ASEAN and its existence

One of the more interesting reads I had in the past few days was a paper that dwelt with the question on whether ASEAN actually exists. This is not as banal as it sounds. One of the popular myths that still prevail is that the GATT (or the General Agreement on Tariffs and Trade) was an organization. It wasn’t and it’s not. The World Trade Organization is indeed that. As provided by the Marrakesh Agreement Establishing the WTO, the “WTO shall have legal personality, and shall be accorded by each of its Members such legal capacity as may be necessary for the exercise of its functions.”
In short, the WTO is an organization, with a personality separate and distinct from its members, while the GATT is not. The latter is a mere treaty and the give-away to this is that the so-called “members” of the GATT were never referred to as such but rather as “contracting parties”.
As far as the ASEAN is concerned, the doubts as to its existence as a legal entity are certainly there. The paper (to be presented in final form at the Asian Law Institute conference in Singapore 22-23 May 2008, with final publication anticipated in the Singapore Yearbook of International Law), by Simon Chesterman of the New York University School of Law Singapore Programme, quotes our very own Rodolfo Severino, former Secretary-General of ASEAN, as saying that ASEAN “is not and was not meant to be a supranational entity acting independently of its members.” He is again later quoted confirming this in more direct terms when he declares that ASEAN lacks “juridical personality or legal standing under international law.”

Indeed, the position that “ASEAN was intended to be a kind of social community, rather than a legal community” is bolstered by the fact that the ASEAN Charter, adopted in 2007 although not yet in effect, has a provision stating that “ASEAN, as an intergovernmental organisation, is hereby conferred legal personality.”

What is the importance of determining whether the ASEAN does have legal personality? To be blunt: a lot. The treaty making powers of an international organization, it’s capacity to own property, to sue or be sued, to have diplomatic representation, along with all the general and implied powers of any international organization, as well as recognition to it and it’s legal status under municipal law, all stem from the fact of an international organization’s possession of international legal personality. The question regarding an international organization’s status under municipal law is actually a complex and contentious issue within international law circles. Our own Supreme Court has touched on the matter on various occasions, most notably in the case of the World Health Organization vs. Aquino (48 SCRA 242) and Holy See vs. Rosario (238 SCRA 524), although the direct issue on those cases was the availability of the right to diplomatic immunity.

ASEAN was “founded” on 8 August 1967 with the signing of the ASEAN Declaration. Those with a bent towards mysticism will note that for some reason the number “5” figures widely for ASEAN. The Declaration has 5 preambular paragraphs and 5 operative paragraphs, with 5 original parties to it: Philippines, Indonesia, Malaysia, Singapore, and Thailand. Former President Fidel V. Ramos’ father, then Foreign Affairs Secretary Narciso Ramos, represented the Philippines in that Declaration. On the other hand, the ASEAN Secretariat was established only in 1976 and is based in Indonesia. Just to give you a sense of how small the WTO Secretariat is (and debunking the myth that it is a super organization dictating to the world’s economy), the ASEAN Secretariat has around 200 personnel while the WTO Secretariat has around only 600. ASEAN has 10 members, the WTO has 152.

In any event, Professor Chesterman does concede, for a host of international law principles and jurisprudential reasons, that the ASEAN has legal existence and I leave it to his paper to explain itself as it does so obviously more competently than my 800 word column. Nevertheless, I also do agree with the point raised by Professor Chesterman that more important to the question as to whether the ASEAN does exist is whether ASEAN actually matters.

I, narrowing the discussion to Philippine interests’, would also like to point out that while calls for an ASEAN charter and acceleration to achieve an ASEAN community could all be good, we do have to ponder one essential fact: what may be good for ASEAN may not necessarily be good for the Philippines. Note that the three countries most enthusiastic for greater integration (i.e., Malaysia, Thailand, and Singapore) have one thing in common: strong economies that keep getting stronger. The Philippines is not in that league, yet. In the end, by allowing ourselves to join in the ASEAN integration hoopla we may, in the end, be just used in preparing a feast that only others could enjoy.


Sovereignty, the Philippines, and the WTO

(lecture given at the Ateneo in 2005)

There is this comment commonly known to all and that is that “all politics is local” . A seeming corollary to this is the comment made by Professor John Jackson that “all economics is international”. It is in these two statements - specifically on what they imply - that a lot of the tension has arisen with regard to the development of “jurisprudence” on international economic law and the present developments in the multilateral trading system.

This tension is essentially distilled into one word and that is: sovereignty. It is this word, this concept, by which the present rules on international trade are most shaped, by which jurisprudence struggles with, and by which the World Trade Organization is in the shape that it is in right now.

The interesting thing about this concept is that it has all been written off by international legal scholars as a mere “nuisance”. Just the other day I have heard - again - a comment by an eminent legal personality that sovereignty is not the thing that it once was, so far removed is it from the original 17th century Westphalian concept of the same.

That may all be well and good but when you see the developments happening in all the other parts of the globe that you see that the comments and observations of intellectuals, as is sometimes the case, registers a disconnect with what happens in the real world. Thus, you see France trying to block the entry of foreign players into its domestic business environment, the EC doing the same to a number of American firms, all under the guise of security or upholding of competition policy laws. While not discussing the merits of the said grounds the fact still remains that foreign investment and trade is being hampered. If one still does not see the possibility of a strong reliance on the concept of sovereignty, as pushed by an increased nationalism, on the part of nations, particularly the developed countries, one only has to look at Chinese and Vietnamese shoes intended to be exported to Europe to get the point.

So, the fact still remains that, far from being an “eroded” concept, sovereignty is still strongly relied upon by politicians, activists, lawyers, and government officials of individual States. The problem here is that, what exactly is sovereignty that so many are relying on? When you listen to our elected representatives, trade activists, musicians and artists, pundits, and even your law professors, what exactly is this concept of sovereignty?

The fact is that the concept of sovereignty is highly ambiguous and this is essentially why there is this tension between international trade and domestic laws, between national rights and the multilateral trading system. If there is a indeed a defined concept of sovereignty then that definition - as experience would show and this lecture seeks to discuss - would most probably be only in the mind, with only the most tenuous link to reality.

Thus, unless this thing, this “sovereignty”, is resolved, there would only be continuing problems in the multilateral trading system, from implementation of the rules to the carrying out of an effective dispute settlement system.

We discuss and elaborate on all these points in order:

A. Ambiguity of sovereignty in Philippine law

Every law student has memorized in his or her head the definition of sovereignty as written in the textbooks. Thus, Justice Isagani Cruz writes in his political law that sovereignty is the “supreme and uncontrollable power inherent in a State by which that State is governed”. According to Justice Cruz, there are two kinds of sovereignty: legal and political,

“Legal sovereignty is the authority which has the power to issue final commands whereas political sovereignty is the power behind the legal sovereign, or the sum total of the influences that operate upon it. In our country, Congress is the legal sovereign, while the different sectors that mold public opinion make up the political sovereign.

Sovereignty may also be internal or external. Internal sovereignty refers to the power of the State to control its domestic affairs. External sovereignty, which is the power of the State to direct its relations with other States, is also known as independence.

Sovereignty is permanent, exclusive, comprehensive, absolute, indivisible, inalienable, and imprescriptible.”

Dean Mariano F. Magsalin, Jr., in his book, discusses sovereignty as follows:

“Sovereignty: The supreme power of the State to command and enforce obedience, the power to which all interests are practically subjected and all will subordinate. It is also defined as freedom from outside control in the conduct of internal and external affairs.

Dual Aspect. Internal sovereignty is the supremacy of a person or body of persons in a State over the individuals or association of individuals within the area of its jurisdiction. External sovereignty is the absolute independence of one State as a whole with reference to other States.

Kinds. Legal sovereignty is the possession of unlimited power or authority that by law involves the power to issue final commands. Political sovereignty is the sum total of all the influences in a State which lie behind the law. It is also described as the power of the people.


Permanence. Sovereignty continues to exist without interruption as long as the State itself exists.

Exclusiveness. There can be but one supreme power in the State legally entitled to the obedience of the inhabitants.

Comprehensiveness. Sovereign power extends over all persons, associations, and things within territorial limits.

Inalienability. The State cannot cede away any of its essential elements without self-destruction.

Imprescriptibility. The powers of the State cannot be lost as a consequence of its non-assertion or non-exercise through a period of time.

Unity. The power cannot be divided without producing another State.

Those definitions, concepts, and enumerations of characteristics and attributes are all pretty well and good for the law student to study and memorize, in preparation for exams (most particularly the Bar exam), and in essence such are the intentions anyway of the authors. However, in practice, the said definitions do nothing by way of guidance.

Going back again to the definition of sovereignty: “supreme and uncontrollable power inherent in a State by which that State is governed”. The words, while high sounding and majestic, as befits the concept they are supposed to define, are hard to actually put down in the messy world of reality.

Sovereignty is supreme? Supreme as to whom? Definitely not as against other States. Supreme over the people? What then of the concept called the political sovereign? Even then, as our one of two important Supreme Court case on sovereignty shows, the same is not supreme and could be bargained away as is necessary. It is “uncontrollable”. What does uncontrollable mean? How in practice can this uncontrollability be illustrated? Even then, our Supreme Court cases show a sovereignty that is manageable not uncontrollable.

We leave the third clause and focus on the fourth first: “by which that State is governed”. This does not make sense. The State is not governed by sovereignty, sovereignty is an attribute of the State. If not, then this would be contrary to the concept of the legal sovereign and of internal sovereignty.

Again leaving the third clause and moving first to the attributes of sovereignty, one can see that again the same leaves no cause for guidance. The attributes were culled from the Supreme Court case of Laurel vs. Misa, by which it is enumerated as follows: permanent, exclusive, comprehensive, absolute, indivisible, inalienable, and imprescriptible.

Perhaps no discussion is possible on the attribute of permanent and exclusive. Note, however, that with the concept of pacta sunt servanda, exclusivity is a little bit mitigated because if the State itself is obligated to comply with its international obligations then indirectly so does it citizens. With regard to the attribute of comprehensive (“sovereign power extends over all persons, associations, and things within territorial limits”) this isn’t exactly accurate as persons or organizations granted State immunity (as differentiated from diplomatic immunity or immunity from the jurisdiction of local courts) are not exactly under the sovereign powers of a State. As to the “absolute” attribute and “indivisible”, what do they exactly mean? They have not been defined either by jurisprudence or by that of legal commentators. If “indivisible” would such have a bearing if our republic becomes a federal society? What, in practice, could be mean? It is interesting to note that in Tanada vs. Angara , the Supreme Court uses the following words: “By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their State power in exchange for greater benefits granted by or derived from a convention or pact.” And it continues: “[As illustrated by numerous existing treaties of which the Philippines is a party to], the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting States in granting the same privilege and immunities to the Philippines, its officials and its citizens.” Of “inalienable”, what is the extent of this “inalienability” as can be seen vis-à-vis the case of Tanada?

We go now to the third clause and this is most interesting: “inherent in a State”. This presupposes that sovereignty is that which is necessary to be there in order for a State to be considered as such. So we go now to a discussion on what is a State.

“States”, as defined by Cruz: is a group of people, living together in a fixed territory, organized for political ends under an independent government, and capable of entering into international relations with other states.

The following is what the definition of a State is as enunciated by the Supreme Court: “A community of persons, more or less numerous, permanently occupying a definite portion of territory, independent of external control, and possessing a government to which a great body of inhabitants render habitual obedience.”

The foregoing definitions, presumably, were culled from the provisions of Article 1 of the 1933 Montevideo Convention on Rights and Duties of States: “the state as a person of international law should possess the following qualifications: permanent population, defined territory, government, and capacity to enter into relations with other states”.

Two things: the Montevideo Convention didn’t exactly define what a State is, it merely described what are the attributes that a State should have. Secondly, the Montevideo Convention has traditionally been accepted as reflecting generally the requirements of statehood under customary international law

For our purposes this evening, we will not discuss the other three attributes (people, territory, government) and, instead, focus on the fourth: the capacity to enter into relations with other States. This is not exactly the concept of sovereignty. What this fourth requirement actually denotes is an attribute of independence. In order to conduct relations with other states, a State must be legally independent from the authority of any other State.

The concept of sovereignty is different from the concept of independence. This much alone is admitted by the writings of two of our legal experts. Justice Cruz goes on in his International Law that:

“Independence has been described as the external aspect or manifestation of sovereignty, that is, the power of the State to direct its own external affairs without interference or dictation from other States. The degree of its freedom in this regard determines the status of the State as an international person.”

Father Bernas goes on to define as sovereignty in the following sense:

“Sovereignty means independence from outside control. The Montevideo Convention expresses this in positive terms as including the ‘capacity to enter into relations with other States’. This latter element of sovereignty, however, is dependent on recognition.”

So note must be made that Cruz says that “independence has been described as the external aspect or manifestation of sovereignty”. Bernas, elaborating on his first sentence, states that “capacity to enter into relations with other States”, is an “element of sovereignty”.

The point is, independence is different from the concept of sovereignty. Sovereignty is not the “capacity to enter into relations with other States”. Taking the foregoing with the above dissection of the accepted local definitions of sovereignty and its Supreme Court enunciated attributes, do we really have any practicable workable idea of what sovereignty is? The seemingly inescapable conclusion is: none.

We move our discussion to how sovereignty is explored by international law writers working either in foreign jurisdictions or in the international arena.

B. Sovereignty as an international law concept

Notably, the intellectual origins of international law run concurrently with the development of sovereignty. Two leading figures were Hugo Grotius and Gentillus, both theologians by training. Their thesis simply was that international law was municipal law writ large. However, note that boundaries of nations do not move as the boundaries of private estates do. The doctrine of equality of States was introduced into the theory of international law by the naturalist writers. Thus:

“By nature all nations are equal the one to the other. For nations are considered as individual free persons living in a state of nature. Therefore, since by nature all men are equal, all nations too are by nature equal the one to the other.”

This doctrine sees equality despite differences in size, power, wealth, etc. See Art. 2(1) of UNC: the organization is based on the principle of the sovereign equality of all its members.

Due to the problems of the concept of equality, the better view however is to equate equality with independence. The following are the legal consequences of sovereign equality:

Prima facie jurisdiction over a territory and the population living there
States have a duty of non-intervention in the area of exclusive jurisdiction of other states

- No state can claim jurisdiction over another
- The courts of one state cannot question official acts of another state taking effect within the latter’s jurisdiction
- Municipal courts will not exercise jurisdiction over a foreign sovereign in his public capacity

Jurisdiction of international tribunals depend on the consent of parties

- In the Eastern Carelia Case of 1923 , PCIJ ruled: it is well established in international law that no state can, without its consent, be compelled to submit its disputes with other states either to mediation or to arbitration or to any kind of pacific settlement

- Finally, note that international law has no concept of stare decisis

As to the concept of domestic jurisdiction, it is the principle that certain matters are within the exclusive competence of States and are not subject to international obligations (i.e. granting of nationality, treatment of nationals). Thus, as provided for under the UNC, Article 2, paragraph 7: “Nothing contained in the present Charter shall authorize the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any State or shall require the Members to submit such matters to settlement under the present Charter; but this principle shall not prejudice the application of enforcement measures under Chapter VII.”

In practice, however, Art. 2(7) has been given a narrow interpretation, UN organs taking the position that if a matter is contrary to principles and purposes or peace and security, UN may override domestic jurisdiction considerations. “The corollary of the independence and equality of States is the duty on the part of States to refrain from intervention in the internal or external affairs of other States. x x x The general position is that the ‘reserved domain’ is the domain of State activities where the jurisdiction of the State is not bound by international law: the extent of this domain depends on international law and varies according to development.” “The relativity of the concept of the reserved domain is illustrated by the rule that a State cannot plead provisions of its own law or deficiencies in that law in answer to a claim against it for an alleged breach of its obligations under international law.” This limitation of the concept of domestic jurisdiction is also well illustrated by the power of a State to impose customs tariffs, which is presumably a purely domestic concern but nevertheless is regulated as well by international law.

Going back to sovereignty, there seems to be a consistent lack of unanimity even as to international law commentators in other jurisdictions as to what sovereignty is. Thus, for Glahn, sovereignty is the “ability to regulate its internal affairs without outside interference or control.” This, however, is very much suspiciously akin to the concept of independence, which, as we’ve seen, is an element of sovereignty.

Shaw focuses instead on the Montevideo Convention, particularly the phrase “capacity to enter into relations with other States”. For Shaw the “essence of such capacity is independence. This is crucial to Statehood and amounts to a conclusion of law in the light of particular circumstances. It is a formal statement that the State is subject to no other sovereignty and is unaffected either by factual dependence upon other States or submission to the rules of international law.” This is seconded by Harris: “When the Montevideo Convention refers to ‘capacity to enter into relations with other States’ as a requirement of statehood it is referring to independence.” This refers to “factual, as well as legal, independence from other States.”

Nevertheless, Shaw makes several important points: “The capacity to enter into relations with other States is an aspect of the existence of the entity in question as well as an indication of the importance attached to recognition by other countries. It is capacity not limited to sovereign nations, since both international organizations and non-independent States can enter into legal relations with other entities under the rules of international law. But it is essential for a sovereign State to be able to create such legal relations with other units as it sees fit. Where this is not present, the entity cannot be an independent State.” From this statement alone, one can see that capacity to enter into relations, independence, and sovereignty are three distinct concepts.

Now Brownlie approaches the discussion in another way: “Another perspective is provided by the notion of sovereignty as discretionary power within areas delimited by law. x x x Yet in all these cases the exercise of the power is conditioned by the law.” “In application of rules or in case of an absence of rules, the presumption is that States have legal competence or is one of incompetence. In the Lotus case, the Court decided the issue of jurisdiction on the basis that ‘restrictions upon the independence of States cannot be presumed’. However, there is no general rule, and in judicial practice issues are approached empirically.” Nevertheless, again, this seems to blur distinctions between independence and sovereignty and, this time around, talking as he does of “discretionary power within areas delimited by law”, of jurisdiction. He does interestingly point out that “in all these cases the exercise of the power is conditioned by the law.” The point here is that, whether he was actually talking of jurisdiction or of sovereignty, the implications are large, more so if he was indeed talking of the latter, talking as he does of the supremacy of international law (which is unacceptable in the domestic sphere).

This blurring between sovereignty and jurisdiction can also be seen in the following, by comparing Brownlie’s two paragraphs quoted immediately below:

“Sovereignty is also used to describe the legal competence which states have in general, to refer to a particular function of this competence, or to provide a rationale for a particular aspect of the competence. Thus, jurisdiction, including legislative competence over national territory, may be referred in the terms ‘sovereignty’ or sovereign rights’.

“Jurisdiction refers to particular aspects of the general legal competence of States often referred to as ‘sovereignty’. Jurisdiction is an aspect of sovereignty and refers to judicial, legislative, and administrative competence.”

Finally, you have John H. Jackson, who is, presumably from his writings, not that big a fan of sovereignty. For him, sovereignty is essentially a question of “power allocation”, although he does mention a legal commentator who calls it “organized hypocrisy”. In any event, he cites in one article the following types of sovereignty: “Domestic sovereignty [is the] organization of public authority within a State and to the level of effective control exercised by those holding authority; interdependent sovereignty [refers to the] ability of public authorities to control trans-border movement; international legal sovereignty [is the] mutual recognition of States or other entities; Westphalian sovereignty [is the] exclusion of external actors from domestic authority configurations.” However, Jackson does make a crucial point which is in a way a peripheral theme of this lecture and that is there seems to be no inherent or definite understanding of what sovereignty is and that the same seems to be dependent on custom and on the practice of each individual State.

If that were so, then the concept of sovereignty as understood here, is as good as any and thus it is to this concept, whatever it is, that we return.

C. Sovereignty, Tanada vs. Angara, and the WTO

Tanada vs. Angara was filed in 1994, heard in 1996, and in 1997 - or three years after the case was filed and two years after the WTO came into being – it was finally decided.

We will not discuss the details of the case and instead focus on the matters relevant to this lecture. Relevant is the contention by the Petitioners that our entry into the WTO violates Article II, Section 19 of the Constitution, which reads:

“The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.”

Also Article XII:

“Section 10. x x x The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.”

“Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.”

I’m surprised they didn’t make reference to Section 13: “The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.”

While the petitioners didn’t refer to Article III.1 of the GATT , which I think was relevant, they did make reference to the TRIMS:
“Article 2 - National Treatment and Quantitative Restrictions
1. Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.
2. An illustrative list of TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained in the Annex to this Agreement.”

Most crucially, the petitioners made reference to Article XVI.4 of the Marrakesh Agreement Establishing the World Trade Organization:

“Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.”

Thus, in Tanada: “It is petitioners’ position that the foregoing ‘national treatment’ and ‘parity provisions’ of the WTO Agreement ‘place nationals and products of member countries on the same footing as Filipinos and local products,” in contravention of the ‘Filipino First’ policy of the Constitution.”

The Supreme Court, nevertheless, ruled against the petitioner:

“… while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world.”

“By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their State power in exchange for greater benefits granted by or derived from a convention or pact. After all, States, like individuals, live with coequals, and in pursuit of mutually covenanted objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights.”

“[As illustrated by numerous existing treaties of which the Philippines is a party to], the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting States in granting the same privilege and immunities to the Philippines, its officials and its citizens.”

This ruling is not without logic and it’s reasoning in fact is supported by international law literature. Thus, Brownlie states that: “The institutional aspects of organizations of States result in an actual, as opposed to a formal, qualification of the principle of sovereign equality. x x x Of course it can be said that on joining the organization each member consented in advance to the institutional aspects, and thus in a formal way the principle that obligations can only arise from the consent of States and the principle of sovereign equality are satisfied.”

Furthermore, international trade law commentators Trebilcock and Howse indeed agrees that: “All international treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. x x x … trade treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically stand to gain disproportionately from trade liberalization.”

The Catholic Church’s doctrine, enunciated in Number 435 of the Compendium of the Social Doctrine of the Church, seems to be in agreement with the reasoning in Tanada vs. Angara: “National sovereignty is not, however, absolute. Nations can freely renounce the exercise of some of their rights in view of a common goal, in the awareness that they form a ‘family of nations’ where mutual trust, support and respect must prevail.”

In terms of logic and reasoning, there is indeed nothing much one can say with which the Supreme Court met the concerns of the petitioners, at least those which we pointed out and leaving others to another time. However, it is the philosophical implications of the Supreme Court’s ruling that is of interest to us here and bears worth further examination.

Essentially, what the Supreme Court laid bare in the case of Tanada is a concept of “sovereignty” that is seemingly in keeping with the concept as apparently understood by international law commentators, albeit with its ambiguities, that at the same time is seemingly different from the concept of an absolute, indivisible, inalienable sovereignty, a sovereignty that is supreme and uncontrollable that had been the hallmark of previous or traditional national understanding of sovereignty.

In his annotation to the Tanada case in the SCRA, Jorge Coquia stated that: “It is obvious that the term “sovereignty” has now lost the meaning attributed to it in the past centuries. States may still be described as ‘sovereign States’ but their sovereignty is under the law to which they have bound themselves by the UN Charter. It is sovereignty in the fields of national law or domestic jurisdiction that lie outside the newer areas controlled by international law.”

This reading of the concept of sovereignty obviously jives with the reading of sovereignty by the Supreme Court in Tanada. Inasmuch as the judiciary and apparently the greater body of the legal academe is in agreement with this present understanding of sovereignty, the question that remains is whether perhaps such understanding is shared by the greater Philippine community.

D. Conclusion

“The erosion of the concept of ‘sovereignty’ in international affairs has been much commented on. Perhaps in no context more than international economic affairs has this erosion actually occurred.” Thus so says John Jackson, thus so says the Philippine Supreme Court. That statement seems to have been proven most true in the Philippines with the ruling in Tanada. Having said that, a cursory survey of the statements and declarations of other members of the body politic, from politicians and trade activists, NGOs and members of the general academe, the concept of sovereignty is still invoked with passion and resolute reliance.

The reason being is the undeniable ambiguity that the concept of sovereignty has. Whether it is ambiguity in the Philippine context or in the greater realm of international law study (by which our present legal understanding of sovereignty seems to be anchored on), sovereignty is still - in a workable, practicable, categorical sense - undefined.

This concern is furthered by the fact that there is a seeming acceptance, even favor, to this continued ambiguity. For bureaucrats because of the available policy space it creates, to activists and legal practitioners because of the wide parameters within which to shape advocacies, to politicians because its vagueness lends itself easily to rhetoric.

So what are the implications for the situation that we are currently in? For the WTO, the implication is a continued danger for the multilateral trading system. Member countries will continue to pull and tug at the provisions and the rulings of the DSB in a manner that may eventually derail the WTO both as a negotiating forum and as a venue for justiciable disputes. The probability has been forwarded that the WTO as a negotiating forum could be rendered naught but with its DSB still in full form. This I believe needs to be further examined because if the WTO as a negotiating forum is rendered meaningless, the lack of new trade rules that will reflect present trade realities will eventually render the WTO dispute settlement system futile. Now, some suggested remedies for this admittedly dire (perhaps) scenario are a) for the realm of public international law to find a solution to this definitional conundrum of sovereignty, b) for the WTO Members to come to an agreement that will circumvent this conundrum, or c) for the WTO Members to voluntarily desist from giving in to “sovereignty arguments”. All three remedies are highly difficult to achieve, particularly the last two for the reasons stated above.

For the Philippines the implication would be the continuation of the status quo, which is both a bane and a boon. Taking the positive side first, the ambiguity allows the Philippines a wide policy space within which to interpret the economic provisions of the Constitution and at the same time within which to formulate trade policy. On the minus side, the ruling in Tanada does paint the Philippines in a legal corner. For having conceded to a mitigated power of sovereignty and, if the writings of Coquia are of influence (which they are), a narrower scope of sovereignty (to mere domestic jurisdiction - which it must be remembered is narrowly getting construed by international law), then the Philippines may have just given itself a weaker legal justification for an aggressive trade policy if it so decides in the future. On a wider view, the lack of a determined compass within which to guide ambiguities in our trade future would certainly have to be engaged sooner or later.

I think I shall stop here.

A Filipino above all

(written in 2005)

“Florentino P. Feliciano is a towering scholar in international law.”

So begins Michael Reisman’s essay A Judge’s Judge: Justice Florentino P. Feliciano’s Philosophy of the Judicial Function. In a profession where verbal precision is a virtue, the label placed on Justice Feliciano is laserlike in its application. In the inherently difficult field of public international law, Feliciano stood out. In the incredible complexity of international economic law, it is his intellectual stamp that permeates.

In Cambridge where geniuses abound, his arrival for a lecture on WTO jurisprudence gave everybody cause for excitement. In a place where Jennings, Higgins, Crawford, and Hawking mingle casually among students, he was heralded. And he is a fellow Filipino.

I once asked a question regarding the relationship of sovereignty and WTO rules during a talk he was presiding. He gave, on the spot, an analysis on the nature of sovereignty of utter precision and sophisticated nuance that is so sadly lacking in present day legal discussions.

International economic law, of which the WTO is its main engine, requires analysis of a depth and accuracy almost beyond the reach of most other branches of law and it is Justice Feliciano’s contributions that can be considered as the primary framework for its present existence.

He was born in 1928, graduating in law from the University of the Philippines, later earning from Yale his Masteral and Doctorate Degrees. As a private practitioner, he worked on corporate law, intellectual property rights, banking, insurance services, shipping, telecommunications, and international commercial arbitration.

His work in the ICSID is highly respected, as well as his work with the International Chamber of Commerce, Asian Development Bank Administrative Tribunal, and the World Bank Administrative Tribunal.

He taught in UP and at Yale, co-authoring (while in the latter) several writings with Myres McDougal. He also became a member of the Institut de Droit International and lectured at The Hague Academy of International Law. This is on top of his many scholarly published works on international law.

Justice Feliciano then joined the Supreme Court, serving as Associate Justice from 1986-1995. He would also chair the commission investigating the Oakwood mutiny.

However, it is his six year stint as member or Chair of the Appellate Body of the WTO that he would be most remembered.

From that post, he would pen the most significant decisions to date from that body, from the oft-quoted Shrimp-Turtle case (relating to trade, the environment, and State sovereignty), the US Foreign Sales Corporation tax case (which resulted in the biggest ever WTO permitted retaliation valued at US$4 billion), and a ruling on duties of imported steel which allowed the filing of amicus curiae briefs by NGOs and private individuals (other than WTO State members).

His attitude and work philosophy also serves as a useful guide for any aspiring lawyer, specially for any lawyer wishing to work on international economic law.

As related by Riesman, Justice Feliciano gave four characteristics required of a judge: humility, learnedness, sensitivity to social values in the law, and personal morality and integrity.

These characteristics, however, are applicable for any lawyer and the first is something truly necessary in today’s globally competitive legal practice.

Humility was described not only as the willingness to look all sides of the issue but also as “a clear understanding not only of his own personal limitations but also of the limitations of professional competence and of the judicial process itself … [coming to] realize that he has neither the commission nor the competence to solve all the problems of the nation and that there are other ‘workers in the vineyard’”.

Considering the multidisciplinary nature of international economic law, such words elegantly serve as a reminder of the demands of the field.

It is a sign of the level of reverence given to Justice Feliciano that a book, entitled “Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano”, was recently released (by who else but Cambridge?).

The book is a collection of essays from noted academics, international jurists, and respected international law practitioners. The collection contains “insights regarding the jurisprudence of world trade law, the changing landscape of investment arbitration, and other vital topics in international adjudication … [and will] be of special interest to World Trade Organization analysts as the contributors include six current or former members, as well as several leading trade law commentators.”

Among the authors are Michael Reisman, Rosalyn Higgins (of the International Court of Justice), James Bacchus, John Jackson (one of the acknowledged fathers of international economic law), and Mitsuo Matsushita.

Thankfully, a Filipino, Leo Palma of the WTO Law Advisory Centre, was among those invited to write and he contributed an essay on the participation of developing countries in WTO dispute settlement.

In a highly intricate and complex field, Justice Feliciano serves as an inspiring reminder of where clarity of thought, precision, attention to detail, and dedication can bring the Filipino.

Free trade is an expediency

(written in 2005)

“Only a Sith thinks in absolutes.”

(Star Wars: Revenge of the Sith)

“What we don’t know can hurt us.”
(Naked Economist)

Looking back at my notes made while in Hong Kong during the WTO’s 6th Ministerial, I am again reminded of how utterly extensive is the scope of the Doha Round of negotiations, the complexity of the subjects taken up, and the depth of the implications which could come out of it.

By now, of course, everybody is aware that a deal has been reached during the Ministerial, essentially putting an end date for agricultural export subsidies. Hong Kong, by most accounts therefore, is not considered the failure that was Seattle or Cancun. However, it was only considered a success precisely because it did not collapse. For the Doha Round to really succeed, a lot more work has to be done.

For Philippine domestic industries, greater vigilance and knowledge on the developments relating to the negotiations is essential. Those engaged in manufacturing, fisheries and canning, textiles and garments, those engaged in services (particularly overseas employment contracting, call centers, etc.), and agriculture should make it a point to gather information regarding the negotiations and make sure that their voices are heard.

More importantly, we should move the debate away from the narrow free trade versus protectionist trap that has burdened previous analysis on our trade policy. If anything, if experience and history could be taken as a guide, there is nothing absolutely certain about trade and no one size fits all formula that we could duplicate en toto. We should remember, as the New York Times remembered for us, that:

“Put simply, the Philippines got taken. A charter member of the World Trade Organization in 1995, the former American colony dutifully embraced globalization's free-market gospel over the last decade, opening its economy to foreign trade and investment. Despite widespread worries about their ability to compete, Filipinos bought the theory that their farmers' lack of good transportation and high technology would be balanced out by their cheap labor. The government predicted that access to world markets would create a net gain of a half-million farming jobs a year, and improve the country's trade balance. It didn't happen.” (The Rigged Trade Game, 20 July 2003).

It thus simply won’t do anymore to think that free trade (or its extreme opposite) would be a panacea for our nation’s ills. Attention must also be given to infrastructure development, education, governance, peace and order, transportation, energy, a responsible workforce, contractual stability, and judicial reliability. Otherwise, any benefits that we could or may garner out of international trade may be of no use or, worse, be enjoyed only by an elite few.

Even then, we should be more restrained in making generalizations regarding the advantages attributed to “free trade”. As we noted once before, even the Economist, a bastion for liberalized trade, has this to say:

“The countries that have succeeded in raising living standards rapidly, over long periods, have followed many varieties of economic policy and have lived under many different forms of government … Not fully, or even nearly so … They adopted liberal trade partially, selectively and mostly gradually. But the important thing was that they adopted it.” (Liberty’s Great Advance, 28 June 2003)

More tellingly:

“It is true that the poorest countries often face the biggest obstacles to reaping the gains from trade and that economists' models often assume these obstacles away. Many rely on tariffs as a source of government revenue. Weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others.” (Weighed in the Balance, 08 December 2005)

Caution and greater and more focused thought are needed more than ever as the uncertainties are overwhelming. Thus, doubts as to the benefits of scrapping tariffs and subsidies, the value of bilaterals, and the effects of technical rules such as the rules of origin, customs, technical barriers, etc. are but a few. This should be taken with the fact that a reading of the WTO Agreements show that not once in its 492 pages do the words “free trade” appear. Even the WTO does not require us to engage in free trade!
Definitely, a closed and protected economy is out of the question. However, so should a unilateral purely open market. Well, at least for the moment. For the good of the country, we should all look for that middle or other ground regarding trade and economic policy - keeping in mind, as Disraeli would say, that free trade (and protectionism) are but expedients - that would be most suitable for the Philippines. And now is as good a time as any.

Going FTA

(written in 2004)

In the aftermath of Cancun’s outcome last year, this column, responding to energetic calls from the both the government and the private sector to enter into bilateral and regional free trade agreements, had this to say:

“Re-engineering trade policy to actively seek bilateral deals with richer countries could also perhaps be a mistake. x x x [If] the developing countries have decried the complexity of the subjects involved in multilateral negotiations, these subjects (such as the Singapore issues, agriculture, non-agricultural market access, etc.) will be no less complex in bilateral and regional discussions. If the developing countries lamented the muscular negotiating tactics of developed countries at Cancun, these tactics will be no less demanding and aggressive in bilateral or regional talks. It must be emphasized that the safety mechanisms that multilateralism brings (i.e., the comfort of numbers, transparency, and an established dispute settlement system) are not present to the same degree in bilateral or regional negotiations.”

The past several months then saw the Philippines negotiate or enter into talks with a slew of such agreements, from the Philippines-Japan Economic Prosperity Agreement and the ASEAN-China Free Trade Agreement, to probabilities of agreements with South Korea, India, Australia, and New Zealand (via ASEAN) or exploring a one-on-one FTA with the United States. All of this while the Doha Development Round of multilateral talks at the WTO are still ongoing.

Now The Economist, a staunch advocate of liberalized trade, (in its 18 November 2004 issue; Trade Policy: Not All Trade Agreements Are Good) has the following interesting things to say:
“Alas, the passion for such agreements may be misguided. Economists have long pointed out that the gains from multilateral trade liberalisation are far greater than those from bilateral or regional deals. At best, regional deals offer smaller benefits. At worst, they do damage, artificially diverting trade away from excluded countries or clogging up commerce with fiendishly complicated ‘rules of origin’. These are needed to define whether imported goods, which may consist of inputs from many different countries, qualify for favoured treatment.
x x x
Most bilateral agreements are far from ideal. Those between poor countries often exist more on paper than in practice. Bilateral deals between rich and poor tend to be better implemented, but are marred by restrictive rules of origin and by the routine exclusion of important agricultural products.
In fact, the [World] Bank's boffins point out that most poor countries would be worse off in a world of rampant bilateral deals than they are today. x x x If developing countries all had bilateral agreements with big rich trading partners (the European Union, the United States, Canada and Japan), global income would rise by much less: $112 billion. The rich would scoop all this, and more: $133 billion. Although a handful of developing countries, such as Brazil and China, would gain a bit, poor nations as a group would be worse off than they are today.
While the Bank's exact numbers should be taken with a pinch of salt, the broad lesson is clear. Bilateralism may be a route to freer global trade, but it is, at best, a risky one.”

FTA’s, for all their supposed benefits, are simply tricky propositions. As The Economist would say, “foreign policy, more than economics, drives some of these deals.” Getting concrete interpretations alone of Article XXIV of GATT 1994 (which provides for the creation of FTAs and customs unions) is quite difficult. Furthermore, their very number provides an increasingly complex international trading system. Considering that there have been concerns raised regarding the capacity of the Philippines to keep up with its multilateral trading commitments, this obviously would be multiplied in view of the proliferation of FTAs because not only would the country have to keep track of its own membership commitments but also, for purposes of keeping Philippine competitiveness, keep track of the arrangements of which the Philippines is not a part of but has been entered into by other countries.

Also, by relying on the benefits of FTAs, certain rules would be needed to protect the existence of such benefits. Most significant among these rules would be that pertaining to the rules of origin. Rules of origin, to put it summarily, are those rules that distinguish the product of a non-FTA member from an FTA member. These rules are not only quite complex but also has an immediate and substantial effect on the bottomline of companies that deal in international trade. Consequently, the greater the number of FTAs that a country is a part of, the greater the number of rules of origin that has to be monitored.

Other complex issues that need to be addressed would be the overlapping jurisdictions by the different dispute settlement systems in place between the multilateral trading system and the different FTAs. Another would be the non-tariff subjects of an FTA (considering that tariffs are low enough already) such as market access, the possibility of problems turning up due to inadequate or faulty trade facilitation (such as complicated or ambiguous customs procedures), sanitary and phytosanitary measures, technical barriers to trade, and – perhaps - the issue of smuggling.

This is not to say that FTAs are bad or destructive, as some benefits had been stated (even by this column) to being perhaps achievable if such are entered into. The point simply is that with regard to formulating a policy or view with regard to FTA’s, there is always the need for greater information regarding the environment that surrounds it. For the moment, a certain degree of caution would perhaps be justifiable under the circumstances when even exploring the idea of possible bilateral or regional trading arrangements precisely because there are no categorical indications regarding the direction, benefits, and risks that are concomitant with FTAs. Consequentially, in confronting the reservations raised with regard to FTA’s, we find ourselves again reiterating the very same issue that pervades overall Philippine trade policy and that is the seeming need for a re-evaluation of the way we engage the international trading system.

Trade agreements, executive agreements

(written in March 2003)

There has been a recent slew of trade agreements that the Philippines has either entered into or is planning on signing up. Some are quite significant, particularly the ASEAN-China Free Trade Agreement and the ASEAN-Japan Free Trade Agreement. In addition is the possible early harvest bilateral agreement which is provided for in the ASEAN-China FTA. Could such agreements be considered executive agreements that do not need Senate concurrence? A reading of present laws and rulings relating to matter indicate as much.

A. Philippine Constitution and Treaties

Section 21, Article VII of the Constitution provides that “no treaty or international agreement shall be valid and effective unless concurred in by at least 2/3 of all the members of the Senate.

It is to be noted that under the Constitution, the power to ratify treaties is vested in the President and not, as is commonly believed, in the Legislature. The role of the Senate is confined to simply to giving or withholding its consent to the ratification. The Supreme Court has held that from the municipal law standpoint, executive agreements are different from treaties but from the standpoint of international law, they are equally binding as treaties.

B. Treaties and Executive Agreements

The Supreme Court, citing the case of Altman vs. U.S. (224 U.S. 583) in USAFFE Veterans vs. Treasurer of the Philippines (105 Phil 1030), held that an “international compact negotiated between the representatives of two sovereign nations and made in the name and or behalf of the contracting parties and dealing with important commercial relations between the two countries, is a treaty internationally, although as an executive agreement it is not technically a treaty requiring the advice and consent of the senate’.

In USAFFE, the Supreme Court stated that executive agreements generally fall under two classes: 1) agreements made purely as executive acts affecting external relations with or without legislative authorization which may be called presidential agreements, and 2) agreements entered into in pursuance of acts of congress which have been designated as congressional executive agreements. Thus, it was declared by the Supreme Court that the Romulo-Snyder Agreement may fall under any of these two classes, for precisely on September 18, 1946, the Congress of the Philippines specifically authorized the President of the Philippines to obtain such loans or incur such indebtedness with the Government of the United States, its agencies or instrumentalities (R.A. No. 16, as amended by R.A. 213). Thus, “even granting arguendo that there was no legislative authorization, it is hereby maintained that the Romulo-Snyder Agreement was legally and validly entered into to conform with the second category, namely, ‘agreements entered into purely as executive acts without legislative authorization’. This second category usually includes money agreements relating to the settlement of pecuniary claims of citizens. It may be said that this method of settling such claims has come to be the usual way of dealing with matters of this kind”.

The Supreme Court also held in Commissioner of Customs vs. Eastern Sea Trading that treaties (which will require Senate concurrence for validity) generally refer to basic political issues, changes in national policy and permanent international arrangements; while executive agreements (which do not require such concurrence) refer to adjustments of detail carrying out well-established national policies, and temporary arrangements.

In Adolfo vs. CFI, the Supreme Court ruled that “executive agreements cover such subjects as commercial and consular relations, property relations like parent rights, trademark and copyrights, postal, navigation, settlement of private claims, tariff and trade matters”.

Under Memorandum Circular No. 89, Office of the President, it is provided that, in case there is a dispute as to whether or not an international agreement is purely an executive agreement, the matter is referred to the Secretary of Foreign Affairs who will then seek the comments of the Senate Representative and the legal adviser of the Department, and after consultation with the Senate leadership, the Secretary of Foreign Affairs shall then, on the basis of his findings, make the appropriate recommendation to the President.

C. U.S., Treaties, and Executive Agreements

It is also interesting to note that U.S. rules relating to executive agreements seemingly are in concurrence to our own. To resolve questions as to whether an agreement is a treaty or an executive agreement, the U.S. government issued Department Circular No. 175, dated 3 December 1995, whereby executive agreements are to fall into one or more categories:

1. agreements which are made pursuant to or in accordance with existing legislation or a treaty;

2. agreements which are made subject to congressional approval or implementation; or

3. agreements which are made under and in accordance with the President’s constitutional power. (Department of State Circular No. 175, 13 December 1955; 50 AJIL 785)

The Circular further provides that where there is serious question as to whether an international agreement should be made in the form of a treaty or in the form of an executive agreement made by the president alone, the matter shall be brought to the attention of the Secretary of the Department of State by a memorandum prepared by the officer responsible for the intended negotiation. This memorandum shall first be routed to the Legal Adviser of the State Department and the Assistant Secretary for Congressional Relations (similar to the Assistant Secretary for Liaison with the Department of Foreign Affairs and Congress of the Philippines) for their clearance and comment. Consultation should be made with appropriate congressional leaders and pertinent committees. In this way, even purely presidential or executive agreements can get the full support of the legislative body.

Interestingly enough, further distinctions are also made by certain authorities. Thus:

1. Congressional executive agreements previously authorized where Congress has enacted legislation delegating to the President the authority to enter into an international agreement;

2. Congressional executive agreements subsequently authorized where after an agreement is negotiated, the President seeks authority from Congress to accept the agreement as a binding international obligation of the U.S.;

3. Presidential executive agreements, sometimes termed “inherent” presidential agreements, where the President accepts an agreement as a binding obligation of the U.S. without any participation of congress on the basis of his inherent or constitutional authority; and

4. Treaty executive agreements, where a treaty approved by the Senate leaves certain details of implementation to be worked out by the various governments at a later time, and may thus explicitly or implicitly authorize the President to enter into international agreements to accomplish such legislation.

Under the foregoing, the General Agreement on Tariffs and Trade is considered an executive agreement accepted for the U.S. by its president in 1947 under the then existing Trade Agreements Act Authority. By such reckoning, the 1967 Anti-Dumping Code would also be considered an executive agreement.

D. Trade Agreements

There have been a series of opinions issued by the Department of Justice that increasingly indicate that trade agreements are generally executive agreements and thus have no need of being submitted to the Senate for their concurrence.

Thus, the Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area was considered an “agreement [that] need not be ratified by Congress”, merely embodying, as it does, “the guidelines on how trade liberalization on a preferential basis can best be achieved”. The DOJ would go on to give the same opinion with regard to the following trade agreements:

1) Framework Agreement on Services;

2) Framework Agreement on Intellectual Property Cooperation;

3) Protocol to Amend the Framework Agreement on Enhancing ASEAN Economic Cooperation;

4) Protocol to Amend the Agreement on the Common Effective Preferential Tariff (CEPT) for the ASEAN Free Trade Area (AFTA); and

5) Protocol to Amend the Agreement on ASEAN Preferential Trading Arrangements (PTA).

It must be emphasized that with regard to trade agreements, the Congress already delegated to the President its authority to enter into such. Thus, Section 402 of the Tariff and Customs Code declares:

“For the purpose of expanding foreign markets for Philippine products as a means of assistance in the economic development of the country, in overcoming domestic unemployment, in increasing the purchasing power of the Philippine peso, and in establishing and maintaining better relations between the Philippines and other countries, the President is authorized from time to time:

a) To enter into trade agreements with foreign governments or instrumentalities thereof;”

E. Free Trade Areas

As can be seen above, a number of trade agreements entered into or about to be entered into by the Philippines are in the nature of or related to the concept of free trade areas. A short discussion on this is therefore appropriate.

Free trade areas are understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories. The concept of free trade areas has been recognized in Article XXIV of the 1994 General Agreement on Tariffs and Trade. The 1994 GATT, in turn, forms part of the range of agreements informally called the WTO Agreements.

The WTO Agreements have been given concurrence by the Senate (and ratified by the President) in 1994, the validity of such concurrence being fully threshed out in the Supreme Court case of Tanada vs. Angara. It must be emphasized that as Member of the WTO, the Philippines is duty bound in ensuring that its laws, rules, and regulations are consistent with the WTO Agreements. By signing on to the WTO Agreements, the Philippines therefore “recognize[s] the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements”. Furthermore, as mentioned above, the concept of free trade areas are provided for in Article XXIV of the 1994 GATT. Said Article clearly provides that: “each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories”.

F. Conclusions

From the foregoing, it would appear that trade agreements, meaning agreements dealing in matters relating to trade or tariff matters, are executive agreements that do not need Senate concurrence. Accordingly, the A S E A N -China FTA and the ASEAN-Japan FTA may be considered as merely those which refer to adjustments of detail carrying out well-established national policies and constitute relatively temporary arrangements. It must be stressed that Philippine policy, as embodied in the Medium Term Philippine Development Plan 2001-2004, has long recognized that the “increasing integration of the Philippines with the rest of the world’s economies provides net benefits to society”. Furthermore, “in the area of regional and international economic cooperation, the government will uphold its commitments under the ASEAN Free Trade Area-Comprehensive Effective Preferential Tariff (AFTA-CEPT), the Asia-Pacific Economic Cooperation (APEC), and the World Trade Organization (WTO)”. The strengthening of the ASEAN is of course a commitment undertaken by the Philippines and one of the ways to strengthen ASEAN (as agreed upon unanimously by the ASEAN members) is by entering into regional free trade arrangements such as those mentioned above.

The Supreme Court, it must be emphasized, ruled in the USAFFE case that “international compact[s] negotiated between the representatives of two sovereign nations and made in the name and or behalf of the contracting parties and dealing with important commercial relations between the two countries, is x x x an executive agreement” not requiring the advice and consent of the Senate. This ruling was further made clear in Adolfo vs. CFI, whereby the Supreme Court declared executive agreements as those which “cover such subjects as commercial and consular relations, property relations like parent rights, trademark and copyrights, postal, navigation, settlement of private claims, tariff and trade matters”.

To the foregoing must be added the fact that the WTO Agreements - of which the Philippines is a signatory and for which the Senate has already provided concurrence thereto - clearly recognizes the concept of free trade areas. Also, the DOJ has consistently opined that with regard to trade agreements, the same needs no concurrence by the Senate. It is well worth adding that United States jurisprudence seems to be in agreement with ours, as the 1947 GATT was considered an executive agreement. Finally, it must be stressed that by legislating the Tariff and Customs Code, the Congress itself delegated its authority to the President to enter into trade agreements.

The reasons stated for the ASEAN-China FTA and the ASEAN-Japan FTA apply also to agreements that are mere components of other trade agreements and a prime example of this would be the bilateral agreements pursuant to the early harvest program provided for under the ASEAN-China FTA. Being a mere component of the ASEAN-China FTA, as the latter can be considered an executive agreement, then, clearly, any early harvest agreement needed to fulfill the provisions of that FTA would necessarily be an executive agreement as well.

Having said that, the conclusions inevitably brought by the foregoing clearly invite difficulties and dangers. Trade agreements, though perhaps merely filling out details of established policy, are however quite significant, with effects definitely trickling down to the smallest Filipino business. Due to the mass of details and technical information contained in such agreements, it is important that ordinary Filipinos and their elected representatives have a say regarding the matter. As the Philippines strives to become truly globally economically competitive, trade agreements are too important and too far reaching in its effects to be left purely in hands of bureaucrats (no matter how experienced or talented they are). A process clearly needs to be established whereby there is a review of the trade agreements being entered into. It would therefore be advisable for laws to be legislated directly dealing with the matter, expressly classifying trade agreements as treaties needing Senate concurrence (or making distinctions among the different trade agreements as are appropriate). Congressional hearings (with a government official or officials clearly designated as responsible for overseeing trade agreements) should also be set up - either annually or at regular periods - for purposes of reviewing trade policy and agreements currently being negotiated into. Finally, the President’s authority to enter into trade agreements should perhaps be re-studied by Congress, with Section 402 of the Tariff and Customs Code being amended to limit the President’s authority to specific delegations subject to certain periods of time.

Globalization and the end of Philippine culture

One interesting thing I saw while going through the National Museum’s Rice exhibit is its take on the “kaingin”. According to the exhibit, the kaingin was not the harmful practice that it actually was but only became so because of the demands of “the land hungry and increasingly globalized commerce”. That comment was interesting to say the least.

Never mind the fact that the Philippine population increased because of better diets, better access to better medicines, better medical attention, better access to better communications (in case of emergencies). All of which, mind you, was the result of globalization and increased trade. If ever kaingin became phased out as an agricultural method it was simply because it inefficiently dealt with the demands of a growing society and of change. And change - like death and taxes - is a constant and certain thing in life. You can’t blame globalization for that.

Changes demand innovation and creativity, which then breeds more changes, and so on. Changes in life patterns, culture, politics, science, philosophy, and even religion, are inevitable. Globalization doesn’t necessarily create those changes. It just makes the products of change a whole lot more accessible to a whole lot more people.

Indeed, by the exhibit’s logic, people should use horse drawn carriages and not cars (a foreign invention). Or people should start making their own clothes by needle and thread, instead of buying them from malls. Or write using pens instead of tapping away at computers. And write by candlelight (ala Rizal) and not through fluorescent. But the problem is that even such old fashioned alternatives are all products, one way or another, of globalization.

Ironically, with the Philippines being a mix of Christian or Muslim faiths, of a Republican government, of English speech, of Asian, American, and Spanish cuisines, of fiestas, of rock and pop, of a people of mixed descents, of Hollywood and basketball, globalization should be the last thing it should be bashing. Notably, the last two significant events whereby Filipinos were riveted as one were the death of a Polish pope in Rome and of a Filipino boxing in the US.

But doesn’t globalization lead to a destruction of cultures, leading to that dreaded Western “homogeny”? Doesn’t globalization lead to everything becoming Americanized? The answer to this question is that globalization doesn’t come about because of the dictates of any sole or singular power. The power of globalization is that it provides people with choice. Nobody has ever forced you, at the point of a gun, to eat hamburgers and french fries. Nobody forced you to buy rubber shoes and then forced you to play basketball or football with it. Nobody forced you to watch the latest Hollywood movie or buy the latest rap offering. Nobody is forcing you to buy the latest designer jeans or that affordable but cool wristwatch, or listen to an i-pod. Or buy the latest book on the adventures of Shopaholic or of Frodo.

Globalization is about choice. The world is not being Americanized or Westernized. We are free to choose. To eat curry or dinuguan. To watch Christopher de Leon or Ziyi Zhang. To drink softdrinks or gulaman. To listen to Parokya or U2. To watch Stairway to Heaven or Bubble Gang. Whatever the merits of your choice or the level of quality from which you can choose from, the point is you have a choice.

And the great thing about it is that this choice is not limited to the elite of our society. Thus, the poorer members of our country can now - compared to what was before - have their pick of cellphones, clothes, magazines, food, cd’s, books, the internet and other sources of learning. Ever since the Philippines opened its economy up, a lot of benefits normally reserved for the rich are now enjoyed by the poor. No doubt inequalities still exist and we should work harder to change that (and note, as stated in our last article, how freer trade helps the poor). The point is, far from the threat it is made out to be, globalization is about choice. It is about freedom. If you want a more egalitarian Philippines, you should be embracing globalization.


Of cigarettes and the WTO

Several interesting developments occurred in the dispute settlement front of the WTO. Rulings gave losses to the US on anti-dumping cases relating to India and Thai shrimps, while China is reported to have suffered it’s first ever defeat in a WTO dispute (on auto parts). Meanwhile, the US continues to defend its use of the zeroing methodology for anti-dumping cases. While some may interpret the same as reflecting something amiss amongst the relationships between the trading nations, I tend to view the disputes as a sign that the state of international trade and the world economy in general as relatively healthy despite all the fears about a US recession. It also confirms the much talked about efficiency of the WTO’s dispute system.

In any event, the most relevant of the dispute developments have to do with the case filed by the Philippines against Thailand at the WTO relating to Thai taxes imposed on imported cigarettes. According to reports, Philip Morris Philippines Manufacturing Inc. declared difficulty in attaining export growth targets, with total exports declining from two years ago. PMPMI’s shipments to Thailand have been described as making up to 95 percent of its total exports. The alleged cause of the export slowdown is said to be the Thai measures. Indeed, as alleged in the Philippine complaint, the Thai government does control a major tobacco company, the Thai Tobacco Monopoly, which “is the only business entity authorized by Thai law to produce cigarettes in Thailand”. The main cause of action of the Philippine complaint, therefore, is whether Thailand is violating WTO national treatment provisions.

The case is formally entitled Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines, and docketed as DS371. For purposes of full disclosure, I have to say that I had a hand in the research and analysis relating to the areas on customs valuation and excise tax, which now forms some portions of the Philippine complaint. The complaint also covers health and TV tax, VAT, and dual licensing requirements.
The complaint (actually a “request for consultations”) was dated 7 February 2008. Tellingly, analysis and commentary were already being made on the case by foreign lawyers and in websites as early as 13 February 2008, with BusinessWorld being the first to report on the matter to the Filipino public on 15 February 2008.
Some commentators point to the interesting timing of the complaint, following as it did the news regarding the Altria Group Inc.’s planned spinoff of Philip Morris International and, more substantively, the fact that the complaint came at the same time that negotiations on a protocol to the Framework Convention on Tobacco Control relating to illicit trade in tobacco products began. The effect these developments have on the case (or vice-versa), nevertheless, remains unclear.
The dispute, as a whole, involves the provisions of Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994", which is actually GATT 1947. Confused?), and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement").
Some commentators have referred to the Philippine complaint as Thai Cigarettes II (a landmark trade case during the GATT days relating to health measures), as well as containing elements of the Korea - Beef case. The latter case deals with the validity of dual retail requirements. Indeed, the Philippine complaint does allege that “Thailand requires that tobacco and/or cigarette retailers hold separate licenses to sell domestic and imported cigarettes, respectively. The Philippines understands that the measure in which these discriminatory requirements are contained include the Excise Department Announcement by the Director-General of Excise, dated 12 September 1991, issued pursuant to Article 4, Ministerial Regulation No. 17 B.E. 2534 (1991) under the Tobacco Act B.E. 2509 (1966), and any amendments, implementing measures or other related measures.”
The question, therefore, is how the dual licensing requirement leads to discriminatory treatment against the imported cigarettes and thus a violation of Article III.4 of the GATT, which states that "The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. "
As provided by the rules, the case is now awaiting consultation between the parties. Considering that the livelihood of hundreds, if not thousands, of Filipino farmers are at stake here, this is one trade matter that all Filipinos should be vigilantly monitoring and supporting. One thing should be remembered: of the 9 cases we’ve been a party to in the WTO, we’ve never won yet.


Thailand – Customs and fiscal measures on cigarettes from the Philippines

The following is the consultation request by the Philippines for the dispute docketed as DS371:

Request for Consultations by the Philippines

The following communication, dated 7 February 2008, from the delegation of the Philippines to the delegation of Thailand and to the Chairman of the Dispute Settlement Body, is circulated in accordance with Article 4.4 of the DSU.

My authorities have instructed me to request consultations with the Kingdom of Thailand pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994"), and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement") with respect to the measures and claims set out below.

I. Claims under Article X:3(a) of the GATT 1994

1. The Philippines is a major exporter of cigarettes to Thailand. The Thai Tobacco Monopoly ("TTM") is the only business entity authorized by Thai law to produce cigarettes in Thailand. TTM has a market share of approximately 80 per cent. TTM's products are, therefore, the main competitor of the Philippines cigarettes in the Thai cigarette market.

2. There are numerous personal and institutional links between the Thai government and TTM that create serious conflicts of interests in the administration of Thai fiscal and customs legislation pertaining to cigarettes, and lead to biased, partial, and unreasonable administration of Thai law. By way of example, TTM is a business unit of the Thai Ministry of Finance, which is responsible for the administration of the value added, excise, health and "television" or "TV" taxes, as well as of customs charges. Furthermore, the Minister of Finance has authority to appoint and remove directors on the TTM Board of Directors, and the TTM Board of Directors includes or has included senior Ministry officials, such as the Director General for Excise and the Director General for Customs, who are engaged in the administration of duties and charges on cigarettes.

3. These pervasive institutional and personal links between TTM and the Thai government lead to conflicts of interest and partial and unreasonable administration of Thai fiscal and customs measures. In particular, Thailand administers in a partial and unreasonable manner:

· the customs valuation measures in paragraph 7;

· the excise tax measures in paragraph 13;

· the health tax measures in paragraph 14;

· the TV tax measures in paragraph 15; and

· the value added tax ("VAT") measures in paragraph 20.

4. In addition, in determining the guarantee or cash amount that importers of cigarettes may be required to deposit upon entry, Thailand administers its legal provisions pertaining to guarantees in a partial and unreasonable manner. In particular, Thailand administers in a partial and unreasonable manner:

· the provisions of the Customs Act B.E. 2469
[1] (1926) (as amended) in respect of guarantees (specifically, Sections 112, 112 bis, 112 ter, and 112 quater);

· Customs Regulation No. 2/2550 (2007) Guideline to determine customs price valuation; and,

· any amendments, implementing measures, or measures related to the measures listed in this paragraph.

5. Thailand thereby violates Article X:3(a) of the GATT 1994.

II. Claims Pertaining to Customs Valuation

6. Between 2003 and August 2006, the Customs Department of the Kingdom of Thailand ("Thai Customs") routinely accepted as the basis for customs valuation the transaction value declared by importers on entries of imported cigarettes. However, since August 2006, Thai Customs has rejected the transaction value declared by importers on such entries as the basis for valuation, both for purposes of determining the amount of monies that importers are required to deposit as guarantees for the duties that may be payable on such entries, as well as for purposes of the final assessment of duties. Instead, on a general and prospective basis, Thai Customs arbitrarily pre-determines values that are higher than the declared transaction values and applies these values to all entries of imported cigarettes, in place of the declared transaction values. Thai Customs allows the importer to withdraw the subject goods from customs only if the importer makes a payment on the basis of the declared transaction value and deposits a guarantee of customs duties covering the difference between the declared transaction value and the applicable pre-determined value. Subsequently, Thai Customs issues a final assessment of customs value that is higher than the declared transaction value and that reflects the applicable pre-determined value, which is changed from time to time.

7. The measures at issue include:

· the general rule and/or methodology providing for the systematic rejection of transaction value, and the imposition of a higher pre-determined value, including any calculation methodology underpinning the pre-determined value. This measure (or measures) applies at the time of entry as well as at the time of final assessment;

· individual determinations made by Thai Customs for entries of cigarettes exported from the Philippines and landed between 4 August 2006 and today, including:

(a) the Notices of Assessment for the entries listed in Annex I to this request; and,

(b) the assessments of value for purposes of setting the guarantee or cash deposit at the time of entry for the entries listed in Annex II to this request;

· Customs Act, B.E. 2469 (1926) , including all amendments;

· Ministerial Regulation No. 132 B.E. 2543 (1990) issued under authority of the Customs Act B.E. 2469 (1926) and the amending Ministerial Regulation No. 145 B.E. 2547 (2004) and Ministerial Regulation No. 146 B.E. 2550 (2007):

· Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on customs valuation;

· Customs Regulation No. 2/2550 (2007) Re: amendment of the Customs Formalities and Guidelines Code B.E. 2544 (2001) re: Customs formalities to prevent Customs value duty evasion, and amendment of Customs Department Regulation No. 14/2549 (2006) re: Guideline for Fixing of Customs Value;

· Customs Regulation No. 14/2549 (2006), re Guideline for Fixing of Customs Value, as amended by Customs Regulation No. 2/2550 (2007);

· Customs Notification No. 29/2549 (2006) Procedure in requesting duty fee assessment; and

· any amendments, implementing measures, or measures related to the measures listed in this paragraph.

8. As a result of these measures, Thailand fails to use transaction value as the basis for customs value, contrary to Articles 1.1, 1.2(a), and 1.2(b) of the Customs Valuation Agreement and the interpretative Notes to these provisions, as well as paragraphs 1 and 2 of the General Introductory Commentary. In so doing, Thailand fails to communicate the grounds for considering that the relationship between the parties influenced the declared price, as required by Article 1.2(a). Thailand also fails to conform to the sequence of valuation methods mandated by the Customs Valuation Agreement, and uses a valuation method that has no basis in the Customs Valuation Agreement. These actions are inconsistent with Articles 2, 3, 4, 5, 6, and 7, as well as the relevant interpretative Notes. These measures are also inconsistent with Article 13 of the Customs Valuation Agreement, as well as Article II:1(b) and II:3 of the GATT 1994.

9. Thailand has failed to provide an explanation for the determination of the pre-determined values applied to entries at the time of importation and at the time of final assessment, breaching its obligations under Article 16 of the Customs Valuation Agreement.

10. The Philippines considers that, for all these reasons, Thailand acts inconsistently with Articles VII:1, VII:2(a), VII:2(b), and VII:2(c) of the GATT 1994. Moreover, Thailand fails to publish the bases and methods for determining the value of cigarettes imported from the Philippines. This is in violation of Article VII:5 of the GATT 1994.

11. Further, Thai government officials appear to have publicly disclosed CIF values of imported cigarettes in the Thai media. The public disclosure of such business-confidential information is in violation of Article 10 of the Customs Valuation Agreement.

III. Claims pertaining to the Excise Tax, Health Tax and TV Tax regimes

12. Thailand imposes an ad valorem excise tax, health tax, and "television" or "TV" tax, on both imported and domestic cigarettes. For imported cigarettes, the basis for all these taxes is the CIF customs value as determined by the Thai customs authorities, whereas for domestic cigarettes, it is an ex-factory price determined by the Director-General for Excise.

13. The Philippines understands that Thailand operates the excise tax regime through measures including:

· the Tobacco Act B.E. 2509 (1966), Section 5 ter;

· Notices of Director-General for Excise, setting out the ex-factory prices. The currently applicable ex-factory prices are set out in the Notice B.E. 2550 (2007) of 29 August 2007; and,

· any amendments, implementing measures, or measures related to the measures listed in this paragraph.

14. The Philippines further understands that Thailand operates the health tax regime through measures including the Health Promotion and Foundation Act, B.E. 2544 (2001), in particular Sections 11, 12, and 13 thereof, and any amendments, implementing measures or other related measures.

15. The Philippines further understands that Thailand operates the TV tax regime through measures including the Thai Public Broadcasting Service Act 2551 (2008), in particular Sections 12, 13, and 14 thereof, and any amendments, implementing measures or other related measures.

16. As developed in Section II, Thailand determines excessive customs values for Philippine exports of cigarettes inconsistently with the Customs Valuation Agreement, and because these customs values serve as the tax basis for imposing the excise tax, the health tax and the TV tax, Thailand imposes a higher tax burden on imported products than on like and/or directly competitive or substitutable domestic products.

17. By so doing, Thailand acts inconsistently with Article III:2, first and second sentence. This discrimination against imported cigarettes is compounded by the fact that Thai law contains no procedure for cigarette importers to claim a refund of the portion of the excise tax, health tax and TV tax paid as a result of the excessive customs valuation. The failure of Thailand to provide for such a refund procedure results in a violation of Article III:2, first and second sentence. It also constitutes partial and unreasonable administration of the measures referred to in paragraphs 13, 14, and 15, contrary to Article X:3(a) of the GATT 1994.

18. Thailand also has not published the regulations pertaining to the determination of the ex-factory prices, which constitute the tax basis for Thailand's imposition of the excise, health and TV taxes on domestic cigarettes. As a result, Thailand is in violation of Article X:1 of the GATT 1994, which requires governments to publish trade laws and regulations of general application.

IV. Claims Pertaining to Thailand's Value-Added Tax ("VAT") Regime

A. Thailand's VAT regime

19. Under Thailand's fiscal regime, VAT on cigarettes is calculated by reference to brand-specific maximum retail selling prices ("MRSPs"). These MRSPs are determined by the Thai Government through executive acts applying solely to domestic cigarettes on one hand, and separate executive acts applying solely to imported cigarettes on the other hand. The MRSPs are modified from time to time. In the last two and a half years, the MRSPs for imported cigarettes have been changed more frequently than those for domestic cigarettes.

20. The Philippines understands that Thailand operates the VAT regime for cigarettes through measures including:

· Sections 79/5 and 81 of the Revenue Code of Thailand;

· Section 23 of the Tobacco Act B.E. 2509 (1966);

· Royal Decree, issued under the Revenue Code, Governing the Reduction of the Value Added Tax Rates (No. 465), B.E. 2550 (2007);

· Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991);

· Order of the Revenue Department No. Por 85/2542 (1999);

· Notification of the Director-General of the Revenue Department on VAT (No. 10);

· MRSP Notices issued by the Director-General for Excise. The currently applicable MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007 (for domestic products) and in the Notice B.E. 2550 (2007) of 29 August 2007 together with Notice B.E. 2550 (2007) of 18 December 2007 (for imported products); and

· any amendments, implementing measures or other measures related to the measures listed in this paragraph.

21. The MRSPs for imported brands of cigarette, including those exported by the Philippines, are set at significantly higher levels than the MRSPs for like and/or directly competitive or substitutable domestic brands. Moreover, the MRSPs for imported cigarettes are set significantly above the actual retail selling price of those cigarettes, whereas the MRSPs for domestic cigarettes are set at the level of the actual retail selling price of those cigarettes. The higher MRSPs for imported products result in a higher fiscal burden for these products than for like and/or directly competitive or substitutable domestic products, and thereby afford protection to the domestic products. Therefore, the Philippines considers that the VAT imposed on imported products as a result of these measures is inconsistent with Article III:2, first and second sentence, of the GATT 1994.

22. Thailand also has not published the regulations pertaining to the determination of the MRSPs, which constitutes the tax base for Thailand's imposition of VAT on domestic and imported cigarettes. This failure is a violation of Article X:1 of the GATT 1994.

B. Other VAT-related requirements

23. Thailand imposes different VAT-related requirements on wholesale and retail sellers of cigarettes, depending on whether they sell domestic or imported products. In particular, these sellers are subject to VAT when they sell imported products but are exempt when they sell like and/or directly competitive or substitutable domestic products. Moreover, because wholesale and retail sellers of imported cigarettes are subject to VAT, whereas wholesale and retail sellers of domestic cigarettes are not, the former are also subject to VAT administrative requirements that are not imposed on sellers of the like and/or directly competitive or substitutable domestic product. The Philippines understands that the measure in which these discriminatory requirements are contained include Section 81 of the Revenue Code, Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991), and Order of Revenue Department Por 85/2542, and any amendments, implementing measures or other related measures.

24. The Philippines considers that these measures are inconsistent with Articles III:4 and III:2, first and second sentence, of the GATT 1994.

V. Claims Pertaining to Retail Licensing Requirements

25. Thailand requires that tobacco and/or cigarette retailers hold separate licenses to sell domestic and imported cigarettes, respectively. The Philippines understands that the measure in which these discriminatory requirements are contained include the Excise Department Announcement by the Director-General of Excise, dated 12 September 1991, issued pursuant to Article 4, Ministerial Regulation No. 17 B.E. 2534 (1991) under the Tobacco Act B.E. 2509 (1966) , and any amendments, implementing measures or other related measures.

26. The Philippines considers that this dual license requirement, based purely on the origin of the products sold, is inconsistent with Article III:4 of the GATT 1994, because it provides less favourable treatment for imported products than for like domestic products.
* * * * *

The Philippines reserves its right to raise further factual claims and legal matters during the course of consultations.

We look forward to receiving your reply to the present request and to fixing a mutually convenient date for consultations.

[1] The "B.E" year number designates the year in the Buddhist calendar. The year number in parentheses designates the corresponding year A.D.





The case is now awaiting "consultations" in accordance with the WTO DSU procedures and the reported venue of the same is Bangkok, Thailand.