Why Fear Japan ’s Ire Over Non-Ratification Of JPEPA? Think-Tank Asks Miriam

Independent think-tank IBON Foundation asks Sen. Miriam Santiago why she is more concerned over earning the ire of Japan if the country fails to ratify the Japan-Philippines Economic Partnership Agreement (JPEPA) than the damaging consequences the pact is likely to bring the economy.

Santiago , who chairs the foreign relations committee, filed a committee report endorsing conditional concurrence which requires Japan to comply with at least 15 specified constitutional provisions to avoid a no-approval vote.

But according to IBON research head Sonny Africa, “Asking for a conditional concurrence from Japan is foolish because these questionable provisions in JPEPA are precisely the ones Japan wants included in order to gain maximum advantage for its corporations.”

These unconstitutional provisions include the “national treatment” clause that gives Japanese investors the same rights as local entrepreneurs; and the lifting of performance requirements that would have required Japanese investors to use a certain level of local content in their production and the hiring of a certain number of local workers.

Africa added that JPEPA’s proponents in the Senate themselves admit that the problem with the pact is that the advantages “were in favor of Japan but not necessarily the Philippines ”.

“The proposal of conditional concurrence highlights the unconstitutionality of JPEPA, and no amount of modification can make the deal beneficial for Filipinos,” he said.

“We should not be afraid of earning the ire of Japan but rather demonstrate that the Philippines is not afraid of rejecting bad trade deals that don’t promote its economic interests.” (end)

IBON is a convenor of No Deal! Movement Against Unequal Economic Agreements.

GOV’T CLAIM OF BILLIONS OF INVESTMENTS FROM JPEPA TO SPELL DOOM FOR RP MANUFACTURING

As the Senate resumes its sessions today, independent think-tank IBON Foundation again urged senators to reject the Japan-Philippines Economic Partnership Agreement (JPEPA) saying that the P365 billion in investments that the deal will supposedly bring is too high a price to pay for the death of the local manufacturing sector.

As it is, the long-term liberalization of the economy has further weakened the country’s manufacturing base. But the implementation of the JPEPA, and the free trade pacts that will inevitably follow in its wake, would end any chance of improving the local manufacturing sector and will permanently reduce it to being a mere assembler of imported inputs for re-export.

This trend is already evident in recent export figures from the National Statistics Office, which showed that industries which use imported raw materials or assembled parts, have overtaken those sourcing chiefly domestic raw materials.

IBON research head Sonny Africa said the trade liberalization brought by the JPEPA would further worsen the already dire situation of the country’s manufacturing sector. The “national treatment” and “most-favored-nation (MFN)” provisions in the free trade pact would prevent the country from imposing policies to help local manufacturers, such as restrictions on imported products and local content requirements.

Africa pointed out that the JPEPA is merely a way for Japan to promote the interests of its transnational corporations along with their local elite partners. Japanese companies already dominate many of the sectors in the local electronics manufacturing export industry, with its three biggest electronic firms accounting for over 53% of total gross revenues in the computer manufacturing sector as of 2006.

Instead of passing exploitative free trade pacts like the JPEPA, Africa said the government should instead implement national industrialization policies, which would lead to the creation of millions of much-needed permanent jobs and the country’s long-term economic development.

BREAKING MONOPOLIES, REVERSING LIBERALIZATION: A STEP TO END RICE CRISIS

The presence of a rice cartel is only part of the monopoly control of land and capital in Philippine rice production, trade, and marketing and aggravated by neoliberal policies adhered to by the Philippine government

By Jennifer H. Guste

IBON Features– As the government insists there is enough rice available for everyone, it is now looking at rationing rice to three kilos per family, and has secured the importation of around 2.2 million metric tons (MT) of rice from Vietnam, Thailand and the United States. This is the country’s biggest volume of importation since 1998.

From being a self-sufficient and rice exporting country in the 1980s, the country has become a net importer of rice since 1993. It is now the world’s top importer of rice, the country’s staple food crop.

Why this has become so can be traced to the backwardness of Philippine agricultural production and the exploitative relations of production, which are both exacerbated by globalization. Production tools are outdated, almost all farms are not mechanized, more than half are not yet irrigated, and most of all, seven out of 10 peasants are still landless. Despite three agrarian reform programs, land is still in the hands of few families who control not only land but also trade and marketing. Aggravating the condition are the globalization policies of trade liberalization, privatization and deregulation adopted by the government since the late 1980s.

Rice Production in Chronic Crisis

Philippine average rice yield per hectare is stagnant. Since the 1990s, the country’s rice yield has averaged at 3 metric tons per hectare even as it records yearly increases in production. According to the International Rice Research Institute (IRRI), the required yield for the Philippines to sustain food security is 5.4 metric tons per hectare.

Philippine rice lands is only four million hectares compared to its counterparts in Asia. For instance, Thailand devotes more than 10 million hectares for its rice production; Vietnam has more than seven million hectares planted to rice.

Rice production remains small-scale and productivity is low. This situation is even worsened by the increasing instances of conversion of rice farms to commercial uses and conversion of crops from rice to export winners, which has put the country in constant state of crisis in its rice supply.
Meanwhile, landlessness and the absence of government support through production and price subsidies leave millions of Filipino rice farmers at the mercy of big land owners and traders.

Even with the use of hybrid rice that promises a boost in rice production with minimal lands devoted to rice farming, rice supply in the country is still under threat of shortage and government will always find reason to resort to rice importation to fill in its buffer stocks. According to the National Food Authority (NFA), the country can only supply approximately 90% of its total rice consumption; the rest, according to the NFA, would have to be imported.

In reality, government has practically stopped subsidizing local agriculture for decades, and can be seen from the meager budget allocations received by the agricultural and fisheries sector. Worse, the funds intended for the sector are even reportedly siphoned off to corruption.

Even its much-hyped Agriculture and Fisheries Modernization Act (AFMA) did little in improving post-harvest facilities or even significantly increasing irrigated rice farms.

Reinforcing backwardness

Policies of globalization on rice, i.e. trade liberalization (allowing rice imports), privatization (clipping NFA powers), and deregulation (lifting of government production and price support), which the government started to implement in the 1980s, has reinforced the rice crisis.

The privatization of the NFA, for one, has been one of the conditions for the Philippine government to avail of loans from the World Bank and the Asian Development Bank (ADB). The NFA was once allowed to engage in grains procurement and distribution using government buffer stock and subsidized pricing system as main intervention instruments. But since the 1980s as a result of reforms adopted by the Philippine government to comply with the World Bank and ADB prescriptions, the role of the NFA in ensuring the country’s food security and price stabilization has been reduced to being a “facilitator” of the market forces– the big rice traders and retailers.

The NFA has increasingly relied on rice imports for local distribution. On the other hand, from an average of 7.95% of total palay production in 1977-1983, and 3.63% from 1984 to 2000, NFA rice procurement from 2001 to 2006 was barely 0.05% of total palay production. The NFA is originally mandated to procure at least 12% of total palay production.

Other than the World Bank and ADB conditionalities for minimized NFA intervention in grains procurement and trading, under the Agreement on Agriculture (AoA) of the World Trade Organization, the country has been compelled to import a minimum volume of rice from other countries whether or not it produces rice sufficiently. Rice importation has increased as a consequence, from 0 in 1994 to 257,260 MT in 1995 and consistently increasing to 1.7 million MT by 2006.

Yet, with the current rice crisis, private traders have still renewed calls for the full privatization of the NFA. Secretary Arthur Yap of the Department of Agriculture is even entertaining options to lower tariffs on rice importation to encourage greater private sector participation in rice importation and trade. Presently, licensed private traders are allowed to import a minimum of 300,000 MT of rice but this according to the NFA has been hardly utilized by the private traders due to the 50% tariff on rice.

Ironically, instead of re-considering government subsidy to farmers’ production, an increase in the subsidy given to the NFA is even being considered to allow the state agency to shoulder some of the import costs of private importers!

Yap said the scheme would call for the NFA to import rice “through a tax-expenditure-subsidy scheme and the volume that NFA brings can be sold to the private sector for it to distribute on the basis of an equalization fee that they will bid for.” Under this plan, the private sector will be allowed initially to bring in 163,000 tons of rice this year, with each importer given a maximum volume of 2,500 tons.

Rice Price Speculation

Peasant organization Kilusang Magbubukid ng Pilipinas (KMP), on the other hand, maintains that there is no need to import rice. According to the group, if the projected 7.2 million MT palay output for this season is met, combined with the total rice inventory as of March 25, then there should be enough rice available for every Filipino table until the first week of October, even without importation.

In an interview with IBON Features, KMP chairperson Rafael Mariano said that the government is importing rice because it has already committed rice importations earlier from Vietnam and the US.
He said the NFA is importing rice because it has persistently failed to perform even its minimal procurement of 12% of the total palay production. Mariano added NFA has only procured only about 1% of palay production in the last cropping season, leaving most of the tradeable rice into the hands of big rice traders, particularly the so-called Big Seven cartel who now dictates the price of rice in the market.

In fact, a few days after the DA wrote a memorandum to the office of the President warning of the threat of a tightening global rice supply and thus the need to secure rice imports, news of a rice shortage in major markets in the NCR and in the provinces broke out. Subsequently, rice prices skyrocketed and created panic among rice retailers and consumers nationwide.

The same thing happened during the rice crisis in 1994-1995, largely a result of the semi-privatization of NFA which then procured only 0.5% of total palay production. Private traders seized the opportunity to create an artificial rice shortage and jacked up prices by as much as 90% to 100 percent.

The monopoly control in the trade and marketing of rice through the so-called Big Seven manipulates rice price increases especially during rice crises. The reduced role and intervention of the NFA in the rice market allows private traders to control both the trade in inputs and produce, thus influencing the movement of prices in the trade and marketing of rice.

Despite its import injections, the NFA’s limited distribution because of its minimal palay procurement also prevents the NFA from influencing retail rice prices. In fact, the NFA has distributed an annual average of only 6% of the nation’s rice requirements, and much of the rice distributed is even imported.

Ending Monopolies

The presence of a rice cartel is only part of the monopoly control of land and capital in Philippine rice production, trade, and marketing. It is a manifestation of the chronic rice crisis in the Philippines, which is aggravated and reinforced by neoliberal policies adhered to by the Philippine government.

There are doable measures to solve the chronic rice crisis the country. One step that government should do is to regain control of the trade and marketing of palay and rice to break the monopoly control of cartels. The country should also break away from binding agreements that government made to the GATT-WTO and reinstate agricultural tariffs while increasing support to Filipino farmers. Ultimately the crisis could be resolved by implementing a genuine agrarian reform program that do not only provide free distribution of land to farmers, but also provides input and capital subsidies, and investments in post-harvest facilities that will help end land monopoly.

AMID BARRAGE OF HYPE, REALITY OF WEAK ECONOMY PERSISTS

The clearest signs of economic failure under the Arroyo administration are in the poor conditions of millions of Filipinos.

By Sonny Africa
IBON research head

IBON Features– The administration has made much noise of its economic performance in 2007. Most of all it crows about rapid growth in gross domestic product (GDP), the peso’s appreciation against the dollar, and reining in the national government deficit. Unfortunately these are not the whole story. There is a barrage of hype but the reality is of a weak economy and, absent fundamental economic reforms, millions of Filipinos consigned to joblessness and poverty.

A more complete descent into economic turmoil was averted last year by record overseas remittances, debt-driven spending, an upsurge in “hot money”, the fortuitous weakening of the United States (US) dollar, and a US economy that had yet to fall into recession. There was also an unmatched privatization spree with the P91 billion worth of public assets sold equivalent to nearly as much as had been sold in the previous 15 years spanning three administrations. These conditions are unlikely to recur in 2008– and the downward pull of accumulated economic problems is unavoidable.

Crisis times

The clearest signs of economic failure are in the poor conditions of millions of Filipinos. The 11.3 percent average annual unemployment rate over the period 2001-2007 is the worst 7-year period recorded in the country’s history. There were 4.1 million jobless Filipinos and 6.8 million underemployed last year, or almost 11 million Filipinos looking for work.

The government uses statistical sleight of hand to give the illusion of an improved jobs situation. Its definition of unemployment since April 2005 cuts the number of jobless not by giving them jobs but by classifying long-discouraged jobseekers and those not available/willing to immediately take up work as “not in the labor force”. This had the effect of reducing the “official” unemployment by around 3.5% and the number of jobless by 1.4 million in 2007.

Yet job creation is far short of the targeted million jobs a year and also of poor quality. Despite supposedly record growth the 861,000 net additional jobs created in 2007 is only a 2.6% increase in employment from the year before and is the fourth slowest rate of job creation in the last seven years.

The sources of jobs also betray economic backwardness. The leading sector in job creation is domestic household help with an additional 142, 000 jobs, followed by 116,000 jobs in transport, storage and communication, and 111,000 jobs in wholesale and retail trade. These are among the lowest-paying, most temporary and insecure jobs in the country. In stark contrast only 72,000 agriculture jobs and 4,000 manufacturing jobs were added yet these sectors constitute the internal productive base of the national economy.

The latest Family Income and Expenditure Survey (FIES) noted average family income dropping between 2000 and 2006 with nominal incomes not keeping up with inflation. The incomes of the poorest four-fifths of Filipino families – or some 13.9 million families – fell between five and almost 13 percent. These 70 million or so Filipinos each struggle to survive on P110 or even much less a day.

Critical times

Things can only get worse in 2008 with the US recession and a generalized slowdown in the world economy. The domestic situation is made worse than it should be by internal weaknesses resulting from “globalization”, the erosion of domestic productive sectors and over-dependence on trade, foreign loans and capital.

As it is, manufacturing sector growth slowed to 3.3% in 2006 and its 23.1 percent share in GDP is as low as in the late 1950s. Agriculture grew at a faster 5.1% clip but then wide year-to-year variances are the norm for the sector and the its 18.4% share in GDP is the smallest in the country’s history. This internal domestic weakness makes the country unduly vulnerable.

The country has significant links to the US economy which remains our top investment and exports partner (accounting for 20 percent of the country’s respective totals). Drops in US consumption and investments will be deeply felt. This effect is magnified by “globalization” where much of Philippine exports to East Asian countries like China, South Korea, Taiwan and Malaysia are actually intra-firm trade with the US still the ultimate destination. Slower growth in third party countries that depend on US and which Philippines deals with will also cause problems.

Even the vaunted local information technology (IT)-enabled industry will likely be hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly nine-tenths of total BPO exports revenue and over two-thirds of foreign equity in 2005. Nearly nine-tenths of BPO service exports were to the US market. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.

There are also other sources of problems. Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The administration’s inability to even let revenues keep up with nominal GDP growth, compounded by the dearth of remaining assets to sell, could lead to an uncontrolled intensification of its fiscal crisis in 2008.

The rumbling political instability stemming from unresolved issues of legitimacy, graft, corruption and political violence are also taking their toll. If these are amplified by a drop in local business sentiment then this year or the next might even see the beginning of a steep downward economic spiral.

All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry. The country’s economic prospects are unfortunately made even worse by the crying need for credible leadership underpinned by a broad-based democracy.

GOV’T JOBS DATA EXCLUDES 1.4 MILLION JOBLESS FILIPINOS

Independent think-tank IBON Foundation disputes government data on employment, estimating that government statistical manipulation removed over a million Filipinos from the official unemployment count.

Government data showed that in 2007, there was an annual average of 2.7 million unemployed Filipinos, a steep drop from figures recorded in recent years. IBON research head Sonny Africa cited the recent IBON study that estimates at least 4.06 million jobless Filipinos and an unemployment rate of 10.8 percent. This was 1.4 more than the official count of 2.7 million, which placed the average unemployment rate for 2007 at just 7.3 percent.

Average unemployment rate of 11.3% over the 2001-2007 period shows the economy is still suffering record joblessness despite government’s attempts to obscure the figures.

Government reports lower joblessness only because it revised the definition of unemployment to exclude discouraged job hunters from the labor force count, not because the economy created more jobs, Africa said. The effect of this new methodology in 2007 was to dramatically reduce the labor force participation rate (the percentage of population 15 years and above who are in the labor force) to 64% from the 66.5% under the NSO’s traditional unemployment definition.

IBON had requested the NSO for employment figures based on the old methodology, but said that it no longer computed such labor force data, unlike in past years when it presented data using both methods. “This makes comparison of current employment data with previous years impossible as it paints a false picture of an improving jobs situation,” Africa said. IBON made its own estimates to roughly compare employment figures using both methods.

Africa added that the 601,000 net additional jobs created in 2007 is just a 1.8% increase from the year before which is the slowest rate of job creation since the start of the Arroyo administration. The most jobs were created in domestic household help with 142,000 additional such jobs created.

In contrast only 72,000 agriculture jobs and 4,000 manufacturing jobs were added. Employment and unemployment trends in 2007 then confirm the deep problems of the Philippine economy despite much hype about rapid economic growth and a “strengthening” peso, Africa said.

INCLUSION OF CONTESTED ‘SINGAPORE ISSUES’ IN JPEPA THREATENS LOCAL BUSINESSES

Developing countries opposed the inclusion of the controversial “ Singapore issues” in the Doha Round of trade talks under the World Trade Organization (WTO) for fear of how these would impact on their local economies. Yet the Philippines has included these issues in the free trade agreement with Japan , threatening local businesses and the country’s freedom to set policies for its national development.

According to IBON research head Sonny Africa, the Japan-Philippines Economic Partnership Agreement (JPEPA) includes provisions on three of four of the “ Singapore issues”: competition, government procurement and investment. The effect of their inclusion is to strengthen the rights of Japanese investors while undermining government’s power to protect local industries.

For example, the provisions on government procurement (Chapter 11, Article 131), the Philippines “recognizes” that it is “important” to “accord national treatment and most-favored-nation treatment to goods, services and suppliers of the other Party with respect to the measures regarding government Procurement.” This could be interpreted as preventing the national government from favoring local suppliers over Japanese ones.

Similarly, in the JPEPA’s provisions on Competition (Chapter 12, Article 135), the Agreement calls on the signatories to “take measures … to promote competition by addressing anti-competitive activities.” Africa said this could be construed for example, as preventing the government from requiring local carmakers to source a certain percentage of their parts from local suppliers, since this may constitute “anti-competitive” activities.

The inclusion of the “Singapore Issues” in the JPEPA prevents the Philippines from using the protectionist trade and investment measures that Japan itself used when it was building up its local economy. Africa said that from the end of the 19th century to as late as the 1980s, the Japanese government heavily protected its car, truck, shipbuilding, and computer and consumer electronics industries. As part of its protectionist measures, for example, the average weighted average tariffs the Japanese government imposed on imported inputs reached as high as 30 to 40 percent.

Japan developed its technology either by requiring technology transfers from American, French and British investors, or was copied using “reverse engineering” of other countries’ technology. In addition, government procurement of goods and services was done strictly with Japanese firms.

Under the JPEPA, the Philippines surrenders its sovereign right to benefit from economic relations with other countries, while surrendering the country and its resources to the needs, demands and profits of Japanese corporations, said Africa. (end)

FREE TRADE PACTS WITH CHINA, JAPAN TO FURTHER WEAKEN RP ECONOMY

Philippine trade deals with Japan and China , which President Gloria Arroyo recently urged Association of Southeast Asian Nations (ASEAN) members to act on, will further weaken the country’s already damaged domestic economy.

According to IBON research head Sonny Africa, any benefits the Philippines may gain from a pact with these economies are doubtful while more liberalization will further weaken the local agriculture and industry sectors.

Taking alone the ASEAN Free Trade Agreement’s Common Effective Preferential Treatment (CEPT) scheme as an example, the Philippines’ average applied preferential tariff rate as of 2001 is only 3.87%, lower than the 6.7% average applied tariff rate under the World Trade Organization. Roughly 99% of the country’s tariff lines are already included in the CEPT scheme.

Tariff reduction under the CEPT scheme allowed cheap imported vegetables from the US , Australia , New Zealand , the Netherlands , Singapore and China to flood the Philippine market, growing from 42,000 metric tons in 1995 to 115,000 MT in 2000. More liberal import policies also resulted in thousands of metric tons more smuggled into the country.

The petrochemical, cement, steel, garments/textile, footwear and ceramics/tiles industries have also felt the adverse effects of liberalization. For example, many footwear manufacturers, overwhelmed by cheap imports from China , have now become mere assemblers of imported shoe parts or shifted to trading. Shoe industry workers have thus been laid off or forced to go on rotation status.

Meanwhile, Africa pointed out, the country’s attempts to penetrate the markets of these major economies are uncertain. The government is banking on electronics, which is considered as one of the economy’s “strengths” due to export revenues from this sector. Electronics products are also the country’s top exports to China and Japan , which on the other hand are among the Philippines ’ top ten trading partners.

But electronics components are also among the country’s top imports from these countries, reflecting the inherent lack of technology to support production and the assembly-type nature of the industry.

According to Africa , the motivation of China and Japan in pushing for regional free-trade initiatives is their rivalry for economic leadership in the region. As an underdeveloped country, the Philippines should not seek to fruitlessly “compete” in the free trade arena but rather to undertake initiatives that would protect and develop its agricultural and industry sectors for the benefit of its people, Africa said.

ARROYO SUCCESSOR FACES EMPTY GOVERNMENT COFFERS

Instead of reaping the so-called harvest from her programs, Pres. Arroyo’s successor faces empty government coffers as her administration desperately sells off the few remaining state assets in a bid to maintain the illusion of fiscal stability, according to independent think-tank IBON Foundation.

The Arroyo government is clearly running out of major assets to dispose to make up for revenue shortfalls, according to IBON research head Sonny Africa. After government’s planned disposals this year of its stakes in San Miguel Corp., the Philippine National Oil Corp.-Energy Development Corporation and the Manila Electric Company, among the only remaining major assets for disposal are its stakes in TV stations RPN-9 and IBC-13 and the Al-Amanah Islamic Investment Bank of the Philippines as well as the rights and equity in the Philippine Postal Corporation, he said. What would be left after big-ticket items are sold would be mainly minor assets such as various parcels of land, buildings and various pieces of equipment.

Although government revenues increased by an average of 14% since 2003, if the added income boost from the fire sale of assets and the implementation of the reformed value-added tax in 2006 is not taken into account, revenues would have increased by an annual average of only 11.7 percent. This means that instead of showing any real growth, such revenue gains have only tracked the annual average gross domestic product growth over the same period as measured in current prices.

The situation has even taken a turn for the worse in 2007, Africa said. In the first half of the year, revenues without privatization income grew a scant 2.9% compared to the same period last year. This compares very unfavorably with GNP growth of 11.6%, again measured at current prices, in the first quarter of 2007.

This has significant implications for the Arroyo administration, Africa noted. For one, Arroyo will likely be unable to fund the ambitious infrastructure program outlined in her SONA. This will undermine her support with foreign investors and the local business elite who are the main beneficiaries of the infrastructure projects. A bankrupt government will also be unable to buy the support of political allies. And, most significantly, Arroyo will most likely be forced to resort to new taxes and cuts in social services spending to win back the support of the economic elites. This will heighten the widespread dissatisfaction of Filipinos who are already suffering from worsening joblessness and poverty, he said.

Although Arroyo at least admitted her widespread popularity in her SONA, she continues to mislead the people about the true state of the nation. “The harvest her successor will reap will be bitter: a faltering local economy, pervasive poverty and a bankrupt government,” Africa said.