A 1998 short paper I wrote as part of my LL.M. studies in UST, Manila.
This Report discusses the GENERAL AGREEMENT ON TARIFF AND TRADE (GATT) and the WORLD TRADE ORGANIZATION (WTO): background, negotiation process, dispute settlement and enforcement of GATT/WTO rights, and the implications of GATT/WTO to the Philippines.
In the light of the current trends toward globalization and trade liberalization, a discussion of the above topics is timely.
GATT/WTO greatly affects the economic and sociological future of the whole world, and if managed properly, such effects will work for the betterment of the global economy.
The reader is requested to refer to the following two unpublished manuscripts dealing with the same subject matter:
[a] WORLD TRADE ORGANIZATION, by BS Carnadi, a report submitted to Prof. VT Reyes, UST Graduate School, in the subject INTERNATIONAL TRADE LAW AND PRACTICE, Sept. 1998; and
[b] THE PHILIPPINES AND THE GENERAL AGREEMENT ON TARIFFS AND TRADE - WORLD TRADE ORGANIZATION, by MLC Bello, a report submitted to Prof. VT Reyes, UST Graduate School, in the subject INTERNATIONAL TRADE LAW AND PRACTICE, March 1996.
SUPREME COURT HAS UPHELD
THE CONSTITUTIONALITY OF
THE ACCESSION OF THE PHILIPPINES
TO THE GATT/WTO AGREEMENTS
In the case of "Tanada, et. al. vs. Angara, et. al.", GR 118295, May 2, 1997, THE LAWYERS REVIEW, June 30, 1997, pp. 9, et. seq., the Supreme Court upheld the constitutionality of the accession of the Philippines to the GATT/WTO Agreements, thus:
A. On the so-called "economic nationalism" provisions of the Constitution (Sec. 19, Art. II; Secs. 10-12, Art. XII):
" All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair (Sec. 1, Art. XII). In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. while the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair."
B. On the allegation that GATT/WTO will wipe out the domestic economies of poor countries:
"xxx the WTO has some built-in advantages to protect weak economies, which comprise the vast majority of its members. Unlike in the UN where major states have permanent seats and veto powers in the Security Council, in the WTO, decisions are made on the basis of sovereign equality, with each member's vote equal in weight to that of any other. There is no WTO equivalent in the UN Security Council. x x x."
x x x.
" xxx the WTO Agreement grants developing countries a more lenient treatment, giving their domestic industries some protection from the rush of foreign competition. Thus, with respect to tariffs in general, preferential treatment is given to developing countries in terms of the amount of tariff reduction and the period within which the reduction is to be spread out. Specifically, GATT requires an average tariff reduction of 36% for developed countries to be effected within a period of six (6) years while developing countries - including the Philippines - are required to effect an average tariff reduction of only 24% within ten (10) years.
"In respect to domestic subsidy, GATT requires developed countries to reduce domestic support to agricultural products by 20% over six (6) years,as compared to only 13% for developing countries to be effected within ten (10) years.
"In regard to export subsidy for agricultural products, GATT requires developed countries to reduce their budgetary outlays for export subsidy by 36% and export volumes receiving export subsidy by 21% within a period of six (6) years. For developing countries, however, the reduction rate is only two-thirds of that prescribed for developed countries and a longer period of ten (10) years within which to effect such reduction. x x x."
"Moreover, GATT itself has provided built-in protection from unfair foreign competition and trade practices including anti-dumping measures, countervailing measures and safeguards against import surges. xxx. "
BACKGROUND OF THE GATT/WTO
The Philippines joined GATT in 1973 (Tokyo Round of GATT) as a provisional member. It formally acceded to GATT on January 1, 1980. It participated actively in the "Uruguay Round" negotiations (the 8th Round of GATT Talks), until the Final Act of the GATT Agreement and the WTO Agreement was signed at Marrakesh, Morocco in April 1994. The Philippine Senate ratified the Final Act in December 1994 and became a "founding member" of WTO effective January 1, 1995. (Bello, supra., p. 11).
GATT was first established on Oct. 30, 1947 by 25 countries, which did not include the Philippines. This is called "GATT 1947". (See Appendix "GATT 1947", containing 36 articles spread in 60 pages, in The Results of the Uruguay Round of MultiLateral Trade Negotiations: The Legal Texts, published by the GATT Secretariat, Geneva, Switzerland, 1994, 558 pp.).
In the case of "GATT 1994", it took more than seven years of debates and heated negotiations for 117 countries to finally come out with the Final Act of the Uruguay Round of trade negotiations. (see The Final Act of GATT, PHILEXPORT Selected Readings, Feb. 1994 issue, 30 pp.; see "Introduction" page thereof. Hereinafter, this material shall be referred to as "THE FINAL ACT OF GATT").
Even after the negotiations were finally concluded, the controversy and anxiety over the agreement are far from dying down. In France, as the GATT talks concluded on Dec. 15, 1993, angry farmers took to the streets and dumped tons of potato on the streets in protest against the abolition of farm subsidies that has been one of the most controversial aspects of the agreement. The same thing happened in South Korea, whose rice farmers feared the entry of cheaper rice to their country, displacing them. (id.)
In the Philippines, except for a few highly-intellectual newspaper articles, the conclusion of the long-drawn GATT Uruguay Round hardly created a ripple. The importation of rice, after all, has been an open option for the government that it has liberally resorted to, even if there is no actual shortage of rice. (id.).
HIGHLIGHTS OF GATT/WTO AGREEMENT
The Final Act of GATT/WTO (the legal text, with annexes) consists of almost 600 pages of 21 major sub-agreements dealing with:
Tariffs, agriculture, sanitary and phytosanitary measures, textiles and clothing, technical barriers to trade, trade related investments measures, anti-dumping, customs valuation, preshipment inspection, rules of origin, import licensing procedures, subsidies and countervailing measures, safeguards, trade in services, trade related aspects of intellectual property rights, including trade in counterfeit goods, settlement of disputes, trade policy review mechanism, coherence in global economic policy-making, and government procurement. (id.; see also The Legal Texts, supra).
The highlights of the Final Act are as follows:
1. INDUSTRIAL PRODUCTS. - Tariffs on industrial products are to be reduced by more than one-third on average (The Final Act of GATT, p. 1);
2. AGRICULTURAL PRODUCTS. - Member countries are encouraged to give agricultural trade a stronger market orientation, primarily by (a) reducing export subsidies and (b) converting all non-tariff barriers to tariffs ("tariffication", which increases the transparency of support) and then steadily reducing the latter by about 36 percent on average. Subsidized export volumes will be reduced over time by 21 percent. Both are envisage to be completed within six years for industrial countries and ten years for developing countries, with the "least developed countries" effectively exempted from such commitments (id., p. 2);
3. SERVICES. - The Final Act includes a framework of agreement on basic obligations of member countries on internal trade in services, including financial services, telecommunications, transport, audiovisual, tourism,and professional service. Among the obligations is a MOST-FAVORED-NATION (MFN) obligation that essentially prevents countries from discriminating among foreign suppliers of services. Another commitment is the NATIONAL TREATMENT obligation (i.e., to treat foreign suppliers of services like domestic suppliers. Finally, it provides for wider and liberalized market access (id.);
4. TEXTILES AND CLOTHING. - Bilateral quotas negotiated under the existing MULTI-FIBER ARRANGEMENT (MFA) are to be completely phased out over a 10-year period. (id.);
5. INTELLECTUAL PROPERTY. - The Agreement requires member countries (a) to grant national treatment; (b) to provide certain minimum standards of protection for all types of intellectual property rights (e.g. 20 years for patents); and (c) to institute procedures and remedies under national laws so that foreigners can enforce their rights (id., pp. 2-3);
6. SUBSIDIES. - The Agreement defines three kinds of subsidies: (a) PROHIBITED - those contingent upon export performance or the use of domestic instead of imported goods (local content); (b) ACTIONABLE SUBSIDIES - those that have demonstrably adverse effects on other member countries; and (c) NON-ACTIONABLE SUBSIDIES - which includes those provided for industrial research and pre-competitive development activity, to disadvantaged regions or to existing facilities to adapt themselves to new environmental requirements (id., p. 3);
7. TECHNICAL BARRIERS. - Technical negotiations and standards, and testing and certification procedures, must not create unnecessary barriers to trade. The Agreement encourages member countries to use international standards, but does not oblige harmonization of standards (id.);
8. ANTI-DUMPING RULES. - The Agreement contains detailed rules concerning the method of determining dumping and injury, the procedures to be followed in anti-dumping investigations, and the duration of anti-dumping measures. (id.);
9. TRADE-RELATED INVESTMENT MEASURES. - The Agreement requires the elimination of certain restrictive measures (such as local content and foreign exchange balancing requirements) that violate GATT principles of national treatment and prohibition of quantitative restrictions (id.);
10. GOVERNMENT PROCUREMENT. - The Final Act contains procedures to facilitate the membership of developing countries in the existing Government Procurement Agreement. GATT broadens the coverage of the Agreement to include services as well as (already covered) goods and to include procurement by levels of government that are subordinate to central governments (id.);
11. SAFEGUARD ACTIONS. - Article XIX of the GATT allows members to take safeguard actions -- import restrictions to protect a domestic industry from the negative effects of an unforeseen import surge -- if a domestic industry is threatened with serious injury (id.3-4);
12. BALANCE OF PAYMENT PROVISIONS. - The Final Act specifies that members imposing trade restrictions for balance of payment purposes should do so in a way that cause minimum disruption to international trade. To this end, price-based measures, such as import surcharges and import deposits, should be preferred to quantitative restrictions. (id., p. 4).
DISPUTE SETTLEMENT AND ENFORCEMENT
OF GATT/WTO RIGHTS
The dispute settlement mechanism of GATT/WTO is one the cornerstones of the multilateral trade order. The Final Act contains as an Annex the "Uruguay Round Understanding on the Settlement of Disputes (DSU)" (see Annex "2", The Final Act, in relation to Annex "3" thereof, re: Trade Policy Review Mechanism).
A DISPUTE SETTLEMENT BODY (DSB) is created by GATT which exercises the authority of the General Council and the Council's committees of the covered agreements. Below the DSB are the Panels and the Appellate Body. (cf. The Final Act, supra, p. 27).
The DSU stresses the importance of CONSULTATION in securing dispute resolution, the same to be done within 30 days from a request for consultations from another member. If after 60 days there is no settlement, the complaining
member may request the establishment of a PANEL. (id.).
Meanwhile, the parties may voluntarily agree to follow alternative means of dispute resolution, e.g. good offices, conciliation, mediation, and arbitration. (id.).
If consultation fails, a PANEL is created. It is made up of three persons from member countries who are not parties to the dispute.
The DSU contains specific rules of procedure and the timetable to be observed by the Panel.
Proceedings before the Panel may last from four to six months. The Report of the Panel is reviewed by the Appellate Body, made up of seven members. (Note: The Philippines is represented in the Appellate Body in the person retired Supreme Court Justice Feliciano). Appellate proceeding shall not exceed 60 days. The Report of the Appellate Body is referred to the DSB for final approval. The party concerned shall be given a reasonable time to comply with the Report and its compliance shall be under regular surveillance by the DSB. (id., pp. 28-29).
In the event of non-implementation by the concerned party, the GATT Agreement contains provisions for COMPENSATION OR THE SUSPENSION OF CONCESSIONS. Compensation is negotiable, by agreement of the parties. If there is no agreement on compensation, the aggrieved party may ask the DSB to suspend concessions to the other party concerned. The DSB shall decide thereon within 30 days. In principle, the concessions shall be suspended in the same sector as that in issue in the panel case. If this is not practicable or effective, the suspension can be made in a different sector of the same agreement. (id., p. 29).
The Final Act's DSU takes into account the special situation of the developing and least developed members. (id.).
GATT / WTO AND THE PHILIPPINES
The Philippines is slowly adapting to the so-called GATT-environment and to the new competitive spirit of globalization and trade liberalization.
Among the recent statutes it has adopted to comply with the GATT/WTO are the following:
1. E.O. No. 193, Aug. 21, 1994 - creating the WTO Advisory Commission and the AFTA Advisory Commission;
2. R.A. No. 7042, as amended by R.A. No. 8179 - known as the FOREIGN INVESTMENTS ACT OF 1991 ;
3. R.A. No. 7918 - amending Art. 39, Title III of E.O. 226 (Omnibus Investments Code);
4. R.A. No. 7916 - known as THE SPECIAL ECONOMIC ZONE ACT OF 1995;
5. R.A. No. 8181 - changing the basis of dutiable value of imported articles subject to ad valorem rate of duty from home consumption value (HCV) to transaction value (TV), amending Sec. 201, Title II, Part I of P.D. 1464 (Tariff and Customs Code);
6. R.A. No. 7843 - known as THE ANTI-DUMPING ACT OF 1994. (Note: Congress last month adopted a new anti-dumping law, which is still awaiting Malacanang approval).
The main problems that face the Philippines are COMPETITIVENESS and PRODUCTIVITY. In a 1998 World Competitive Report by the Swiss-based International Institute of Management Development on 46 countries, it noted concerns on the low labor productivity of the Philippines, which is still ranked among the last five. Its price - quality ratio also received a low ranking of 43 implying that domestic products need to catch up on their foreign counterparts in terms of quality. But the Philippines performed better than other Asean countries. The report showed that the Philippines placed 31st in over-all productivity rating, compared to Thailand (39th), South Korea (35th) and Indonesia (40th).
["Competitive Status of RP Gets Eroded", MANILA BULLETIN, July 26, 1998, p. B1].
GATT environment is tough and competitive. The Philippines, as a team, must work hard to be at par with the rest of the better states in the global market.
A main problem that affects the Philippines, as well as the Asean Free Trade Agreement (AFTA), is that GATT's Article XXIV (5) speaks of the "elimination of discriminatory treatment in international commerce." The creation of Asean's AFTA, like other customs union (NAFTA, etc.), seems to contradict the spirit of GATT/WTO, since AFTA liberalizes internal trade among Asean nations, which may not result in similar liberalization of trade with the non-AFTA members. ("The Asean Free Trade Area (AFTA): Preliminary Legal Implications for the Philippines", by Prof. JSS SANTIAGO, A Paper Presented to the THE 6TH GENERAL ASSEMBLY AND CONFERENCE, ASEAN LAW ASSOCIATION, Nov. - Dec., 1992, Manila, p. 188. See also: "Legal Problems in International Trade Spawned by the Asean Free Trade Area (AFTA)", by Atty. (now SC Justice) A. Panganiban, THE LAWYERS REVIEW, Jan. 31, 1994 issue, pp. 11, et. seq.)
GATT/WTO calls for a new spirit of global trade relations. This new multi-lateral trade system requires hard work, tough competition, world-class management, productivity, and national unity and clear vision. In other words, total team work among Filipinos and its leaders. Without these requisites, we will drown in the global fight.
Carnadi, B.S., WORLD TRADE ORGANIZATION, A report (unpublished manuscript) submitted to Prof. V.T. Reyes, UST Graduate School, Sept. 1998;
"Competitive Status of RP Gets Eroded", MANILA BULLETIN, July 26, 1998, p. B1.
"Legal Problems in International Trade Spawned by the Asean Free Trade Area (AFTA)", by Atty. (now SC Justice) A. Panganiban, THE LAWYERS REVIEW, Jan. 31, 1994 issue, pp. 11, et. seq.
"Tanada, et. al. vs. Angara, et. al.", GR 118295, May 2, 1997, THE LAWYERS REVIEW, June 30, 1997, pp. 9, et. seq.
"The Asean Free Trade Area (AFTA): Preliminary Legal Implications for the Philippines", by Prof. JSS SANTIAGO, A Paper Presented to the THE 6TH GENERAL ASSEMBLY AND CONFERENCE, ASEAN LAW ASSOCIATION, Nov. - Dec., 1992, Manila, p. 188.
THE FINAL ACT OF GATT, PHILEXPORT Selected Readings, Feb. 1994 Issue, Manila, 30 pp.
The Results of the Uruguay Round of MultiLateral Trade Negotiations: The Legal Texts, published by the GATT Secretariat, Geneva, Switzerland, 1994, 558 pp.
THE LAWYERS REVIEW, Jan. 31, 1994 and June 30, 1997 issues.
MANUEL J. LASERNA JR.