Sep 202014
 

http://wikileaks.org/cable/2009/07/09MANILA1563.html#
Reference ID Created Released Classification Origin
09MANILA1563
2009-07-24 06:10
2011-08-30 01:44
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Manila

VZCZCXRO5218
OO RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHML #1563/01 2050610
ZNR UUUUU ZZH
O 240610Z JUL 09
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4715
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHRC/USDA FAS WASHDC IMMEDIATE 1439
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE IMMEDIATE
RUCNASE/ASEAN MEMBER COLLECTIVE
UNCLAS SECTION 01 OF 02 MANILA 001563

SENSITIVE

SIPDIS

STATE FOR EAP/MTS, EAP/EP, AND EB/TPP
STATE ALSO PASS EXIM, AND OPIC
STATE ALSO PASS USTR BWEISEL, KEHLERS, AND RBAE
STATE ALSO PASS USAID, OPIC
TREASURY FOR OASIA
USDOC FOR 4430/ITA/MAC
USDA/FAS/ONA

E.O. 12958: N/A
TAGS: ETRD EINV ECON PGOV PREL RP
SUBJECT: PHILIPPINES-JAPAN FREE TRADE AGREEMENT UPDATE

REF: 08 Manila 02419

SENSITIVE BUT UNCLASSIFIED

¶1. (SBU) Summary: Since the Japan-Philippine Economic Partnership
Agreement (JPEPA, the first Philippine bilateral free trade
agreement) became effective in December 2008 (reftel), its impact
has been more on the movement of people than goods, and significant
barriers to investment in the Philippines remain. Philippine
officials explain that mechanisms to implement the treaty are still
being set-up. However, Japanese officials here believe that
increased trade and investment will depend heavily on the Philippine
political will to address non-tariff barriers, business climate and
competitiveness issues, and legal barriers to greater foreign
participation in the Philippine economy. Our experience with the
bilateral Trade and Investment Framework Agreement confirms that
pushing for reforms here can be a protracted and difficult process.
End Summary.

First Batch of Nurses and Caregivers Off to Japan
——————————————— —-

¶2. (U) For the Philippines, the most tangible benefit thus far
since the Japan-Philippines Economic Partnership Agreement (JPEPA)
was ratified and came into force on December 11, 2008 has been in
the movement of natural persons, particularly in the health services
sector. In May 2009, more than 280 Filipino nurses and caregivers
left for Japan, the first batch of 500 health workers initially
targeted under the JPEPA Implementing Agreement on the Movement of
Natural Persons that the Japanese and Philippine governments signed
in January 2009. These health workers are classified as “candidate”
nurses and caregivers until they satisfy the required Japanese
language proficiency requirements, on-the-job training, and pass the
license exams which will certify them as full-fledged nurses and
caregivers. Japan expects to accept one thousand Filipino health
workers in the first two years of the JPEPA.

Attracting Japanese Investments Hinges on Key Reforms
——————————————— ——–

¶3. (U) The Philippine government expects JPEPA to boost Japanese
investments in the country by providing a framework for facilitating
capital flows between Japan and the Philippines and resolving trade
and investment-related issues. Although Japan is one of the
Philippines’s largest foreign investors, foreign direct investment
flows to the Philippines from Japan over the past decade accounted
for barely 9% of total Japanese investments in the ASEAN region.

¶4. (SBU) Officials of the Japanese Embassy in Manila told econoffs
that credit restrictions stemming from the global financial crisis
are currently making it difficult for Japanese businesses to invest
abroad. The officials also cited long-standing Philippine
disincentives to higher levels of foreign investment — such as the
poor infrastructure, inconsistent policies, unpredictable legal
system, and weak governance – which need to be addressed to boost
Japanese investments here. They also predict that any initiatives
to address the foreign investment restrictions stipulated in the
Philippine constitution and various other laws will be politicized
and subject to controversy.

So Far, No Increased Trade With Japan
————————————-

¶5. (U) Due to the global financial crisis, total Philippine trade
with the world for the first five months of 2009 declined by 33.7%
to $30 billion, with Philippine imports down by 32.9% and Philippine
exports down by 34.5%. Total bilateral trade between Japan and the
Philippines during the first five months of 2009 contracted by 32.4%
to $4.1 billion year-on-year. Philippine exports to Japan declined
by 34.5% to $2.2 billion and imports from Japan shrank by 29.9% to
$1.9 billion during the same period. However, most economists,
think tanks, and business groups expect the benefits of liberalizing
trade with Japan will outweigh potential costs from foregone tariff
revenues and damage to some protected domestic industries.

¶6. (U) Since JPEPA entered into force, tariffs on a number of
Philippine agricultural products representing about 95% of
agricultural exports (by value) to Japan have been eliminated
(mostly fruits, vegetables, and seafoods). There will be immediate

MANILA 00001563 002 OF 002

tariff elimination for Philippine coffee, beer, fertilizers, fresh
or dried mangoes, and certain fermented beverages. There will be
tariff elimination for some Philippine agricultural products in the
fifth year, and some in the tenth year. Cane molasses, muscovado
sugar, chicken meat, and pineapples, products of interest to the
Philippines, will enter the Japanese market under tariff rate quotas
(TRQs, where lower tariffs will apply for import volumes within the
quota, and a higher tariff will apply after the quota has been
reached). Certain agricultural and fishery products such as rice,
raw sugar, wheat, milk, herrings, sardines, and mackerel that Japan
considers sensitive were excluded from JPEPA.

¶7. (U) The two countries mutually committed to eliminate tariffs on
most industrial goods within ten years from entry into force of the
JPEPA, improving access to Japan as an export market as well as a
supplier for inputs to the Philippine manufacturing sector
(benefitting major industries such as electronics, automobiles,
garments/apparel). Japan expects to benefit from the elimination of
Philippine tariffs on a number of agriculture products such as fresh
apples, grapes, pears and quinces; from improved access for iron and
steel under TRQ arrangements; and from the phased elimination of
tariffs for electrical and electronic appliances/parts, some
auto/auto parts, cement, and chemicals. Although some local
industries could be adversely affected, analysts here have noted
that about 85% of Philippine imports from Japan were already
entering the Philippines with low (zero to 5%) duties before JPEPA;
and that JPEPA allowed remedies (such as safeguard mechanisms) for
domestic industries severely affected by import surges.

¶8. (U) In the medium term, studies estimate that JPEPA could boost
Philippine exports by up to $1.4 billion dollars annually
(equivalent to about 20% of Philippine exports to Japan). The
Philippine agricultural sector also stands to gain from greater
access to the Japanese export market. Japan is the single biggest
buyer (over 70% by value) of Philippine shrimps and prawns, and
fresh fruits and vegetables (60%).

Implementing Mechanisms Not Fully Established
———————————————

¶9. (SBU) According to Philippine Trade Undersecretary Thomas
Aquino, work on the mechanisms to implement various aspects of the
treaty are ongoing, including setting-up and convening the various
committees to work on the operational details. Although he expects
it may take another six to twelve months for the benefits to be more
apparent, he estimated that JPEPA could boost Philippine-Japan trade
and investments by 10% to 20%.

Challenges Ahead
—————-

¶10. (SBU) In meetings with econoffs, Japanese Embassy officials
noted that although JPEPA provides a framework for dialogue,
cooperation, and dispute resolution, the Philippines ultimately
still needs to compete in a globalized economic environment for
Japanese trade and investments. They added that in order to
maximize JPEPA’s envisioned benefits, the Philippines must exercise
the political will to address non-tariff barriers to trade, low
competitiveness rankings, and constitutional/legal restrictions to
foreign investments here.

Comment
——-

¶11. (SBU) The lengthy, tedious, and controversial process that
Japan went through to negotiate a free trade agreement with the
Philippines (i.e., nearly seven years from inception to ratification
for JPEPA), and the U.S. experience with our bilateral Trade and
Investment Framework Agreement both reinforce the difficulty in
concluding trade agreements with the Philippines until they take
more concrete and convincing steps to demonstrate a commitment to
market-oriented reforms. End Comment.

KENNEY

   

 

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