p>I. What is the Congress’ role in relation to international trade agreements?

The formulation of policies in relation to national economy, commerce, and development, whether these be purely domestic in application or international, is a shared duty of all three branches of the Philippine government.

However, recent experience has shown that when it comes to international trade agreements, the role of Congress is slowly being eroded. The Senate is now limited to the exercise of its power of concurrence pursuant to Article VI, section 21: No treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the Members of the Senate. The House of Representatives, on the other hand, has virtually no more input to the decisions of the Executive Branch as regards commitments made in international trade agreements. In fact, for the Japan-Philippines Economic Partnership Agreement (JPEPA), members of the House were continuously ignored in their request for a copy of the text of the JPEPA; the situation became so acute that members of the House were even forced to file a case in the Supreme Court just to get a copy of the treaty.

It is time to put a stop to the continuing and consistent erosion of the role of the legislature in decisions relating to national policies and commitments made in international trade agreements. Congress must re-assert its long-ignored power to participate effectively in policy formulations, especially those that relate to our relations with other nations, which, more importantly, would affect the welfare of the Filipino people.

Recent free trade agreements cover issues that are within the powers of Congress to regulate, pursuant to the provisions of the Constitution. Many of these issues are, in fact, within the exclusive power of Congress to legislate.

Because of the depth of Philippine commitments, it is therefore constitutionally repugnant for the Executive Branch to monopolize the power to formulate the positions and policies that will be promoted and asserted in these free trade agreements. Based on the Philippines’ own existing agreements[1] with other countries, these commitments include, among others, the commitment to:

  • eliminate tariffs for substantially all goods, both agricultural and industrial

-> in relation to Article VII, section 28 (2): The Congress may, by law, authorize the President to fix within specified limitations, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.

->in relation to Article VII, section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose and concur with amendments.

  • treat certain types of taxation measures as expropriation[2] which would then require the Philippine government to compensate foreign investors if such measure will amount to an expropriation

->in relation to Article VII, section 28: (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

->in relation to Article VII, section 28: (4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

  • liberalize certain sectors of the Philippine economy, in relation to allowable foreign participation.

->in relation to Article XII, section 10: The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporation 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.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.

The State shall regulate and exercise the authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.

restrict the law-making powers of the Philippine Congress and to require Congress not to pass laws that would require foreign investors to hire Filipinos in companies established in the Philippines, and, to hire Filipinos as executives, managers or members of boards of directors, to transfer technology to Filipino partners

->in relation to the plenary power of Congress to make laws: Article VI, section 1: The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives, except to the extend reserved to the people by the provision on initiative and referendum.

->in relation to Article XII, section 11:xxx… The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens

Because of the nature of commitments made in free trade agreements, Congress must, again, re-assert its right to 1) be informed as regards the status and proposed contents of these agreements; and 2) participate effectively and contribute proposals for offered negotiation positions.

In other nations, the legislative branch plays an active role in treaty negotiations. In the United States,[3] members of Congress can join the negotiation teams and actually be present during the negotiation process. They can propose provisions to be included, modified, and even removed from the U.S. commitments in the treaty. In the European Union, the European Parliament does not only give its assent to proposed free trade agreements, it is also required that they be given a copy of the negotiation proposals [i.e. negotiation mandate] and that they are regularly consulted during the course of the negotiations to ensure that the outcome commands broad support.[4]

Thus, there is a need for the Philippine Congress to re-assert its power to participation in policy formulations in relation to international trade agreements.

II. What is the EU-ASEAN Free Trade Agreement?

The EU-ASEAN Free Trade Agreement, as the name suggests, is a free trade agreement between the European Union (EU) and some members of the Association of South East Nations (ASEAN).

As of April 14, 2008, the official proposal from the European Union is for the negotiations to proceed, either:

  1. between the European Union and 7 out of the 10 ASEAN member-countries (Philippines, Thailand, Singapore, Malaysia, Indonesia, Vietnam, Brunei), or

->Burma will be excluded because of the human rights situation in the country.

->The EU will continue its trade relations with Cambodia and Laos, through the existing Everything But Arms (EBA) program.

  1. bilaterally, between the European Union and 1 ASEAN member-country (i.e. EU-Philippines, EU-Thailand, etc.)

As a free trade agreement, the EU has expressed its desire to pursue negotiations that would include issues currently not discussed at the WTO (Singapore issues). The EU has also revealed that it hopes to get deeper commitments from its ASEAN trading partners in the matters of:

  • investment protection, liberalization, and regulation
  • intellectual property rights
  • liberalization of government procurement markets
  • services liberalization [beyond WTO commitments]
  • competition policy and trade facilitation
  • other similar issues

To aid their negotiators in the formulation of the EU’s negotiation positions, the European Union has already completed their studies as regards the potential effects of this agreement to their region. Right now, they are now in the process of crafting a Trade Sustainability Impact Assessment (TSIA) on the EU-ASEAN FTA.

However, on the side of the Philippines, no official government research has been released on the potential effect of the agreement to the Philippines, in particular. A query sent to the Philippine Institute for Development Studies (PIDS) revealed that this government research institution does not have a single on-going or finished study on the EU-ASEAN FTA. It must be noted that for the JPEPA, the PIDS was commissioned to undertake 18 separate and Philippine-specific studies. Initial studies for the RP-US have also been made available online.

The non-existence of Philippine-specific studies on the EU-ASEAN FTA raises several concerns:

  1. The EU, based on an official report (Ford report) and based on statements made by Gabriel Munuera Vinals, in an official meeting with the EU-ASEAN FTA Campaign Network,[5] is now seriously considering the possibility of pursuing negotiations on a bilateral level. Without a Philippine-specific study on the implications of the agreement, it would be difficult to assess its necessity in relation to the Philippines.

Update as of March 25, 2009: Bilateral negotiations will be pursued subject to the precondition that the individual ASEAN members sign the Partnership and Cooperation Agreement. To date, no country has in the ASEAN has signed the document. The DFA of the Philippines already has a copy of the PCA but has refused to sign it for undisclosed reasons.

  1. As of March 25, 2009, the official disclosure from the EC is such that FTA negotiations on a regional level have come to a pause.

While exploratory talks for the EU-ASEAN FTA are now being pursued, it remains true that:

  1. No consultations are being conducted for most of the small sectors and civil society organizations.
  2. There is no clear negotiation position or mandate coming from the Philippine side; while the EU’s interests have been made public in several and separate texts.

March 25, 2009: The UACT conducted a consultation for business and industry groups on March 24, 2009.

Possibly Problematic Provisions in the EU-ASEAN FTA:\

  1. Prohibition of pre-admission requirement that seeks to cap the amount of foreign capital invested in domestic firms, or to limit individual or aggregate foreign investment

– It is important for the Philippines to study the reservation mechanism in the EU-ASEAN FTA so that the country can cite national laws (Foreign Investment Negative List) and provisions in the Constitution as exemptions to the commitment against the imposition of caps in relation to the amount of foreign capital invested in domestic firms. The 1987 Philippine Constitution and existing laws provide for very specific rules on foreign equity limitations for certain sectors of the economy [e.g. media, practice of profession, utilization of resources, etc]. A comprehensive and detailed listing of these exemptions might be necessary to prevent the omissions and mistakes that Philippine negotiators committed in the Japan-Philippines Economic Partnership Agreement (JPEPA). While foreign capital is needed for many of the country’s industries, certain foreign equity limitations are still kept to protect local industries against the absolute control of foreign investors over industries/sectors that are in the Philippines.

  1. Provisions that will lift restrictions against foreign ownership (land, media)

– The EC-Philippines Stategy Paper (2007-2013), in its analysis of the economic situation of the Philippines provides that “Constitutional impediments to foreign ownership (e.g., land, mass media) have likewise discouraged the influx of foreign investments.”

– The prohibition against foreign ownership of Philippine private lands has been raised in several investment-related surveys. Many investors point out that there is a need to lift this rule to favor foreign investors in the Philippines. However, this rule is rightfully enshrined in the Philippine Constitution and cannot be lifted via negotiations of bilateral or regional agreements.

Update: This possible negotiation issue must be looked into in relation to the possibility that the constitutional restriction will be removed through the current charter change initiatives.

  1. Expropriation and compensation provisions

– The requirement of compensation should the Philippines wish to expropriate/nationalize certain industries might prove to be an undue restriction of the police power of the State. Expropriation and compensation provisions have proven to be immensely problematic even for developed countries like the United States and Canada (under the NAFTA).

– The Philippines must look closely at the definition and coverage of expropriation in the EU-ASEAN FTA to ensure that this would not amount to a complete surrender of the regulatory powers of the State.

3. What must Congress do?

Congress must pass a resolution that would require the DFA/DTI to disclose the contents of the Partnership and Cooperation Agreement (PCA) and for the different agencies of the Executive Branch to inform and include the public in ongoing consultations and release, if available, official studies conducted pursuant to the EU-ASEAN FTA.

->According to the EU, the PCA will contain the so-called core elements and issues which must be acceded to by the Philippines, including, among others: trade in environmentally sustainable biofuels, measures to tackle illegal logging, human rights, and civil and political rights. The EU has also expressed the possibility of suspending FTA benefits should there be persistent breach of the core elements contained in the PCA.

->It is necessary for the Philippine Congress to know the other core elements being proposed by the European Union; especially as regards deeper commitments in Singapore issues; which would go beyond the Philippines’ current position at the multilateral level. If changes to these positions are to be asserted by the Executive Branch, Congress must be notified as to the reason thereof and Congress must be allowed to comment and contribute, whether against or in support, of such policy changes. If it contains commitments that would amount to violations of law and the Constitution, it must be removed from the Philippines’ list of commitments.

->Other issues

– end –

[1] See JPEPA, ASEAN-Korea, ASEAN-Japan, ASEAN-China, AFTA

[2] See Article 104, JPEPA.

[3] See Congressional research service, Library of Congress, Treaties and other International Trade Agreements: The Role of the United States (January 2001).

[4] Glyn Ford, Report on the Trade and Economic Relations with the Association of South East Asian Nations (ASEAN), </Titre><DocRef>(2007/2265(INI).</DocRef>

[5] May 27, 2008.

Briefing Notes on the EU-ASEAN Free Trade Agreement

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