ON THE JAPAN-RP ECONOMIC PACT

ON THE JAPAN-RP ECONOMIC PACT
IBON Foundation
September 9, 2006


The upcoming Japan-Philippines Economic Partnership Agreement (JPEPA) will bring dubious gain to the local economy while severely limiting government’s policy options to develop domestic industries.

The agreement, which is reportedly set to be signed at the Asia-Europe Meeting in Helsinki, Finland on Sep. 10-11, 2006, has been under negotiation away from public scrutiny for the last four years. Officials provide few details but it is reported that the agreement will cut import tariffs on industrial goods by 90% within 10 years and provide concessions for Japanese direct investment in the domestic automobile and electronics industries.

The Philippines will abolish tariffs on at least 60% of its steel imports from Japan. Tariffs on Japan-made cars will also be fully eliminated in 2010. In exchange, Japan will lower tariffs on Philippine bananas and pineapples, while the Philippines removes tariffs on Japanese grapes and pears. Japan will also allow a year-on-year quota of some 200 Filipino nurses and caregivers. It had also been reported that the JPEPA would remove mutual restrictions on Japanese and Philippine investors, as well as prohibit performance requirements.

Both governments have already said that the agreement will be positive for both the Philippines and Japan in terms of trade and investment. However the JPEPA is actually an unequal agreement between unequal parties that, moreover, is biased for the more powerful Japanese economic interests. The biggest gainers are Japanese investors who will keep setting up export enclaves in the Philippines that are unintegrated with the domestic economy. They will continue to import most of their inputs and components, exploit fiscal incentives, stifle workers’ rights to organize, and hire labor as cheap as they can get. The Philippines will also be foregoing millions in dollars in tariff revenues from Japanese imports.

Japan and the Philippines are such grossly unequal economies that nominally equal terms can never mean a “level playing field”. The Japanese economy (US$4.4 trillion GNI in 2004) is 50 times larger than the Philippines’ and its GDP per capita is 35 times larger. Japan accounts for some one-third of foreign investments (with a cumulative US$3.5 billion in Japanese investments 2003) in the Philippines and one-fifth of its external trade (with US$14.2 billion in total Japan-Philippines trade in 2004). And yet, for instance, the country’s domestic industrial base has continued to deteriorate despite the majority of Japanese investments being in the manufacturing sector.

The Philippine government is surrendering policy tools under the JPEPA that, ironically, Japan itself used heavily. The Japanese government greatly protected its domestic industries from the late 19th century until the early 1980s. Japan’s industrial might in cars, trucks, shipbuilding, computers and consumer electronics was built up in through almost a century of sustained intervention and protection, especially in their early stages. Average weighted industrial tariffs reached as high as 30-40 percent. The Japanese government required technology transfers from US, French and UK investors, or brazenly pirated technology through so-called “reverse engineering”. Government agencies were obliged to procure goods and services strictly from Japanese firms. Japanese technological and productive capacity would not have developed if not for these many decades of active state support.

The far-reaching JPEPA is also the dangerous first step towards complete government renunciation of developing the Philippine economy. What little public information there is about JPEPA indicates about a dozen areas for liberalization that collectively go far beyond anything proposed even in the currently dormant World Trade Organization (WTO). These include: the elimination or reduction of tariffs on industrial products and agriculture, forestry and fishery products; liberalization of services sectors such as construction, outsourcing, air transport, health related and social services, tourism and travel-related services, maritime transport services, telecommunications and banking; national treatment, MFN Treatment and performance requirement prohibitions; and supposedly easier entry of qualified Filipino nurses and certified caregivers.

The JPEPA also includes various provisions on: Government Procurement, Competition Policy, Intellectual Property, Dispute Avoidance and Settlement, Improvement of the Business Environment, Mutual Recognition and Bilateral Cooperation.

As the country’s first full-fledged bilateral free trade agreement (FTA), the benchmark it sets for liberalization will determine the shape of all FTAs to come. If the Philippine government sets high trade and investment liberalization standards in JPEPA then it will be obliged to also give these to partners in subsequent FTAs lest it be accused of discrimination. The country’s negotiating position in all subsequent trade and investment agreements will be gravely undermined. The end result of the JPEPA and other such agreements will be to shut the door to real domestic industrial growth and economic progress.

The government is also treating our health professionals and caregivers as mere commodities when it touts the “quotas” supposedly being given by Japan for these jobs as a good thing. The reality is that these mostly women health workers and caregivers will bear the burden of overcoming formidable language, certification and even racist and patriarchal barriers. Because of its desperation for quick sources of foreign exchange, the Philippine government is placing the burden on the cheap export of skilled Filipinos. It should instead focus on creating the strong domestic economy that will create opportunities for Filipinos at home.

The Philippine government affirms its commitment to the destructive policies of neoliberal globalization. Instead of using the collapse of the WTO Doha Round talks as an opportunity to rethink its commitment to neoliberal globalization, it is giving up its sovereignty piecemeal on a country-by-country basis through bilateral and regional economic agreements.

Japan, on the other hand, makes further headway in consolidating Southeast Asia as a source of cheap agricultural, mineral and other raw materials for Japan as well as a captive market for Japanese industrial goods. Aside from the Philippines, Japan has already signed or is negotiating FTAs with Singapore, Malaysia, Indonesia, Brunei and Vietnam. #