JPEPA: A case of ‘giving away everything but getting nothing’

INDEPENDENT consultant Edna Espos offers her own critique of the controversial Japan-Philippines Economic Partnership Agreement (JPEPA), giving senators yet more reasons why they should not ratify the proposed treaty many of whose provisions have already been established to be constitutionally infirm.

Espos, a trade policy expert and former trade negotiator and director of the Department of Trade and Industry’s Bureau of International Trade Relations, focuses her critique on the trade value of the agreement to the country. Her conclusion: “We gave away everything but got nothing.”

Read Espos’s paper, “JPEPA: How Not to Negotiate an Economic Agreement.”

Espos says she had to read the agreement and its annexes page by page after watching the “labored response” of Trade Secretary Peter Favila and Undersecretary Thomas Aquino (the chief negotiator of the Philippine panel) to questions raised by senators during the hearings on the JPEPA.

Philippine negotiators, she says, clearly forgot the four cardinal rules of negotiations, which she enumerated as follows:

• Know yourself (your musts and wants, your laws and economic policy, your industries, what you can and cannot sell back in Manila);

• Know your opponent (what buttons to press, every inch of its economic policy, what it can and cannot sell back in Tokyo);

• Never give away anything for nothing; and,

• No deal is always better than a bad deal.

Taking Senator Mar Roxas’s established two tests — Did we achieve our negotiating objectives? Did we gain more than we gave up? — to measure the success of the JPEPA, Espos also says the answers are a “resounding no.”

Because our negotiators wanted to gain market access for Philippine exports to Japan, Espos says they drastically eliminated tariffs across the board under JPEPA, exempting only six tariff lines for rice and salt and negotiated on issues that they would not even do so under the World Trade Organization (WTO).

Espos primarily cites the removal of the protection provided to the country’s agriculture sector by Republic Act 8178 (the agriculture tariffication law), thereby committing the Philippines to provide duty-free entry on the most sensitive products (those previously subject to import quota but are imposed tariffs and covered by Minimum Access Volumes under our WTO concessions).

Pointing out the inequity in the agreement, Espos says Japan did not even reciprocate our gesture and instead excluded from the coverage of JPEPA at least 197 tariff lines, constituting mainly agricultural and marine products for which the Philippines has competitive advantage.

For instance, of 114 tariff lines for fish products in the Philippines’s JPEPA schedule, 46 will enjoy duty-free treatment from year 1 while the remaining 68 are subject to phased tariff removal. Compare that to Japan’s schedule where of 200 tariff lines for fish products, 59 are forever excluded from duty-free treatment; 15 are for deferred market access negotiations; 72 for phased tariff removal; and 25 duty-free from year 1.

Espos adds that Japan maintained protection for agricultural products where the Philippines does not pose a threat to its domestic industry such as dairy produce, oranges and shiitake mushrooms. On the other hand, our non-sensitive agricultural products like bananas will have to wait five or 10 years before these are finally declared duty-free.

* Applied MFN tariffs based on Japan’s WTO Schedule of Commitments
MFN stands for “most-favored-nation.” The MFN rate is the uniform tariff rate that is accorded by the Philippines to all its other trading partners.

The long list of Japanese exclusions, long-term phase out of tariffs, and deferred market negotiations under JPEPA severely restricted agricultural gains by the Philippines under JPEPA, says Espos.

The case is also true with the industrial sector as the country, Espos says, gave duty-free entry from year 1 to a “very long list of industrial products such as garments, refrigerators, air conditioners, dishwashers.”

Though she grants that the government’s rationale for this could be that the country loses nothing since such products are not being imported from Japan anyway, Espos argues that this weakens our position in future negotiations. “On the contrary, they are worth something in future negotiations with other partners — either in similar economic partnership agreements or with individual investors but are now devalued because we already gave them away to Japan.”

Moreover, Espos says that instead of buying time for our priority domestic industries by excluding them from, or, by deferring market access negotiations under the JPEPA, our negotiators already committed to phase out their tariffs, many from year 1.

“Among those we gave away are automotive vehicles and their parts,” she says, noting how this impacts on government’s efforts at wooing non-Japanese investors — enticing them no less with generous fiscal incentives — to put up a manufacturing/export base in the country.

As for the purported easier market access for electronics, furniture, and automotive parts under JPEPA, Espos says this is not entirely true. Industrial products, she says, already enjoy very low tariffs in Japan. “Most like electronics and furniture are duty-free, hence, duty-free entry under the JPEPA has no added value.”

Espos also points out that Philippine garments and footwear exporters cannot take advantage of the duty-free provision under JPEPA because their raw materials do not comply with JPEPA’s rules of origin (ROO). These are still subject to tariffs above five percent ad valorem since their raw materials (such as fabrics) are imported — or are not originating — from countries other than the ASEAN (Association of Southeast Asian Nations) or Japan.

Considering the economic asymmetry between the Philippines and Japan, Espos claims that our negotiators evidently never “pressed hard enough for Special and Differential treatment which is our due…It could have gotten us a better deal than what we ended up with.”

As for the claims by DTI and the Philippine Institute for Development Studies (PIDS) of hundreds of millions of dollars in Japanese investments and economic benefits for the country with the signing of the JPEPA, Espos only has doubts, even criticizing DTI for “again counting the chickens before the eggs are laid.”

PIDS, she says, should revalidate its pre-JPEPA projections against the actual concessions obtained by the Philippines from the negotiations in terms of the depth, scope, timing of tariff and tariff concessions, and the rules of origin.

“An Agreement that cannot stand up on its own and has to be propped up by promises and threats of reward or punishment is suspect,” says Espos.

She believes the supposed huge investments could be nothing more than ‘pie in the sky’ since the JPEPA does not solve the reasons for the “lukewarm attitude of Japanese investors towards us — inadequate infrastructure, underdeveloped legal system, etc.”