PH rice import dependence rising amid weakening global production

Rice import liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits.

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In the past two decades, imported rice has been accounting for an increasing portion of our domestic consumption. Prior to the 1995 birth of the World Trade Organization (WTO), the country’s rice import dependency ratio (i.e., the extent of dependency on importation in relation to domestic consumption) only averaged 2.45% (1990 to 1994 average). In the latest available 10-year average (2006 to 2016), the ratio has risen by 4.5 times to 11.06 percent. In the immediate 10 years since the WTO (1995 to 2005), the average ratio was 11.24 percent.

Despite increasing dependence on cheaper imported rice, the retail price of rice has continued to rise. The average annual inflation rate for rice accelerated from 4% in 1996-2006 to 5.7% in 2006-2016. Apparently, more rice imports do not necessarily translate to lower retail prices. Yet, to tame rising rice prices and ease faster overall inflation, the Duterte administration’s answer is further liberalization of rice imports through the Rice Tariffication Bill(RTB). Already passed by the Houselast month, a Senate RTB counterpart is expected before the year ends.

The RTB will liberalize rice trade by removing the quantitative restriction (QR) on imported rice. This entails scrapping the current minimum access volume (MAV) which caps rice imports at 805,200 metric tons (MT) with a 35% in-quota (e.g. within MAV) tariff. Rice imports outside the MAV are slapped with a 40% tariff. In lieu of a QR, a general tariff will be imposed.

Rice tariffication and liberalization is a Philippine commitment to the WTO but repeatedly postponed in the past due to the socially sensitive nature of rice as an agricultural commodity. The Duterte administration used the soaring price of riceto justify finally replacing the rice QR with tariff, selling the idea that the entry of more imports will bring down local prices. As of the third week of August, well-milled rice retails at Php46.35 per kilo (10% higher than a year ago) and regular milled rice at Php42.85 (13% higher).

According to government’s economic managers, tariffication could reduce the priceof rice by as much as Php4.31 per kilo and lessen inflation by at least one percentage point. Rice production in Thailand and Vietnam, the country’s main sources of rice imports, is pegged at Php6 per kilo. In the Philippines, production cost is said to be double that amount.

While not a guarantee to lower prices in the long run, opening up the rice sector to unbridled imports leaves the country’s rice security at the mercy of an unpredictable and increasingly unreliable world market. This as 95% of Philippine rice imports come from just two countries whose own domestic production is either slowing down or declining. Globally, rice production has been steadily decelerating in the past four decades.

At the same time, the already precarious livelihoodof up to 20 million Filipinos who rely on the rice sector, including some 2.5 million rice farmers, gets more insecure than ever.

Rice production in Vietnam, which accounts for almost 69% of Philippine rice imports (2010 to 2016 average), and in Thailand, which comprises 26%, has been weakening in the past four decades. In Vietnam, rice (paddy) production decelerated from an annual growth of more than 5% in the 1980s and 1990s to 2.2% in the 2000s, and 1.6% this decade. Thailand’s rice production slowed down from a yearly growth of 3% in the 1980s to 2.1% in the 1990s, before recovering to 3.1% in the 2000s. But this decade, Thai rice production is actually contracting by 3.1% every year.

Other Southeast Asian countries that are also among the world’s major rice exporters (and potential Philippine suppliers) are experiencing production declines as well. Myanmar’s rice (paddy) production went down from an annual growth of 4.9% in the 2000s to a yearly contraction of 3.1% this decade. Cambodia is still posting a 3.8 growth since 2010, but it’s twice slower than its annual expansion of 7.4% last decade.

Our own rice (paddy) production has decelerated to 1.2% this decade from a more than 3%-annual expansion in the 1990s and 2000s and about 4-5% in the 1960s and 1970s. Worldwide, rice production has been continuously slowing since the 1980s when annual growth was pegged at 3.2 percent. This declined to 1.8% in the 1990s; 1.2% in the 2000s; and 1.1% in the 2010s.

It is estimated that lifting the QR on rice will double the volume of the country’s rice imports in five years. For the already impoverished Filipino rice farmers, this means a sharp drop in income (some projections say by around 29%) as rice that are 100% cheaper to produce in Thailand and Vietnam due to heavy subsidies flood the domestic market.

Government allays fears of more bankruptcy among rice farmers through the proposed six-year Rice Competitiveness Enhancement Fund (Rice Fund) where all the duties collected from rice imports would be supposedly used to support small rice farmers. The central bank estimates an additional Php28 billion in annual revenues from rice tariffs that could be used to help prepare rice farmers for competition from imports through the Rice Fund.

But this was the same promise made to vegetable farmers and fisher folk most affected by WTO tariffication in 1995 with the Agricultural Competitiveness Enhance Fund (ACEF). Marred by corruption and mismanagement issues, the fund only ended up favoring agribusiness corporations as small farmers and fisher folk were further impoverished by massive agricultural imports.

In fact, since its introduction more than two decades ago, ACEF’s initial six-year life has been extended and reformed several times – the most recent in 2016, with implementation starting this year– because it has failed to achieve its stated objectives of protecting and preparing the farmers and fisher folk.

As mentioned, the influx of cheaper imported rice has not resulted to cheaper retail prices for consumers. The monopoly control that big private traders have over imported rice and those procured from local farmers allows them to keep retail prices high even as farmgate prices are depressed. Privatization and deregulation of its functions on palay procurement, rice importation, marketing and price control have made the National Food Authority (NFA) inutile in affecting prices. Inefficiency and corruption made the situation even worse.

Even as the price of rice continued to increase, the farmer’s share to retail prices is actually lower today. Prior to the WTO, farmer’s share to consumer peso (i.e. how much of the price paid by the consumers goes back to the rice farmers) decreased from 30.5% (1990 to 1994 average) to 28.3% in 1995 to 2005 and just slightly climbing up to 28.6% in 2006 to 2016. Note that the actual amount that goes to the rice farmers is much lower due to usury and landlessness that eat into their share in prices.

Liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits. Tariffication and the promotion of more imports give these private traders even greater control over the rice industry. ###

Sources of data: Philippine Statistics Authority (PSA); Food and Agriculture Organization (FAO)

SONA 2018: Cha-cha, US free trade deal, and all-out economic liberalization under Duterte

Charter change for greater liberalization of the economy and a bilateral free trade deal attest to the leading role that the US continues to play in shaping Philippine economic direction even amid the rise of China.

(US Pres. Donald Trump with PH Pres. Rodrigo Duterte at the ASEAN gala dinner in Manila on November 12, 2017; Photo from here)

Manila’s ambassador to Washington Jose Manuel Romualdez recently announced that the first round of negotiations for a bilateral free trade agreement (FTA) with the US will start in September in the US capital. The FTA negotiations, with an estimated timeline of one to two years, is the direct result of US President Donald Trump’s Manila visit in November last year where he agreed with President Rodrigo Duterte to, among others, discuss a potential FTA between the two countries.

(Based on a report which came out two days prior to the statement by Romualdez, and quoting Finance chief Carlos G. Dominguez III and US Deputy Trade Representative for Asia Jeffrey Gerrish, the bilateral FTA talks appear to be still exploratory. Nonetheless both camps are said to be “prepared to move forward” and proceed to “high-level discussions in the near future”.)  

The envoy’s announcement came as the Duterte administration shifts into high gear its charter change (Cha-cha) drive, with the President planning to endorse the draft federal charter as a priority measure and a new Constitution already ratified as early as next year per Malacañang’s target.

US remains a key player in PH economy

We may thus be seeing the real possibility of a new wave of liberalization of the economy under Pres. Duterte where foreign business interests could be allowed as much as 100% ownership of Philippine lands and public utilities, among others. Although the Duterte administration has depicted the shift to federalism as the main motive behind Cha-cha, current efforts to rewrite the Constitution remain driven, as in the past, by the persistent push of American and other foreign lobby groups to further open up the economy.

While China is rising and cultivates an increasingly more prominent role in the Philippines and elsewhere, the US (along with Japan) remains a key player in the national economy. From 2007 to 2017, the US accounted for 24.1% of the cumulative net foreign direct investments (FDI) that flowed into the country, the second largest behind Japanese FDI.

During the said period, US net FDI flows totaled US$4.10 billion while Japan had US$4.36 billion (25.6%). European Union (EU) countries’ net FDI flows to the Philippines recorded US$1.46 billion (8.6%) while ASEAN members had US$1.38 billion (8.1%). China, on the other hand, posted a measly US$84.74 million or just 0.5% of the total. (Note: the figures exclude reinvestment of earnings and debt instruments where country breakdown data are not available, per the Bangko Sentral ng Pilipinas or BSP.)

Direct bilateral trade with the US remains significant at US$168.58 billion from 2006 to 2016 or 13.3% of total trade during the period (second largest behind Japan’s 14.4%), based on data generated from the World Bank’s World Integrated Trade Solution (WITS) online database. The US is the second largest foreign market for Philippine exports, accounting for 15.6% of total exports (behind Japan’s 18.5%) at US$88.95 billion, and second largest source of imports with 11.4% of total imports (behind China’s 11.8%) at US$79.63 billion.

American businesses operating in the Philippines are bullish about the country’s growth prospects and the potential to generate greater profits here as the Duterte administration and its economic manager remain firmly committed to liberalization. In the 2018 ASEAN Business Outlook Survey conducted by the US AmCham, 85% of Manila-based executives representing US firms anticipate increased profitability from their Philippine operations while 70% expect to expand their operations in the country in the coming years. (As cited here)

Talks of a US-Philippines FTA have long been floated by various American and Filipino trade officials but have not really taken off. Under former Pres. Barack Obama, the US had focused more on plurilateral or regional FTAs, especially the Trans-Pacific Partnership (TPP) of which the Philippines – despite the previous Aquino administration’s repeated expression of interest – never became a party to mainly due to foreign ownership restrictions in the 1987 Constitution.

PH bilateral FTA with US to have TPP elements

While Trump has abandoned the TPP and now prefers bilateral arrangements, it remains the standard with which the US will pursue bilateral FTAs including with the Philippines. As one trade official put it, a US-Philippines FTA must have the elements of the TPP as a “new age” FTA, which means that it should cover not just trade in goods but also services and international standards.

The Philippines TPP readiness assessment, a 2016 report backed by the US Chamber of Commerce (AmCham) and US Agency for International Development (USAID), identified key areas of policy reforms that the country must undertake to meet the TPP’s requirements. This report could serve as a useful guide in what the US could seek in its negotiations with Filipino trade officials on the planned bilateral FTA.

According to the report, while the Philippines “is already ‘TPP-ready’ in many key respects, pursuing TPP membership will demand… further significant adjustments in the policy environment, as embodied in administrative measures, laws, and the Constitution itself.” It noted that constitutional provisions restricting foreign ownership and participation in Philippine businesses is the biggest hurdle to our TPP accession.

These include, among others, the provision of national treatment obligations (i.e., foreign investors and investments must be given treatment no less favorable than what Filipino investors and investments enjoy) to trade partners that will require the Philippines to “revisit the current range of constitutional constraints relating to nationalized industries and service sectors, and adopt policy reforms in selected areas” namely mass media, private radio networks, advertising; natural resources or mining enterprises; land ownership; public utilities; and education and practice of professions.”

If Duterte’s Cha-cha pushes through, many of the US concerns – also annually reported as foreign trade barriers by the US Trade Representative (USTR) such as its 2018 report on the Philippines and other US trade partners – would be substantially addressed.

Federal charter for all-out liberalization

In the draft federal charter prepared by the Consultative Committee to Review the 1987 Constitution, the new Article XV on National Economy and Patrimony gives Congress the authority to change by law the constitutional requirements on the lease of alienable lands of the public domain supposedly “considering the general welfare of the people and the necessities of conservation, ecology, development and agrarian reform” (Section 3). Congress can reduce or even eliminate the constitutional limit on foreign ownership or control (pegged at 60% Filipino shares of stocks) of entities that can lease a maximum of 1,000 hectares for 25 years (renewable for another 25 years).

Another is on the exploration, development and utilization of natural resources (Section 4) which shall be a shared power of the federal and regional governments. While setting a minimum requirement of 60% Filipino-ownership or control of voting capital for entities with whom the federal or regional governments can have a co-production, joint venture or production-sharing agreements, Congress is again given the power to change by law the said voting capital requirement for the “federal and regional interest of the people, and thus theoretically allow up to 100% foreign ownership or control.

Meanwhile, ownership and management of mass media is reserved exclusively to Filipinos while the advertising industry is restricted to Filipinos owning at least 70% of the voting capital (Section 12) and educational institutions at 60% (Section 15). But similarly, these constitutional requirements can be changed (reduced or removed) by Congress through legislation supposedly for “public welfare and national security” although “for this purpose, such entities shall be managed by citizens of the Philippines”. In other words, such entities can be fully foreign owned although still managed by Filipinos.

For public utilities, the proposed charter (Section 13) states that Filipinos shall own at least 60% of voting capital of a public utility which can be operated through a franchise, certificate or authorization for 25 years (renewable for another 25 years). But like in mass media and advertising as well as educational institutions, Congress can modify the voting capital requirement (allow greater foreign control or ownership) provided that management will still be reserved to Filipinos.

It is also worth noting that Philippine telecommunications which is a particular concern for the US (as pointed out in its TPP readiness assessment) may be already liberalized even before Cha-cha is implemented through the ongoing amendment of the Public Service Act (also a priority legislation of the Duterte administration) that will limit public utilities to the transmission and distribution of electricity and waterworks and sewerage systems.

Duterte to implement long-standing US agenda

Other key provisions of the 1987 Constitution pertaining to preference for Filipino investments over foreign capital have been removed entirely in the proposed new charter of the consultative committee. Most notable is the current Section 10 of Article XII which states that: “The Congress shall… reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.”

Aside from economic sectors, the so-called federal charter is liberalizing as well the practice of all professions (Section 14) which while limited to Filipinos could be opened up to foreign professionals not just through federal law but also by “international agreements providing for reciprocity” (e.g., an FTA). This modification in the Constitution is consistent with the US push to open up to foreigners the practice of professions reserved to Filipinos as noted in the AmCham/USAID TPP readiness assessment of the Philippines (e.g. on nationality requirements for senior management position).

Beyond liberalization, however, is the greater protection for American investments that the US seeks in so-called 21stcentury FTAs such as the TPP. A bilateral FTA with the US thus will likely require an investor-state dispute settlement (ISDS) provision that affords US investors with full protection under international law and allows them to sue governments for failure to provide, fulfill or ensure such protection for American investments.

In the TPP, ISDS allows foreign investors to challenge a government’s “conduct, including expropriation measures, through binding arbitration and panel proceedings.” Related to this are national treatment and most favored nation obligations that may require constitutional and other policy reforms for the Philippines, with serious implications for the country’s national sovereignty and patrimony.

Cha-cha for greater liberalization of the economy and a bilateral FTA attest to the leading role that the US continues to play in shaping Philippine economic direction even amid the rise of China as a major actor in the country especially under the Duterte administration. The biggest irony is that these long-standing agenda of the US (expressed through many previous and present initiatives of the AmCham, USAID and other US institutions) may be finally realized under a President who vows a foreign policy supposedly independent from its neocolonial master. ###

Senate railroaded JPEPA, who’s surprised?

Voting 16-4, the Senate has railroaded Wednesday night the ratification of the JPEPA. The wicked scheme of Malacanang, Miriam Santiago and Mar Roxas was swift and was over in a matter of less than three hours. At 8:30pm, I received a text message from a Senate staff: “Nagbibilangan na dito. Gusto nila ipasa JPEPA tonight”. And at around 10:58pm, another text message came: “JPEPA has been approved on third reading. Pimentel, Aguino, Escudero and Madrigal voted no”.

The events that transpired at the Senate on Wednesday night, however, is not really surprising anymore. From the start, JPEPA has been shrouded in secrecy – it was negotiated by Malacanang away from public eye.  It was signed by GMA on the sidelines of a major international event in Finland. Civil society groups had to petition the Supreme Court just to force Malacanang to make public important documents about the JPEPA (which unfortunately the SC turned down, setting the precedent for more undemocratic and non-transparent negotiations on economic treaties in the future – at our expense, of course) That it was ratified by the Senate while the rest of the country is asleep is only a fitting conclusion to an agreement that has been kept away from public scrutiny.

This is not the first time that Congress, with apparent pressure from Malacanang and powerful lobby groups, has rushed the approval of an unpopular measure or initiative in the dead of the night. From impeachment complaints against GMA, to EPIRA and VAT, and now the JPEPA, legislators and Malacanang have the propensity to cloak their wicked plans against the Filipino people in the darkness of the night.

The press releases from Malacanang and JPEPA’s main proponents today are loaded with the expected sound bites. GMA was quoted as saying that the JPEPA will protect the country from the onslaught of the global economic recession – I guess GMA must hire new speech and PR writers to come up with more interesting and fresh sound bites, this is exactly what she has been saying to justify the VAT. Miriam, for her part, is denying that they railroaded the JPEPA. Inisahan na tayo, ginagawa pa tayong tanga.

But the fight is not yet over. One option is to file a petition before the Supreme Court to question the constitutionality of the JPEPA. Legal luminaries like former SC justice Feliciano, Prof. Dean Magallona and Prof. Harry Roque, among others have pointed out the constitutional defects of the treaty such as its provisions on foreign ownership and investment. We can pursue this option to stop JPEPA’s implementation. But like all government institutions, we can only expect a favorable ruling from the Supreme Court if we have a strong mass movement that will exert political pressure to defend the country’s patrimony and sovereignty.

Constitutional issues to determine alignments in Senate vote on the JPEPA

First published in Bulatlat.com, Vol. VIII No. 33, Sep 21-27, 2008

It has been more than two years now since President Gloria Arroyo and Japanese premier Junichiro Koizumi signed the Japan-Philippines Economic Partnership Agreement (JPEPA) in September 2006. But the controversial treaty remains pending in the Senate and despite many delays continues to face rough sailing at the upper chamber.

While the treaty’s sponsors, Senators Miriam Santiago and Mar Roxas, still have a lot to explain to their colleagues about the economic implications of the JPEPA, not to mention the still unresolved issues of toxic waste dumping and dubious gains for Filipino nurses and health workers, it seems that the issue of constitutionality will be the most contentious debate among the senators. Constitutionality has been emerging as a key factor that could determine alignments in the Senate once the JPEPA is put on vote.

Conditional concurrence and side agreement

Since the joint committees on foreign relations and trade and commerce, chaired respectively by Santiago and Roxas, closed public hearings in December 2007, the JPEPA has been hounded by questions on its constitutionality. Santiago, who has emphatically recognized the unconstitutionality of the JPEPA, has since insisted for a side agreement that will correct the constitutional flaws of the treaty. These legal infirmities pertain to the treaty’s investment provisions on national treatment, most favored nation (MFN) and prohibition of performance requirements.

By April 2008, the Department of Trade and Industry (DTI) and the Department of Foreign Affairs (DFA) have yet to convince their Japanese counterparts on a detailed side agreement that will amend the country’s unconstitutional obligations in the JPEPA. At that time, Santiago had started to push for what she called “conditional concurrence” wherein the Senate will ratify the JPEPA based on the condition that a side agreement revising the treaty will follow.

Conditional concurrence, however, was criticized by some of her colleagues, notably Senator Francis Escudero who pointed out that both the Constitution and the Vienna Convention on the Law of Treaties do not allow the Senate to issue a conditional concurrence on the JPEPA. More importantly, Malacañang knew that pushing for a conditional concurrence will put the Philippines in a position that could cause the Arroyo administration diplomatic embarrassment because Japan has remained adamant in its stance not to revise the JPEPA. For Japan, striking out the questioned investment provisions from the JPEPA will cancel the most important concessions that they got under the treaty.

Thus, DFA secretary Alberto Romulo had to ask Santiago to defer her scheduled April 28 sponsorship speech, when she was supposed to officially endorse conditional concurrence, and wait until the side agreement between the two governments has already been clinched. Negotiations for a side agreement continued but has not been produced until Congress took a break from its first regular session in June. JPEPA’s next opportunity to get Senate approval was further delayed to August when Congress resumes session.

During the congressional break, DTI secretary Peter Favila continued pursuing the detailed side agreement with Japan. Even Roxas flew to Tokyo in July and met with top Japanese trade and foreign affairs officials to help convince them on the need for a side deal so that the JPEPA could get pass the Senate. But Japan would not budge from its “no revision” position. By end-July, Santiago was forced to admit that the best they could get from Japan was a mere “general statement” of assurance that the JPEPA will not violate the Constitution instead of a detailed side agreement that effectively revises the country’s unconstitutional obligations in the treaty.

Exchange of notes

With the doors for a possible revision of the JPEPA effectively shut, Santiago is left with no option but to endorse concurrence on the treaty as it stands. Santiago, of course, is obliged to do this as a political payback to Arroyo’s nomination of her to the International Court of Justice (ICJ). But Santiago and the JPEPA proponents still need to package the sponsorship for concurrence as if the earlier conditions have been met to counter the anticipated opposition from the public and some senators.

It is in this context that Santiago, in her August 6 sponsorship speech on the JPEPA, said that she is now endorsing (unconditional) concurrence on the treaty because the Japanese have already agreed to an “exchange of notes” that will supposedly correct the constitutional defects of the JPEPA. The exchange of notes actually has not been produced and made public until September 1, which further delayed interpellations in the Senate as some lawmakers including Roxas wanted to see its contents before proceeding with the interpellations.

Only five pages, the actual document is composed of: (1) the diplomatic letter of Romulo to Japanese foreign minister Masahiko Koumura, dated August 22, identifying four major points of “shared understanding” between the Philippines and Japan and (2) Masahiko’s reply to Romulo, dated August 28, citing verbatim the points he raised and a statement confirming the shared understanding.

The first two points of the shared understanding refer to general statements pertaining to the parties’ commitment to respect each others’ national laws, including their constitutions; and to implement the JPEPA in accordance with each other’s respective charters.

Point number three, meanwhile, enumerates the provisions of the 1987 Constitution that the Philippines clarified shall not be amended by the JPEPA. These include provisions in Article II (Section 15), Article XII (Sections 1, 2, 3, 7, 8, 10-12 and 14), Article XIV (Sections 4 and 12), and Article XVI (Section 11). The provisions cover, among others, the protection of Filipino enterprises from unfair foreign competition; restrictions on foreign ownership of public lands and in the exploration and exploitation of natural resources; limitation to Filipinos of certain investment areas; preferential rights, privileges and concessions granted to Filipinos covering the national economy and patrimony; regulation of foreign investments; regulation of technology transfer and promotion; and the promotion of preferential use of Filipino labor, domestic materials, and locally produced goods.

A useless document

A closer look at the contents of the exchange of notes reveals that the document is useless in so far as ensuring that the JPEPA will not undermine the Constitution. It could have been a stronger and more binding document if it explicitly amended the questionable provisions of the JPEPA, as originally proposed by retired SC justice Florentino Feliciano who first raised the constitutional issues during one of last year’s Senate hearings.

In fact, the exchange of notes could be a Trojan Horse just awaiting the opportune time to attack. A closer look at point number four of the shared understanding reveals the hidden intentions of the document:

“4. The present exchange serves only to confirm the interpretation of and does not modify the rights and obligations of the Parties under the provisions of the JPEPA.” (emphasis added)

In other words, the unconstitutional provisions of the agreement remain and will still bind the Philippines once the JPEPA gets ratified. The exchange of notes did not resolve the constitutional issues but in effect just deferred the question to be tested by actual legal conflicts over the treaty’s implementation that may arise in the future. This places the Constitution under unnecessary duress because under the Vienna Convention on the Law of Treaties, the Philippines could not raise unconstitutionality for failure to comply with its JPEPA obligations.

Legal luminaries share the same observation. In a paper, former UP College of Law dean Professor Merlin Magallona described the exchange of notes as a derogation of the Constitution. Magallona wrote: “The essence of a treaty in international law is that it creates legal relations between the state parties, and the core of such relations consists of rights and obligations embodied in the meaning of the text of the treaty in question. For this reason, instead, the Exchange of Notes appears as reaffirmation of the legal relations between Japan and the Philippines in JPEPA and has the effect of reinforcing the intent to adhere to the rights and obligations as provided in JPEPA”.

Magallona also argued that if the Senate ratifies the JPEPA, there is a danger that the treaty will supersede the Constitution in application and settlement of disputes over JPEPA’s interpretation. “In case of incompatibility between JPEPA and the Constitution as an issue to be decided by an arbitral tribunal that may be created by the parties pursuant to JPEPA, that tribunal will apply JPEPA over and above the Constitution pursuant to the fundamental principle of the pacta sunt servanda and in accordance with the basic norm of international law that a party to a treaty cannot invoke its internal law, including its Constitution, as a justification for failure to perform its obligation under the treaty”, Magallona wrote.

Professor Harry Roque, also of the UP Law, meanwhile, belittled the exchange of notes as a scheme to appease domestic opposition to the JPEPA. “The reality is that in a treaty, neither of the parties can invoke a violation of its domestic law as a ground for its non-compliance therewith. In short, even if the JPEPA were to violate the Philippine Constitution, it will not affect its binding nature. Hence, the exchange of note is a superfluity”, Roque pointed out.

Both Magallona and Roque said that the remedy to the unconstitutionality of the JPEPA is not the exchange of notes but non-concurrence on the part of the Senate.

Emerging alignments

While Santiago claims that with the exchange of notes, the JPEPA could now breeze through the Senate and perhaps be finally ratified by October, the reality is that more and more senators are being convinced that the treaty is legally indefensible. Since the exchange of notes was made public, a bloc of senators has emerged pushing for a renegotiation of the JPEPA.

Among them is Senate majority floor leader Francis Pangilinan who said that despite the exchange of notes, JPEPA’s ratification is not assured because he thinks that it failed to cure the major defects of the treaty. He pushed for renegotiation as a “way out” of the debate over the pact. While Pangilinan is careful not to call the move a rejection of the treaty, a renegotiation will, in effect, mean Senate non-concurrence on the current JPEPA. As Santiago noted, “a call for renegotiation will effectively kill the treaty” and asked her colleagues to simply “love it or leave it”.

Senator Benigno Aquino III has already confirmed that he belongs to the renegotiation bloc while Senator Panfilo Lacson has also made public his proposal to renegotiate the treaty. Lacson shares the views that the exchange of notes “may be rejected by the Japanese Diet or could be questioned before an international court”. Unconfirmed reports also list Senators Jamby Madrigal and Antonio Trillanes IV as among those included in the renegotiation bloc although Madrigal has been consistent from the start on her opposition to the JPEPA.

While not reported listed in the renegotiation bloc, Senator Pia Cayetano has also been vocal since the onset about her serious misgivings on the JPEPA specifically on its environmental impact. In addition, reliable sources also disclosed that Escudero and minority floor leader Aquilino Pimentel Jr. will likely vote against the treaty or support the call for a renegotiation. Santiago, interestingly, has also named Senator Gringo Honasan as among those who want the JPEPA renegotiated although he has yet to make any public statement on this.

Thus, there is a fighting chance that the needed eight votes to block JPEPA’s ratification may be mustered as senators forge a consensus around the unconstitutionality of the JPEPA despite the exchange of notes. But nothing is certain at this point considering that the Japanese, according to Senate insiders, have been really aggressive in their lobbying efforts to get the JPEPA approved and unrevised. Also, the propensity of Malacañang to use all the (dirty) tricks in the book to push for its agenda must not be overlooked.

The challenge for anti-JPEPA advocates is to ensure that those who have already come out publicly against the JPEPA, whether for outright rejection or for renegotiation, will firm up their position. The exchange of notes must be further exposed to help convince the other senators who have not yet made up their mind on the treaty. Public pressure, through the combination of one-on-one dialogues and briefing with targeted senators and direct mass actions to pressure the Senate as an institution to vote against the JPEPA must be intensified. (END)

Jpepa faces tough constitutional issues as Senate vote nears

Part 1 of a two-part series

The Japan-Philippines Economic Partnership Agreement (Jpepa) is on top of the agenda of the Philippine Senate when it resumes from its Holy Week break on April 28. Senator Miriam Santiago, chair of the Senate committee on foreign relations, said she will release a full report endorsing “conditional concurrence” with the treaty.

Originally, the upper chamber was supposed to ratify the Jpepa before the Lenten break. But the Senate schedule on the treaty has been derailed by the alleged $329-million broadband corruption scandal. Since February, senators have been preoccupied with the inquiry on the anomalous broadband contract that caused renewed calls for Pres. Gloria Arroyo’s resignation or ouster.

Nonetheless, Filipino trade officials have been quietly but aggressively promoting the Jpepa through the media. The Japanese embassy has also become more insistent in its lobbying efforts for Jpepa’s ratification. But as the Senate vote on the treaty draws near, many fundamental issues remain unresolved. In fact, the proposed conditional concurrence of Santiago underscores the failure of the Jpepa to pass crucial constitutional issues.

If ratified, the Jpepa sets a dangerous precedent wherein treaties could be approved in spite of clear constitutional flaws. Worse, Jpepa ratification ignores the legitimate concerns brought up by fishers, workers, nurses, environmentalists, nationalists, and other cause-oriented groups. Beyond the constitutionality of the Jpepa, the bigger issues involve the treaty’s lasting impact on the livelihood of marginalized groups and the country’s economic sovereignty.

National treatment

Retired Supreme Court (SC) justice Florentino Feliciano raised several constitutional questions in one of the Senate’s hearings on the Jpepa last year. He pointed out that the Jpepa’s provisions granting national treatment to Japanese investors and prohibiting performance requirements violate the 1987 Constitution.

National treatment, which is contained in Article 89, means that Japanese investors and their investments will be treated like their Filipino counterparts. But this provision contradicts the ownership limits set by the Constitution. “It is common knowledge that entry into certain sectors of economic activity in our country is constitutionally restricted to Filipinos or to juridical persons at least 60% owned by Filipinos”, Feliciano said.

Government negotiators actually had the chance to hurdle such legal challenge. Article 94 of the treaty gives the Philippines an option to list all constitutional and legal provisions that do not conform to Article 89. But while the negotiators did exercise this option, they failed to provide a full account of such provisions. “The most dramatic example of omission”, observed Feliciano “is relating to the operation of public utilities”.

Article XII Section 11 of the Constitution requires a minimum of 60% Filipino ownership in public utilities. “If the Jpepa comes into effect, Japanese investors would be entitled to own more than 40% of a public utility. This would be a direct contravention of our Constitution”, Feliciano maintained.

There are other similar constitutional restrictions that were not listed by the negotiators in Article 94. They include limits relating to the practice of certain professions; ownership and administration of educational institutions; mass media; and advertising.

Performance requirements and future measures

Article 93, meanwhile, limits the authority of government to impose certain requirements on Japanese investments in the country. Government could not oblige Japanese investors to transfer technology, use a particular amount of local inputs in their production, and to hire Filipinos in certain positions, among others.

Feliciano cited Article XII Section 13 of the Constitution as inconsistent with Jpepa’s Article 93. This provision mandates the State to “promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures to make them competitive”.

A “more serious” constitutional law aspect of the Jpepa that the negotiators ignored, according to Feliciano, relates to the so-called “future non-conforming measures”. Article 94 of the treaty also gives the Philippines an option to list economic activities that the country may want to exclude from Article 89 in the future. However, what the negotiators listed are not reservations for future measures but existing non-conforming measures.

This could undermine Article XII Section 10 of the Constitution. The said provision mandates Congress to reserve to firms at least 60% owned by Filipinos certain areas of investments. Such investment may not be restricted today but “when the national interest dictates” could be restricted in the future.

On trade liberalization, Feliciano raised his concern on possible conflicts between the executive and legislative branches of government. Article 18 of the Jpepa requires the Philippines to eliminate tariffs on imported Japanese goods. “The power to set and modify tariff rates is fundamentally legislative in nature”, Feliciano said. “Although the Constitution (Article VI Section 28) allows Congress to delegate such authority to the President, it is still subject to limitations and restrictions”, maintained Feliciano.

Conditional concurrence

Other legal stalwarts who were not invited in the Senate hearings echo the observations of Feliciano. But while Feliciano proposes to amend the Jpepa to correct its constitutional flaws, they believe that such an option is not possible. Former SC chief justice Artemio Panganiban said that the treaty can no longer be renegotiated because the Japanese Diet already ratified it in December 2006.

“The best option is ‘conditional’ or ‘qualified’ ratification wherein the Senate ratifies the treaty but expresses reservation that the Constitution is superior over the Jpepa”, Panganiban said.

Santiago apparently took her cue from Feliciano’s analysis of the constitutional aspect of the Jpepa and Panganiban’s opinion on how the treaty can survive constitutional challenge. “It (Jpepa) will be declared unconstitutional by the Supreme Court. That is my humble opinion as a scholar of constitutional law”, Santiago admitted.

Note, however, that before pitching for conditional concurrence, Santiago first floated the idea of “exchange of diplomatic notes”. She called it a “side agreement” between Japan and the Philippines which will state that the Constitution shall prevail over the unconstitutional provisions of the treaty. Santiago initiated informal talks about the side deal with the Japanese embassy in Manila last December.

But three months later, Santiago has yet to produce the supposed side deal. Normally, a copy of such agreement is distributed to senators as in the case of the toxic waste issue. In May last year, the foreign affairs departments of Japan and the Philippines had an exchange of diplomatic notes wherein Japan promised not to export toxic wastes in the country under the Jpepa.

Did Santiago fail to convince the Japanese government to sign a side deal that states it will respect the Philippine Constitution in relation to the Jpepa? In her latest statement on the Jpepa, Santiago did not mention the side agreement.

“The Jpepa committee report will comprise at least four documents: the standard format with the signatures of nearly 23 senators who are members of the two committees; the draft Senate resolution setting out the conditions for concurrence; the report on constitutional and legal issues; and the report on trade and industry issues”, Santiago said when she announced the April 28 schedule on the Jpepa.

Will Japan accept it?

Because there is no bilateral side deal where Japan commits to abide by the Philippine Constitution, Santiago is now pushing for a unilateral conditional concurrence. But will Japan accept it? Santiago herself is uncertain. “I hope Japan will accept the conditions, without resubmitting the Jpepa to the Japanese Diet”, said Santiago.

The constitutional issues cited by Feliciano against the Jpepa’s provisions on national treatment and prohibition of performance requirements are non-negotiable for Japan. It defeats Japan’s primary purpose of using the treaty to further maximize its exploitation of the Philippines’ resources and markets. Considering that the country already has a highly liberalized trade sector, the true value of the Jpepa for the Japanese is the commitment of the Philippines to liberalize more investment areas.

But what is more dangerous is the gambit that Santiago is trying to play. Ratifying the Jpepa at its present unconstitutional form creates the risk that the Philippines will be subjected to legal disputes in international courts and face liability for damages. Under the Vienna Convention on the Law of Treaties, for instance, the Philippines could not invoke unconstitutionality as legal defense for non-performance of its Jpepa obligations.

Why not avoid these future complications and say “no deal!” now because the Jpepa patently violates the Constitution?

Most importantly, these restrictions were imposed by the framers of the Constitution because they protect the national patrimony and sovereignty. Thus, the debate should go beyond constitutionality but on how the Jpepa may undermine the country’s efforts in achieving industrialization and in strengthening its self-determination.

(To be concluded)

Part 2 of the series discusses the deeper issues of Philippine patrimony and sovereignty in relation to the Jpepa.