LAND RIGHTS AND AGRARIAN REFORM CONCERNS RELATIVE TO THE JPEPA[1]

On October 4, 2007, the Philippine Senate is set to conduct its fourth hearing on the Japan-Philippines Economic Partnership Agreement – a bilateral preferential trade treaty that seeks to barriers to the trade of goods and services between the two countries. In the past three hearings, the pro-JPEPA government panel has consistently failed to present any real merits of the treaty even as its constant references to expected economic benefits for the Philippines through increased Japanese investment has remained largely unsupported.

At this juncture, apart from the said government panel’s failure to articulate arguments in support of the subject treaty, we raise the following concerns relative to the land rights and agrarian reform in relation to pertinent provisions of the JPEPA:

1. On Ownership of Private Lands by Japanese Investors — Pertinent JPEPA provisions pose the danger of private land ownership being opened up to foreign investors, in violation of the provisions of the Constitution that limits to Filipino citizens or to corporations at least 60% of whose capital is owned by such citizens (Section 7, Article XII, 1987 Constitution).

Pursuant to Article 89 of the JPEPA, the Philippines is under obligation to accord “national treatment” to Japanese investors and to their investments in our country – particularly with respect to said investments’ establishment, acquisition, expansion, management, operation, maintenance, use, possession, liquidation, sale, or other disposition. In general, this means that Philippines must treat Japanese investors and their investments as we treat Filipino investors and investments here. This obligation is restricted or qualified only to the extent provided under “reservations” specifically made with respect to pertinent areas/ sectors of investment.

Article 88 (b) of the JPEPA Basic Agreement defines “investments” to be “every kind of asset owned or controlled, directly or indirectly, by the investor of a Party,” including — immovable property – and any related property rights. Accordingly, land falls in the definition of “investments.” And, as a rule, in accordance with the “national treatment” provision in investments provisions of the JPEPA, the Philippines has the obligation to extend national treatment to Japanese investors and investments in matters relating to land ownership.

Under our Constitution, only Filipino citizens or corporations at least 60% of whose capital is owned by such citizens may own private lands.[2] In general, giving national treatment to Japanese investors (citizens and corporations with more than 40% Japanese equity) would make them qualify to own private lands here. 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”, when the constitutional provision it cites is across-the-board and is not limited to one particular sector. 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 weakness of this reservation is made more apparent by the fact that the Philippinesmade a rather comprehensive reservation for “water rights,” citing the Water Code of the Philippines(PD No. 1067) as the measure for or on which basis the reservation is made.[4] In regard to water rights, the reservation is made for “all sectors.”[5] 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 Japanese Investors

a. The Philippine government reservation in relation to the lease of private lands to a foreign investor is deficient. While it asserts certain conditions based on RA 7652 or the Investors’ Lease Act,[6] no mention was made on the restrictions imposed by RA 6657, or the CARL, rendering the tenurial interests of the farmers more vulnerable than it already is.

More particularly, the welfare of agrarian reform beneficiaries (ARBs) and our government’s agrarian program beneficiary development goals are weakened by the “Prohibition of Performance Requirements” provision embodied in Article 93 of the JPEPA. In essence, this provision pertains to the agreement that neither the Philippines nor Japan shall impose or enforce, as a condition for investment activities in its area, any of the requirements listed therein, including: (a) the requirement to hire a given level of the nationals of the country where the investment is to be established [7]; (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[8]; and (c) to achieve a given level or value of research in the said area of the party.[9] The provision negates 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.[10] For instance, Department of Agrarian Reform (DAR) Administrative Order No. 9, Series of 2006 provides that: (a) agri-business arrangements (including leases) 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). Unfortunately, by virtue of Article 93 of the JPEPA and our government panel’s failure to make pertinent reservations, 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. The reservation pertaining to the Investors’ Lease Act is deficient. While the measures cited are Sections 3 and 4 of RA No. 7652, the description only pertains to a portion of Section 4 of the law.

In the Description of the Reservation, the only matters stated are: (1) that “no lease contract shall be for a period exceeding 50 years, renewable once for a period of not more than 25 years; and (2) 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.”

We note however that Section 4 of RA No. 7652 states two other conditions on leases of lands by a foreign investor, both of which did not find their way into the text of the description of the reservation. These are: (1) that the leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties; and (2) that 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.

The second condition stated in the Reservation that “foreign investors shall commence the operation of the investment projects within 3 years from the date of the approval of lease contract xxx” is also problematic as the same 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 the condition in Section 4 of RA No. 7652 pertaining to the exclusive use of the leased premises for the agreed investment and, more importantly, the item which subjects the area of the premises to be leased to the 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 defective description of the reservation lends a lot of confusion on the extent of the reservation made.

c. 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 are:

“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:

  1. The Reservation only pertains to Philippine Constitutional provisions imposing 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.
  2. 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.” Thus, if the purpose for or nature of the investment does not involve agriculture, then the reservation could not be invoked by the Philippines even as we have 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.
  3. 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.[11] 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.

2. 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 pertains to the lease of alienable lands of the public domain,[12] 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).[13] 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] Condensed version of IDEALS’ AR DIALOGUES issue entitled “NOTES ON JPEPA AND ITS IMPLICATIONS ON AGRARIAN REFORM” released 1 October 2007

[2] Section 7, Article XII, 1987 Constitution

[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] The measure “reserved” is our domestic law’s prescription (contained in PD No. 1067) that “Water Rights” is the privilege granted by the government to appropriate and use water, and that only citizens of the Philippines, of legal age, as well as juridical persons, who are duly qualified by law to exploit and develop water resources, may apply for water permits.

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

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

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

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

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

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

[12] Section 3, Article 12, 1987 Constitution

[13] 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 thePhilippines 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. 9-07 / October 3, 2007

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