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JPEPA, the First Bilateral Free Trade Agreement of the Philippines in Over Half a Century, Valid and Constitutional

by: Daphne Gomez

(14 February 2024)

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The Supreme Court has finally ruled on the constitutionality of the Japan-Philippines Economic Partnership Agreement (JPEPA), more than fifteen years since its entry into force, declaring it a valid agreement within the bounds of the Constitutional and Philippine laws.


In 2002, then Prime Minister of Japan, Junichiro Koizumi, visited the Philippines to propose the “Initiative for Japan-ASEAN Comprehensive Economic Partnership”. Later that year, Japan and other ASEAN representatives discussed the possibility of having economic partnerships through a bilateral framework.  Thereafter, then President Gloria Macapagal-Arroyo visited Japan and suggested a working group to examine the viability of an economic partnership between Japan and the Philippines. Formal negotiations for the JPEPA began in 2004. 


Fast forward to 2006, the Philippines and Japan signed the JPEPA. The President of the Philippines signed the agreement in 2006, with the Senate concurring in 2008. However, various NGOs, legislators, taxpayers and other concerned citizens voiced their concern on the constitutionality of the JPEPA by filing Petitions for Certiorari and Prohibition with the Supreme Court. 


In IDEALS, Inc. et al v. Senate (G.R. Nos. 184635 and 185366, 13 June 2023), the Supreme Court upheld  the validity of the JPEPA and held that its provisions do not violate the provisions of the 1987 Constitution and other Philippine laws. 


The Supreme Court answered the following substantive issues below.

Does the President have the power to reduce or eliminate tariff rates?

The Petitioners alleged that the JPEPA impairs legislative power, since the power of taxation is legislative in nature. 


The Court held that while this is correct, the rule is not absolute. The Constitution provides that the Congress may, by law, authorize the President to fix tariff rates, subject to restrictions it may impose. 


The Court has previously held that, for the President to exercise delegated tariff powers, (1) there must first be a law, and (2) Congress must provide the limits and restrictions. As the last requirement does not specify conditions for the limitations, Congress’ role is to ensure that whatever restriction they do decide, it must not violate the Constitution.


The Tariff and Customs Code serves as the law that authorizes the President to exercise delegated tariff powers. The Petitioners argued that this law is not constitutional, so technically, the President still cannot interfere with tariff rates.


The Court disagreed. Since the petition challenged the JPEPA, the Petitioners cannot challenge the constitutionality of the Tariff and Customs Code collaterally. 


Thus, the President has the power to fix tariff rates. 


Will Japanese nationals take over sectors of the Philippine market reserved for Filipino citizens? 


JPEPA provides for nondiscriminatory principles, such as the national treatment and most-favored-nation treatment. Under these principles, a party is prohibited from treating the services, services suppliers, investments, and investors of the other party less favorably than how it would treat those from its own nationals. Therefore, the Philippines must treat services from Japanese nationals how it would treat services of Filipinos – it cannot treat the services from Japanese nationals any less.


The Petitioners argued that the exclusions, exemptions, and reservations under the Constitution have been disregarded. According to them, the JPEPA allows foreigners to participate in sectors that have been reserved exclusively for Filipinos. 


The Court disagreed, stating that the JPEPA should be read as a whole. Each provision must be read with the other sections related to it, including subsections and annexes. An understanding of the agreement in its entirety would reveal that the participation of Japanese citizens in the Philippine market will not encroach on the Constitutionally-protected sectors reserved for Filipino citizens.


The Court explained that the Philippines and Japan listed several “liberalization commitments” using either a positive list and a negative list. For the those under a positive list, the sectors listed therein will be part of the country’s liberalization commitment. Those under a negative list are the sectors and subsectors that will NOT be part of the liberalization commitment. An example of a section which adopts the negative list form is the Investment Chapter of JPEPA, and an example of the positive list is the Trade in Services Chapter. 


The Court also pointed out that JPEPA still allows the countries to limit their obligations and to conform to the laws of Japan and the Philippines. Both Japan and the Philippines created a list of their reservations from their liberalization commitments, found in Annex 7 of the JPEPA. These reservations are the limitations of their liberalization commitments. 


The Petitioners argued that the JPEPA violates Art. XII, Sec. 2 of the Constitution, which states that all lands of public domain and natural resources in the Philippines are owned by the State, and that the exploration, development and utilization of natural resources shall be under the full control and supervision of the State. The Petitioners argued that the reservation in the Philippines’ list is insufficient. The title of reservation no. 17 reads “Matters Related to Ownership of all lands of the public domain and natural resources other than those covered by other sectors”. According to them, the Constitutional limitation covers (1) ownership, and (2) exploration, development and utilization of natural resources, but the reservation in JPEPA only mentions “ownership”.


The Court said that If you read that reservation in its entirety, and not just the title, you will see that although the wording of the title only uses the word “ownership”, the parties meant to include both ownership and exploration, development, and utilization of natural resources. This is because the reservation expressly states that the “measure” of this reservation is Art. XII of the Constitution. 


“Measure”, under the JPEPA, refers to the “existing laws, regulations or other measures for which the reservation is taken”. This means that the reservation as stated in the title must be read with the “measure” provided under it. Therefore, reading the reservation knowing that it must be read with the restrictions of Art. XII, it becomes clear that the reservation does not violate Art. XII. 


The Petitioners also argued that JPEPA the violates Art. XII, Sec. 7 of the Constitution, regarding private land ownership, on the ground that it is also insufficient. The Court dispensed with this argument in the same manner as above: the reservation must be read as a whole. Moreover, if you read the Annexes, you will see in Annex 6 that there is a column for “Limitations on Market Access”, which contains the same limitation on acquisition of land as Art. XII of the Constitution. 


The Petitioners also expressed their concern on the operation of public utilities. They argued that since this was not included in the list of reservations of the Philippines, then the national treatment rule will apply. For them, this allows Japanese investors to own more than 40% of a public utility. The Court found that public utilities fell under the Trade in Services chapter of the JPEPA, which was in the nature of a positive list. Therefore, all the sectors listed therein are part of the liberalization commitments. The Court held that the limitation of the Constitution is actually preserved by the inclusion of “horizontal commitments” in the JPEPA. 


The Philippines’ Schedule of Specific Commitments shows that the Philippines granted market access and national treatment to some sectors and subsectors which are considered public utilities. This includes services related to (1) energy distribution, (2) communications, (3) telecommunications, (4) educational services, (5) health and social services, and (6) transportation. However, the Court noted that a closer look at this Schedule would reveal that this grant of market access and national treatment still has limitations. In particular, it shows that it is subject to the limitations imposed by Art. XII, Sec. 11 of the Constitution. 


The Court also applied the same ruling to the Petitioners’ assertions that the JPEPA violates the reservation of the (1) practice of profession, (2) educational institutions, (3) mass media, and (4) the advertising industry, to Filipinos, 


Art. XII, Sec. 14 of the Constitution reserves the practice of all professions in the Philippines to Filipino citizens. However, the Court stressed that this rule is still subject to exceptions introduced by laws, including reciprocity laws. The commitments made by the Philippines regarding the practice of profession actually have sufficient reservations, says the Court. The Philippines’ Schedule of Specific Commitments provides that the grant of market access for the practice of professions is restricted by statutory limitations. Thus, the limitations under the several laws that regulate the practice of profession in various sectors, such as the medical profession, engineering sector, architecture sector, among others, are incorporated. The Court also said that foreigners are allowed to practice professions listed under the Eleventh Regular Foreign Investment Negative List, subject to rules on reciprocity.


The limitation on foreign ownership of educational institutions under Art. XIV, Section 4(2) of the Constitution is also not violated. A reading of the Philippines’ commitment on educational services would show that the Constitutional restriction has been reproduced as a limitation on market access imposed on primary education, secondary education, adult education alternative learning system, higher education services, postsecondary technical and vocational education, and other education services. 


Lastly, the limitation on mass media under Art. XVI, Sec. 11 of the Constitution is not violated by the JPEPA. The Court pointed out that the Philippines did not make any commitment with regard to mass media. It only made commitments as to motion-picture or videotape production of animated cartoons, as listed in the Trade in Services Chapter. Because it is under this chapter, which is in the nature of a positive list, it means that whatever is listed are the only sectors subject of liberalization commitments. Thus, since the Philippines only included animated cartoons, then only animated cartoons will be subject of liberalization commitments – nothing about mass media here. 


With regard to other national laws, the Court held that the JPEPA is not in conflict with any Philippine law. The Petitioners invoked several laws to support their claim. The first law they cited has already been repealed. For the other laws they invoked, the Court found that a reading of the Annexes or an understanding of the nature of the schedules (i.e. if it’s a negative list or a positive list) would show that the statutory restrictions were incorporated, and consequently, respected.  


Long story short: read the agreement as a whole – not piecemeal!


Is the JPEPA one-sided, in favor of Japan?

The Petitioners believed that the JPEPA is one-sided, favoring only Japan. They argue that this violates Art. XII, Sec. 13 of the Constitution, which provides that all trade agreements entered into by the Philippines must be based on equality and reciprocity. They pointed out that the Philippines agreed to reduce 98% of its 5,900 tariff lines, whereas Japan only agreed to reduce 90% of its 9,300 tariff lines. They also pointed out that Japan excluded 7% of its total tariff lines, or 651 products, but the Philippines only excluded 6 product lines. 


The Petitioners argued that the JPEPA is disadvantageous for the Philippines because Japan’s exclusion list should have been shorter, since it is a developed country. 


Lastly, they point out that even if the existing market access for Philippine agricultural products in Japan has been expanded, it did not mean actual market access because Philippine products still needed to go through Japan’s bureaucratic sanitary and phytosanitary processes. 


All the Court said to these is that this is a matter of policy. Because these arguments question the wisdom behind the JPEPA, as opposed to its legality, the Court cannot, and will not, rule on them. 


Does JPEPA encourage the Philippines’ importation of hazardous waste?

The Petitioners argued that the protection of people’s rights to health, and to a balanced and healthful ecology, under Art. II, Sec. 15 and Sec. 16 of the Constitution, were violated by the JPEPA. In particular, they argued that the JPEPA eliminated tariff on certain products, which facilitates the indiscriminate importation of toxic and hazardous waste. 


The Court disagrees. Upon reading the list of goods originating from the other country that is subject to an elimination or reduction of customs duties, the Court held that nothing there equates to indiscriminate importation of toxic or hazardous waste. 


In fact, JPEPA specifically provided that Japan and the Philippines are both entitled to implement policies they deem necessary to protect the health of its people and the environment. JPEPA also reaffirms the rights and obligations of both countries under other agreements, such as the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, to which both Japan and the Philippines are signatories.


Is there a violation of Executive Order No. 156?

The Petitioners argued that JPEPA authorizes the importation of used motor vehicles into the Philippines, which is generally prohibited by E.O. No. 156.


The Court clarified that the cited JPEPA provisions merely provide a mechanism through which Japan and the Philippines can discuss cooperation in the importation of such vehicles. It also clarified that E.O. No. 156 does not absolutely prohibit the importation of used motor vehicles into the Philippines.  



As the world gets smaller over time, there is hope that the Philippines’ efforts in opening its economy to other nations could be an avenue for the Philippines to progress into a more developed country. Will entering into similar bilateral trade agreements or other economic agreements help the country progress? Or will it only widen the income inequality and the disparity in standards of living in the country? Only time will tell.

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