team[10] cited the PIDS conclusion that the JPEPA would provide positive impact both on the Philippine economy and on poverty reduction on the whole, while the impact would be different among sectors.  The studies also pointed the need for adjustment measures to maximize benefits of JPEPA, including mutual recognition, the promotion of movement of natural persons between the two countries and various cooperation programs.

The Japanese studies[11] on the other hand projected positive but very minimal effects on Japan’s GDP of 0.01-0.03 % (Kawasaki) and 1.7-3.03% increase for Philippine GDP in the long run.[12]

Formal NegotiationsThe start of the formal process, where both parties presented their proposals, which ideally would form part of a draft negotiating text or mandate.  Both parties went through all the provisions of the proposed agreement with the objective of arriving at a common consensus. The formal negotiations were usually undertaken by senior level ministers.

Very little information on what transpired in the formal negotiating sessions has been made available to the public. We do know that the formal sessions commenced in February 2004 and had at least eight (8) formal sessions in Manila and Tokyo from February- October 2004. These sessions were then followed by at least three working level sessions in Manila from November 2004 to February 2005.[13] What followed next were consultations/hearings on tariffs, the completion of the text, legal review and processes leading to mutual acceptance of the text, completion of other legal requirements and the joint signing of JPEPA by leaders of both parties.[14]

From a copy of the working draft of the text dated April 2003 however which showed markings/changes proposed by the Philippine government we can surmise critical defensive and aggressive interests of the Philippines. Comparing these changes against the final text reveal the extent to which the Philippine proposals were adopted in the final text.

Key Observations

§  The working draft shows that the Japan-Singapore Economic Partnership Agreement was used as a template. A chapter on IPR even had the word Singapore in it.

§  The Philippines was really aiming for an agreement that spelled out more technical assistance and cooperation with Japan.

§  The Philippines wanted minimal ambition on areas of IPR, government procurement and competition opting to just define these as areas of technical assistance and cooperation. Unfortunately, the chapters on IPR, Government Procurement and Competition in the final text defined concrete commitments already define concrete and ambitious commitments on protection and liberalization of these areas, respectively.

§  Another aggressive interest is in movement of natural persons which pertains to interest in labor market access. Indeed we see a substantial difference between the working draft and the final text in MNP. The MNP chapter is more defined outlining specific commitments particularly on market access for technology experts and healthcare workers, and spelling out requirements and procedures. The chapter is also more specific in terms of defining limits to coverage. The final text clearly states that MNP covers only professional (including nurses and caregivers) and that the chapter shall not apply to measures regarding nationality or citizenship, or residence or employment on a permanent basis. (Chapter 9. Article 108 (2) of the JPEPA Final Text)

Executive concurrence- Once a consensus is reached and the negotiations have ended, the draft consensus text is then goes back to the principals for concurrence.  The main highlight of this stage is the formal and political process of signing the text of the agreement.

According to the official press statement from the Ministry of Foreign Affairs of Japan, “on September 8 2006, the Government of Japan reached a cabinet decision to sign an agreement between the Government of Japan and the Government of the Philippines for an economic partnership, the Japan-Philippines Economic Partnership Agreement (JPEPA). Based on this decision, the Prime Minister of Japan, Mr. Junichiro Koizumi, and the President of the Philippines, Ms. Gloria Macapagal-Arroyo, will sign the JPEPA, the Implementing Agreement, and the Joint Statement at the upcoming Japan-Philippines summit in Helsinki, Finland.”[15]

The signing of JPEPA in Helsinki was a top priority of then Philippine President Gloria Macapagal Arroyo who flew to the Finnish capital to attend the Asia-Europe Summit.

Senate ratification- The signed agreements then undergo a respective process of ratification. In the case of the Philippines, ratification of an international agreement or treaty is done by the Senate of the Philippines. In the case of Japan, international trade agreements are ratified by the Japanese Diet.

JPEPA was officially transmitted to the Senate on August 17, 2007.  To prepare for this process the Philippine government created through Administrative Order 198 an interagency task force for JPEPA Senate ratification. The multi-agency JPEPA task force was tasked to put forward to the Senate the benefits, advantages and opportunities to the Philippine economy of a bilateral agreement with Japan.[16]

Hearings on JPEPA were first conducted by the Committee on Trade and Commerce chaired by Senator Manuel Roxas II in November 2006 before joint hearings of the Committees of Trade and Commerce and Foreign Relations were conducted under the leadership of Senator Miriam Santiago. Santiago conducted a total of nine hearings from September to December 2007 with each hearing focusing on specific issues (economics, environment, movement of natural person, constitutional issues, and agriculture).

The committee report calling for “conditional concurrence” was completed by April 2008. Santiago however backtracked and deferred her sponsorship speech on JPEPA opting to secure a side agreement with Japan first. The side agreement was secured in late August 2008. The agreement was ratified by the Senate in October 2008.

Summary of Main Points

Examining the JPEPA process raised a number of issues and concerns which could then be the anchor of recommendations for reforms in the trade negotiation process in the Philippines.

Defining the National Agenda

The starting point of any negotiating framework whether for trade or any other international agreement that the government negotiates on behalf of its people, should be a coherent national agenda that embodies the Filipino people’s interest in the negotiations.  In the case of JPEPA, at least three elements were instrumental in how the Philippine government defined the national interest in the negotiations:  (1) Using the Japan-Singapore Economic Partnership Agreement as the template; (2) Commitment of the Philippines to the WTO-plus agenda for comprehensive and ambitious FTA; and (3) the recommendations from the PIDS studies and inputs from the National Government Agencies.

Clearly, the bias was towards a comprehensive and ambitious agreement with Japan. There was really no open and transparent process of defining a national negotiating agenda that involved the participation of all the stakeholders.

While the government recognized the area of research as an area of strength for the Philippines, a number of issues and concerns should be levied against the JPEPA studies.

The JPEPA research project of PIDS was clearly guided by a trade policy that is supportive of a more liberal regime for trade and investment.  These studies were conducted after a political decision at the highest level has already been made to not just proceed but see the negotiations through, thereby raising the question of the real role of these studies. Were the studies meant to provide empirical basis for decisions on whether to proceed with the negotiations or not or were meant simply to provide the justification for decisions that have already been made?

And lastly, how independent are these studies? Of particular concern with the JPEPA researches is the extent of Japanese influence both directly (through funding) and indirectly (through the framework of addressing what Japan needs rather than what the Philippines wants) into the outcomes of the researches.

Lack of Transparency and Peoples Participation

While the government claimed transparency in the negotiations with a “structured, step-by-step negotiations process consisting of both formal and informal meetings, extensive consultation and public hearings, including attendance in hearings called by the House of Representatives,”[17] critics rightly point out the non-disclosure of the text during the negotiations process and the absence of a clear mechanism for people’s participation as clear indicators of a democracy deficit in the JPEPA process.  The PCC is mandated to conduct consultations with private sector representatives but only as it deems necessary. The conduct of sector specific consultations became the discretion of the lead national government agencies. No effective mechanisms were put in place to check and temper government’s ambitious agenda putting into serious question whether the final agreement is in fact in our national interest.

Lack of Coherence and Poor Coordination

A number of procedural issues were also evident in the process. Because this was the Philippines first bilateral agreement of this nature and scope, the process was largely ad hoc. Inter-agency task forces were created specific for JPEPA alone. The formulation of specific chapters was delegated to specific national government agencies with the PCC mandated to bring all of these together into a coherent national agenda.

Another major concern is whether or not due diligence was exercised by the Philippine government in negotiating the agreement. In at least two major instances- the inclusion of toxic wastes in the list of trade-able goods, and the legal and constitutional review process- it was shown how concerns that were raised early on as part of the process of finalizing the text by national government agencies and by the legal review panel were either not considered or considered but later set aside in the final deliberations.

Sadly, the lack of access to official negotiating documents and minutes of these negotiations, and the unwillingness of the Philippine government to disclose information effectively leave the public in the dark, depriving us of the opportunity to learn from past mistakes and correct flaws and limitations in the trade negotiation process.

Role of Congress and the issue of oversight

In early 2005, a number of civil society groups and trade networks were already raising their concerns on JPEPA.[18] In Congress, a House Resolution calling for an inquiry on JPEPA, led to Congressional hearings conducted under the House Special Committee on Globalization.[19] To a large extent, the congressional hearings on JPEPA became the main platform for public debate on the proposed deal. These hearings compelled the DTI to provide updates on the negotiations to Congress and an opportunity for groups critical of JPEPA to present their positions.

The Congressional hearings however failed to compel the Executive to provide Congress with a copy of the negotiating text, which remained inaccessible to public scrutiny until the deal was signed in 2006. In December 2005, Akbayan et al filed a petition before the Supreme Court to compel the government to publicly disclose the full text of JPEPA. The Supreme Court however ruled in July 2008 against the petition for disclosure and found in favour of the exercise of Executive privilege in the case of JPEPA.[20]

The Supreme Court decision on JPEPA does not invalidate however the need for oversight on deals entered into by the Executive especially because of their far reaching implications on development.

Ways Forward

With the Philippines and ASEAN engaged in a number of FTA negotiations there is an urgent need to get our act together fast to establish a more systematic, coherent, participatory and more critical process of defining our national trade policy and industrial policy.

Assessment and review of Philippine Trade Policy

We should start with an honest to goodness assessment of Philippine trade policy and how our adherence to this policy has impacted on development.  We should also examine the way the Philippine government works within ASEAN.  There should also be closer coordination in ASEAN not just in terms of the ASEAN-wide FTAs that are being negotiated but in relation to the bilateral efforts of its Member states as well.

The role of Congress in trade negotiations is another area that must be re-examined seriously in light of the JPEPA experience. Congress could play a crucial role in addressing the issue of oversight particularly in light of the Supreme Court Decision upholding the use of executive privilege in the JPEPA negotiations.

Philippine Trade Representative Office

There are proposals in Congress for the creation of the Philippine Trade Representative Office, which could pave the way for a more coherent trade negotiating agenda and a more coordinated and systematic way of negotiations where inputs from academic and research institutions, from private sector, and from civil society organizations and social movements are [21]heard and integrated into the national agenda.   The PTRO could also institutionalize public consultations, making them mandatory rather than discretionary on the part of the national government agencies.

Freedom of Information Act

An important element of participation is access to information. The passage of the Freedom of Information Act is an important step towards ensuring that people have access to crucial documents including copies of the negotiating texts and become informed participants in the negotiating process.

Postscript: Towards a Unified National Trade Strategy
A recent welcome development is the “One Country, One Voice” initiative of the Department of Trade and Industry which aims to “institutionalize stakeholder participation towards a unified trade strategy” through a series of national and sub-national, multi-sectoral consultations.[22]

Speaking at the launch of the initiative, Adrian Cristobal, Jr., Undersecretary for International Trade of the DTI, outlined the basic principles that have guided government in crafting trade policy and negotiating positions. These include the primacy of the Constitution over statutes and international agreements, the importance of public participation, transparency and accountability, and the leadership role of government in making strategic decisions that balance sectoral interests.

Cristobal added that “there are lessons we have learned from the past, and there are lessons to be learned from others. We will need to prepare ourselves with rational empirical research, be attuned to stakeholder views and needs, and bring more coherence in inter-governmental policymaking.[23] n

(Published in Focus on the Philippines July 2011: http://focusweb.org/philippines/fop-articles/articles/537-jpepa-anatomy-of-a-bad-trade-deal-how-the-philippine-government-negotiated-the-controversial-economic-agreement-with-japan-)

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