NOTES ON JPEPA AND ITS IMPLICATIONS ON AGRARIAN REFORM[1]

The Japan-Philippine Economic Partnership Agreement (JPEPA) has been the subject of much debate and controversy in light of valid concerns raised by civil society organizations and various other stakeholders on the disastrous effects of the Agreement on Philippine interests.

Little however has been said on the impact of the JPEPA on the agrarian reform program in the country, as embodied by Republic Act 6657, or the Comprehensive Agrarian Reform Law (CARL). This despite the fact, that the provisions of the Agreement and its Annexes have repercussions on the rural development agenda in general, and the agrarian reform program, in particular.

The Senate Committee on Foreign Relations has concluded its third public hearing[2] on the JPEPA and, still, the government panel has yet to present any real merit to the Philippine government’s signing of the treaty. The government’s presentation has, to date, fatefully bannered purported economic benefits for the Philippines through increased Japanese investment. More importantly, the government panel does not seem to realize that the JPEPA’s provisions adversely impact on the Philippines’ rural development and agrarian reform goals.

_____________________________________________________________

Pursuant to Article 89 of the JPEPA Basic Agreement, the Philippines has to accord “national treatment” to Japanese investors and to their investments. This means that our country’s treatment of said investors and investments shall be no less favorable than what Philippines accords to its own investors and to their investments with respect to the “establishment, acquisition, expansion, management, operation, maintenance, use, possession, liquidation, sale, or other disposition of investments.” Similarly, Japan shall accord such treatment to Philippine investors and their investments.

Under Article 94 of the Agreement, the obligation to give such national treatment to investors and their investments shall not apply to areas wherein a Party has made specific “reservations.” By way of definition, a reservation is a “unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting or acceding to a treaty, whereby it purports to exclude or modify the legal effect of certain provisions of the treaty in their application to that State” (Vienna Convention on the Law of Treaties, Article 2).

A review of the Philippine reservations in the JPEPA clearly shows that our negotiations have failed to uphold the goals of agrarian reform to the detriment of the small farmers and farm workers of the country.

1. On Ownership of Private Lands by Japanese Investors

Article 88(b) of the JPEPA Basic Agreement includes “tangible immovable property,” in its enumeration of covered investments. Land falls under this definition. Pursuant to the provisions of the JPEPA, the Philippines has the obligation to extend national treatment to Japanese investors in matters relating to private land ownership.

Under our Constitution, ownership of private lands are allowed only to Filipino citizens and to corporations at least 60% of whose capital is owned by such citizens (Section 7, Article XII, 1987 Constitution). In this regard, the Philippines incorporated a reservation on private land ownership citing Article XII of the Constitution.[3]

This reservation, however, is limited only to the manufacturing sector. It must be noted that the rule in the Constitution applies to ALL sectors. Found below is a snapshot of the actual page of the JPEPA that contains reservations as regards land ownership.

By limiting the reservation only to lands that will be used for purposes of manufacturing, does the Agreement have the effect of opening up to foreign ownership other lands that would be used for other purposes including agriculture? Would there no longer be any need to comply with the 60-40 requirement for these lands?

The gross deficiency in this reservation is made more apparent by the fact that the Philippine reservation for “water rights,” citing the Water Code of the Philippines(PD No. 1067) is made to apply for ALL SECTORS.[4] It is therefore alarming that the constitutionally enshrined rule on land ownership is limited only to the manufacturing sector.

2. On the Lease of Private Lands to a Japanese Investor

a. The Philippine government has put in place a reservation restricting the lease of private lands to a foreign investor pursuant to the restrictions imposed by RA 7652 or the Investors’ Lease Act[5]. No mention was made however on the restrictions imposed by RA 6657, or the CARL.

In essence, our agrarian law views agri-business arrangements and lease agreements over CLOA lands with a healthy level of skepticism. It provides a wide array of protections and guarantees to ensure that farmer-beneficiaries are not taken advantage of, that these agreements are but interim measures and that the end goal is actual and physical cultivation of land by the farmers. By not specifically mentioning the CARL and relying only on the scant protections of RA 7652, the tenurial interests of the farmers are rendered vulnerable.

The welfare of agrarian reform beneficiaries (ARBs) and our government’s agrarian program beneficiary development goals are particularly weakened with our consent to certain items of the provision on “Prohibition of Performance Requirements.” Under Article 93 of the JPEPA, Philippinesand Japanagreed that neither party (country) shall impose or enforce, as a condition for investment activities in its area, any of the requirements listed therein. These include: (a) the requirement to hire a given level of the nationals of the country where the investment is to be established [6]; (b) the requirement to transfer technology, a production process or other proprietary knowledge to a person in the area of the party or country where the investment is made[7]; and (c) to achieve a given level or value of research in the said area of the party.[8] These provisions run counter to a number of specific protections guaranteed by our own rules to agrarian reform beneficiaries whose lands may be the subject of a lease agreement with the capital investor as the lessee.[9] For instance, Department of Agrarian Reform (DAR) Administrative Order No. 9, Series of 2006 provides that: (a) as a general rule, agri-business arrangements shall provide for the participation of ARBs in farm management operations and shall include a human resources development plan or program aimed at management and capability-building and transfer of technology to ARBs and hastening their development into rural entrepreneurs (Item 4.18, Section 4); and (b) the lessee/ investor shall give priority to qualified and willing ARBs and their dependents for employment in the enterprise(Item 5.3.8, Section 5).

Accordingly, by virtue of Article 93 of the JPEPA on “Prohibition of Performance Requirements,” as discussed above, and the failure on the part of our government panel to make reservations meant to exclude the application of the cited items in said section to the case of leases of ARB lands, neither the ARBs nor the government would have any basis to assert the inclusion of priority employment or transfer of technology provisions or stipulations favoring the ARBs in the pertinent lease agreement/s.

b. It must also be noted, that as wanting as it already is, this reservation pertaining to the Investors’ Lease Act is deficient in that the description of the reservation recites only a portion of the restrictions of the cited law. While the measure for which the reservation was made lists Sections 3 and 4 of RA No. 7652, the description only pertains to a portion of Section 4 of the law. In particular, Section 4 of RA No. 7652 reads:

“ Sec. 4. Coverage. — Any foreign investor investing in thePhilippinesshall be allowed to lease private lands in accordance with the laws of the Republic of thePhilippinessubject to the following conditions:

(1) No lease contract shall be for a period exceeding fifty (50) years, renewable once for a period of not more than twenty- five (25) years;

(2) The leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties;

(3) The leased premises shall comprise such area as may reasonably be required for the purpose of the investment subject however to the Comprehensive Agrarian Reform Law and the Local Government Code.

xxx.”

However, in the Descriptions portion of the reservation, only two conditions appear, the first being item no. (1) of Section 4 (pertaining to the period of the lease) of RA 7652.

The second condition states that “foreign investors shall commence the operation of the investment projects within 3 years from the date of the approval of lease contract and continue to operate during the periods of lease contract.” The problem with this second condition is that it is not even part of Section 3 nor of Section 4 of RA 7652 (which are supposed to be the measures for which the reservation is made). At any rate, the more critical concern is the fact that the Description of the “reserved measure” entirely omitted item no. 2 of Section 4 of RA No. 7652 pertaining to the exclusive use of the leased premises for the agreed investment and, more importantly, item 3 of the same section, which made the area of the premises to be leased subject to pertinent provisions of the Comprehensive Agrarian Reform Law and the Local Government Code.

Whether or not all the conditions of Sections 3 and 4 of RA No. 7652 will operate as exceptions to the national treatment obligation, the fact is that the defective description of the reservation lends a lot of confusion and/or ambiguities on the extent of the reservation made.

c. It is also apparent, that by mentioning only Sections 3 and 4 of RA No. 7652, many other reasonable measures in the said law that works to safeguard Philippine interests were waived by our government negotiators. These measures include those contained in Sections 5 (captioned “Limitations”) and Section 6 of the law, as follows:

“RA No. 7652 — Sec. 5. Limitations. — (1) Foreign individuals, corporations, associations, or partnerships not otherwise investing in the Philippines as defined herein shall continue to be covered by Presidential Decree No. 471 and other existing laws in lease of lands to foreigners.

(2) Withdrawal of the approved investment in the Philippines within the period of the lease agreement entered into under this Act, or use of the leased area for the purpose other than that authorized, shall warrant the ipso facto termination of the lease agreement without prejudice to the right of the lessor to be compensated for the damages he may have suffered thereby.

(3) Any lease agreement under this Act which is renewable at the option of the lessee subject to the same terms and conditions of the original contract shall be interpreted to mean as renewable upon the mutual agreement of the parties.

(4) In addition to the conditions for the renewal of a lease agreement after the period of fifty (50) years as provided herein, the foreign lease shall show that it has made social and economic contributions to the country.

(5) In the case of tourism projects, lease of private lands by foreign investors qualified herein shall be limited to projects with an investment of not less than five million (5M) US dollars, seventy percent (70%) of which shall be infused in said project within three years from the signing of the lease contract.”

“ Sec. 6. Termination of Lease Contract. — The Secretary of Trade and Industry shall terminate any lease contract entered into under the provisions of this Act, if the investment project is not initiated within three (3) years from the signing of the lease contract.”

3. On the Reservation Relating to the Lease of Public Lands

Reservation item no. 2 of the Philippine Schedule of Reservations for Future Measures (Schedule 2.b of JPEPA Annex 7) reads, as follows:

“2

Sector:

Agriculture

Sub-Sector:

Lease of Public Lands (Agricultural and foreshore lands)

Industry Classification:

Type of Reservation:

National Treatment (Article 89)

Measures:

The Constitution of the Republic of the Philippines, Article XII

Description:

For corporations, associations or partnerships with maximum of 40 percent foreign equity, lease of agricultural and foreshore lands covering an area not exceeding 1,000 hectares is allowed for a period of 25 years, renewable for another 25 years, or a maximum of 50 years.”

We find the reservation to be insufficient and defective for the following reasons:

a. The reservation for public lands is insufficient. It only incorporates, albeit partially, Philippine Constitutional provisions that impose citizenship requirements in relation to the leases of lands of the public domain. It does not explain how CARPable lands shall be dealt with, a valid concern considering that all agricultural lands, whether public or private are subject to the government’s agrarian reform program.

  1. While it apparently intends to affirm constitutional provisions limiting to Filipino citizens and corporations with 60% Filipino capital the opportunity to lease public lands, the reservation is made only with respect to the sector of “Agriculture.” This could only interpreted to mean, that if the purpose for or nature of the investment does not involve agriculture, then this particular reservation could not be invoked by the Philippines even as we have to comply with our obligation to accord national treatment to the Japanese investor seeking to invest in non-agricultural ventures (such as manufacturing or tourism). In this case, the Japanese investor (either an individual investor or a corporation with a foreign equity of more than 40%) becomes qualified to lease public lands. This scenario is disallowed by our Constitution.

c. The reservation under discussion also pertains to the lease of “foreshore lands.” Considering the national treatment provision alongside this reservation, the rule appears to be, that corporations, partnerships, and associations with a minimum of sixty (60) per centum Filipino equity, may lease up to 1,000 hectares of foreshore land. Conversely, corporations with more than 40% Japanese equity may not so lease Philippine foreshore lands pursuant to this particular reservation. That only corporations or associations with a minimum of 60% Filipino equity could lease foreshore lands is consistent with the provisions of our Constitution.

However, the reservation is made only with respect to the Agriculture sector such that it is likely to be interpreted as restricting leases of foreshore lands to Filipino corporations/ associations only when the same will be used for investments involving agriculture and not for investments in other areas or sectors (e.g. tourism). In this regard, there is a departure from pertinent Constitutional provisions that require a minimum of 60% Filipino equity in corporations before said entities may qualify to lease public land, and where the restriction is across-the board or not limited to a particular sector.

  1. The reservation under discussion also creates confusion in our domestic rules on leases of foreshore lands. Currently, Department of Environment and Natural Resources (DENR) Department Administrative Order (DAO) No. 34, Series of 1999 limits to 144 hectares, the area of foreshore lands that may be leased to a qualified person, corporation, association or partnership. On the other hand, the reservation in the JPEPA indicates that qualified individuals, corporations or associations may lease up to 1,000 hectares each. The same represents a massive increase in the area of Philippine foreshore lands that may be leased by any single qualified individual or entity. And it may be even be argued, in this connection, that if treaties have the binding effect of law, then the inconsistent provision in the cited DAO will be superseded by the subject treaty provisions.

Accordingly, far from imposing an effective restriction, the reservation on foreshore lands becomes a potent concession that liberally opens up extensive areas of our foreshore lands to appropriation, through lease, by fewer capital-rich private individuals, corporations, partnerships and associations. Our foreshore lands will effectively no longer be “xxx held in trust for the benefit of the public” as held by the Supreme Court in the case of Kock Wing vs. Philippine Railway Co.[10] The increase in the area that may be leased is further aggravated by the fact that the limited reservation holds true against corporate investors with more than 40% Japanese equity only when the lease relates to investments in agriculture.

e. It should also be pointed out that, at a glance, the text of the Description of the subject reservation (see above), seems to indicate that our Constitution explicitly allows the lease of foreshore lands to private persons or entities to the extent of a maximum of 1,000 hectares. This is erroneous. What has been explicitly provided for under the 1987 Constitution is the lease of alienable lands of the public domain,[11] with 1,000 hectares being the maximum area that may be leased by qualified private corporations or associations (and 500 hectares as the maximum area that may be leased by citizens of the Philippines).[12] It is therefore a textual error to equate agricultural lands with foreshore lands.

It must be noted that Part 2 of Annex 7 of the JPEPA – wherein the reservation relative to the lease of public lands (including foreshore lands) is listed – states, that in the interpretation of Reservations for Future Measures, all elements of the reservation shall be considered even as the “Description” element shall prevail over all other elements. The Descriptions portion of the reservations should have been more detailed and accurate so as not to jeopardize legitimate interests of the country, especially those that are deemed so crucial that no less than Constitutional protections therefor have been set up.

A Call to Action

We cannot let the agrarian reform program be undermined even further by pernicious free trade agreements laden with sugarcoated promises. The agrarian reform community must intensify its participation in the collective clamor of civil society organizations opposing JPEPA.//



[1] Prepared by the Land Rights-ARRD and the Economic Rights Units of the Initiatives for Dialogue and Empowerment through Alternative Legal Services (IDEALS), Inc.

[2] The third hearing was conducted on 27 September 2007.

[3] Reservation No. 3 of the Philippine Schedule of Reservations for Existing Measures (Part 1), Annex 7, JPEPA, p. 873

[4] Reservation No. 2 of the Philippine Schedule of Reservations for Existing Measures (Part 1), Annex 7, JPEPA, p. 872

[5] Reservation No. 16 of the Philippine Schedule of Reservations for Existing Measures (Part 1), Annex 7, JPEPA, p. 889

[6] Item (g), Section 93, JPEPA

[7] Item (h), Section 93, JPEPA

[8] Item (j), Section 93, JPEPA

[9] See Department of Agrarian Reform Administrative Order No. 9, Series of 2006

[10] February 14, 1930. G.R. No. L-31662

[11] Section 3, Article 12, 1987 Constitution

[12] Philippine Constitution, Article XII – Section 3. – “Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant. xxx”

AR Dialogues No. 8-07 / 1 October 2007

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