Feliciano On Jpepa

LETTERS TO SENATOR MIRIAM: CONSTITUTIONAL AND
INTERNATIONAL LAW PROBLEMS OF THE JPEPA!
Florentino P. Feliciano!!
Ma. Lourdes A. Sereno!!!
BACKGROUND NOTE
There are three (3) letters or memoranda in this set of

correspondence, all addressed to and received by Hon. Miriam Defensor-
Santiago, Chairman, Committee on Foreign Relations, Senate of the
Philippines. These three (3) items are the following:
1. A memorandum, dated 5 October 2007, entitled Constitutional

Law Aspects of the Japan-Philippines Economic Partnership Agreement
(JPEPA);
2. Letter dated 30 October 2007 setting forth suggested texts of

potential provisions of the then proposed JPEPA, that would
address the constitutional law problems identified in the earlier
memorandum dated 5 October 2007. These suggested
amendatory provisions were drafted in response to the request
of Chairman Defensor-Santiago. Attached to this letter is a
copy of a letter from Prof. Maria Lourdes A. Sereno addressed
to the Philippine Daily Inquirer responding to the 13 October
2007 column of Prof. Solita Monsod, School of Economics,
University of the Philippines; and
3. A letter dated 12 November 2007 addressed to Chairman

Defensor-Santiago addressing statements made by governmental
representatives, submitted to the Senate Foreign Relations
!
Cite as Florentino P. Feliciano & Ma. Lourdes A. Sereno, Letters to Senator Miriam: Constitutional and
International Law Problems of the JPEPA, 84 PHIL. L.J. 838, (page cited) (2010).
!!
Senior Associate Justice, Supreme Court of the Philippines (retired); formerly Chairman and member,
Appellate Body, World Trade Organization; Membre Titulaire, Institut de Droit International.
The research and editorial assistance rendered by May Ann R. Rosales (A.B., M.A., University of Asia.&
the Pacific. LL.B., University of the Philippines College of Law) is here greatly acknowledged.
!!!
Director, Policy Center, Asian Institute of Management; formerly Associate Professor of Law,
College of Law, University of the Philippines.
838
2010] THE CONSTITUTIONAL LAW ASPECTS OF THE JPEPA 839
Committee, that took issue with the memorandum of 5 October
2007 on the JPEPA.
These letters and memorandum form part of the official files of the
Senate Committee on Foreign Relations. They therefore constitute, in our
opinion, public documents the publication of which, in our hope and belief,
would be useful for understanding and re-negotiating the JPEPA as finally
ratified by the Republic of the Philippines. The views of Chairman
Defensor-Santiago of the Senate Foreign Relations Committee on the issues
dealt with in these letters and memorandum may be found in the records of
the debates in the Senate on the JPEPA and have been widely reported
(Malaya, October 10, 2008, http://www.malaya.com.ph/oct10/news4.htm).
Reply memoranda from senior public officials were made, at least in

part, available to us. We were not invited to submit rebuttal statements. But
we feel it was necessary and potentially useful to submit the third letter in
this set of documents. The memoranda of the senior public officials appear
to rest on assumptions that, to us, are particularly vulnerable to application
in some international law forum of well-known rules and doctrines of the
law of treaties and of state responsibility, which constitute a fundamental
part of contemporary public international law.
The JPEPA in art. 94, par. 2 provides for a one-year period after it
shall have gone into effect as between the two (2) State Parties for adding
items to the list of reservations with respect to measures applied by local
governments. There is no similar one-year window for measures applied by
the national government. This one-year period began on December 11,
2008, but has now lapsed. It will, therefore, be necessary to renegotiate the
unfortunate incomplete list of reservations, applied by the Philippine
national and local governments, that the Philippines made to art. 94.
The Senate concurred in the JPEPA in the form in which the treaty
was sent to it by the President. The President ratified the JPEPA in the same
form she had sent it to the Senate for the concurrence of the latter. The
problems sought to be described here therefore persist today.
Those overarching problems may be outlined in the following

relatively succinct terms:
Firstly, what legal effect may a Philippine court give to a treaty

provision that purports to obligate the Republic of the Philippines to permit
a non-Philippine national to acquire and exercise a right or privilege which,
840 PHILIPPINE LAW JOURNAL [VOL 84
under the Constitution of the Philippines, may be exercised only by a
Philippine national or a corporation organized under Philippine law with a
prescribed minimum quantum of Philippine equity?
Secondly, what legal effect may an international judicial or arbitral

forum, that is bound to apply Philippine law and international law, give to a
decision of Philippine court refusing to give domestic legal effect to a treaty
provision purporting to entitle a non-Philippine national to exercise a right
or privilege which, under the Constitution of the Philippines, is restricted to
citizens of the Philippines or corporations organized under Philippine law
having a prescribed minimum quantum of Philippine equity?
The answers we would give to the above issues are, hopefully, clear
from the following Letters to Senator Miriam.
I.
To: Hon. Miriam Defensor Santiago

Chairman, Committee on Foreign Relations
Senate of the Philippines
Manila
Date: 5 October 2007
From: Florentino P. Feliciano

Senior Associate Justice (Ret.)
Supreme Court of the Philippines
c/o Willard Hotel International
1410 Pennsylvania Avenue NW
Washington, DC 20005
USA
Re: Constitutional Law Aspects of Japan-Philippines Economic

Partnership Agreement (JPEPA)
1. This memorandum is respectfully submitted in response to the

Invitation to deliver a statement at a Joint Committee Hearing of the
Senate Committee on Foreign Relations and the Senate Committee on
Trade and Commerce, scheduled for 10 a.m., Monday, 8 October 2007,
at the Laurel and Pecson Rooms, 2nd Floor, Senate Building, Roxas
Boulevard, Pasay City.
2. The above Invitation, received by me on 4 October 2007, directs me to
prepare a resource paper on Movement of Goods and Services and
Constitutional Issues and to provide a copy of the paper to the
Secretary of the Committee on Foreign Relations before the hearing. I
read the above topic to refer to constitutional law issues whether relating
to the Investments part of the JPEPA, or to the Trade part thereof, and
to legal issues related to those constitutional issues.
3. I reviewed the two Senate Committees Invitation in Washington, DC,

USA, where I have been since 22 September 2007. I believe the
Invitation was sent to me in my capacity as a private citizen of our
country, and is not in any way related to any legal work I am currently
engaged in for the Republic of the Philippines. Accordingly, this
memorandum is submitted in that capacity. I respectfully tender my very
real regrets to the distinguished Chairman and Members of the two
Committees for being unable to present corporeally at the scheduled
joint hearing on Monday, 8 October 2007. My age (79 years) and the
need to return to Washington, DC as expeditiously as possible after the
8 October 2007 joint hearing, render my physical presence at the Senate,
in my belief, non-feasible. My hope is that the two Committees would
accept in lieu of physical presence this memorandum where I seek to
set out as lucidly as possible my views on the constitutional aspects, and
related legal aspects, of certain provisions in the Investment and the
Trade portions of the JPEPA as it currently exists. I have requested Mr.
Roberto C. San Juan, a personal friend and colleague, to read out this
memorandum on my behalf.
A. CONSTITUTIONAL ASPECTS OF JPEPA CHAPTER 8 ON

INVESTMENT
4. JPEPA Chapter 8 on Investment establishes certain obligations of the

Philippines in respect of investors and investments of investors of
Japan in the territory of the Philippines, and on Japan in respect of
investors and investments of investors of the Philippines in the
territory of Japan. The more important of these obligations, for present
purposes, and so far as we are concerned, are:
(a) To accord national treatment to Japanese investors and their

investments in the Philippines, under art. 89 of JPEPA;
(b) To accord most-favored-nation treatment to Japanese
investors and their investments in the Philippines, under art. 90;
and
(c) To refrain from imposing, as a condition for investment

activities in the Philippines, performing requirements, upon
Japanese investors and their investments in the Philippines,
under art. 93.
5. Art. 89 of JPEPA reads as follows:
Article 89
National Treatment
Each party shall accord to investors of the other Party and to their
investments treatment no less favorable than that it accords, in like
circumstances, to its own investors and to their investments with
respect to the establishment, acquisition, expansion, management,
operation, maintenance, use, possession, liquidation, sale, or other
disposition of investments (hereinafter referred to in this Chapter as
investment activities).
JPEPA Art. 90 provides:
Article 90
Most-Favored-Nation Treatment
Each party shall accord to investors of the other Party and to their
investments treatment no less favorable than that it accords, in like
circumstances, to investors of a non-Party and to their investments with
respect to investment activities. [Underlining supplied]
Art. 93, also of JPEPA, while lengthy, needs to be quoted in full:
Article 93
Prohibition of Performance Requirements
1. Neither Party shall impose or enforce, as a condition for

investment activities in its Area of an investor of the other Party,
any of the following requirements:
(a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;

(c) to purchase, use or accord a preference to goods produced or
services provided in its Area, or to purchase goods or services
from persons in its Area;
(d) to relate the volume or value of imports to the volume or

value of exports or to the amount of foreign exchange inflows
associated with investments related to such investment
activities;
(e) to restrict sales of goods or services in its Area that

investments related to such investment activities produce or
provide by relating such sales to the volume of its exports or
foreign exchange earnings;
(f) to appoint, as executives, managers or members of boards of

directors, individuals of any particular nationality;
(g) to hire a given level of its nationals;
(h) to transfer technology, a production process or other

proprietary knowledge to a person in its Area, except when
the requirement:
i. is imposed or enforced by a court, administrative tribunal

or competition authority to remedy an alleged violation of
competition laws; or
ii. concerns the transfer of intellectual property rights which

is undertaken in a manner not inconsistent with the
Agreement on Trade-Related Aspects of Intellectual
Property Rights in Annex 1C to the WTO Agreement
(hereinafter referred to in this Chapter as the TRIPS
Agreement);
(i) to locate the headquarters of that investor for a specific region

or the world market in its Area;
(j) to achieve a given level or value of research and development

in its Area; or
(k) to supply one or more of the goods that the investor produces
or the services that the investor provides to a specific region
or world market, exclusively from its Area.
2. The provision of paragraph 1 above does not preclude either Party

from conditioning the receipt or continued receipt of an advantage,
in connection with investment activities in its Area of an investor
of the other Party, on compliance with any of the requirements set
forth in subparagraphs (g) through (k) of paragraph 1 above.
National Treatment Obligation and The Philippine Schedules to

Parts 1 and 2 of Annex 7
6. Most succinctly, the national treatment obligation requires the

Republic of the Philippines (ROP) to treat Japanese investors as if
they were Philippine nationals, and to treat Japanese investments in the
Philippines as if such investments were owned by Philippine nationals. It
is common knowledge that the entry into certain sectors of economic
activity in our country is constitutionality restricted to natural persons
who are Philippine citizens or to juridical persons which are at least 60%
(in some cases, 70% and 100%) owned by Philippine citizens. The
relevant provisions of the 1987 Constitution are:
(a) Art. XII, 2 ownership of land, utilization and exploitation of

all natural resources; use and enjoyment of marine resources in
the Philippine archipelagic waters, territorial seas and exclusive
economic zone (EEZ);
(b) Art. XII, 11 operation of public utilities;
(c) Art. XII, 14, second paragraph practice of all professions,

save in cases prescribed by law;
(d) Art. XIV, 4(2) ownership, control and administration of

educational institutions;
(e) Art. XVI, 11(1) ownership and management of mass media;

and
(f) Art. XVI, 11(2), second paragraph ownership of

corporations and associations engaged in the advertising
industry.
7. There are also a number of statutes and regulations which limit access to
certain economic sectors to Philippine citizens and to juridical entities
with a prescribed minimum Philippine equity content. Those appear too
numerous to list down here.
8. Clearly, the constitutional and statutory provisions referred to above are

inconsistent with the obligation to give Japanese investors national
treatment established in art. 89 of JPEPA. However, JPEPA art. 94
provides for an option on the part of the Philippines to maintain the
effectivity of the constitutional and statutory provisions referred to
above despite their non-conformity with the national treatment
obligation set out in art. 89. That option is exercised under art. 94 by
listing down in the Schedule to Part 1 of Annex 7 of JPEPA, the existing
non-conforming constitutional and legal provisions which the
Philippines wishes to maintain in effect, notwithstanding the
requirements of art. 89 of JPEPA.
9. The Philippines has exercised the option given to it in JPEPA art. 94 by

attaching its Schedule to Part 1 of Annex 7 of JPEPA. It must, however,
be stressed that the Philippine Schedule to Part 1 of Annex 7 is not a
complete list of all the currently existing constitutional and statutory
provisions in our legal system that provide for exclusive access to certain
economic sectors by Philippine citizens and Philippine juridical entities
with a prescribed minimum Philippine equity content. The most
dramatic example of omission of a constitutional provision mandating
exclusive access to Philippine nationals and juridical entities to a
particular sector is art. XII, 11 of the Constitution relating to the
operation of public utilities. This omission in the Philippine Schedule to
Part 1 of Annex 7 means that, should JPEPA come into legal effect,
Japanese investors would be entitled to own more than 40% of a public
utility enterprise in the Philippines under the JPEPA. This result would
be in direct contravention of our Constitution.
10. Other existing constitutional reservations of exclusive access to certain

sectors of investment and economic activity, which have been similarly
omitted in the Philippine Schedule to Part 1 of Annex 7 (as it stands at
present), are (a) art. XII, 14 relating to the practice of all professions,
save in cases prescribed by law; (b) art. XIV, 4(2) relating to
ownership and administration of educational institutions; (c) art. XVI,
11 (1) relating to mass media; and art. XVI, 11(2) relating to the
advertising industry.
11. There are other Philippine constitutional provisions which are also
inconsistent with the national treatment obligation established by art.
89 of JPEPA and which are also omitted in the Philippine Schedule to
Part 1 of Annex 7. Those are:
(a) Art. XII, 10, second paragraph providing that: [i]n the grant
of rights, privileges and concessions covering the national
economy and patrimony, the State shall give preference to
qualified Filipinos. [Emphases added]
(b) Art. XII, 13 mandating that [t]he State shall promote the
preferential use of Filipino labor, domestic materials and locally
produced goods, and adopt measures that help make them
competitive.[Emphases added]
It may be noted that art. XII, 13, refers both to the national
treatment obligation in JPEPA art. 89, and the prohibition of
performance requirements in JPEPA art. 93.
12. One conclusion that emerges clearly from the above is that, if JPEPA
art.s 89 and 93 are to be saved from unconstitutionality, the Philippines
Schedule to Part 1 of Annex 7 must be amended so as to be a complete
and detailed inventory of all existing constitutional provisions which are
inconsistent with JPEPA with art.s 89 and 93. In addition, our Schedule
to Part 1 of Annex 7 must be amended so as to become a complete and
carefully detailed listing of all existing statutory and administrative
regulations, including provisions of existing Philippine treaties and other
agreements with third countries, which are inconsistent with the
obligations set out in JPEPA art.s 89, 90 and 93.
Legal consequences of present Philippines Schedule to Part 1 of

Annex 7
13. Assuming that the JPEPA goes into legal effect as it exists at present,
what would be the legal effect of non-amendment and non-completion
of our Schedule to Part 1 of Annex 7? The effect would be this: a
Japanese investor would have a treaty right to insist on, e.g., being given
the right to own more than 40% of the equity of a public utility
enterprise. The Philippine Government may not plead as a legal defense
the provisions of art. XIII, 11 of our Constitution in rejecting the
application of that Japanese investor and in disregarding the
requirements of JPEPA art. 89 on national treatment. The denial of
the application of that Japanese investor would be a valid and
constitutionally legitimate act of our Government as a matter of
Philippine law since the constitutional provision would prevail over the
JPEPA provision in the internal legal order of the ROP. But such denial
would nonetheless be a breach of our treaty obligations under JPEPA
and on the plane of international law, which would generate state
responsibility under international law on the part of the Philippines and
probably liability for damages before an international judicial or arbitral
forum.
Legal consequences of present Philippines Schedule to Part 2 of

Annex 7
14. We turn on another, and more serious, constitutional law aspect of

JPEPA along with the Philippine Schedule to Part 2 of Annex 7, as the
latter presently exists. Art. 94 of JPEPA authorizes both the Philippines
and Japan to enter reservations as to their respective measures whether
existing or yet to be enacted or issued which are non-conforming with
respect to the obligations set out in JPEPA art.s 89 (National
Treatment), 90 (Most-favored-nation Treatment) and 93
(Prohibition of Performance Requirements). In other words, JPEPA
art. 94 grants to the Philippines (and Japan as well) the option to exclude
from the operation of JPEPA art.s 89, 90 and 93, future non-
conforming measures that the Congress of the Philippines, or a local
government legislative body, may enact. Our option to reserve the right
to enact in the future non-conforming measures is exercised through the
medium of the Philippines Schedule to Part 2 of Annex 7.
15. It is critically important to note that our Schedule of reservations of

future non-conforming measures does not in fact, as it exists at present,
establish reservations for future measures. Our Schedule to Part 2 of
Annex 7 actually refers to existing non-conforming measures and does
not purport to reserve the Philippines right to enact future legislation or
regulations that may be inconsistent with JPEPA art.s 89, 90 or 93. The
result of this failure to reserve the right of Congress to enact in the
future legislation that limits access to a particular sector, e.g., the
manufacture of footwear or garments to Philippine citizens or
enterprises with at least 60% Filipino equity content is: such legislation
would be violative of art. 89 of JPEPA and constitutes an international
delinquency. Yet, again, such hypothetical future legislation would be
entirely constitutional in the internal legal order of the Philippines;
neither a treaty nor a statute can validly restrict the authority of
Congress to enact such legislation as it may see fit in the interest of the
nation. This is so, not only because such a restriction would be in direct
collision with the fundamental principle of separation of powers, but
also because of the explicit authorization to Congress found in art. XII,
10, first paragraph of the Constitution which reads thus:
The Congress shall, upon recommendation of the economic and

planning agency, when the national interest dictates, reserve to
citizens of the Philippines or to corporations or associates at
least sixty per centum of whose capital is owned by such citizens,
or such higher percentage as Congress may prescribe, certain
areas of investments. The Congress shall enact measures that will
encourage the formation and operation of enterprises whose
capital is wholly owned by Filipinos.
Once more, a future non-conforming Republic Act would constitute

violation of our treaty obligations, and create an international law
liability on the part of our country.
16. It is clear, therefore, that it is our own failure to make appropriate and
complete reservations in our Schedule to Part 1 (with respect to existing
non-conforming constitutional and statutory and administrative
provisions) and our Schedule to Part 2 (with respect to future non-
conforming measures) of Annex 7 of JPEPA that has created significant
constitutional law problems.
Remedial Course of Action
17. At the same time, it is also clear what the appropriate remedial recourse
is: the Senate in its Resolution may condition its approval of JPEPA
upon:
(a) the amendment by our Government of its Schedule to Part 1 of

Annex 7 by making this Schedule a complete and detailed listing
and description of all existing constitutional., statutory and
administrative measures which are inconsistent with JPEPA
art.s 89, 90 and 93; and
(b) the amendment of our Schedule to Part 2 of Annex 7 by setting

out therein comprehensive reservations of future constitutional,
statutory and administrative measures inconsistent with JPEPA
art.s 89, 90 and 93.
18. The amendment of the Philippine Schedules to Part 1 and Part 2 of

Annex 7 will require the consent of Japan. It is respectfully suggested,
however, that Japans consent to those amendments should not be too
difficult to secure, considering (a) that we would be asking only for what
Japan has secured for itself in Japans Schedules to 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 and Indonesia in their respective
recent EPAs with Japan. Incidentally, the Schedules of comprehensive
reservations for future non-conforming measures that Japan, Thailand,
Malaysia and Indonesia adopted, should provide models that our
negotiators may usefully examine carefully.
B. CONSTITUTIONAL LAW ASPECTS OF CHAPTER 2 ON TRADE IN

GOODS OF JPEPA
19. In JPEPA Chapter 2 on Trade in Goods, the Philippines has assumed

the obligation to reduce immediately to 0% many of the tariff rates
applicable to goods imported from Japan. Art. 18, par. 1, of JPEPA
states:
Article 18
Elimination of Custom Duties
1. Except as otherwise provided for in this agreement, each Party

shall eliminate or reduce its customs duties on originating
goods of the other Party designated for such purposes in its
Schedule in Annex 1, in accordance with the terms and
conditions set out in such Schedules.
In this connection, it is important to bear in mind certain constitutional

provisions and principles.
20. The power to set and modify tariff rates like the power to enact laws
generally is fundamentally legislative in nature. It is lodged in the
Legislative Department of government (i.e., the two Houses of the
Congress of the Philippines); by virtue of the principle of separation of
powers, it is a power ordinarily denied to the two other Departments of
Government. At the same time, the Constitution sets out express
authorization to Congress (not just the Senate) to delegate the power to
set and modify tariff rates and export and import quotas to the
President, subject to limitations and restrictions. Art. VI, 28(2) of the
1987 Constitution provides that:
2. The Congress may, by law, authorize the President to fix within

specified limits, and subject to such limitations and restrictions as it
may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other dues or imposts within the framework of
the national development program of the Government. [Emphases
added]
It should be recalled that the above provision of our present

Constitution was also found, in almost identical language, in both our
1935 Constitution (art. VI, 22(2)) and in the 1973 Martial Law
Constitution (art. VIII, 17(2)).
21. The pertinent provision of our 1935 Constitution was implemented by

401 and 402 of Republic Act No. 1937 (the Tariff and Customs Code
of 1957). 401 set out specific limitations on the extent to which pre-
existing tariff rates could be modified by the President: (a) a floor below
which no tariff rate could be reduced not more than 50% of the
normal duty rate fixed in R.A. No. 1937 ( 104); (b) a ceiling on
permissible increases of tariff rates not more than 500% of the normal
duty rate fixed R.A. No. 1937 ( 104). The statute also fixed an
important time limitation: the power to fix or change tariff rates could
not lawfully be exercised by the President while Congress was in session.
402 of the 1957 statute also authorized the President to exercise (for a
period of 5 years i.e., until 1962) the same tariff setting and changing
power through the medium of executive agreements, subject, however,
to the same quantitative limitations.
22. In 1978, then President Marcos as Martial Law legislator and

administrator, issued P.D. No. 1464 (the Tariff and Custom Code of
1978), which removed all the quantitative and time limitations on the
Presidents tariff-setting power. He did this in disregard of art. VIII,
17(2) of his own Martial Law Constitution.
23. In 1987, art. VI, 28(2) of the present Constitution went into effect.
Nevertheless, the post-martial laws Presidents have all acted as if the
mandatory provisions of art. VI, 28(2) of the Constitution do not exist,
and as if the 1973 Constitution, including Amendment No. 6, and the
unconstitutional portions of P.D. No. 1464 have not yet passed into
history. Thus, many tariff rates in respect of imports from particular
countries (including Japan, now under Chapter 2 of JPEPA) have been
collapsed to 0% or near 0%.
[Editors Note: For detailed treatment of this issue, see Florentino

Feliciano, Deconstruction of Constitutional Limitations and the Tariff Regime of
the Philippines: The Strange Persistence of a Martial Law Syndrome, 84 PHIL. L.J.
311 (2009)]
Remedial Courses of Action
24. My respectful submission is that a serious constitutional problem exists

with respect to art. 18, par. 1 of JPEPA, although JPEPA is a treaty and
not an executive agreement, since the Senate is only one of the two
Houses of Congress. The problem is not of course unique to JPEPA.
My impression is that this constitutional question has already been raised
before the Supreme Court and is currently pending there.
25. It is also respectfully submitted that the constitutional issue here

addressed can be permanently resolved only by a Republic Act that
enacts the limitations and restrictions required by the Constitution. In
the meantime, however, it should suffice to amend the Philippines
Schedule to Annex 1 (referred to in art. 18 of JPEPA) and there add a
clause substantially to the effect that such Schedule is without prejudice
to future non-discriminatory legislation which the Philippines reserves
the right to enact for important constitutional reasons.
Respectfully submitted,
Florentino P. Feliciano
II.
October 30, 2007

Honorable Miriam Defensor-Santiago
Chairman
Committee on Foreign Relations
Senate
Republic of the Philippines
Dear Senator Santiago:
We have the honor to transmit to your Honorable Committee:
(1) Suggested language that proposes to address the constitutional

problems of the Japan-Philippines Economic Partnership Agreement
(JPEPA) identified in my October 5, 2007 statement delivered by a
colleague, Atty. Roberto C. San Juan, before the Honorable Committee
on October 8, 2007; and
(2) A copy of the letter from Professor Maria Lourdes A. Sereno

addressed to the editor of the Philippine Daily Inquirer responding to
the October 13, 2007 column of Professor Solita Monsod, by
explaining, among others, the context of my statement on the lack of
adequate reservations in the Philippines Schedule to Annex 7 (despite
language in Annex 6 that refers to the operation of public utilities).
It is respectfully suggested that the amendments to the JPEPA be

set out in a supplemental agreement and attached to the original JPEPA,
signed by the Republic of the Philippines and Japan and approved and
concurred in by the Senate at the same time that the original JPEPA is
approved and concurred in.
Allow me to clarify that contrary to the impression that may have

been created by certain statements attributed to the Department of Trade
and Industry, I have not changed my views of the constitutional problems of
the JPEPA and this letter is our small contribution to helping find a solution
to the said problems for government while saving the JPEPA.
Thank you very much.
Sincerely,
(with) Ma. Lourdes A. Sereno
A. SUGGESTED LANGUAGE THAT PROPOSES TO ADDRESS THE

CONSTITUTIONAL PROBLEMS OF THE JPEPA
Re Philippines Schedule to Part 1 of Annex 7

(Reservations for Existing Non-conforming Measures)
NB. Insert in Article 94 Reservations and Exceptions as new

Paragraph 3 and renumber subsequent paragraphs:
Article 94
Reservations and Exceptions
xxx
3. The Philippines reserves the right, within one (1) year from the
date of entry into force of this Agreement in accordance with the
provisions of Article 164 hereof, to revise the Philippine Schedule to
Part 1 of Annex 7 of this Agreement, by setting forth therein the
complete listing of all Philippine constitutional and statutory
provisions and implementing rules and regulations, as well as all
issuances of provincial, city, municipal and autonomous regional
governmental units and agencies of the Philippines, existing and
maintained on or as of the date of entry into force of this Agreement,
relating to investment and which are in whole or in part non-
conforming to the provisions of Articles 89 (National Treatment), 90
(Most-Favored-Nation-Treatment) and 93 (Prohibition of
Performance Requirements) of this Agreement. The revised
Philippines Schedule to Part 1 of Annex 7 of this Agreement shall be
subject to the approval or concurrence by a two-thirds vote of the
Senate of the Philippines, and thereupon shall retrospectively come
into force as of the date of entry into force of this Agreement.
Re Philippines Schedule to Part 2 of Annex 7

(Reservations for Future Non-Conforming Measures
NB. Insert in Article 94 Reservations and Exceptions as new

Paragraph 5 and renumber subsequent paragraphs.
Article 94
xxx
3. x x x (Revised Philippines Schedule to Part 1 of Annex 7)
xxx
5 (a). The Philippines reserves the right, within one (1) year from the
date of entry into force of this Agreement in accordance with the
provisions of Article 164 hereof, to revise the Philippines Schedule to
Part 2 of Annex 7 of this Agreement, by setting forth therein the
complete and comprehensive reservations of the Philippines of its
right to enact and maintain in the future measures, of any level of
government national, provincial, city, municipal or autonomous
regional relating to investment and which may, in whole or in part,
be non-conforming to the provisions of Article 89 (National
Treatment), 90 (Most-Favored-Nation Treatment) and 93
(Prohibition of Performance Requirements) of this Agreement. The
Philippines shall notify Japan of the enactment of such future
measures within six (6) months of the coming into force of such
measure. The revised Philippine Schedule to Part 2 of Annex 7 of
this Agreement shall be subject to the approval or concurrence by a
two-thirds vote of the Senate of the Philippines, and shall
retrospectively come into force as of the date of entry into force of
this Agreement.
(b). For the avoidance of doubt, such comprehensive reservations

shall include, without limitation, the right to enact or issue and
maintain in the future any measure, action or decision pursuant to, or
in implementation of the following constitutional provisions of the
1987 Constitution of the Philippines:
(i) Article II, Section 15 the protection and promotion of the

right to health of the people;
(ii) Article XII, Section 1, second paragraph protection of Filipino
enterprises against unfair foreign competition and trade practices;
(iii) Article XII, Section 2 ownership of all lands of the public

domain; utilization of or exploitation of all waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources;
(iv) Article XII, Section 3 lease and ownership of alienable public

lands;
(v) Article XII, Sections 7 and 8 ownership and transfer of private

lands;
(vi) Article XII, Section 10, first paragraph authorizing the

Congress of the Philippines to reserve to Philippine citizens and
corporations or associations with a prescribed minimum local equity
content, certain areas of investments;
(vii) Article XII, Section 10, second paragraph providing that in the
grant of rights, privileges and concessions covering the national
economy and patrimony, the State shall give preference to qualified
Filipinos;
(viii) Article XII, Section 10, third paragraph regulation of foreign

investments;
(ix) Article XII, Section 11 operation of public utilities;
(x) Article XII, Section 13 mandating that the State shall promote
the preferential use of Filipino labor, domestic materials and locally
produced goods;
(xi) Article XII, Section 14 practice of all professions, save in cases

prescribed by law;
(xii) Article XIV, Section 4(2) ownership, control and

administration of educational institutions;
(xiii) Article XIV, Section 12 state regulation of the transfer and

promotion of technology;
(xiv) Article XIV, Section 11(1) ownership and management of

mass media; and
(xv) Article XIV, Section 11(2) ownership of corporations and

associations engaged in the advertising industry.
Re Philippines Reservation to Article 18, Paragraph 1
(Suspension and Adjustment of the Philippines Schedule to Annex 1
on Philippine Tariff Rates on Goods of Japanese Origin)
N.B. Insert in Article 18 Elimination of Customs Duties as new

Paragraph 2 and renumber subsequent paragraphs.
Article 18
Elimination of Customs Duties
xxx
2. (a) The Philippines reserves the right to suspend the applicability,
in whole or in part, of its Schedule to Annex 1 of this Agreement, in
case the Supreme Court of the Philippines renders a final decision, or
the Congress of the Republic of the Philippines enacts legislation
pursuant to and in implementation of Article VI, Section 28 (2) of
the 1987 Constitution of the Philippines, which decision or legislation
adversely affects the obligations of the Philippines under Article 18
of this Agreement and the Schedule of the Philippines in Annex 1 of
this Agreement.
(b) The Philippines shall exercise the right reserved in Paragraph 2 (a)
by formally notifying Japan and transmitting a certified true copy of
the relevant final decision of the Supreme Court of the Philippines,
or of the relevant statute enacted by the Congress of the Republic of
the Philippines and the implementing rules and regulations if any,
within six (6) months from the entry into judgment of the relevant
Supreme Court decision, or from the entry into force of the relevant
statute and implementing regulations, if any.
(c) In the formal notification of suspension of applicability, in whole

or in part, of the Philippines Schedule in Annex 1 of this Agreement,
the Philippines shall specify (i) the portion or portions of its Schedule
in Annex 1 modification of which has become necessary by reason of
the decision of the Philippines Supreme Court, or by reason of the
statute and implementing regulations of any referred to above; and
(ii) the consequential modifications of its Schedule in Annex 1
proposed by the Philippines. Thereupon, the Parties shall promptly
enter into good faith, consultations with each other with a view to
mutually adjusting their respective commitments so as to achieve a
prompt, fair and balanced resolution of the matter.
(d) The resulting revisions of the Parties respective Schedules in

Annex 1 of this Agreement shall take effect upon the completion of
the Parties respective constitutional requirements.
B. LETTER FROM PROF. SERENO ADDRESSED TO THE EDITOR OF THE
PHILIPPINE DAILY INQUIRER RESPONDING TO THE OCTOBER 13,
2007 COLUMN OF PROF. MONSOD
LETTER TO THE EDITOR: Response to Professor Monsod on JPEPA (PDI),

10.13.07
Dear Professor Monsod:
Allow a former colleague of yours from the College of Law to explain why
Justice Florentino Feliciano, former Chairman of the WTO Appellate Body,
deserves the kind of respect he is being paid not only by Senator Santiago,
but also by a recent Philippine visitor, WTO Director General Pascal Lamy,
who informed the audience at an Asian Institute of Management forum that
Florentino Feliciano is an extremely famous name in Geneva and the
international law community. Among many accomplishments, he is largely
credited for bringing the principles of public international law into
international trade law. He is also a much-sought after judge in international
investment disputes in the ICSID (International Centre for the Settlement of
Investment Disputes) and NAFTA (North American Free Trade
Agreement).
First, you are mistaken if your impression is that the JPEPA debates are the
same as the WTO debates. The JPEPA is a zoo containing several animals
foreign to WTO law regulation of investment measures other than trade-
related investment measures, undertakings on competition policy,
improvement of business environment, and cooperation measures.
Regulation of investment measures alone (Chapter 8) is an entire field of
public international law itself international investment law and has
jurisprudence and history that blossomed independently of WTO law.
Thus, if a case were to be brought on the JPEPAs investment chapter

(Chapter 8), this will be interpreted by comparing its text not with the WTO
text, for the latter has no comparable provision, but with bilateral and
plurilateral investment treaties, such as Japans and the Philippines various
bilateral investment treaties, and with NAFTAs investments portion. In
fact, the Philippines has familiarity only with some, but not all, the
prohibitions against performance requirements. JPEPA is the first treaty
where the Philippines promises never to impose nationality hiring
requirements or technology transfer requirements on any foreign
investment. JPEPA contains obligations larger than the WTOs and intrudes
more deeply into economic policy-making than the WTO does. WTO only
regulates trade, JPEPA regulates almost any kind of economic policy or
administrative measure that affects trade with Japan and Japanese
investments. Any discussion on the JPEPA before the Supreme Court will
not be decided on the same kind of obligations as were scrutinized in the
WTO debate.
Annex 6 which you point out, does not regulate measures that are not
measures affecting trade in services (art. 71). Measures affecting trade in
services are purchase, payment, use, access to, supply of, commercial
presence for supply of service. Neither does it cover regulation of
investments in the non-service aspects of an enterprise. However, services
have aspects of the business that do not constitute supply of service. Japan,
Malaysia, Thailand and Indonesia, listed conditions affecting service sectors
not only in their equivalent of Annex 6 but also in their equivalent of Annex
7 (Investments) to ensure that nothing fell within the cracks, and to save
themselves the trouble of having to define what is the service and non-
service aspect of an enterprise. The UNCTAD had already warned
developing countries of a serious misimpression that trade in services rules
can be easily segregated from the larger context of investment regulation
(Investment Provisions in EIAs, 2006). Senators Mar Roxas and Johnny Enrile
saw this. This cautionary view is justified by the fact that the definition of
investments under art. 88 is so exhaustive that any and all kinds of
property or contract rights, real or inchoate, passive or active, are covered,
including shares of stocks held by Japanese individuals or Japanese entities.
Art. 89 requires that those properties and rights, must be fully treated, as if,
they were Filipino.
What happens then in a case where a Japanese private citizen, in his

individual capacity, wishes to buy additional shares that would increase the
total foreign equity in a public utility beyond 40%? Is it the chapter on
services or the chapter on investments that will govern? A textual
interpretation of art. 88, from the point of international investment law can
very well lead to the conclusion that in this case, the Japanese can, because
the Japanese is not purporting to operate the public utility, but only own a
small part of the investment vehicle that is a public utility. This can also be
the result if a similar situation were to take place in education, advertising,
etc. The advice of Feliciano do what the Japanese and the other ASEAN
countries did reserve comprehensively; over-reserve than under-reserve.
This is the kind of line-by-line scrutiny that the JPEPA will be subjected to
in case Japan were to sue us under Chapter 15s provisions on State-to-State
disputes. The dispute settlement tribunal will not determine the Philippines
rights according to the negotiators impression that a small device they
inserted in art. 87, par. 4 was enough to ensure compliance with the
Constitution. The tribunal will look at the text, and if the text requires us to
grant national treatment to a Japanese national in the passive ownership of
shares in a public utility, as art. 89 requires, even if it were contrary to the
Constitution, there is a treaty breach if we refuse to allow the purchase of
stock by the Japanese investor. The tribunal will look, not at GATT or
WTO jurisprudence, but at ICSID and NAFTA jurisprudence for guidance.
What Justice Feliciano therefore suggests, to prevent such a situation, is to
fully cite pertinent constitutional provisions in Annex 7. If only the kind of
care were given to Annex 7 that Annex 6 got (thanks to DDG Songco), we
would not be in this terrible mess. Unfortunately, her fine work cannot
extend to investment measures that are not investments in services, that
are not measures affecting trade in services, or that do not concern access
to the Philippine market by Japanese service suppliers.
I suggest we also listen to Justice Felicianos advice on rectifying the most

egregious constitutional failure of the JPEPA the failure to make any
reservation for future measures. The Philippines essentially abdicated its
legislative power to enact preferential, protective or even developmental
measures over Japanese investments. The enormity of this failure is
dramatized by the contrasting comprehensive reservations by Malaysia,
Thailand and Indonesia in their EPAs with Japan, and by Japan itself in its
reservations in JPEPA. These countries assured themselves full flexibility to
impose or adjust future preferential measures over large sectors of the
economy, and to impose performance requirements, such as transfer of
technology, hiring policies, etc. For nothing, we assured Japan that never
shall we employ those kinds of policies, even if absolutely needed by
Filipinos, against Japanese investors. This is contrary to specific
constitutional provisions that require State to intervene when necessary.
No, Winnie, the emperor has clothes, and he was, as usual, wearing his finest
and wisest judicial robes.
Ma. Lourdes Meilou Sereno

Former Professor, UP College of Law
Former Counsellor, WTO Appellate Body
October 13, 2007
III.
November 12, 2007
Hon. Miriam Defensor-Santiago

Chairman
Committee on Foreign Relations
Senate
Republic of the Philippines
Dear Senator Santiago:
This is to address the written statements of [some] governmental

representatives [ - - - ]1 submitted to Your Honorable Committee that took
issue with my 5 October 2007 memorandum on the JPEPA.
As a preliminary matter, allow me to reiterate that I confined the

analysis in my said memorandum only to questions of constitutionality. I did
not include in my opinion other non-constitutional legal issues of the
JPEPA which exist. Neither did I assume to cover economic problems of
the JPEPA which may be far more pressing, serious and insistent than the
problems described in said memorandum.
These former and present officials of Government disagree with all

three main points in my 5 October 2007 memorandum and are of the
following position:
(a) that no reservations are necessary for future non-conforming

measures because the JPEPA is in fact subservient to and must
be read to require conformity with the Constitution, hence all
constitutional reservations are considered reserved in the
JPEPA;
(b) that sufficient reservations were made for existing non-

conforming measures because:
1 Brackets supplied. Signed statements of these representatives form part of the records of the Senate
Committee on Foreign Relations.

(i) again, the JPEPA is subservient to the Constitution and for
the foregoing reasons, no reservation is necessary with
respect to the Constitutionally-mandated reservations;
(ii) JPEPA cannot be implemented otherwise than in

accordance with Philippine law;
(iii) JPEPA has a built-in mechanism under its art. 4 that

prevents a conflict from arising between the JPEPAs
provisions and Philippine laws;
(iv) JPEPA is not self-executing and requires enabling

legislation;
(v) that in any case, there is a one-year period in JPEPA for

making additional reservations, and
(vi) that the specific Constitutional and statutory provisions in

respect of which there is a claim of insufficiency or lack of
reservation identified by my 5 October statement and by
the statements of other lawyers and academics have
actually been reserved, and that my criticism on this specific
matter arose from a failure on my part to appreciate the
Annex 6 Reservation on Services and a misreading of Annex
7 Part 1B.
(c) that there cannot be any constitutional problem with the

exercise of the Presidents tariff-setting powers as in fact the
Supreme Court has recognized the constitutionality of the
exercise of this power (including in my ponencia in Garcia v.
Executive Secretary2).
For the foregoing reasons, Government urges the Senate to forego

considering any additional language to amend, supplement or otherwise
accompany the ratification of the JPEPA, inasmuch as the JPEPA in its
present form, conforms to the Constitution.
The following discussion is intended to explain why this view of the

Government is fraught with danger at the international law and
constitutional law levels. At this point, it may be noted that Government has
2 G.R. No. 101273, 211 SCRA 219, Jul. 3, 1992.

not disputed that the Philippines has made absolutely no reservation for
future non-conforming measures, a fact that in itself I described as having
given rise to the more serious constitutional law aspect of the JPEPA.
On the Availability under International Law of the Defense of

Supremacy of the Constitution in Refusing to Comply with an
Obligation under the JPEPA
The argument on the supremacy of the Constitution ignores the fact

that the JPEPA creates legal obligations not only under domestic (Philippine
and Japan) law, but also under international law. While the doctrine of
Constitutional supremacy is relevant in a discussion of the JPEPAs effects
in the Philippine internal legal order, it is of limited relevance in
understanding the Philippines international legal obligations under the
JPEPA.
Under international law, a treaty is law between the Parties, and

under art. 26 of the Vienna Convention on the Law of Treaties (which is widely
considered as a codification of customary international law on the subject)
is binding upon the parties to it and must be performed by them in good
faith.
The binding effect of a treaty is so basic a rule under international

law that the following article of the same convention explicitly disallows a
defense based on the requirements of the internal law of the non-complying
Party, for non-compliance with a treaty:
Article 27
Internal law and observance of treaties
A party may not invoke the provisions of its internal law as

justification for its failure to perform a treaty. This rule is without
prejudice to article 46. [Underscoring added]
Developing this further, the International Law Commissions

(ILCs) 2001 Articles of State Responsibility (which is likewise considered as
a codification of customary international law), states the international law on
the matter in art. 3, which reads:
Article 3
Characterization of an act of a State as internationally wrongful
The characterization of an act of a State as internationally wrongful is

governed by international law. Such characterization is not affected by
the characterization of the same act by internal law.3 [Underscoring
supplied]
Further, a defense that the organ of the State who committed the
State to an international obligation that is in contravention of that States
internal law in so doing acted ultra vires, i.e., in excess of authority or even in
contravention of explicit instruction, is likewise of no moment under art.7 of
the ILCs Articles on State Responsibility. In the case of the JPEPA,
assuming arguendo that it may be in contravention of the Constitution, it is
nonetheless binding on the State as a matter of international law. Neither is
this defense available even if the Supreme Court were to disown the acts
by declaring them unconstitutional. The said rule provides:
Article 7
Excess of Authority or Contravention of Instructions
The conduct of an organ of a State or of a person or entity empowered

to exercise elements of the governmental authority shall be considered
an act of the State under international law if the organ, person or entity
acts in that capacity, even if it exceeds its authority or contravenes
instructions.4 [Underscoring supplied]
In operative terms, this means that if a Japanese investor, or the

Japanese Government, were to bring a suit under the terms of the JPEPA
3 An important explanation of the context of art. 3 is found in one of the commentaries of an eminent
international law authority and a member of the United Nations International Law Commission since 1992; J.
CRAWFORD, ILC ARTICLES ON STATE RESPONSIBILITY: INTRODUCTION, TEXT AND COMMENTARIES 86
(2002):
Commentary: (1) Article 3 makes explicit a principle already implicit in article 2, namely that the
characterization of a given act as internationally wrongful is independent of its characterization as lawful
under the internal law of the State concerned. There are two elements to this. First, an act of a State
cannot be characterized as internationally wrongful unless it constitutes a breach of an international
obligation even if it violates a provision of the States own law. Second, and most importantly, a State
cannot, by pleading that its conduct conforms to the provisions of its internal law, escape the
characterization of that conduct as wrongful by international law. An act of a State must be
characterized as internationally wrongful if it constitutes a breach of an international obligation, even if
the act does not contravene the States internal law even if, under that law, the State was actually
bound to act in that way.
4 J. CRAWFORD, ILC ARTICLES ON STATE RESPONSIBILITY: INTRODUCTION, TEXT AND COMMENTARIES
106 (2002):
Commentary
xxx
2. The State cannot take refuge behind the notion that, according to the provisions of its internal law or
to instructions which may have been given to its organs or agents, their actions or omissions ought not
to have occurred or ought to have taken a different form. This is so even where the organ or entity in
question has overtly committed unlawful acts under the cover of its official status or has manifestly
exceeded its competence. It is so even if other organs of the State have disowned the conduct in
question. No other rule would contradict the basic principle stated in article 3, since otherwise a State
could rely on its internal law in order to argue that conduct, in fact carried out by its organs, was not
attributable to it.
(under art. 107 or art. 152), the fact that the Government may have
committed an ultra vires act under Philippine law, whether knowingly or
unknowingly, by committing to an obligation contrary to the Philippine
Constitution, will not be relevant.5 Neither is it material that the Supreme
Court eventually declares the treaty unconstitutional for having been entered
into in excess of authority. There are very limited justifications for parties
non-compliance with a treaty, and none of these justifications are relevant in
the context of the present debate on the constitutionality of the JPEPA. The
assumption that the JPEPA cannot be interpreted in an international forum
to require the Philippine Government to comply with a provision that
conflicts with the Philippine Constitution is simply wrong under
international law.
Interpreting the Requirements of the

JPEPA under International Law
The basic rules of interpretation under international law warn of the

serious danger of accepting the misplaced arguments that:
(1) the provisions of the Constitution are deemed written into the
JPEPA,
(2) statutory provisions are likewise deemed written into the

JPEPA,
(3) JPEPAs art. 4 is a mechanism by which contradiction between

Philippine law and the terms of the JPEPA will be resolved and
hence, prevented, and
(4) all of the JPEPAs provisions are not self-executing and need
enabling legislation.
The Vienna Convention on the Law of Treaties provides:
Article 31
General rule of interpretation
5 The exception of art. 27 of the Vienna Convention on the Law of Treaties (1969) referring to art. 46 is
with regard to the competence of the authority signing a treaty on behalf of a Party. However, note that under
art. 7 of the International Law Commissions Article on State Responsibility, which is of comparable influence as the
Vienna Convention, this exception has weakened as a result of State practice.
1. A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall

comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all
the parties in connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in

connexion with the conclusion of the treaty and accepted by the
other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the

interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which

establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations

between the parties.
4. A special meaning shall be given to a term if it is established that

the parties so intended. [Emphasis supplied]
Ordinary Meaning of the Most Significant

Obligation of JPEPA under Chapter 8
I adverted in my 5 October 2007 memorandum to the three most

important obligations under Chapter 8 of the JPEPA, namely: (a) the
obligation to accord National Treatment to Japanese investors and
investments under art. 89; (b) the obligation to accord Most-Favored-Nation
(MFN) Treatment to Japanese investors and investments under art 90; and
the (c) obligation to refrain from imposing Performance Requirements on
Japanese investments under art. 93. To clarify the binding character of these
three obligations, it helps to repeat that part of the language of these
provisions which convey this character:
Article 89. National Treatment: Each Party shall accord to .
Article 90. Most-Favored-Nation Treatment: Each Party shall accord to

Article 93. Prohibition of Performance Requirements: Neither Party
shall impose or enforce .
There is an option to reserve from, i.e., make exceptions to,

compliance with those three obligations and the only explicit mechanism in
the JPEPA for such exceptions to be made are found in art. 94 which states
that:
1. Articles 89, 90 and 93 shall not apply to: (a) any existing non-
conforming measure that is maintained by a party at the central
government level, as set out in its Schedule to Part I of Annex 7;

3. Articles 89, 90 and 93 shall not apply to any measure that a Party
adopts or maintains [in the future] with respect to sectors, subsectors
or activities, as set out in its Schedule to Part 2 of Annex 7, subject to
the conditions set out therein. [Bracketed materials added]
The language of the JPEPA is clear and there appears to be no room

for any other interpretation for any Partys reservation to the obligation of
art.s 89, 90 and 93 to be recognized, it must be found in that Partys
Reservations to Part 1 and Part 2 of Annex 7. JPEPA does not say that the
reservations can be found in any annex, chapter, or document other than in
Annex 7. Neither does JPEPA recognize implicit reservations. The only
other exceptions that JPEPA allows for failing to comply with art.s 89, 90
and 93 are, if the Party is experiencing exceptional circumstances such as
security or balance-of-payments emergency or is undertaking a health or
environment measure, that justifies departure from art.s 89, 90 and 93.
Constitutional goals such as promotion of Filipino labor and protection to
Filipino farmers, or the constitutional reservation of private land and other
economic sectors (including public utilities) to Filipinos are not recognized
exceptions under the JPEPA unless expressly reserved in Annex 7.
Re: Argument that Sixth Paragraph of the Preamble and Article 4 of

JPEPA Compel an Interpretation under International Law that JPEPA
Obligations Must Conform to the Philippine Constitution and Laws
The Sixth Preambular paragraph provides:
Recognizing the importance of the implementation of measures by

the Governments of the Parties in accordance with their respective
laws and regulations;
Art. 4 provides:
Article 4
Review of Laws and Regulations
Each Party shall examine the possibility of amending or repealing

laws and regulations that pertain to or affect the implementation and
operation of this Agreement, if the circumstances or objectives giving
rise to their adoption no longer exist or if such circumstances or
objectives can be addressed in a less trade-restrictive manner.
The ordinary meaning of the JPEPA Test does not support a

conclusion that the Sixth Preamble and art. 4 of the JPEPA ensure that the
JPEPA will not be interpreted by a tribunal applying international law rules
on treaty interpretation, in a manner contrary to the Philippine Constitution
or statutes. Indeed, an analysis of the text of the cited provisions reveals no
such purpose. Art. 4 of the JPEPA in fact assumes that each Party shall have
reserved in their respective List of Reservations of Existing and Future Non-
Conforming Measures, those measures or types of measures that it deems to
be of such importance to it as to warrant their maintenance or adoption
even though those measures are inconsistent with JPEPA provisions in
Chapter 8 on Investment. In a sense, art. 4 is the counter-point to the
reservations mechanism of Chapter 8 by allowing each party to encourage
the other, through the review mechanism, to discontinue the
implementation or avoid the adoption of non-conforming measures that
serve to impede the objectives of the JPEPA even if these have been
explicitly reserved in Annex 7 if the circumstances or objectives giving rise to their
adoption no longer exist or if such circumstances or objectives can be addressed in a less
trade-restrictive manner.
The position now suggested by some governmental representatives

makes nonsense, superfluous nonsense, of the JPEPA scheme of reservation
and ignores that fact that Japan itself made complete and comprehensive use of the
JPEPA reservations mechanisms (which Japan, not the Philippines, invented). So did
Malaysia and Indonesia in their respective Economic Partnership Agreements (EPAs)
with Japan.
Our governmental representatives also overlook the fact that art. 4

of the JPEPA is but one of several JPEPA devices that contemplate each
Party being able to influence the other to amend or forego existing or future
non-conforming measures.
Another is the entire chapter on Government Procurement, where

the Parties specifically in art. 134, commit themselves to negotiate for the
liberalization of each Partys Government Procurement Rules to the
suppliers of the other Party in the face of presumed knowledge that the
supply of goods and services to government is actually now restricted to
Philippine nationals under the Philippine Flag Law (Commonwealth Act
138). Art. 134 of the JPEPA states:
Article 134
Further Negotiations
The Parties shall enter into negotiations at the earliest possible time,
not later than five (5) years after the date of the entry into force of
this Agreement, with a view to liberalizing their respective
government procurement markets. In such negotiations, the Parties
shall review all aspects of their measures regarding government
procurement and shall consider the following factors:
(a) according national treatment and most-favored nation treatment

to goods, services and suppliers of the other Party;
There is nothing in the text of the JPEPA that suggests that Japan
will forego what it may have gained in the JPEPA language (such as the
reduction of regulatory restriction in the field of investments and trade in
the Philippines) in order to help the Philippine Government protect its own
Constitution. If the Government wants to ensure protection to the
economic provision of the Constitution, it has only one way to do that by
crafting express language to that effect in the JPEPA, and only one place to
state that in the place designated by art. 94, i.e., in its Lists of Reservations
of Non-Conforming Measures in Annex 7.
The repeated assurance by some Government representatives of

their understanding and consistent position that the JPEPA is to be
interpreted in accordance with the Constitution is not a sufficient legal tool
under international law to overcome the JPEPAs express requirement to
comply with art.s 89, 90 and 93. In the absence of explicit reservations, it
will require an egregious interpretation of the JPEPA to conclude that: (a)
constitutional and statutory provisions are deemed written into the JPEPA
in spite of the absence of language reserving such provisions; and (b) JPEPA
cannot be interpreted otherwise than in accordance with Philippine law. A
treaty, whatever else it is, is an international law instrument between two
sovereign states. It is not to be interpreted in an international forum as if it
were no more than an ordinary commercial contract between two private
individuals acting within one and the same internal legal system of a
sovereign state. If a Japanese investor came before a Philippine court
seeking enforcement of a right accorded to him by JPEPA, but which claim
is in collision with a provision of our Constitution, or of a Republic Act
enacted after entry into force of the JPEPA, the court will of course reject
that claim and instead apply the Constitution or the Republic Act. But, and
this is the critical point, such court decision will not be a valid defense to a
charge of violation of an international obligation brought against the
Philippines in an international dispute resolution forum. Should the JPEPA
enter into force between the Philippines and Japan, its provisions conferring
rights on the investors of Japan will constitute international law obligations
of the Philippines.
The Argument Regarding the Supposed Non-Self-Executing

Character of the JPEPA
Those who posit that the JPEPA completely conforms to the

Philippine Constitution argue that even if some provisions of the JPEPA
contradict the Constitution, these are not self-executing, and hence the
possibility of operationally contradicting the Constitution is remote, if not
impossible due to the requirement that first, there must be an enabling
legislation for the JPEPA obligations to be executory in the Philippines.
This argument may be relevant with respect to some, but not all, of
the obligations in the JPEPA. For example, the art. 18 obligation to reduce
tariffs on the import of Japan-origin goods to the rates specified in the
Philippine Schedule in Annex 1 requires the taking of certain internal steps
in order that the benefits of art. 18 may be enjoyed by importers of Japan-
origin goods to the Philippines.6 But such argument is completely misplaced
and non-relevant so far as concerns the obligations imposed by art.s 89, 90
and 93.
In the first place, art.s 89, 90 and 93 of JPEPA are in fact, cast in
self-executing terms in the ordinary sense of that term. Art.s 89, 90 and
93 all use the specific, definite and mandatory verb form of shall accord
and not the permissive and discretionary may accord. Thus, per the
express language of art.s 89, 90 and 93, no implementing Philippine
legislation is necessary to give domestic effect to the commitments there
made by the Philippines. But even if one assumes, arguendo merely, that
art.s 89, 90 and 93 are not self-executing, that does not dissolve away the
problem. It merely defers it, until the implementing legislation is enacted,
6 In the Philippines, a statute or a valid executive order must first be issued before the Department of
Finance and then the Bureau of Customs issue the appropriate administrative orders for the tariff rate changes
to take place according to the Philippine Schedule in Annex 1 f the JPEPA.
considering that the Philippines has not exercised the option to reserve the
right to enact future non-conforming measures.
In the second place, there is no basis under existing international law

practice to assure the Filipino public that art.s 89, 90 and 93 will not have
direct effect and immediate benefit to Japanese investors in the Philippines
under international law unless the Philippine Congress were to enact
enabling legislation for the same. Under current international practice,
enabling legislation is not required in order that National Treatment and
Most Favored Nation rights to foreign investors be deemed to exist if a
bilateral investment treaty between the investors State and the host State
provide for the grant of such rights. These rights (National Treatment and
Most-Favored Nation Treatment) are not unique to the JPEPA but are
found in other Bilateral Investment Treaties (BITs), and these BITs in turn,
have been deemed by various international investment arbitration tribunals
to grant direct rights of National Treatment and MFN in favor of the
foreign investor on the basis of the BIT alone (unless of course, express
language is found to the contrary). It must be further noted that if the
existing international investment law practice were to serve as guide for a
determination of the Parties rights under the JPEPA, beach of the said
articles as well as of art.s 91, 92, 95, 96, 97, 98, 104 and 105 of the same
Chapter, can be the basis of an action under art. 152 of the Disputes
Settlement Chapter,7 and, provided that consent of the host State is
obtained, also of dispute settlement before an international conciliation or
arbitration tribunal brought by an investor of one Party against the other
Party who is the host state for the investment under art. 107, par. 2.8
Article 152
Special Consultations for Dispute Settlement
1. For the purposes of settling disputes, either Party may make a request in writing for consultations to
the other Party if the requesting Party considers that any benefit accruing to it directly or indirectly
under this Agreement is being nullified or impaired, as a result of failure of the requested Party to carry
out its obligations, or as a result of the application by the requested Party of measures which conflict
with its obligations, under this Agreement.
8
Article 107
Further Negotiation

2. In the absence of the mechanism for the settlement of an investment dispute between a Party and an
investor of the other Party, the resort to international conciliation or arbitration tribunal is subject to
mutual consent of the parties to the dispute. This means that the disputing Party may, at its option or
discretion, grant or deny its consent in respect of each particular investment dispute and that, in the
absence of the express written consent of the disputing Party, an international conciliation or arbitration
tribunal shall have no jurisdiction over the investment dispute involved.
Finally, regardless of whether or not the JPEPAs provisions are
self-executing, the Philippines is under obligation to comply with them in
good faith, and the refusal to enact legislation to implement the JPEPA is
itself an independent basis to claim breach of the JPEPA.
The Argument that there is a Period of One Year to List Existing

Non-Conforming Measures
This argument overlooks the language of art. 94, par. 2, the only
portion of the Investment Chapter that refers to a right to list reservations
within one year from JPEPAs entry into force, and it reads:
Article 94

2. Each Party shall set out in its Schedule to Part I of Annex 7, within
one (1) year of the date of entry into force of this Agreement, any
existing non-conforming measure maintained by a province or a
prefecture referred to in subparagraph 1(b)(i) above and shall notify
thereof the other Party by a diplomatic note.
The list whose submission is deferred to one year after the entry
into force of the JPEPA is the list of existing non-conforming measures of
Philippine provinces, not existing national non-conforming measures. Under
the express terms of art. 94, par. 1 of the JPEPA, as earlier described,
national government measures must be identified in the present list of the
JPEPA in Part 1B of Annex 7, and not elsewhere nor at any other time.
On the Adequacy of the List of Existing Non-Conforming Measures,

and on the Lack of Necessity for Such Listing (including for Future
Measures) for Investments in Services in Annex 7
Some governmental representatives claim that the existing list under

Annex Part 1B for Existing Non-Conforming Measures is adequate.
(1) In respect of the ownership of private lands, identified in the

statement of Senator Wigberto Taada as having been not adequately
reserved for agricultural, residential or real estate development purposes, it is
claimed that this had been adequately reserved in Annex 6 and in Annex 7.
(2) In respect of the prohibition under art. 40 of the Labor Code on the
hiring of aliens unless there is no competent, willing and able Filipino for the
job, it is asserted that this had been adequately reserved in Annex 6.
(3) In respect of investment in services, it is contended that the
positive-list approach of Chapter 6 negates the need for a listing of future
measures, and that all the constitutional provisions regarding services are
adequately reserved in Annex 6, and that in any case, services sectors are
explicitly exempt from the provisions of art.s 89, 90 and 93 by virtue of art.
87, par. 4, with respect to both existing and future non-conforming
measures.
(4) In respect of the other sectors identified by Senator Taada,

however, the governmental representatives appear completely silent on the
matter. These are: (1) the manufacture, repair, stockpiling and/or
distribution of nuclear weapons; (2) the manufacture of firecrackers and
pyrotechnics; (3) manufacture of products requiring PNP clearance; (4)
manufacture of products requiring DND clearance; and (5) manufacture of
dangerous drugs. These items are not found in the list of existing non-
conforming measures but in the list of future non-conforming measures.
Re: Adequacy of Reservation for Ownership of Private Lands
It must be noted that Annex 7 has rules of interpretation that will

guide the determination of the legal obligations of the Party whose
Reservations are put in question. Annex 7 of JPEPA provides the following
relevant rules in pages 835-836:
Annex 7
Part 1
Reservations for Existing Measures

2. Each reservation sets out the following elements:
(a) Sector refers to the general sector in which a reservation is

taken;

(d) Type of Reservation specifies the obligation referred to in
paragraph 1 above for which reservation is taken;

(f) Measures identifies the existing laws, regulations or other
measures for which the reservation is taken.
(g) Description sets out, with regard to the obligations referred to

in paragraph 1 above, the non-conforming aspects of the existing
measures for which the reservation is taken; and

3. In the interpretation of a reservation, all elements of the
reservation shall be considered. A reservation shall be interpreted in
the light of the relevant provisions of Chapter 8, against which the
reservation is taken, and:
(a) to the extent that the Phase-Out element provides for the
phasing out of non-conforming aspects of measures, the Phase-
Out element shall prevail over all other elements; and
(b) except as provided for in subparagraph (a) above, the Measures

element shall prevail over all other elements. [Emphases
supplied]
In respect of ownership of private lands, this is how the reservations

were set out on page 873, Part 1B of the Philippines List of Reservation for
Existing Non-Conforming Measures:
3
Sector: Manufacturing
Sub-Sector: Matters Related to Private Land
Ownership
Industry Classification:
Type of Reservation: National Treatment (Article 89)
Level of Government: Central Government
Measures: The Constitution of the Republic of the
Philippines, Article XII
Description: Corporations, associations or
partnerships with maximum 40 percent
foreign equity can own private land.
Phase-Out: None
It will be readily apparent that a reading of the above rules of

interpretation will lead to the natural conclusion that the ownership of
private lands has only been reserved to Philippine citizens and juridical
entities with at least 60% Filipino equity only if the investment in land is an
investment in manufacturing. It is not correct to assume that the term
manufacturing as the sector for which reservation has been made can
extend to exploitation, use and enjoyment of natural resources, to real estate
development, residential use or to agriculture.
The Philippine Standard Industrial Classification lists

manufacturing as only one among 17 economic sectors.9 It is an
9 The 17 major divisions of the economic sectors of the Philippines under the official Philippine
Standard Industrial Classification System (2007) of the National Statistical Coordination Board under the
National Economic Development Authority are the following: (1) Agriculture, Hunting and Forestry; (2)
extraordinary reading of the JPEPA to claim that manufacturing can cover
all the other economic sectors.
Private land ownership was reserved for Filipinos also as a

horizontal condition for market services in Annex 6. This apparently means
that Japanese access to trade in services is conditioned on a limitation with
respect to ownership of private lands that the ownership of such lands
cannot breach the minimum 60% equity in the ownership of such land.
However, beyond trade in services, the problem of distinguishing an
investment that is completely confined to investment in services as against
an investment in an enterprise that may have mixed economic activities
including services will rear itself as a significant problem in the interpretation
of the JPEPA, a matter that will be discussed at greater length in a latter
portion of this response.
In sum, other than for investments in manufacturing and other than

for trade in services, private land ownership under the rules of the JPEPA
may not be denied to a Japanese investor, such as for real estate
development, agricultural uses and residential uses.
This problem arose from the failure to appreciate the fact that the
Constitutional preservation of private land ownership to Filipinos is a
prohibition that cuts across all economic sectors, and for any and all
conceivable purposes. By delimiting the reservation on private land
ownership to manufacturing and trade in services, our negotiators reserved
less than what the Constitution requires. There appears also to have been a
failure among our negotiators to appreciate the fact that the Philippine
economy is not only made up of manufacturing and services.
Re: the Lack of Need to Reserve the Right to Make Reservations for
Existing and Future Non-Conforming Measures for Certain
Constitutional Provisions (Public Utilities, Mass Media, Education,
Advertising and Practice of Profession) and for Services Generally
Some governmental representatives have argued that there is no

need for a complete listing of existing and future non-conforming measures
Fishing; (3) Mining and Quarrying; (4) Manufacturing; (5) Electricity, Gas and Water Supply; (6) Construction;
(7) Wholesale and Retail Trade; Repair of Motor Vehicles, Motorcycles and Personal and Household Goods;
(8) Hotels and Restaurants; (9) Transport, Storage and Communications; (1) Financial Intermediation; (11)
Real Estate, Renting and Business Activities; (12) Public Administration and Defense; Compulsory Social
Security; (13) Education; (14) Health and Social Work; (15) Other Community, Social and Personal Service
Activities; (16) Activities of Private Households as Employers and Undifferentiated Production Activities of
Private Households; and (17) Extra-Territorial Organizations and Bodies.
in the Philippines Schedule of Reservations to Part 1 of Annex 7, especially
insofar as reservations for measures on the constitutional provisions on
services is concerned. These they take to mean the constitutional
provisions on public utilities, mass media, education, advertising and
practice of professions.
With respect to the lack of need to reserve the right to maintain

existing non-conforming measures in Part 1B of Annex 7 for which the
Constitution maintains Filipino equity requirements in what they claim as
the services sectors, they point to: (a) the provisions of art. 87, par. 4 of
Chapter 8, JPEPA that render the same unnecessary; and (b) the sufficiency
of the reservations made by the Philippines in its Schedule to Annex 6.10
With respect to the lack of need to reserve the right to adopt and
maintain future non-conforming measures, they point to: (a) the positive
list approach of the Chapter on Trade in Services (Chapter 7) enunciated in
art.s 72 and 73 as rendering completely unnecessary the need to reserve the
right to adopt and maintain future non-conforming measures for
services;11 and (b) the same art. 87, par. 4 of Chapter 8 that also renders
reservations unnecessary.
10 They claim that in granting market access to specified service sectors listed in the JPEPA, government
negotiators were careful to include all the constitutional limitations to market access that are applicable to the
constitutionally-preserved service sectors - public utilities, mass media, education, advertising, practice of
profession including specifying the applicable equity caps or nationality requirements for the grant of
professional licenses. They also claim that sufficiently specified as a general condition to access to services
were the constitutional limitation on ownership of private lands, and on the limitation on participation of
aliens in the board of directors and management positions to no more than the allowable constitutional limits.
They also claim that they also included the applicable statutory limitations such as the hiring of aliens only
when there are no Filipino nationals available for the position.
11 Governmental representatives claim that in the first place, art.s 72 and 73 of the Chapter on Trade in
Services prevent the application of National Treatment and Most-Favored Nation Treatment obligations to
services unless Japanese investors are given market access to the service sector through the positive listing
of the sector in Annex 6 of the JPEPA. Art.s 72 and 73 read:
Article. 72
Market Access
1. With respect to market access through the modes of supply defined in subparagraph (t) of Article 71,
each Party shall accord services and service suppliers of the other Party treatment no less favorable than
that provided for under the terms, limitations and conditions agreed and specified in its Schedule of
Specific Commitments in Part 1 of Annex 6.
...
Article 73
National Treatment
1. In the sectors inscribed in its Schedule of Specific Commitments in Part 1 of Annex 6, and subject to
any conditions and qualifications set out therein, each Party shall accord to services and service suppliers
of the other Party, in respect of all measures affecting the supply of services, treatment no less favorable
than that it accords to its own like services and service suppliers.
. . .
Art. 87 (4) of the JPEPA reads as follows:

4. Articles 89, 90 and 93 shall not apply to any measure that the
Philippines adopts or maintains relating to investors of Japan and
their investments in the service sectors with respect to the
establishment, acquisition or expansion of investments.
[Underscoring supplied]
In respect of the claimed sufficiency of art. 87(4), for the prevention

of conflict between art.s 89, 90 and 93 on one hand, and Philippine
constitutional provisions on the other, it is essential to note, firstly, that art.
87(4) refers only to investments in service sectors. The Philippine
economy is not, obviously, confined to services sectors. As noted earlier,
there are for statistical-gathering purposes, 17 major divisions of our
economy according to the official Philippine Standard Industrial
Classification System (2007) of the National Statistical Coordination Board
under the NEDA. A distinct category called services sectors is not found
there. Rather, the list indicates that in fact, all the major sectors of the
economy have mixed use of activities that cannot be considered as
services. It is the Philippines Schedule to Annex 6 of JPEPA that tries to
elaborate on the services sectors for which market access is granted to
Japan. There is no language in either Chapter 7 or Annex 6 that indicates
that the Schedule in Annex 6 is intended to create any category of sectors
for purposes other than the Chapter 7 obligations or to create legal
distinctions with any effect beyond the operative rules of Chapter 7. In fact,
references in the services sectors listed in Annex 6 are made only for the
purpose of clarifying Chapter 7, i.e., trade in services commitments, and
not to create any independent legal effect.12
Secondly, it is also essential to point out that the constitutional

reservations of particular areas of economic activity to Philippine nationals
and 60% locally-owned companies themselves are not cast in terms of
services versus non-services sectors. In other words, constitutional
reservations of some areas (e.g., professional services) that might, with
some justification be termed service sectors do not exhaust the entire field
of constitutionally reserved economic activity. Thus, e.g., agriculture, mining,
They claim that, for example, since mass media is not positively listed in Annex 6, there is no room for access
to mass media by Japanese investors. Hence, they claim, that there being no access in the first place, there is
no National Treatment obligation required to be observed in the mass media sector of the Philippines for
Japanese investors.
12 Explanatory note 1 in Annex 6 (page 656) provides that the adoption of alphabet references to the
WTO Sectoral Services Classification List in either Partys Schedule are indicated to enhance the clarity in the
description of specific commitments, but shall not be construed as being a part of the specific commitments.
fishing cannot be properly regarded as services sectors. Neither is the
services versus non-services dichotomy compatible with the
constitutional protection of public utilities in the context of the meaning of
public utilities and public services under the Philippine Constitution and
statutes.13 The impossibility of effectively defining and sustaining this
services versus non-services divide is starkly illustrated by the fact that
restrictions on entry into the shipping industry itself, which is usually
claimed as part of the transportation services sector, is reserved under
Annex Part 1B of the Philippine Schedule in Annex 7 as Reservation
Number 18.14
Thirdly, within an area that might be widely regarded as a service

sector, it is often difficult and perilous to try to separate out the purely
services aspects from the investment or non-services aspects of that
area. A brief discussion of efforts of international bodies and their
difficulties and limitations is provided below to give an indication of the
kind of problems our country can create for itself by needlessly making the
services versus non-services dichotomy in our trade and investment
agreements.15 An account of some of the international legal disputes that
have already been generated on the investments-versus-services
13 Likewise, the Philippines has not attempted to define services per se but it has rules enumerating the
economic activities sought to be regulated as public services, such as in the Public Service Act. And yet, if
one were to go over the enumeration of public services within the Public Service Act, it will be quite
obvious that it embraces within the term public services, economic activities that ordinarily cannot fall
within even the WTO Services Sectoral Classification List such as ownership of ice plants, power and
electrical plants.
14 JPEPA, 891.
15 It might be helpful to consider the international context of the JPEPA rules on trade in services in
Chapter 7 to which Annex 6 is appended. The status of efforts to define services in the relevant
international agreements and bodies is still at a preliminary stage. There is no attempt in JPEPA to define the
term services, as there has been no successful attempt in WTO to define services per se. The WTO
Agreement has not defined services per se but only enumerated activities that constitute trade in services in
art. 1, par. 2 of the General Agreement on Trade in Services (Annex 1B, Marrakesh Agreement). It has a
Services Sectoral Classification List (GATT Document MTN.GNS/W/120, dated 10 July 1991) which acts as
a tool to assist in the negotiation process. This WTO List itself is patterned after a sub-set of a larger UN list
known as the Provisional Product Classification List (Statistical Papers Series M No. 77, Department of
International Economic and Social Affairs, Statistical Office of the United Nations, New York, 1991) a list
whose principal purpose is to improve the gathering of economic data across countries and sectors for
statistical harmony and accuracy. In like manner, the UN list does not attempt to define services but only
enumerates the categories of services sectors. In this larger UN list, other broad categories of economic
sectors are also identified many of which in operation simultaneously undertake the production of man-
made goods (manufacturing), the supply of service, and other economic activities that do not fall within either
category, such as the growth of natural products. Even the Philippine Standard Industrial Classification List
lists many sectors which undertake a mix of economic activities that are a combination of services,
manufacturing, extraction, non-extraction energy activities, non-manufacturing production activities or all of
the above. This only shows that mans collective logic has not reached a point where clean categories with
surgical precision can be made of services, of manufacturing, of other economic activities in a manner that
can insulate a specific sector from the cumulative effects of the layers of rules in an economic agreement such
as the JPEPA.
obligations is related by the 2006 UNCTAD Paper on Economic Integration
Agreements.16
Fourthly, our submission is that there is no basis for saying that

reservations of service sectors prevent conflict with constitutional
mandates. There is also no need for the Philippines to be satisfied with such
a half-hearted and perilous approach to preserving our constitutional
reservations of certain areas of economic activity to local citizens and
companies with specified local equity content. As noted several times,
Chapter 8 of the JPEPA precisely offered us a blank check, as it were, in
the form of the option to write our own complete reservations of existing
and future non-conforming measures, without regard to formal categories
like service and non-service sectors.
Fifthly, and perhaps most compellingly, Japan itself, who devised

the concept of reservations in the Investments Chapter, did not consider
adopting the services and non-services dichotomy now being offered by
our representatives as explanation for their failures to make adequate
reservations for non-conforming measures under Annex 7. Japan has
reserved the right not to grant National Treatment and MFN rights, and the
right to impose prohibited performance requirements on Filipino investors,
both as reservations in Annex 7 for all economic sectors17 and as market
access conditions in Annex 6 for its service sectors. It is extremely difficult
to understand why the Philippines should be satisfied with less and the
Philippines should not do what Malaysia18 and Indonesia19 have done, which
16 Examples of complexities arising from the interaction of services vis--vis investment obligations have
arisen in NAFTA on cross-border supply of an investment by one Party, distinguishing between applicable
and non-applicable provisions of the investment chapter when there is an attempt to exempt services from
some but not all of the obligations in the investment chapter (such as in the Philippine language in JPEPA),
and the combined effects of layers of obligations that amplify the intended consequences for the liberalizing
party. Investment Agreements in Economic Partnership Agreements, UNITED NATIONS CENTRE FOR TRADE AND
DEVELOPMENT, GENEVA, 130-31 (2006).
17 Pages 837-870 and 893-906. It must be noted that within sectors such as agriculture, fisheries, and
even manufacturing, sub-sectors such as repair services for several manufacturing or industry sectors are
reserved, indicating that economic sectors inherently are a mix of economic activities only part of which
constitute services in the ordinary way that the term is used.
18 Please see pages 679-714 of the Japan-Malaysia Economic Partnership Agreement, especially
Reservation Number 11 (at page 689) which reads:

11
xxx
Malaysia reserves the right to adopt or maintain any measure relating to investments in services
sectors, on condition that such measures do not constitute a violation of its obligations under
Chapter 8 including National Treatment, Most-Favored-Nation Treatment and Market Access.
19 See pages 798-906, Japan-Indonesia Economic Partnership Agreement.
is, make maximum use of the option to reserve the right to adopt and
maintain non-conforming measures under Annex 7.20
Finally, for the same inherent difficulties and the corresponding

grave legal risks in attempting to protect Philippine constitutional provisions
by making use of the services versus non-services dichotomy discussed
above, it is likewise imprudent to believe that future measures pursuant to
the Constitution are sufficiently reserved, even for the so-called services
sectors by relying on the positive list approach of Chapter 7. As earlier
described, the scope of regulation by JPEPA of Chapter 7 is limited to
measures affecting trade in services. It is not unreasonable to believe that
a measure that does not affect trade in services may be interpreted as
barred under the JPEPA even if it is adopted pursuant to a constitutional
mandate for the simple failure to reserve the right to adopt the relevant
future measure.
Re: Failure to Reserve: (1) Article 40 of the Labor Code and (2) the 5
Sectors in the Foreign Negative Investment List Identified in the
Taada Paper
Governmental representatives appear quiet on the failure to reserve

five areas covered by the Foreign Investment Negative List. These are: (1)
the manufacture, repair, stockpiling and/or distribution of nuclear weapons;
(2) the manufacture of firecrackers and pyrotechnics; (3) manufacture of
products requiring PNP clearance; (4) manufacture of products requiring
DND clearance; and (5) manufacture of dangerous drugs. Instead of being
listed under the list of existing non-conforming measures, they were
misplaced under the future measures list. Because of the clear language of
the JPEPAs rules of interpretation, it is not unreasonable for Japan to insist
that Japanese investors have the right upon the entry into force of the
JPEPA, to enter these reserved areas of investments beyond the limits
allowed by law, even if contrary to Philippine law, because they were not
explicitly reserved as existing non-conforming measures. The JPEPA is
silent on the problem of misclassifying existing measures as future measures,
20 The approach of the Japan-Thailand EPA (JTEPA) can be seen as a study in contrast to the approach
adopted by our Government. Thailand virtually committed to grant national treatment only to manufacturing,
by adopting a positive list approach in the investments chapter, meaning, unless a sector is specifically
committed, there is no National Treatment obligation that exists for said sector. Its list consists of only two
commitments: manufacture of automobile, and non-automobile manufacturing. Hence, treatment is due
Japanese investors only for these sectors. It also limited the kind of performance requirement that it inhibits
itself from imposing to those of the kind contemplated in the TRIMS Agreement of the WTO. Its approach
to Most-Favored-Nation Treatment is even a starker study in contrast. Neither Party virtually committed to
provide MFN to the other automatically. MFN is to be granted as a result of a request by the other (JTEPA,
art.s 93 and 96).
and there is no assurance that an international tribunal will interpret these
measures classification in the list of future measures as having the legal
equivalence of a reservation for existing measures.
There has also been a failure to reserve art. 40 of the Labor Code
other than in all services sectors. The effect of the JPEPA is such as to allow
a Japanese firm, upon entry into force of JPEPA, to resist the prohibition on
the hiring by their enterprise of aliens unless the requirement that there is no
competent, able and willing Filipino for the job is first administratively
proven. The claim that the rule prohibiting the hiring of aliens has been
sufficiently reserved is only partially true it is reserved only in a situation
where the hiring is sought to be made by a firm that squarely fits the
description of an enterprise that enjoys market access to the services sector
by virtue of Annex 6.21 In all other cases, art. 40 of the Labor Code, as a
matter of ordinary application of art. 93, par.s (f) and (g),22 cannot apply vis-
-vis a Japanese employer in the Philippines as to prevent it from hiring an
alien even if there is a Filipino available, willing and competent for the job.
The Constitution Requires that a Long-Term Solution to the

Repeated Exercise by the President of the Power to Set Tariffs be
Identified and Implemented
It is simply not correct to claim that my ponencia in Garcia v.

Executive Secretary inhibits a question from being raised regarding the
constitutionality of the wholesale exercise of the power to set tariffs being
made in this instance by the President through the JPEPA. The reason for
the ruling in Garcia v. Executive Secretary23 is clear:
Accordingly, we believe and so hold that Executive Orders Nos. 475

and 478 which may be conceded to be substantially moved by the
21 The prohibition of art. 40 of the Labor Code is found as a horizontal, i.e., global market access
condition to all services sectors, page 720 of JPEPA and reiterated in other sections as well, but these are
confined to the Trade in Services Annex.
22
Art. 93
Prohibition of Performance Requirements
1. Neither Party shall impose or enforce, as a condition for investment activities in its Area of an
investor of the other Party, any of the following requirements:
...
(f) to appoint, as executives, managers or members of board of directors, individuals of any particular
nationality;
...
(g) to hire a given level of its nationals;
23 See supra note 1.
desire to generate additional public revenues, are not, for that reason
alone, either constitutionally flawed, or legally infirm under Section
401 of the Tariff and Customs Code. Petitioner has not successfully
overcome the presumptions of constitutionality and legality to which
those Executive Orders are entitled.
The Garcia decision does not foreclose questions on the absence of

a power limit by which tariff reductions are being made by the President, or
the complete collapse of the Philippine tariff regime, as will be accomplished
by the JPEPAs reduction to zero tariff duties on 98% of Philippine tariff
lines for Japan-origin goods, or the near-automatic assumption of such
powers by the President when Congress is not in session. The reasons given
in my 5 October 2007 statement are undiluted by the imprimatur given by
the Supreme Court to the power of the President to raise taxes in the form
of tariff duties through the imposition of the additional ad valorem import
duty and the specific import duty involved in the Garcia case.
The Constitutionality of JPEPA
Certain proponents of JPEPA contend that the JPEPA cannot

possibly suffer from any constitutional defect because the rule in the
hierarchy of laws requires that the Constitution must always be held to be
supreme. Accordingly, it is argued that the JPEPA will always be held to be
subject to the Constitution and so ultimately, the JPEPA cannot be regarded
as unconstitutional. Therefore, it is further argued, JPEPA should be ratified
in the form it exists today and leave issues of constitutionality to our
Philippine courts should such issues arise in the future.
This argument ordinarily warrants the briefest of notice however it

has been repeated in the media not only by officials who happen to be
professionals in some field other than the law, but also by lawyers who
might otherwise be expected to know better. A Philippine court which
rejects a claim of a JPEPA treaty right upon the ground that to recognize
that treaty right would be to violate some provision of our Constitution is,
of course, simultaneously upholding the Constitution and denying
enforcement of a JPEPA provision. That court is also rendering the
Republic of the Philippines vulnerable to a serious charge of violating its
international treaty obligation and committing an international delinquency
for which it can be made responsible before an international tribunal. It is
precisely to prevent this unnecessary and most unhappy dilemma with such
portentous implications for our country that we recommend remediation
measures in the relevant Senate Resolution.
Conclusion
For the reasons we have described above, we continue to believe

that the Constitution will be best served if remedial language, a modest
sample of which we had delivered to Your Honorable Committee on 30
October 2007, be considered and made an integral part of the JPEPA.
If you or any member of your Committee has any question in

respect of the foregoing, please let us know.
Respectfully submitted,
Ma. Lourdes A. Sereno
-o0o-

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LETTERS TO SENATOR MIRIAM: CONSTITUTIONAL AND

INTERNATIONAL LAW PROBLEMS OF THE JPEPA!

There are three (3) letters or memoranda in this set of

1. A memorandum, dated 5 October 2007, entitled Constitutional

2. Letter dated 30 October 2007 setting forth suggested texts of

3. A letter dated 12 November 2007 addressed to Chairman

Reply memoranda from senior public officials were made, at least in

Those overarching problems may be outlined in the following

Firstly, what legal effect may a Philippine court give to a treaty

Secondly, what legal effect may an international judicial or arbitral

To: Hon. Miriam Defensor Santiago

Date: 5 October 2007

From: Florentino P. Feliciano

Re: Constitutional Law Aspects of Japan-Philippines Economic

1. This memorandum is respectfully submitted in response to the

3. I reviewed the two Senate Committees Invitation in Washington, DC,

A. CONSTITUTIONAL ASPECTS OF JPEPA CHAPTER 8 ON

4. JPEPA Chapter 8 on Investment establishes certain obligations of the

(a) To accord national treatment to Japanese investors and their

(c) To refrain from imposing, as a condition for investment

5. Art. 89 of JPEPA reads as follows:

JPEPA Art. 90 provides:

Art. 93, also of JPEPA, while lengthy, needs to be quoted in full:

1. Neither Party shall impose or enforce, as a condition for

(a) to export a given level or percentage of goods or services;

(b) to achieve a given level or percentage of domestic content;

(d) to relate the volume or value of imports to the volume or

(e) to restrict sales of goods or services in its Area that

(f) to appoint, as executives, managers or members of boards of

(g) to hire a given level of its nationals;

(h) to transfer technology, a production process or other

i. is imposed or enforced by a court, administrative tribunal

ii. concerns the transfer of intellectual property rights which

(i) to locate the headquarters of that investor for a specific region

(j) to achieve a given level or value of research and development

2. The provision of paragraph 1 above does not preclude either Party

National Treatment Obligation and The Philippine Schedules to

6. Most succinctly, the national treatment obligation requires the

(a) Art. XII, 2 ownership of land, utilization and exploitation of

(b) Art. XII, 11 operation of public utilities;

(c) Art. XII, 14, second paragraph practice of all professions,

(d) Art. XIV, 4(2) ownership, control and administration of

(e) Art. XVI, 11(1) ownership and management of mass media;

(f) Art. XVI, 11(2), second paragraph ownership of

8. Clearly, the constitutional and statutory provisions referred to above are

9. The Philippines has exercised the option given to it in JPEPA art. 94 by

10. Other existing constitutional reservations of exclusive access to certain

Legal consequences of present Philippines Schedule to Part 1 of

Legal consequences of present Philippines Schedule to Part 2 of

14. We turn on another, and more serious, constitutional law aspect of

15. It is critically important to note that our Schedule of reservations of

The Congress shall, upon recommendation of the economic and

Once more, a future non-conforming Republic Act would constitute

Remedial Course of Action

(a) the amendment by our Government of its Schedule to Part 1 of

(b) the amendment of our Schedule to Part 2 of Annex 7 by setting

18. The amendment of the Philippine Schedules to Part 1 and Part 2 of

B. CONSTITUTIONAL LAW ASPECTS OF CHAPTER 2 ON TRADE IN