Assessing Philippine economic negotiations:Impact of market conditions, negotiators’ beliefs and domestic

politics

Amado M. Mendoza, Jr., Ph.D.Department of Political ScienceUniversity of the PhilippinesEddress: ammendozajr@gmail.com

Introduction

In December 14, 1994, the General Agreement on Tariffs and Trade-Uruguay Round was ratified by the Senate of the Philippines with a 19-5 vote after only a few months of debate. The Philippines joined GATTin 1973 (Tokyo Round of GATT) as a provisional member. It formally acceded to GATT on January 1, 1980. It participated actively in the "Uruguay Round" negotiations (the 8th Round of GATT Talks), until the Final Act of the GATT Agreement and the WTO Agreement was signed at Marrakesh, Morocco in April 1994. The Philippine Senate ratified the Final Act in December 1994 and became a "founding member" of WTO effective January 1, 1995.

GATT was first established on October 30, 1947 by 25 countries, which did not include the Philippines. This is called "GATT 1947". (See Appendix "GATT 1947", containing 36 articles spread in 60 pages, in The Results of the Uruguay Round of MultiLateral Trade Negotiations: The Legal Texts, published by the GATT Secretariat, Geneva, Switzerland, 1994, 558 pp.). In the case of "GATT 1994", it took more than seven years of debates and heated negotiations for 117 countries to finally come out with the Final Act of the Uruguay Round of trade negotiations. 

The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994).The GATT 1994 is not, however, the only legally binding agreement included in the Final Act; a long list of about 60 agreements, annexes, decisions and understandings was adopted. In fact, the agreements fall into a simple structure with six main parts:

an umbrella agreement (the Agreement Establishing the WTO);

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agreements for each of the three broad areas of trade that the WTO covers: goods and investment (the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures (TRIMS)), General Agreement on Trade in Services (GATS), and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);

dispute settlement (DSU); Agreement on Customs Valuation and reviews of governments' trade policies (TPRM)

In the Philippines, except for a few newspaper articles, the conclusion of the long-drawn GATT Uruguay Round hardly created a ripple. The importation of rice, after all, has been an open option for the government that it has liberally resorted to, even if there isno actual shortage of rice.

The treaty’s ratification was strongly pushed by President Fidel V. Ramos as part of his overall liberal economic reform program. The treaty’s champion in the Senate was Senator Gloria Macapagal-Arroyo who had a doctoral degree in economics. As chair-person of the Senatecommittee on economic affairs and the chamber’s ‘resident economist’, Arroyo managed the rather easy process of the treaty’s ratification. The terms of the discussion in the Senate was the provision of ‘safetynets’ for those who will be adversely affected by the treaty. Rejection of the treaty was never considered by a majority of the Senators. Provision of safety nets meant that most Senators believed that the Treaty’s benefits will far outweigh the costs of safety nets.

To be sure, the treaty was opposed by a group of civil society groups—leftist/populist groups and protectionist business associations. However, they were unable to sway the senators. What complicated the situation was that “no one was really for outright rejection of the treaty” (Rocamora, 1996, p. 1). The treaty was ratified and only after a few years were Senate resolutions passed to assess the impact of the Uruguay round treaty and to review the need for remedial legislation.

In contrast, the ratification of the less-encompassing Japan-Philippines Economic Partnership Agreement (JPEPA) took a period of two years and a month from the signing of the agreement by the chief executives of Japan and the Philippines in September 9. 2006. JPEPA was initiated during President Gloria Macapagal-Arroyo’s visit to Japan in December 2002. The formal negotiations between the Philippines and Japan started in February 2004. President Arroyo and

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then-Japanese Prime Minister Junichiro Koizumi agreed on major elements of JPEPA in November 2004 that would lead to the immediate removal of tariffs on certain fruits, vehicles, steel products, electronic appliances, and garments.

The JPEPA was signed in Helsinki, Finland on 9 September 2006.While the Japanese Diet ratified the agreement in December 2006, the treaty was almost scuttled in the Philippine Senate due to environmental and constitutional issues. The Japanese Embassy issued two diplomatic notes to remedy these concerns. The treaty was finally ratified on 10October 2008, more than four years after negotiations started in February 2004. To be sure, the treaty’s ratification had to contend with external issues and problems (especially the stability of President Arroyo’s rule) and including stronger civil society opposition to JPEPA. On balance however, the dynamics within the Senate was still decisive.

In early August 1999, the Philippines decided to scrap a three-year-old air service agreement with Taiwan. Manila's decision to end the accord comes in the wake of allegations by Philippine air transport authorities that Taiwan's commercial planes have been abusing their rights under the pact to the detriment of local airlines such as the debt-ridden Philippine Airlines. News reports said Taiwan has been using bigger aircraft such as Boeing 747 planes instead of Airbus 737 planes stipulated in the agreement. The agreement between the Manila Economic Cooperation Office (MECO) and Taiwan Economic Cooperation Office (TECO) -- which handle economic exchanges between Manila and Taipei in the absence of formal diplomatic ties -- allows China Airlines and EVA Airways Corp. to service the Taipei-Manila route daily. Manila's decision to scrap its air accord with Taipei was a risky decision since it could lead to the souring of relations betweenManila and Taipei. Taiwan has substantial investments in the Philippines, while the Philippines had been sending workers, includingmore than 100,000 Filipino domestic workers, to Taiwan. The Philippines -- which maintains its so-called "one-China" policy with mainland China -- has no formal diplomatic ties with Taiwan. (AEN, 1999a).

Chief air service negotiator for the Philippines and foreign affairs undersecretary Franklin Ebdalin explained that the aggressive move wasintended to “teach the Taiwanese a lesson” (Ebdalin, 2009). The Philippines took a huge gamble; a one year notice is usually required for abrogation but only a month’s heads-up was given. The Philippine move eventually boomeranged—Taiwanese investors moved out of the

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country; Taiwanese tourists to the Philippines decreased; and Filipinolabor exports to Taiwan also dropped. For example, visitor arrivals from Taiwan plummeted from 10,273 in September 1999 to 6,764 in October 1999, to around 5,000 by mid-2000. Furthermore, with the suspension of the air agreement, it became more expensive for Taiwan-based Filipino workers to return home.

In the light of these developments, the Philippines had to eat ‘humblepie’. By mid-November 1999, President Estrada sent aides to Taiwan to negotiate for a preliminary air agreement. By end-September 2000,Estrada and the Civil Aeronautics Board (CAB) gave in to a new agreement similar to the 1996 agreement after getting pressures from overseas workers in Taiwan, the business sector, and the Senate Foreign Relations Committee. The 9,600-seat-weekly quota for Taiwanesecarriers was restored including the sixth-freedom rights to both countries' national carriers.

What can we learn from these three disparate episodes of Philippine economic diplomacy? What accounted for the miscalculations behind theunilateral abrogation of the air service agreement between the Philippines and Taiwan? Why was the ratification of the more encompassing GATT-Uruguay round treaty relatively problem-free compared to the ratification of the less encompassing Japan Philippines Economic Partnership Agreement (JPEPA)?

Some observations

The key problem currently confronting the Philippine state with respect to its economic diplomacy is the relative imbalance between state capacity and the requirements of economic openness. Several economists (notably Dani Rodrik) have noted that industrial states grew (or that government spending grew as a share of GDP) to provide insurance and assistance to constituents that will be adversely affected by the vagaries of the international economy. Otherwise, the political commitment to economic openness could not be maintained.In contrast, the Philippine state is relatively puny given its weak capacity to extract resources from society and thus could not provide adequate safety nets. Nevertheless, there is policy commitment to economic openness as elites have learned to adjust to and profit from non-protectionist regimes since the fall of Marcos.

In its early decades, the Philippines’ foreign trade regime could be characterized as mere ‘colonial openness’ since much of its foreign economic relations was with the United States. This economic regime

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is the analogue of the military protectorate status the country had vis-à-vis the US. Foreign economic relations will diversify in the subsequent decades largely in response to the relative decline and retreat of the US from the Asia Pacific and the rise of new economic powers in the region (from Japan to the other NEA dragons including China) as well as renewed European interest in the region. The MiddleEast also became a major foreign economic policy concern because of oil and contractual labor exports.

The Marcos dictatorship represented a significant change in the country’s foreign economic relations for several reasons. While the recourse to foreign capital was not novel, the dictatorship was able to secure massive foreign loans that led to the foreign debt crisis ofthe 1980s. In addition, the exportation of contractual labor to the Middle East became government policy during these years. The increased importance of Japan as an economic partner was likewise effected during the Marcos years. In addition, the regime attempted to copy the strategic industrial policy of South Korea in the late 1970s while it successfully increased military aid monies from the United States. The failure of the regime to use these generous funds productively and their diversion elsewhere was one of the key reasons behind its collapse.

Since the fall of the Marcos dictatorship in 1986, the country’s leaders have fully embraced the neoliberal economic program by acceding to the Uruguay Round-WTO treaty and other liberal international and regional agreements (such as APEC and AFTA). This commitment was maintained even as the economy was shocked by the Asianfinancial crisis of the late 1990s and which also allowed a populist to temporarily gain the presidency. In the process, international economic actors (including non-traditional ones such as the ratings agencies) have gained greater leverage in the formulation of domestic economic policy, esp. in taxation and money laundering. Thus an assessment of the country’s economic diplomacy must also review how the state has responded to the transformative and sovereignty-diminishing pressures of economic openness and globalization.

Diplomacy is traditionally defined as the operationalization of a state’s foreign policy as it relates to other states. Implicit in this traditional view is the notion that diplomacy is the exclusive domain of a state’s ministry of foreign affairs (MOFA). Analogously, economic diplomacy is seen as the translation of a state’s foreign economic policy into practice. Nonetheless, diplomacy has evolved over time with changes in its nature and identity of diplomats. In

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recent decades, globalization and democratization had led to ‘mutations of economic diplomacy’ (Saner & Yiu, n.d.). While traditional state-to-state diplomacy continues, it is being fragmentedand complicated due to participation of a growing number of state (apart from the MOFA) and non-state actors (e.g. firms, supranational/international organizations, and non-governmental organizations). In addition, many states and their constituents had developed increased expectations regarding the benefits accruing from economic diplomacy.

Melissen (1999, xvi-xvii) thus offers the most succinct definition ofcontemporary foreign policy and diplomacy by stating: ‘[Diplomacy] is defined as the mechanism of representation, communication and negotiation through which states and other international actors conduct their business’. Saner and Yiu (n.d.) further observe that new entrants to the diplomatic arena represent different groupings of local, national, and international interests. These co-existing but divergent actors engage in diverse forms of diplomatic activity to achieve their objectives. They categorize these newly emerged diplomatic functions and roles in the following manner:

Table 1 Divergent Postmodern Diplomatic Roles

Functions Roles

State Actors Economic Diplomacy

Commercial Diplomacy

Economic Diplomats

Commercial Diplomats

Non-state Actors

Corporate diplomacy

Business diplomacy

National NGOs

Transnational NGOs

Corporate diplomats

Business diplomats

National NGO diplomats

Transnational NGO diplomats

Source: Saner & Yiu (n.d.)

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Economic diplomacy is concerned with economic policy issues, e.g. workof delegations at standard setting organizations such as the World Trade Organization (WTO) and Bank of International Settlements (BIS). Economic diplomats also monitor and report on economic policies in foreign countries and give home government advice on how to best influence them. Economic diplomacy employs economic resources, eitheras rewards or sanctions, in pursuit of a particular foreign policy objective. This is sometimes called “economic statecraft”.1

Governments are also keen to support national economic development by providing support to their own enterprises for instance in the form ofexport advice, legal assistance, export incentives and backstopping when needed. Such support includes helping national enterprises establish subsidiaries in other markets. At the same time, their function can also involve the provision of support to foreign enterprises interested in investing in the respective country.

Commercial diplomacy describes the work of diplomatic missions in support of the home country’s business and finance sectors in their pursuit of economic success and the country’s general objective of national development. It includes the promotion of inward and outwardinvestment and trade. Important aspects of a commercial diplomat’s work is supplying of information about export and investment opportunities and acting as hosts to trade missions from home (Scholte, 2000, 38-39). In some cases, commercial diplomats could also promote economic ties through advising and support of both domestic and foreign companies for investments decisions.

The fine distinctions drawn by Saner and Yiu between the economic and commercial diplomatic roles and functions carried out by state actors may be most relevant for advanced industrial economies given their relatively greater resources and institutional capacities. It is not be entirely relevant for developing economies like the Philippines. It may be a question how thoroughly these roles and functions are met and how diplomatic work is divided among state actors. To the extent that resources and capacities are scarce, then work on both fronts is merged. Work in standard setting organizations such as the WTO is most likely assigned to specialized agencies while the national embassy or consulate in a foreign country will be loaded with diverse tasks through the attaché system and country-team approach. 1 G.R. Berridge & A. James (2001). A Dictionary of Diplomacy. Hampshire, U.K.:Palgrave Publishers, p. 81 (in Saner & Yiu).

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However, given the growing complexity of the global political economy,many governments have broadened the participation of ministries specialized in economic and financial matters leading to a dilution ofthe influence and role of MOFAs.

For example, the Japan Philippines Economic Partnership Agreement (JPEPA) was entered into with officials from the Department of Foreign Affairs (DFA) and Department of Trade and Industry (DTI) serving as co-chairmen of the preparatory and negotiating committee (more on this topic later). The body was inter-agency in composition and drew members from specialized bodies such as Department of Agriculture, Board of Investments, and the Tariff Commission, among others (See Executive Order 213, 2003). The language of EO 213 indicated that the DTI representative was the ‘senior’ co-chairman andthat the DFA representative was the ‘junior’ one.2 Interviews with informed sources also indicate this was actually the practice (Interview, December 2008, name withheld upon request). In addition, DTI Secretary Peter Favila acknowledged chairmanship of the JPEPA negotiating panel during and DFA officials were virtually absent during the Senate public hearings on the treaty in 2007.

Larger context of economic diplomacy

Notwithstanding the salience of non-state actors in post-modern economic diplomacy, this chapter will focus on the economic diplomaticwork of Philippine state actors. This focus is a result of the recognition of the dueling logics of markets and states in the international political economy (Cohn, 2008; Gilpin, 2001). Liberal economists have long argued that free trade among nations leads to win-win outcomes for all countries when based on the principle of comparative advantage. If that is the case, why would trade protectionism exist or even appear to be increasing? Cronin (2003: 371) asks why a government, even if it finds it difficult to persuade other countries to open up their markets, does not unilaterally removeits own barriers to trade since its citizens will benefit with access to more products and at cheaper prices. Furthermore, increased imports will inject competitive pressures into the domestic economy.

2 EO 213, Sec. 1 states: [T]he DFA Undersecretary for International Economic Relations and the DTI Undersecretary for International Trade shall act as co-chairs of the Philippine Coordinating Committee (PCC). The DTI Undersecretaryshall convene and conduct the meetings of the PCC. In his/her absence, The DFA Undersecretary may also convene and conduct the meetings of the PCC.

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Cronin (2002, 371) observes that nowhere do we see governments unilaterally removing all barriers to trade. Instead, liberalization efforts are often used as bargaining chips for access to foreign markets while protectionism, in various guises, is given to favored industries. The explanation for this apparently economically irrational phenomenon is the fact that international economic transactions take place in a world of nation-states. With no supranational authority to dictate trade rules, much less enforce them, state economic policies are driven primarily by domestic concerns. Opposing the inclusive economic logic of free markets is the exclusive (or excluding) logic of the sovereign state.

Since the appearance of nation-states centuries ago, governments have often approached trade from a mercantilist point of view—in terms of relative gains (how much my state gains relative to another state) instead of absolute gains (how much all trading states gain) and with careful attention to international trade’s domestic costs. Trade becomes an obvious tool for the accumulation of wealth and power by one’s own country—and by potential enemies as well. Even if a countrywere not belligerent by a predisposition, the anarchic international environment forces each state to rely upon itself for its security—hence its sensitivity to relative gains. Furthermore, increased tradeflows could lead to job losses and plant closures so dear to liberal economists as efficiency enhancing. On the other hand, politicians are acutely aware of the political costs to be paid if the losers fromfree trade are ignored. As a result, governments conduct economic negotiations with the goal of gaining as much market access abroad while conceding as little as possible at home.

While systemic realist theory (Waltz, 1979) accords all states with functional similarity, it also recognizes the unequal capacities of states. Some states are richer, more powerful, and have greater capacities than others. These states therefore have stronger bargaining positions vis-à-vis less capable states especially in bilateral settings. In a sense, stronger states are rule-makers whileweaker states are rule-takers.3 The power disparity is most stark in abilateral setting. The formation of international organizations represents attempt to move away from a power-based to a rule-based regime in an anarchic international system. In multilateral settings

3 Waltz (1979) developed his systemic realism by borrowing analogues from neoclassical economic theory. In his sense, strong states are akin to monopolistic or oligopolistic firms (price setters) while weak states are likened to more numerous consumers (price takers).

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such as the WTO, weaker states can possibly improve their bargaining position by coalescing with each other (see Gonzales paper). Schneider (2008) also identify critical conjunctures (as opposed to phases of routine operations) which provide weaker states with opportunities to increase their bargaining leverage with respect to more powerful members and explain why powerful states provide costly side payments to weaker states that generally cannot force them to do so. Singh (2006) meanwhile calls our attention to crossover coalitions (encompassing developed and developing countries) that offer novel possibilities.

Apart from uneven state capacities, values or ideology can impact on economic negotiations. Landau (2000) observes that apart from a period in the 1970s and 1980s when economic negotiations were characterized by ideological rhetoric between developed and developingcountries and conflict between them reached high intensity, economic negotiations moved to more concrete and technical aspects of market access, or trade barriers from the 1990s onwards. Trade negotiations no longer seek to resolve differences between developed and developingcountries, but rather focus on managing the common objective of liberalizing international trade even though it may encroach more and more on wholly domestic issues. The “ideology” of liberalization is the prerequisite accepted by all negotiators and these shared values of free trade and the market economy enlarge the boundary of international economic negotiations beyond traditional trade and investment concerns. Economic negotiations have therefore become moreinterest-loaded, contrary to political negotiations, which deal with value-loaded issues. Still there are exceptions like agriculture, where negotiators and government can face powerful value-based veto groups back home.

Domestic politics and group activity shape a country’s trade policy and thus deeply affect economic negotiations. Economic negotiations involve a vast array of actors all of whom advocate their interests and seek to influence both the outcome and conduct of negotiations. This complex web of actors and practices is always in motion, animatedby efforts of individuals, groups and organizations to advance their interests.

I have argued elsewhere (Mendoza 2004) that despite the complexity anddiversity of actors and practices, economic policy and negotiation analysis must be focused on institutional actors and processes rather than on all involved stakeholders or a macro-analytical ‘all-stakeholders’ framework favored by previous scholarship. I called this

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approach the micro-analytical ‘formal policy-maker’ frame. Domestic interest groups may want to influence negotiation processes and outcomes but can do so through existing institutional arrangements. They may approach formal actors informally (as in their private offices or at the golf links) but their demands must be taken up by the designated negotiators and policy makers.

Foreign policy making, including foreign economic policy making, is the province of the executive, particularly the president. As pointedout in Ed Gonzalez’ paper, the Philippine foreign policy bureaucracy within the executive department is composed of three issue complexes—diplomatic, economic affairs, and security. The economic complex is less recognized compared to the two other complexes largely because there is no key agency that advises the president and coordinates economic matters with other policy actors. There is no equivalent to South Korea’s powerful Economic Planning Board (EPB) headed by the deputy prime minister. A plethora of executive departments and agencies—DOF, DA, OWWA, POEA, DOLE, DTI, NEDA, DOE, DOT, DENR plus ad hoc presidential advisers—handle international economic matters. In addition, the Bangko Sentral ng Pilipinas (BSP) and the Monetary Boardshould be considered as part of the economic complex given their role in exchange rate and other monetary matters.

Indeed, this complex faces various collective action problems given each agency’s particular mandates, agendas, and resources. If this istrue even with respect to executive departments under the president, the inclusion of the supposedly independent (of the president) bodies such as the BSP complicates matters. The legislative and judicial branches of government play secondary roles in foreign economic policymaking as well as the conduct of economic diplomacy. In recent years,the most visible participation of the legislative branch was the Senate’s ratification of the Uruguay Round-WTO treaty in 1994. In this sense, only a half of the legislature is involved since the Housedoes not have a defined role in treaty ratification. The Supreme Court gets into picture largely through its judicial review powers. The constitutionality of economic treaties and agreements could be ruled on by the Court even as post-Marcos presidents have sought refuge in executive agreements that do not require Senate ratification.

While the degree of complexity and severity of collective action problems plaguing the foreign policy establishment has not been

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constant since 1946 up to the present, one can safely surmise that it had been growing across time. This is but the natural result of the growing complexity of the country’s foreign (economic) relations as well as its changing character (from open-colonial to neoliberal) and the corresponding growth and complexity of the economic diplomacy establishment. An assessment of the country’s economic diplomacy willnecessarily analyze the impact of such complexity and CAP severity on foreign economic relations goals and objectives across time.

Theoretical framework: Examining economic diplomacy

The outcomes of economic negotiations are best studied using a theoretical framework that incorporates market conditions, domestic politics, negotiators’ beliefs, and strategies, among others (Odell, 2000). Diplomacy is traditionally defined as the operationalization of a state’s foreign policy as it relates to other states. It was also thought to be the exclusive province of a state’s ministry of foreign affairs. However, diplomacy evolved over time the most notable of which is its fragmentation into different types. Economic diplomacy is one specific type of diplomacy and is the translation of a state’s foreign economic policy into practice. It is obviously no longer the domain of the foreign affairs ministry and requires the participation of specialized agencies such as the economic planning, trade, and finance ministries.

A key activity in economic diplomacy is economic bargaining or negotiation. Economic negotiations are those in which parties’ demands, offers, and related actions refer to the production, movementor exchange of goods, services, investments (including ODA), money, information, or their regulation. They cover trade, finance, transportation, communication, and investment. While it is usually thought that negotiation involves division of gains, it also involves the possibility of enlarging the pie. The co-existence of conflict and cooperation is a key element. Negotiation is not limited to manipulative behavior designed to take advantage of an ‘opponent’ nor is it only accommodation and conflict resolution.

Unlike security negotiations, economic negotiations are sensitive to concrete market market conditions. For instance, market conditions help determine which parties will negotiate with each other. Those who trade heavily oon a good will most likely participate in the negotiations to liberalize trade in that good. This definition does not cover economic sanctions and statecraft driven by security and other non-economic purposes or negotiations mixing economic and non-

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economic issues. An example of the latter would be RP-US negotiationsover military basing rights and economic/military aid before 1991.

Negotiators are the key actors in any negotiation. Their objectives include economic, domestic-political, and relational. Their key objective is realize gain or minimize loss for the state-party they represent. There are other objectives as well. The negotiators may want to maintain or increase the popularity of his chief executive or the ruling party. This may be particularly important if the rulling chief executive or party faces a strong political challenge back home.Last but not least, the the negottiators seek to maintain or increase his country’s future influence with other parties.

No matter the level of education and training and extent of negotiating experience, negotiators will use rules of thumb for estimating consequences (of a given proposal or strategy) and evaluating alternative courses of action. This conception of bounded rationality entails the premise that the international economic negotiator will lack theoretically complete information about the situation—such as how markets will trend in the future, the other side’s true reservation value or resistance point (or ‘non-negotiables’ in layman’s language), what deals the other might be persuaded to consider a gain, or how moves will affect markets and domestic politics both abroad and at home. Our decision maker necessarily substitutes simplified rules of thumb for estimating consequences and putting rough values on alternative courses of action.

In summary, Odell’s model stipulate that market conditions and negotiators’ beliefs impact on negotiating strategies. In addition, domestic politics works with these two other variables to affect the outcomes of economic negotiations. What strategic options do negotiators have?

Value-claiming or distributive behavioro a set of actions that promote the attainment of a party’s

goals when they are in conflict with those of the other party

o Offensive claiming tactics attempt to take value from the other, whereas defensive claiming tactics aim to prevent theother from taking value from the first

Value-creating or integrative behavior

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o actions that promote the attainment of goals that are not infundamental conflict—actions designed to expand the rather than split the pie

o Pure value-creating behavior has not been documented often in international economic negotiations

An example of a value-claiming negotiating strategy was that taken by the United States when it wanted to legalize what it was actually doing in Clark Air Base with their cargo planes. The Philippines responded with the same strategy and asked that the Philippine Airlines be allowed to fly passengers and cargo from Honolulu and Guamto the US mainland. The US negotiators refused and claimed that the proposed flights from Honolulu and Guam were in violation of US law. Only domestic airlines can fly within the United States. The US negotiators also turned around and approached Marcos directly. Eventually, a presidential decree was issued to grant what the US negotiators desired. This is a case of pure offensive value-claiming behavior (Interview with Zapanta, February 2009).

Value-creating or integrative behavior are actions that promote the attainment of goals that are not in fundamental conflict—actions designed to expand the rather than split the pie. However, pure value-creating behavior has not been documented often in internationaleconomic negotiations.

What are the outcomes of negotiations? One is an impasse or stalematewhich the negotiating parties try to resolve. Another is agreement which include tacit or informal settlementor a pattern of government behavior that is equivalent to compliance with an explicit agreement. The outcome of international economic negotiations refers to the termsof the governments’ settlement rather than the behavior of the marketsafter that settlement. In many jurisdictions, the economic agreement is considered that must be ratified by the proper legislative chamber.Strictly speaking however, the ratifiction of an international economic agreement is no longer part of the negotiation process. It belongs to the realm of domestic politics.

How are negotiating outcomes assessed? Intuitively, this question is answered by asking another question. Did a party gain or lose? Nonetheless, any notion of gain orr loss implies some reference point.This could be the value of the status quo ante (SQA). Relative to SQA, did both parties come out better (win-win); did one come out

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better and another worse (win-lose); did both parties come out worse (lose-lose); or did all the gains of one party obtained at the expenseof the other (zero-sum)? An assessment according to SQA is not problem-free. A negative evaluation in this sense can be unfair to the negotiator. If a party’s BATNA or fallback position worsens afterthe bargaining has begun, a rational negotiator may decide to accept awin-lose agreement, if to refuse to do so would make his side still worse off.

Another reference point is BATNA. In negotiation theory, the best alternative to a negotiated agreement or BATNA is the course of actionthat will be taken by a party if the current negotiations fail and an agreement cannot be reached. BATNA is the key focus and the driving force behind a successful negotiator. A party should generally not accept a worse resolution than its BATNA. In this sense, the BATNA is the bottom line, the non-negotiable position. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult tovalue, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors. This means that appreciation of BATNAs are a subjective exercise on the part of negotiators.

From a BATNA viewpoint, a gain means a situation that will be better for the negotiator’s objectives than the situation that would have prevailed had he chosen his BATNA instead. On the other hand, If he believes he has a better alternative, why will he settle for the deal on the table? Furthermore, why would he reject the deal if he can find no better alternative today?

The assessment of negotiation outcomes from the BATNA reference point is not without drawbacks. Gains and losses are partly speculative andmore difficult to identify by consensus. The negotiator must speculate about what will happen to his side under each scenario. Theanalyst (studying the negotiations) must try to discover what negotiators believed would happen under these alternatives, or must approximate by speculating what would have happened if the actual outcome had not been reached.

Odell’s theoretical model and Philippine economic negotiation episodes

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The first negotiation episode to consider is the Philippne Japan Treaty of Amity, Commerce and Navigation. This episode reveals how favorable market condictions and negotiators’ beliefs were thwarted bydomestic politics and frustrate the agreement between the two parties.A change in political regime—the declaration of martial law—in the Philippines must occur before President Marcos could declare the treaty as ratified. Philippine-Japan relations after the second worldwar were at best cold. Japan was considered an enemy until a peace treaty is concluded. It was General Douglas MacArthur who pressured the Philippines into a peace agreement with Japan. MacArthur wanted to lasso Japan into the anti-Communist camp against the Soviet Union and Peoples’ Republic of China. From then on, trade and economic relations between the two grew steadily specially with the ReparationsProgram. However, the absence of a treaty of amity, commerce and navigation (TACN) was a natural barrier to the further growth in Japan-Philippine economic relations.

Those in favor of the TACN between the two countries argued that it will provide a steady and formal framework that will govern capital flows from Japan and the bilateral trade between the Philippines and Japan. Those who were not in favor argued that the TACN was not necessary since bilateral economic ties flourished even in its absence. Politicians who were wary of popular sentiments against the Japanese because of the Second World War balked at sponsoring the treaty for Senate ratiification. President Carlos P. Garcia hesitatedto seek ratification believing it will jeopardize his bid for re-election. He lost anyway. His successor, President Diosdado Macapagal, similalrly had cold feet.

Economics did not immediately figure in Philippine-Japan relations after the Second World War. The Philippine government adopted the policy of considering Japan as an enemy until a peace treaty was signed. The realities of politics and economics, however, prevailed. Thus, as the peace treaty awaited finalization, and issues, such as the trial of the prisoners of war and Japan’s reparations payment to the Philippines awaited solutions, trade between Japan and the Philippines, although limited, was resumed as early as 1947.

It was MacArthur who, in behalf of Japan, entered into a trade agreement with the Philippine government in 1947, through which cementand other construction materials from Japan were exchanged for Philippine sugar and coconut oil.i The following year, MacArthur appealed again to the Philippine government to expand trade with Japan. There were objections from the press, the more militant private

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citizens, and some members of the business sector, but the Department of Foreign Affairs and other Filipino officials and opinion leaders who were able to transcend the emotional hurt of the war, prevailed. They opined that if the Philippines continued to refuse trade with Japan, it would eventually lose in the international market, for Japanwould turn to other countries to get the raw materials she needed.

The total value of Philippine export of raw materials (sugar, hemp, coconut oil, iron ore, and others) to Japan in 1947 was only 4.6 million pesos. It increased to 31 million in 1948, and 22.6 million in1949. Philippine importation of Japanese textiles, kitchen ware, toys,cement, and other finished products also gradually increased: from a total value of 2 million pesos in 1947, to 2.2 million in 1948, and 32.2 million in 1949. On 18 May 1950, a Financial Agreement for Tradeand a Trade Agreement were signed between Japan and the Philippines toput more order in the exchange of goods between the two countries. These agreements, together with annual trade plans, became the guide for trade between Japan and the Philippines, pending ratification of the reparations agreement and the Peace Treaty.

Since trade between the Philippines and Japan was controlled through the trade plans, the balance of trade was, except in 1949 and 1951, infavor of the Philippines. Major Japanese exports to the Philippines were textiles, iron and steel products, machinery and equipment supplies for manufactures, glass and porcelain, chemicals and chemicalproducts, farm equipment, ships, fishing boats, fishing equipment and supplies, and other finished products. Major Philippine exports to Japan were iron ore, manganese ore, chrome ore, molasses, logs and lumber, rattan, mangrove bark, gum copal, buffalo hides, hide fleshing, shells for buttons, kapok or kapok seeds, ramie, copra, abaca, and other raw materials.

Philippine business and the press remained wary of allowing the Japanese to export finished products to the Philippines and to import Philippine natural resources. Such cautious attitudes arose from the antagonism Filipinos felt towards the Japanese due to the war, memories of the prewar Japanese activities in the Philippines, knowledge of the phenomenal economic recovery of postwar Japan, and the fear that the Philippines might remain a supplier of raw materialsto industrialized Japan. Debates about opening the Philippines to Japanese trade would resurface when the 1950 Trade agreement and the Financial Agreement would have to be reviewed upon the restoration of normal relations between the Philippines and Japan.

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The US practically forced the Philippines to sign the Peace Treaty with Japan in San Francisco. Before signing the Peace Treaty with Japan in San Francisco on 8 September 1951, Carlos P. Romulo delivereda speech, wherein he emphasized among other things, that the Philippines reserved the right to negotiate with the government of Japan the payment of reparations to the Philippines. The initial Philippine demands consisted of payment by Japan of 16,000 million pesos for actual damages suffered by the Filipino people under the Japanese occupation; payment of this amount within ten to fifteen years, with partial or interim reparations to be made immediately available to the Philippines even before conclusion of the reparationsagreement.

These demands were not acceptable to the Japanese government for several reasons. In Japan’s interpretation, the spirit of the San Francisco Peace Treaty excluded payment of cash to claimants, and the treaty stipulated that Japan’s reparations obligation was limited to its ability to pay, regardless of whether the reparations covered actual damage. The Japanese government insisted that maintenance of a viable economy for Japan constituted the spirit of the peace treaty, and that if it had to pay all the claims of all the countries it devastated, its economy would be ruined.

In December 1952 Wajima Eiji, director of the Asian Bureau of the Japanese Ministry of Foreign Affairs, came to Manila and submitted a list of services which Japan was ready to render as war compensation. Among the services in the list were the salvage of sunken vessels, andvarious forms of services and skills required in processing raw materials. He further explained that “services” specified in the list included jobs yet to be undertaken, as well as skills and labor already put in the existing stocks of machinery, equipment, and otherproducts. Only the value of “services” involved in their processing ormanufacturing would be considered as reparations. The non-services cost of these items should be paid by the Philippines in cash or in raw materials.

The Japanese stand and their tendency to take cover under the lenient Peace Treaty elicited protests from Philippine government officials, who described the Japanese as arrogant. As the negotiations dragged, actual salvaging of vessels started in June 1955 in Manila and Cebu. Some fifty Japanese salvage men lived in a compound of the North Harbor in Manila.

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It must be remembered that the Peace Treaty had not been ratified yet,and that technically, the Philippines and Japan were still at war. TheQuirino administration could not persuade the opposition Nacionalista Party to ratify the treaty before settlement of the reparations question. Quirino argued that the treaty stipulated a collective security agreement, which was put there on Philippine initiative, and this agreement could not be enforced without a ratified treaty. For the Nacionalistas, on the other hand, the reparations payment was the most important issue in Philippine-Japan relations and had to be resolved first; they were less worried about security for after all, the United States was under obligation to defend the Philippines in case of attack.

Pending the restoration of normal Philippine-Japan relations, temporary diplomatic arrangements had to be made, if only to provide venues for the two countries to communicate. A Philippine Mission had been established in Tokyo in 1948 with Jose Maria Espino as representative. Since the Philippines was already a sovereign state, she had the power to establish a mission in Japan. But Japan had to wait until the end of the American occupation in 1952 before she couldestablish a mission in the Philippines. The Philippine government set as a condition for accepting the mission that no former employee of the military or civil government of Japan in the Philippines would be sent. Nakagawa Tôru became the first Japanese representative to the Philippines.

But the reparations negotiations remained problematical. In the Philippines, Quirino’s successor, Ramon Magsaysay, inherited the problem, as did Hatoyama Ichirô in Japan. On 9 October 1954 Magsaysaydesignated Felino Neri to head the new reparations panel. Neri visitedJapan in May 1955 to conduct negotiations on a political level, to parallel the technical talks earlier organized between Japanese and Philippine panels. Finally, on 27 April 1956, following four years of bilateral negotiations, Caesar Lanuza, head of the Philippine technical panel, and Urabe Toshio, the Japanese chief of mission in the Philippines, initialed the reparations agreement. On 9 May 1956 the official signing of the reparations agreement was held in Malacañang;

The final reparations agreement provided for payment by Japan within twenty years of a total amount of US$ 550 million in the form of capital goods and services. In addition, Japanese private firms would extend to private Filipino firms economic development loans of US$250 million on a purely commercial basis.

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On 29 May and 3 June, the Lower House and the Upper House, respectively, of the Japanese Diet ratified the agreement. The Japanese reaction to the final reparations agreement was generally favorable. Many in the business sector welcomed it as an opportunity for Japanese firms to resume interests in the natural resources of thePhilippines, and to expand trade with the country. Some sectors, however, deplored the fact that the Philippines turned down joint ventures as a way of carrying out reparations projects.

The Philippine Senate, after much heated debate, ratified the treaty on 16 July 1956, with nineteen “yeas” against three “nos” and one abstention. One member was absent. The senators pointed out many defects of the treaty, but on the whole, their criticism was focused on the observation that the reparations agreement was not a real payment for the damages done by Japan to the Philippines, but rather, an effective tool for Japan to expand its trade with the Philippines, exploit Philippine natural resources, and realize peacefully its dreamof a co-prosperity sphere, which it failed to achieve through war. Theprevailing mood in the Senate was one of dissatisfaction, but those who voted affirmatively for it did so in the realization that under the circumstances, this final accord was the best they could get.

On the same day that the reparations agreement was ratified, the Senate moved for a vote on the resolution to ratify the Peace Treaty with Japan, which had been waiting for such action since 1951. With eighteen affirmative votes, the Peace Treaty was ratified, and normal relations with Japan were finally restored. Of the U.S.$550 million to be delivered by Japan, an average of $25 million was provided annually for the first ten years, and $30 million for the next ten. However, negotiations for and procurement of reparation goods did not go smoothly; there were difficulties in arriving at agreements betweenthe Philippine and Japanese governments. By July 1960, the end of thefourth reparations year, there remained about U.S. $6.22 million worthof due reparations goods and services undelivered.

Nevertheless, after twenty years, the Japanese government happily announced on 22 July 1976 the end of the reparations period, and the beginning of a new partnership. The reparations were used primarily for six basic development projects, namely, public works (34.7% or $182.7 million), transportation (19.1% or $100.4 million), industries (15.6% or $82.1million), agriculture and fishery (7.4% or $38.9 million), electric power (3% or $15.6 million), mineral resources (0.6% or $3.3 million), and others (19.6% or $103.2 million), such as education, survey and salvage of sunken vessels, training of Filipino

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technicians and craftsmen in Japan, research laboratory and equipment,coast and geodetic survey equipment, reclamation of foreshore land andswamps, and transportation, insurance, packing, handling and inspection of reparations machinery, equipment, and others.

During the twenty-year reparations period, contact between the Philippines and Japan primarily revolved around economic relations. Reparations delivery and utilization, as well as possibilities of formalizing trade relations between Japan and the Philippines were just one of them; others were about loans and grants and financial andtechnical cooperation. As soon as normal relations between the Philippines and Japan were restored, the Japanese government and the business sector exerted all efforts to expand trade with the Philippines. Philippine reactions to these Japanese overtures were divided. The executive branch was generally in favor, while some legislators and businessmen were against it. In spite of the lack of consensus, diplomatic and political contacts between the Philippines and Japan in the first seventeen years after the ratification of the Peace Treaty were geared towards the conclusion of a treaty of amity, commerce, and navigation. It did not mean, however, that accelerated Japanese participation in Philippine economy waited this long.

The Trade Agreement and Financial Agreement between the Philippines and Japan which was signed in 1950 expired on 31 December 1956. Trading under these agreements had been problematic. It was difficult both for Japan and the Philippines to cash the amounts of imports and exports. Japan found compliance with Philippine rules on customs duties exasperating. On the other hand, the Philippines enjoyed a favorable balance of trade with Japan, and the dollar reserves of the Philippines increased because of the controls provided by these agreements. Therefore, despite problems met in the implementation of the agreements, and even though the Japanese pressed hard for its replacement with a more permanent trade treaty, the Philippine government decided to extend the two 1950 agreements up to 1957 (Commerce, 1957).

When the trade and financial agreements expired in July 1957, there was still no permanent trade treaty with Japan, and many more years would pass without a treaty. Commercial relations between the Philippines and Japan continued under a 1958 Exchange of Notes signed by the Philippine Secretary of Foreign Affairs Felixberto M. Serrano and the Japanese Ambassador to the Philippines Yukawa Morio.

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On 1 December 1958 President Garcia left for Japan to start a 5-day state visit. Prime Minister Kishi Nobusuke had visited the Philippinesthe previous year. In his departure speech at the airport, President Garcia exhorted the Filipinos to consign to the past the hatred they had towards the Japanese. In Tokyo, the president addressed a joint session of the Japanese Diet, and admitted that there was still lingering “ill-will” in the Philippines because of the Japanese occupation of the country; but that he desired to “lead my people in writing a new chapter in Japan-Philippine relations, one that shall becharacterized by friendship and cordiality (Marquez and Abiera-Marquez, 1974). A joint communiqué was issued on the occasion of thisvisit, wherein the Japanese government agreed to extend a loan for theconstruction of the multi-purpose Marikina dam and the modernization of the country’s communications system, within the framework of the Reparations Agreement. The joint communiqué also mentioned that the two countries agreed to consider at the appropriate time the possibility of working out a treaty of amity, commerce, and navigation. While a TACN was still to be finalized, both would encourage greater trade and commerce between them (Foreign Service Institute, 1985).

Actual negotiations between the Filipino and Japanese panels began in April 1960 in Tokyo, when reparations payment was only on its fourth year. Jose P. Laurel, the former president of the Second Philippine Republic, was the chairman of the Philippine panel; Yukawa Morio, Ambassador of Japan to the Philippines, chaired the Japanese panel. On9 December, the treaty was signed. In October 1961 the Japanese Diet ratified it. President Garcia decided against submitting the treaty tothe Senate for ratification, for it might jeopardize his re-election bid. Just the same, he lost the election to Diosdado Macapagal. The new president procrastinated on the issue of ratification.

On 5 to 10 November 1962 Crown Prince Akihito and Princess Michiko visited the Philippines. Although the treaty of amity, commerce and navigation was not on the official agenda, it was the common belief that the aim of the imperial couple’s visit was to charm the Philippine public and government officials to ratify the treaty. In October 1963, Prime Minister Ikeda Hayato visited the Philippines, andstressed the importance of the early ratification of the treaty. On 28to 30 September 1966, Ferdinand Marcos, who became President in December 1965, visited Tokyo. This visit was returned by Prime Minister Sato Eisaku on 18 to 21 October of the following year. Duringthe visit, Prime Minister Sato assured President Marcos of Japanese

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financial support for his infrastructure projects, and pointed to the importance of the ratification of the treaty.

Aside from exchange of visits between the chief executives of Japan and the Philippines, Japan also sent a number of goodwill missions tothe Philippines. All of these missions emphasized the importance of ratifying the treaty of amity, commerce and navigation. All failed in this particular part of their mission. The uphill climb of the treatyof amity, commerce and navigation between Japan and the Philippines was not only due to the scars of war. It was also because of a numberof provisions in the treaty deemed detrimental to Philippine interest.In January 1961, Commerce asked its readers to send in their comments on the treaty. Of the 153 replies the newspaper received, only 26 endorsed the treaty. Still, the majority of those who endorsed it urged amendments and adoption of safeguards to protect the Philippine economy from possible Japanese dominance.

Those who opposed the treaty gave the following objections: it was a serious setback, if not an outright negation of President Garcia’s “Filipino First Policy;” the Filipinos had very little to gain, and everything to lose from the treaty; the presence of Japanese in the Philippines would pose a threat to the country’s security; the treaty would be ruinous to the shipping industry of the Philippines; the treaty provided for reciprocity between two countries whose economies were not equal; the Philippines would be signing a treaty that had a “most-favored-nation” clause with a former enemy even before concluding it with an ally; the treaty did not define the territorial boundaries of the Philippines, thereby exposing the country to unlimited exploitation by the Japanese; and the treaty did not have limitations on fishing rights in Philippine waters.

The above arguments more or less echoed and summarized the arguments given in the halls of Congress and by mass media commentators. Other reasons given for opposing the treaty were that the treaty was not necessary, for trade and commercial relations between the Philippines and Japan had been going on, anyway for many years; that an executive agreement would be a better alternative to a treaty; and that trade with Japan would preclude Philippine participation in a Pan-Malayan Common Market.

The minority who were not against the treaty gave the following rebuttal. Concluding a treaty that had a “most-favored-nation” clause with a former enemy even before concluding it with an ally was advantageous because the Philippines would not be inclined to accord

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the other party too much rights and privileges, which, under the most-favored-nation principle, would have to be granted later to all other nations with which treaties would be concluded. They also pointed out that most of the businessmen who came out against the treaty were protecting their own business interests. Lastly, they belied the claimthat with or without a treaty, Japan would buy Philippine raw materials, for it needed them anyway. They said that the Philippines had no monopoly of the raw materials that Japan needed—if the Philippines would not provide them, Japan would get them from other Asian countries.

Other arguments in favor of the treaty were, a democratic, friendly neighbor like the Philippines should trade with Japan, so that Japan would not be forced to trade with a communist country. Also, it was commented that the trade treaty would stabilize trade between Japan and the Philippines because Philippine producers would be guaranteed adefinite market for their products and would therefore know in advancewhat products to produce.

In spite of the absence of a treaty of amity and commerce, trade between Japan and the Philippines continued to expand. The volume of trade between the two countries in 1963 was U.S.$ 325 million, approximately four times as large as in 1954 (Usami, 1964).ii The ratioof Philippine exports to Japan to the total Philippine exports doubledfrom 1954 to 1963 – from 12% to 24%. Meanwhile, the ratio of Philippine imports from Japan to the total Philippine imports more than tripled, from 6% to 20% during the same period.

Moreover, Japanese capital had also begun to enter the country as early as 1958, in spite of the lack of a clear policy on allowing Japanese investments in the country. The Department of Justice had opined that it was legal to enter into joint ventures with Japanese, because the Peace Treaty had been signed by the Philippines. But the Securities and Exchange Commission continued to turn down applicationsfor license by Japanese firms.

On 19 April 1967 President Marcos reversed the adamant stand of previous administrations regarding the entry of Japanese capital into the country by directing the Securities and Exchange Commission “to give due course to all applications of Japanese nationals and corporations to engage in business in the Philippines.” By the following year, 16 Japanese firms were identified as doing business inthe Philippines: Mitsui, Mitsubishi, Nichimen, Marubeni, Sumitomo, Nissho, Toyo Menka, Ataka, Kanematsu-gosho, Iwai, Chori, Itoh, Nippi

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Bôeki, Kowa, Nomura Trading, and Japan Air Lines. The capital of thesecorporations ranged from thirteen million to hundreds of millions of pesos.

The existence and operation of these Japanese firms were questioned bySenator Jovito Salonga, who accused the firms of operating on the basis of a faked permission allegedly issued by the National Economic Council. The exposé, in effect, was an attack on President Marcos, whoordered the opening of investment opportunities to the Japanese. The mayor of Manila ordered the closure of all the Japanese corporations, except the Japan Air Lines which did not engage in the export-import business. The Salonga exposé mildly revived the anti-Japanese sentiment in the Philippines. The investigation of his exposé was eventually forgotten as bigger domestic problems, such as the Communist insurgency emerged and, in the excitement leading to the 1969 presidential election. That year, Marcos became the first ever Filipino president to win a reelection bid.

On 2 March 1972, a resolution for the ratification of the Philippine-Japan Treaty of Amity, Commerce, and Navigation was rejected by the Philippine Senate. On 21 September 1972 Marcos declared Martial Law ongrounds of Communist threat to Philippine security. Subsequently, the Philippine Congress was dissolved, and Marcos ruled through presidential decrees. In his capacity as chief executive and law-maker, he declared the Treaty of Amity, Commerce, and Navigation between Japan and the Philippines as ratified. Instruments of ratification were exchanged between Secretary of Foreign Affairs Carlos P. Romulo and Japanese Ambassador Urabe Toshio on 27 December 1973, following the exchange of diplomatic notes on a Japanese loan tothe Philippines amounting to about 17 million pesos. Secretary Romulo explained that the loan had nothing to do with the ratification of theTreaty of Amity.

Philippine-Taiwan air service agreement (ASA) row

Following a long-running aviation dispute, the Philippines gave on August 1999 an irregular single month’s notice and unilaterally abrogated the air service agreement signed earlier in 1996 with Taiwan. The abrogation was to take effect on September 30, 1999. Thereason behind the abrogation? That Taiwanese carriers—China Airlines and Eva Air—are ‘poaching’ on the potential passengers of the Philippine Airlines. Specifically, the Taiwanese carriers were accused to picking up United States-bound passengers in Manila since

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they were using larger passenger planes than what was agreed upon. The Taiwanese planes originate from Taipei or another Taiwanese city carrying passengers bound for Manila and Los Angeles (for instance). Passengers bound for Manila will disembark in Manila leaving seats fornew passengers flying to Los Angeles. Philippine aviation authoritiescomplained that these passengers could have flown to Los Angeles via the Philippine Airlines. They believe that the use of larger planes violates the ASA and constitutes unfair competition. They forget thatthe strongest suit of the Taiwanese carriers is their competitive air fares (Lu, Liu, and Shen, nd).

Immediately after issuance of notice, President Joseph Estrada said hewas hopeful that both parties will reach a “fruitful solution” in forging a new air service agreement. Estrada gave Taiwan two options: either renegotiate the terms of the 1996 air service agreement which remains valid until September 30, or forge a commercial contract with local carriers. A commercial contract actually means that Taiwanese carriers strike an agreement with Philippine Airlines, the only local airline with international flights, to load and unload passengers bound for third destinations (Vanzi 1999).

The Taiwanese take on the issue is quite different; it was the Philippines who is guilty of offensive value-claiming behavior. Talksto resolve the aviation dispute broke down and Taiwan’s Civil Aeronautics Administration (CAA) said this was due to the Philippines’insistence that Taiwan carriers should share profits with Manila whenever Taiwanese airlines sell more than 4,000 seats a week. They have a quota of 9,600 seats per week. The Taiwan CAA said it will resume negotiation only if the Philippines lifts the suspension of Taiwanese carriers and agrees to maintain the weekly allocation of 9,600 seats. Apart from China Airlines and EVA Air, affected by the Philippine unilateral ban were Far Eastern Air Transport and TransAsiaAirways, which operate charters to Philippine destinations (Hannon 1999).

Ratifying JPEPA

Japan’s EPA policy took some time to take shape and intensify. In the 1990s, it stood by andwatched the regionalization of European, North American, and Southeast Asian economies. It sawthe increasing trend in bilateral free trade agreements (FTAs). Despite Prime Minister Hashimoto’s

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1996 announcement of Big Bang reforms, a domestic policy deadlock in regard to theinternationalization and liberalization of the economy was still evident. This deadlock was manifestedby difficulties of achieving inter-ministry coordination and cooperation (Solis and Urata 2007). Then at the beginning of the 2000s, Japan shifted gears. It launched an EPA train that at first rolled slowly then furiously sped towards the close of the decade.

The Philippines tried to board this train quickly but poor government preparations impeded thisattempt. The JPEPA was entered into force in November 2008. The agreement process took almostseven years to complete since Prime Minister Jun’ichiro Koizumi first brought up the idea of acomprehensive economic partnership with ASEAN member nations during his January 2002 tour ofSoutheast Asia. Since signing the agreement in principle on November 29, 2004, the JPEPA tookroughly four more years for it to be ratified and be entered into force. The Philippine process waslonger than those of most of the original ASEAN members’ processes. It was also perhaps the mostpublicly controversial. As Temario Rivera observed, “In contrast with Japan’s experience innegotiating EPAs with other countries in Asia, the Philippine situation stands out as a thoroughlycontentious process” (Rivera, 2008).

On November 4, 2002, the ten ASEAN members signed an initial frameworkagreement with the Peoples’ Republic of China (PRC) with the intent ofestablishing a free trade area among the eleven nations in a decade’s time. The ASEAN-China free trade area is the largest free trade are in terms of population and the third largest in terms of nominal grossdomestic product (GDP) (Walker, 2010; Gooch, 2009).

Analysts have regarded China’s surprise foreign economic policy as thetrigger to Japan’s EPA campaign with the ASEAN members (Akira, 2003; Terada, 2006). In the 1990s, China was distrusted by many ASEAN members because of its hard approach toward unsettled territorial

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claims in the South China Sea. Likewise, it was viewed as ASEAN’s competitor in foreign investments and trade.

The initiation of the idea to have a bilateral economic partnership agreement (EPA) was made in May 2002 (Batalla, 2012). Koizumi’s January 2002 proposal of a comprehensive economic partnership was received and supported by the ASEAN heads of state. In May 2002, Philippine President Gloria Arroyo proposed the creation of a working group on both sides to discuss the possibility of an economic partnership agreement (EPA) (Batalla, 2009). The working group (WG) was subsequently created in October of that year after the proposal was brought down to the ministerial level (Batalla, 2009). The WG metfive times, four times in Manila and once in Tokyo (the fifth and lasttime on 8-9 July 2003).

In June 2003, Arroyo again met Koizumi in Tokyo. They agreed to include the participation ofthe academic and private sectors in the study process. In the Philippines, many studies wereconducted through the Philippine Institute of Development Studies (PIDS). A total of eighteen (18)studies were commissioned by the PIDS under the Japan-Philippines Economic Partnership ResearchProject. The studies generally favored the JPEPA.

Likewise, a Joint Coordinating Team (JCT) for JPEPA was formed in 2003to exchange views onvarious issues and synthesize the findings from the time of the WG sessions4. Based on the JPEPAJoint Coordination Team Report, the bilateral EPA would yield positivebut minimal impact on thegrowth of both countries’ gross domestic product (GDP). Though the impact was minimal for bothcountries, the report said that both countries still stood to gain from projected increases in tradeand investments.

4 Executive Order No. 312 mandated the creation of a Philippine Coordinating Committee to study and negotiate the JPEPA. The lead agency was the Department of Trade and Industry (DTI).

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In December 2003, Arroyo along with other ASEAN leaders again met Koizumi in Tokyoduring the Japan-ASEAN Commemorative Summit. The two leaders agreed tostart formalnegotiations for the JPEPA. The negotiations commenced in February 2004, with the Department ofTrade and Industry spearheading the Philippine side. On November 29, 2004, Koizumi and Arroyosigned the JPEPA in principle. The “final” agreement was signed by thetwo leaders on September 9,2006 in Helsinki, Finland. The rather long interval between these two dates—almost two years—could be explained by the reactions coming from some business firms inthe Philippines. This led to arenegotiation of the initial JPEPA document.

The basic document which became the basis of the agreement in principle identified certainareas which provided tariff reductions/eliminations as well as economic cooperation. The agreementon Trade in Goods called for the tariff abolition of all auto and autoparts by 2010. For some types,tariffs would be immediately eliminated. According to Higashi (2008), tariffs would be abolishedimmediately on imported vehicles with engine displacements exceeding 3,000 cc.; tariffs for vehicleswith engine displacements below 3,000 cc would be abolished by 2010.

Higashi (2003) narrated how carmaker Ford lobbied against this JPEPA provision. Obviously, theprovision would put Ford at a gross disadvantage against Japanese automotive firms, who wouldbegin enjoying tariff-free imports as against Ford’s 10% tariff on imported large vehicles. Citingexisting government regulations governing the Philippines’ motor vehicle development program, itadvocated for a stay in the current import tariff system. Ford also informed the Philippinegovernment of Thailand’s success at negotiating the continued protection of its more vibrantdomestic automotive industry. The subsequent renegotiation decided on the maintenance of the

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30% tariff until 2009 on vehicles with engine displacements of 3,000 cc. and above; tariffs would beabolished in 2010 if no additional investments were made. Likewise, the tariff on cars below 3,000 ccengine displacements would be reduced gradually to 20% by 2009 subjectto renegotiationafterward (Higashi, 2003).

The renegotiation caused the first round of delay in the signing of the final agreement.Eventually, the two parties produced a 120-page treaty with 16 chapters. Eight (8) annexes wereincluded in the agreement, making the JPEPA a voluminous document. Allin all, the JPEPA reached934 pages.

After the Helsinki signing, the JPEPA was ratified by the Japanese Diet in December 2006. Incontrast, the Philippine executive branch failed to transmit the JPEPAimmediately for Senateratification. It appeared that the executive branch had erred in assuming that the JPEPA needed noratification by the Senate. Senator Mar Roxas, who had led the Philippines during the Doha Round ofthe WTO negotiations, explained that FTAs which fell under GATT rules were classified asexecutive agreements and hence did not require Senate concurrence. However, Senate concurrencewas required for JPEPA since it was claimed that the EPA contained “WTO-plus, or provisionsexceeding those of approved or pending matters” in the WTO. Apparently, the JPEPA includedthe so-called Singapore issues (e.g., transparency in government procurement and customs issues),which the WTO was not yet able to settle.

On November 7, 2006, members of the Senate expressed their relief overPresident Arroyo’sannouncement before the Legislative-Executive Development Advisory Council (LEDAC) that theJPEPA would be referred to the Senate. The JPEPA was finally transmitted to the Senate in a letter

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signed by Arroyo dated November 16, 2006. Five days later, the Senate referred the agreement toits committee on foreign relations headed by Senator Miriam Defensor Santiago. However, time hadrun out on the ratification process as the 13th Congress neared its end. The ratification processinvolved public hearings, the filing of a committee report, a Senate Resolution, and the approval ofthis resolution by the Senate. The filing of a committee report shouldbe approved by a simplemajority in the Senate. Thereafter, a resolution could be submitted and debated. A senate resolutionrequired two-thirds vote of the Senate in plenary.

During and after the JPEPA negotiations, strong resentments were publicly expressed regardingthe lack of transparency and public consultations. Even members of theHouse of Representativeswere disturbed by the “secrecy” of the talks. Members of the Lower House learned of the treatyduring deliberations on the 2006 DTI budget by the House committee on appropriations led byRepresentative Rolando Andaya. According to trade department officialsheaded by Secretary PeterFavila and Senior Undersecretary Thomas Aquino, the House Special Committee on Globalizationand WTO had already requested the documents. However, the issuance of Executive Order 464prevented the DTI from sharing any documents without prior approval ofthe President. Further,the JPEPA documents could not be disclosed in view of ongoing negotiations. Executive Order 464invoked the use of executive privilege in the exercise of separation of powers in government. Thus,in December 2005, a group led by the Akbayan Citizens Action Party (AKBAYAN) and othermembers of the House of Representatives filed an urgent petition before the Supreme Court tocompel the government to publicly disclose the full text of the JPEPA and all pertinent attachments.It took some time for the High Court to reach a decision.

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Even after the September 2006 Helsinki agreement, the complete detailsof the JPEPA stayedwith the executive department and were kept from the public eye. This did not prevent a publicstorm from gathering however. Advocacy groups led by Greenpeace and Fair Trade Alliance hadbeen adamant on the issue of toxic wastes dumping. In October 2006, they found a champion inSenator Pia Cayetano who was chair of the Senate environment and natural resources committee.

Cayetano publicly expressed grave concern over the possibility of the Philippines being adumping ground of hazardous and toxic wastes from Japan as a result ofthe tariff abolition onwastes. She pointed out that this potentially violated the relevant Philippine laws on wastes and eventhreatened the people’s health. The issue of toxic wastes firmly conditioned the public mind aboutthe demerits of the JPEPA. It was so devastating that it became the subject of the first exchange ofdiplomatic notes (May 23, 2007) on JPEPA between the foreign ministersof the Philippines andJapan.

Another issue that surfaced even before the JPEPA’s transmission to the Senate involved thestringent requirements for the entry of Filipino nurses into Japan. The movement of Filipino labor,particularly of nurses, was one of the JPEPA’s supposed attractions. Earlier, environmentalistsconsidered the JPEPA as an exchange of Filipino nurses for Japanese toxic wastes. The issue ofstringent entry requirements raised the level of difficulty for the ratification process.

The third issue surrounding the JPEPA in late 2006 was its impact on domestic industries andworkers. At that time, Senator Roxas expressed the view that the impact had yet to be ascertained.The fourth issue concerned the treaty’s violations of the Philippine constitution and statutory laws.

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Particularly, there were potential violations, namely: 1) the grantingof parity rights (nationaltreatment), 2) the granting of most-favored-nation (MFN) treatment, and 3) prohibition ofperformance requirements to Japanese investors. These issues were particularly sensitive to criticsbecause of their implications on the exploitation of the country’s natural resources, the Philippines’relationships with other countries, and to the nature of laws that government could make in thefuture. In sum, JPEPA critics not only rejected bloated claims of economic gains for the Philippines;they also raised serious constitutional/statutory, environmental, and overseas employment issues(particularly on nurses and caregivers).

In the backdrop of the government’s failure to disclose ample information after the Helsinkiagreement, the mass media made the public increasingly aware of these issues. This situationproduced a powerfully negative impression of the JPEPA to the public. JPEPA’s public image as aninstrument of mutual benefit never fully recovered because of this. The public’s negative opiniondragged the ratification process and lingered even after Senate approval.

Certainly, the Arroyo Philippine government wanted a speedy ratification. However, by thetime the JPEPA was referred to the Senate in November 2006, preparations for the May 2007elections were already underway. For some members of the Senate, to ratify the controversialagreement would be to risk being reelected. More urgent for the senators was the completion ofbudget deliberations by the first week of December. The JPEPA debates were likewise scheduled tocommence on December 7.

A final attempt was made by the administration to speed up the process. Administration ally,Sen. Miriam Defensor Santiago, wrote a letter to Senate President Manuel Villar dated November 27,

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2006 that served as a motion for him to convene the Senate as a committee of the whole and todiscuss the JPEPA’s ratification. In this letter, she cited as precedence the 9th Congress where theSenate was convened as a committee of the whole to tackle the GATT/WTOagreement. Duringthat time, the chair of the committee on foreign relations and the chair of the committee on tradeand commerce acted as co-chairs. The letter was addressed to the Senate president because underSenate Rule 10, Section 14, the Senate president had the authority to convene a special committeesuch as the one that Santiago was proposing. Villar however was not keen on the proposal. He feltthat in the face of ongoing deliberations on the government budget, healso needed to consult withthe other senators, particularly Senate Majority Leader Francis Pangilinan, regarding the scheduling ofmatters for deliberation at the floor.

Villar’s attitude toward the Santiago proposal revealed a view from the Senate that concurrenceon the JPEPA involved a more difficult process. This was confirmed on December 5 when SenatorPangilinan announced that debates on the JPEPA would be postponed. Thepostponement was madein view of bicameral conference debates on the budget scheduled on December 7, which waspreviously the set date for the JPEPA. Pangilinan told the press that Senate President Villar wantedthe ratification process to begin in the following year.

On January 24, 2007 Senator Santiago announced that the Senate decidedto shelve ratificationdiscussions on the JPEPA. With nine session days left before adjournment, Santiago said that therewas no more time for JPEPA to be ratified. Thus, the JPEPA became an unfinished legislativebusiness of the 13th Congress. Senator Miriam Santiago later explained that under the rules of theSenate, all unfinished legislative business at the end of a certain Congress would have to be re-

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started in the new Congress. In other words, the executive branch should again transmit the JPEPAto the Senate for ratification.

After the 14th Congress came in session, the JPEPA was transmitted again by Arroyo for Senateratification on August 17, 2007. Public hearings commenced in September and ended in December.A total of nine committee hearings were held from September to December. The most vocalgroups who were in favor and against the JPEPA as well as resource persons were heard. Thehearings ended with a host of unsettled issues, most importantly constitutional ones.

After the hearings, a committee report on the JPEPA was subsequently prepared jointly by thecommittee on foreign relations, headed by Senator Santiago, and the committee on trade andcommerce, chaired by Senator Roxas. Roxas was optimistic that the report would be released afterthe Senate reopened its session on January 28, 2008. As usual, the Philippine executive branchwanted immediate Senate ratification, by April 2008 at the latest. This move was supported byinfluential business associations such as the Philippine Chamber of Commerce and Industry (led byDonald Dee) and the Makati Business Club. However, many senators were now prevented fromimmediately concurring.

Many senators faced a certain dilemma that stemmed from their realization that the contestedissues would not lead to a treaty renegotiation. That the JPEPA was already approved by theJapanese Diet dimmed the possibility of renegotiation. So the Senate was left with the choice ofeither approving or rejecting the treaty.

During the 2007 Senate hearings, retired Supreme Court Associate Justice Florentino Felicianopointed to constitutional and statutory problems posed by the JPEPA, particularly Article 89 (on

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national treatment), Article 90 (on MFN treatment), Article 93 (on prohibition of performancerequirements), and Article 18 (removal of customs duties which is a power of Congress and not thePresident’s). According to Justice Feliciano, these problems arose due to the Philippine negotiators’“failure to make appropriate and complete reservations in our Scheduleto Part 1 (with respect toexisting nonconforming constitutional and statutory and administrativeprovisions) and our Scheduleto Part 2 (with respect to future non-conforming measures) of Annex 7.” He mentioned that theJapanese side itself had made a long list of reservations.

To save the treaty from being inconsistent with Philippine constitutional provisions andstatutory laws, he recommended amendments and insertions to the treaty’s Annex 7 (particularlythe Philippine Schedule to Parts 1 and 2 of said annex). Feliciano believed that securing the consentfrom the Japanese government would not be difficult for reasons, to quote: “(a) that we would beasking only for what Japan has secured for itself in Japan’s Schedulesto Part 1 and Part 2 of Annex 7;and (b) that we would be asking only for what Japan has already conceded to Thailand, Malaysia andIndonesia in their respective EPAs with Japan.” He added, “Incidentally, the Schedules ofcomprehensive reservations for future non-conforming measures that Japan, Thailand, Malaysia andIndonesia adopted, should provide models that our negotiators may usefully examine carefully.”Feliciano argued that the Senate could condition its approval of the JPEPA on these amendments.

The Feliciano solution was taken up by former Supreme Court Justice Artemio Panganiban intwo successive articles released in his column, With Due Respect, at the Philippine Daily Inquirer. Onthe premise that the JPEPA could no longer be renegotiated because of the Diet ratification,Panganiban recommended conditional or qualified concurrence. Accordingly, the Senate could ratify

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the treaty with “the understanding and interpretation that the Constitution is superior to anyprovision of the JPEPA and that the Philippines is not barred from applying current, or enactingfuture, legislations that implement our fundamental law.”

Panganiban later explained that the proposal for qualified concurrencehad domestic andinternational validity. He cited the practice of the United States Senate, which also issuedreservations in its concurrences. Further, he believed that, once accepted by both governments, aSenate reservation of the primacy of the Philippine Constitution over JPEPA would not be a problemin the international courts. Panganiban further recommended “an exchange of letters between bothgovernments acknowledging the validity and binding effect of the Senate qualifications.”

Conditional concurrence was therefore a way out of the Senate dilemma of approving orrejecting the JPEPA. For many senators including Senator Santiago, JPEPA was no longer a matter ofsimple concurrence. On the basis of both her own expertise as well as those who have expressedtheir expert opinions during the 2007 hearings, she was convinced thatthe Supreme Court woulddeclare the JPEPA as unconstitutional. Thus, prior to the resumption of the Senate session in January2008, Santiago expressed her intention to submit to the Senate a resolution of conditionalconcurrence.

Conditional concurrence involved an exchange of notes between Japan and the Philippines.Santiago mentioned that the Japanese ambassador had accepted the concept in principle. Theexchange of notes would clarify Japan’s position toward the issues raised by concerned groups in thePhilippines. Later in August, she would point out that conditional concurrence is allowed by theVienna Convention on the Law of Treaties. A total of 15 statutory and constitutional provisions had

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to be clarified.

The proposed process was welcomed by JPEPA proponents in the Philippines and many ofthose who were concerned with constitutional and statutory inconsistencies. The exchange of notes,which would serve as a supplemental agreement, would give the assurance needed by the Senatethat the national interest was adequately protected. It would thus resolve the contested issues.

In January, Santiago had hoped that, through this process, the JPEPA ratification would becompleted before the Senate session adjourned on March 29, 2008 for the Holy Week break.Unfortunately, since the Senate session’s resumption in January, no exchange of notes transpired. Itappeared that it was difficult for the Philippine government to convince Tokyo about conditionalconcurrence. Moreover, a series of events doused any sense of urgency for the treaty in thePhilippine legislature’s Upper House. The Senate dealt with the extended budget deliberations inJanuary and later, the ZTE-National Broadband Network (NBN) scandal aswell as the food andenergy crises. Senate adjourned its session in March with no resolution on the treaty.

In mid-April 2008 President Arroyo urged the Senate to ratify JPEPA. On April 21, Santiagofiled the joint committee report and looked forward to making her resolution sponsorship speechon April 28. The committee report recommended conditional concurrence in view of theconstitutional and other issues. Earlier, Santiago also worried to secure the majority vote of the twocommittees (on foreign relations and on trade and commerce) as well asthe votes of 16 Senatorsduring plenary session. Then in an unexpected twist, the government sued for time.

Foreign Affairs Secretary Alberto Romulo requested that Santiago postpone sponsorship of the

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resolution to ratify the JPEPA to rectify constitutional infirmities. Apparently, negotiations were being undertaken between Tokyo and Manila on a supplemental agreement based on the exchange of notes. TheSenate resolution had to wait for this agreement to be reached before it could be filed. It was likely that either or both governments did not want the Senate’s conditional concurrence, which potentially meantmore problems before and during JPEPA’s implementation. No supplemental agreement was made before Congress adjourned its first regular session in June.

On July 28, 2008 Congress opened its second regular session. On August5, Arroyo re-submitted the JPEPA for Senate ratification. On the same day, the joint committee report on theJPEPA, now recommending concurrence, was filed at the Senate. Of the thirteen senators whosigned the committee report, only Senators Edgardo Angara and Juan Ponce Enrile gave theirapproval without reservations.

The joint committee report recommendation, which was adopted by SenateResolution No.555, changed from conditional concurrence to simple concurrence in view of the fact that thesupplemental agreement was already being finalized. 58 The exchange ofnotes between ForeignSecretary Romulo and Foreign Minister Masahiko Koumoura dated 22 August 2008 was latertransmitted to the Senate. Through such assurances, and after nine sessions, the JPEPA was finallyapproved by 16 of the 23 senators on October 10, 2008. Four senators voted to disapprove,namely: Senators Jamby Madrigal, Benigno Aquino III, Francis Escudero,and Aquilino Pimentel Jr.Those not present and did not vote were Pia Cayetano, Antonio Trillanes, and Joker Arroyo.

What were the Philippines’ reasons to support an EPA with Japan where economic benefitswere projected to be minimal? As Japan had feared of being isolated and overtaken, the Philippinesalso feared of being left out and behind by her ASEAN neighbors. Japanplayed a diplomatic gambit of

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forging EPAs with the ASEAN, as individual countries and as a region. On October 8, 2003, Japansigned with the ASEAN the Framework for the Japan-ASEAN Comprehensive Economic PartnershipAgreement (JACEPA) in Bali, Indonesia. Negotiations were concluded in November 2007 and theagreement entered into force in December 2008.

Roxas, who as former trade secretary was active in the early JPEPA negotiations, expressed thefear of the Philippines being left behind if the agreement was not ratified. Without the bilateralagreement, the country’s position in the JACEPA would be uncertain. While acknowledging thetreaty’s minimal gains, Roxas believed that the Senate’s rejection of the JPEPA would lead to a lossthat was “definite” and “calculable.” He explained that other countries with trade deals with Japanwould have an advantage over the Philippines if the JPEPA was not ratified. Roxas saw JPEPA as alose-draw (“tabla-talo”) situation for the Philippines.

After JPEPA’s approval by the Senate in October 2008, Roxas remarked, “We are witnessing afinancial tsunami going around the financial centers around the world.It is timely that we acted onJPEPA at this time. It is necessary for us to keep our competitivenesswith our ASEAN neighbors,who have their respective economic agreements with Japan.” Indeed, atthe time of the JPEPA’sratification by the Philippine, Singapore, Malaysia, Thailand, and Indonesia were already on boardJapan’s ASEAN EPA train, with Vietnam and Brunei following suit.

Conclusions

Ideally, international economic negotiations should be insulated from domestic politics. However, it is clear that domestic politics was the strongest variable that affected the economic negotiation episodesunder consideration. It is proof positive that diplomacy is a ‘two-

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level’ game. (Putnam, 1988). He notes that domestic politics and international relations are often inextricably entangled, but existingtheories (particularly "state-centric" theories) do not adequately account for these linkages. When national leaders must win ratification (formal or informal) from their constituents for an international agreement, their negotiating behavior reflects the simultaneous imperatives of both a domestic political game and an international game. Putnam (1988) addressed the role of domestic preferences and coalitions, domestic political institutions and practices, the strategies and tactics of negotiators, uncertainty, thedomestic reverberation of international pressures, and the interests of the chief negotiator.

The multi-lateral negotiation of the GATT-Uruguay round treaty was relatively problem-free for the Philippines even if forging an agreement took time. The ratification of the treaty by the PhilippineSenate was relatively snag-free. For one, most senators believed at the outset that the treaty will bring benefits to the Philippine economy. In this sense, there was almost a strong consensus on the issue. A coalition was being formed between the ruling Lakas party and the main opposition party, Laban, for the coming 1995 elections. Since the treaty was unprecedented, the senators did not have market information to bely their optimism. In the same manner, warnings fromnon-governmental groups and civil society organizations (CSOs) regarding the treaty’s dire consequences lack material foundation. Italso helped that Senator Gloria Macapagal-Arroyo, who championed the treaty, was the lone professional economist in the Senate.

However, the most important political factor was President Fidel V. Ramos, who believed that the treaty’s ratification was a major step to‘lock in’ market reforms in the Philippines. Ramos feared backslidingfrom free markets to protectionist policy after his term ended. Signing international commitments like the GATT-Uruguay round treaty will estopped future administrations against protectionism.

The inordinate power and influence of the Philippine president is a key feature of the Philippine political system. The adverse effects of such power and influence were displayed when President Joseph Estrada’s civil aviation officials unilaterally abrogated an existing air service agreement with Taiwan in 1999. While Estrada strongly

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denied that the abrogation was done to protect Philippine Airlines owned by his friend, Lucio Tan, it was clearly the case since no otherPhilippine carrier had flights to Taiwan. Meant to ‘teach Taiwan a lesson’, the Philippines’ aggressive behavior backfired.

This time, market conditions were the key variable and militated against Filipino aggressiveness. There were substantial Taiwanese investments in the country. Many Taiwanese tourists visited the Philippines and Taiwan was a major destination for our overseas workers. In response to the abrogation, major investments, such as Acer, pulled out of the country and tourist arrivals decreased. Taiwan also threatened to reduce worker intake. Filipino workers in Taiwan who wanted to come home had to spend more in air fares since they needed to go either to Hongkong or Bangkok to fly to Manila. Everybody except Lucio Tan was unhappy with the abrogation. The Philippines soon ate ‘humble pie’ and agreed to an agreement very similar to the one it abrogated. This episode illustrates the pitfallsof making threats that cannot be supported wholeheartedly by supposed beneficiaries. It raised the key question: is the national interest the interest of the national carrier? What if the national carrier isprivately owned?

The picture is more complicated with respect to the Japan Philippine Economic Partnership Agreement (JPEPA). By the time JPEPA was negotiated, the ‘locking in’ desired by President Ramos was almost complete. Even if the Uruguay round process was stalled on a number of issues, the executive branch is more or less committed to finishingmarket reforms and signing free trade agreements, even if only on a bilateral basis. In the legislature, there were a minority who opposed JPEPA alongside CSOs and NGOs. Business groups on the whole supported it except for car manufacturers who feared the agreement will allow the import of used motor vehicles.

On the side, Japan was eager to make up for lost time and ground and was on a EPA negotiating spree with ASEAN member-nations such as Thailand, Indonesia, Malaysia and the Philippines. Their respective EPAs did not require ratification in Thailand, Indonesia and Malaysia.The JPEPA was initially considered by the executive branch as an executive agreement that did not require Senate ratification. However, it was subsequently clarified it was a treaty that needed ratification.

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Ratification of the JPEPA took time. Opposition was strong and resonated within the Senate especially when constitutional issues wereraised. The issuance of diplomatic notes by Japan to remedy the legalissues is equivalent to re-negotiation. The political strength of President Arroyo was sapped since 2005 by questions regarding her electoral mandate and her family’s involvement in corruption scandals.The Senate was also distracted by investigations and preparations for the 2007 elections. The possible erosion of the Philippines’ competitive advantage vis-à-vis its ASEAN neighbors with regard the Japanese market and the onset of the 2008 US recession forced the ratification in November 2008. In a sense, while domestic politics delayed JPEPA’s ratification, international market conditions sped up its approval.

What institutional reforms can be adopted to prevent repeats of the unfortunate episodes discussed in this chapter? What can be done to improve our country’s economic diplomacy? We have alluded earlier to the inordinate power and influence of the Philippine president. She is the chief architect of the country’s foreign policy. Nevertheless,the Senate plays a key role in diplomacy by ratifying treaties. Regarding treaties, their ratification rather than their mere signing by both parties is the obvious success indicator. However, since the senators do not have any role in negotiating a treaty, its ratification is not a foregone conclusion. In fact, one can say therewas too much slack between the negotiators and the senators that ratification was endangered.

What can be done to increase the chances of a treaty’s ratification? How can inputs from senators be considered while observing secrecy requirements so the Japanese side will not be forewarned regarding ournegotiating positions and strategies? Can the existing Legislative-Executive Development Advisory Council (LEDAC), established during President Ramos’ time, serve this purpose?

In June 2012, the House of Representatives, in plenary session, has approved on third reading a bill seeking to create the Philippine Trade Representative Office that shall lead, direct, formulate and coordinate government agencies toward formulating coherent and cohesive policies, positions and measures and conduct regular stakeholders’ consultations with respect to international trade and investment relations and negotiations. House Bill 5977, or the Charter of the Philippine Trade Representative Office, will beef up the country’s negotiating capacity by building up databases, trade intelligence work, having solid research analysts and a legal team.

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Liberal Party Rep. Henry Pryde Teves of Negros Oriental, one of the authors of the bill, said the proposed trade office will put in place mandatory consultative mechanisms for greater participation of the private sector, as well as civil-society organizations in trade negotiations. “Over the years, the Philippines has entered into 37 bilateral investment promotion and protection agreements, 38 bilateralagreements and other multilateral and regional trade agreements, whileother agreements are still in the process of negotiations.  With the potential increase in the number of trade negotiations, it is imperative that the Philippines is equipped with the necessary resources and capability to engage in all trade discussions,” Teves said (Marasigan, 2012).

The trade office will provide closer coordination between the Philippine Trade Representative, the various departments involved and Congress which will be involved in formulating a negotiating mandate before any negotiations take place. As embodied in the bill, the Trade Office shall be headed by the Philippine Trade Representative who shall be appointed by the President and confirmed by the Commission on Appointments.

The bill provides that the trade office shall negotiate trade and investment agreements on the basis of the Philippine Constitution and other laws, and will represent the country in all international trade negotiations. Under the bill, the Tariff and Related Matters Committee, together with the Technical Committee on World Trade Organization Matters, shall continue to function for six months until the Office of the Philippine Trade Representative is set up whichever comes earlier, after which they shall cease to function.

Notwithstanding this bill, it remains to be seen if institutional changes are proposed to remedy percieved infirmities. Is diplomacy entirely the province of the executive branch? Save for Senate ratification, should there be further limits to the power of the President to act as the country’s chief diplomat?

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References

News articles:

Ager, Maila. 2008a. Santiago: JPEPA ratification certain with exchangeof notes. Inquirer.net, September 2, 2008.

Ager, Maila. 2008b. Senate ratifies JPEPA. Inquirer.net, October 9, 2008.

Calica, Aurea. 2007. Senate sets into motion JPEPA ratification process. The Philippine Star, August 10, 2007.

China Post staff & Reuters. 2000. Manila hopes to sign new air accord with Taiwan. The China Post, September 23, 2000.

Diaz, Jess. 2000. Taiwan ready to talk with RP on new air ties. The Philippine Star, March 23, 2000.

Hannon, Brent. 1999. Philippines ends Taiwan link as dispute escalates. Flight, August 11, 1999.

Hermosa, Jessica with A. Romero. 2008. Mixed reactions greet Senate approval of Jpepa. GMANews.TV, October 10, 2008.

GMANews.TV. 2007. Senate shelves JPEPA ratiification. GMANews.TV, January 24, 2007.

Gonzales, Iris. 2007. JPEPA ratification may boost ODA inflow. The Philippine Star. August 19, 2007.

Jumilla, Lynda. 2008. Some senators doubt Miriam’s formula for JPEPA ratification. ABS-CBN News.com, April 23, 2008.

Lu, Cherie, Szu-Yin Liu, and Shue-Ting Shen. nd. The Low Cost Model and Strategies for Taiwanese Airlines. Aerlines Magazine e-zine edition, Issue 34.

Luib, Romulo. 2000. Taiwan air pact collapse threatens export industries. Business World, May 4, 2000.

Malaya. 2008. Arroyo appeals to Senate to ratify JPEPA. Malaya, April 14, 2008.

Marasigan, Fernan. 2012. House OKs bill on creation of trade representative office. Business Mirror, June 4, 2012 (http://www.businessmirror.com.ph/home/economy/28117-house-oks-bill-on-creation-of-trade-representative-office)

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Morelos, Carmelo. 1994. Open Letter to the Senate for Deferment of GATT Approval, www.cbcponline.net/documents/1990s/1994-gatt_approval.html

Kyodo. 1999a. Philippines to scrap air accord with Taiwan. Asian EconomicNews, August 9, 1999.

Kyodo. 1999b. Philippines-Taiwan air talks hit snag. Asian Economic News, September 20, 1999.

Kyodo. 1999c. Philippine Airlines to resume flights to Taiwan. Asian Economic News, October 9, 2000.

PCIJ. 2008. SC not likely to reconsider ruling on secrecy of JPEPA negotiations. The PCIJ Blog, September 13, 2008.

PDI. 2008. Roxas pushing for JPEPA ratification. Philippine Daily Inquirer, January 16, 2008.

PNA. 2000. Taiwan snubs air pact talks with RP. The Philippine Star, March 1, 2000.

Regalado, Edith. 2000. Estrada upbeat on RP-Taiwan air ties.” The Philippine Star, March 2, 2000.

Rufo, Aries. 2008. DFA asks Senate to defer vote on JPEPA.” ABSCBNNews.com, April 25, 2008.

Senate Economic Planning Office. 2007. Japan-Philippines Economic Partnership Agreement (JPEPA): An Assessment. Policy Brief, September2007.

Uy, Veronica. 2008. Roxas sees likely JPEPA ratification. Inquirer.net, January 15, 2008.

Vanzi, Sol. 1999. Erap bullish on fruitful solution to RP-Taiwan air row. Philippine Headline News Online, August 10, 1999.

Books, papers and journal articles:

Batalla, Eric. 2012. Veto players and state decisiveness: negotiating bilateral economkic partnership agreements between Japan and Southeast Asia. Philippine Political Science Journal 33(1), 39-62.

Batalla, Eric. 2009. Japan’s EPA campaign and the Philippines, (ms).

Cohn, T. (2008). Global Political Economy: Theory and Practice. New York: Longman.

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Cronin, P. (2003). The Doha Round: Prospects for the Rules-Based Trading System. In C.R. Goddard, P. Cronin, & K. Dash (2003) eds.International Political Economy: State-Market Relations in a Changing Global Order. Hampshire, U.K.: Palgrave Macmillan, pp. 369-390.

Fair Trade Alliance. 2007. JPEPA: Para Saan, Para Kanino? Quezon City: Philippine Rural Reconstruction Movement.

Gilpin, R. (2001). Global Political Economy. Princeton: Princeton UniversityPress.

Landau, A. (2000). ‘Analyzing International Economic Negotiations: Towards a Synthesis of Approaches.’ International Negotiation 5: 1-19.

Melissen, J. (1999) ed. Innovation in Diplomatic Practice. London: Macmillan.

Odell, John. 2000. Negotiating the World Economy. Ithaca: Cornell UniversityPress.

Putnam, Robert. 1988. Diplomacy and Domestic Politics: The Logic of Two-Level Games. International Organization 42(3), 427-460.

Rocamora, Joel. 1996. Can the Philippines Compete? In The General Agreement on Tariffs and Trade: Philippine Issues and Perspectives. Ed. Judith Reyes. Quezon City: Philippine Pesant Institute.

Saner, R. and L. Yiu (n.d.). ‘International Economic Diplomacy: Mutations in Post-modern Times’. Discussion Papers in Diplomacy,Netherlands Institute of International Relations.

Schneider, C.J. (2008). ‘Weak States and Institutionalized Bargaining Power in International Organizations.’ (ms)

Scholte, J.A. (2000). ‘Globalisation, Governance and Corporate Citizenship.’ The Journal of Corporate Citizenship 1(1), 15-45.

Singh, J.P. (2006). Coalitions, Developing Countries, and International Trade: Research Findings and Prospects. International Negotiation 11:499-514.

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