JPEPA negotiations remain at a standstill

Negotiations for the Japan-Philippines Economic Partnership Agreement (JPEPA) are again at a standstill, as the Philippines awaits Japan’s response to the former’s final position on the remaining unresolved provisions of the agreement.

Senior Trade Undersecretary and Philippine chief negotiator Thomas Aquino, said talks remain frozen as Japan studies the Philippines’ revised position on the thorny automotive sector provision.

The Philippines "has submitted its position to Japan and it is now up to them to respond," Aquino said.

He revealed that Japan appears at a loss regarding the Philippines’ position on the automotive sector after the latter decided to revise its earlier stand of agreeing to a complete removal of automotive tariffs and instead adopted a formula similar to that clinched by Thailand under the Japan-Thailand Economic Partnership Agreement (JTEPA), which was agreed in principle by both countries in September.

Under the new terms offered by the Philippines, Japan would have to agree to the continued production of completely-knocked down (CKD) models in the Philippines.

Earlier, Trade Undersecretary and Board of Investments (BOI) managing head Elmer C. Hernandez revealed that in exchange for a phased reduction in automotive tariffs, Japan would ensure that Japanese automotive manufacturers would continue to assemble at least two CKD models each for their Philippine subsidiaries.

Including such a provision would ensure the continued viability of Philippine automotive manufacturing. The local automotive industry fears that without such an assurance, their Japanese principals would shift completely to exporting completely built-up (CBU) units and terminate all CKD assembly operations, especially once the tariffs on CBUs make it more financially viable to resort to exports.

Without local CKD operations, there could be massive layoffs in the automotive industry.

CBUs imports only require the addition of tires and batteries, while CKD assembly still has plenty of local auto part content and requires skilled labor.

Hernandez also revealed that the local automotive industry, through their various associations such as the Chamber of Automotive Manufacturers of the Philippines (CAMPI) and the Philippine Automotive Federation Inc. (PAFI) supports the JPEPA negotiators in taking a stand that any agreed upon tariff reduction commitment would still be subject to review by 2009, specifically for vehicles with an engine displacement of three liters and below.

Hernandez said the Philippine stance on automotive tariffs is similar to what Thailand had earlier secured under the JTEPA.

Thailand was able to secure an agreement whereby it would keep automotive tariff even beyond 2009. Philippine negotiators have made it clear to Japan that they will not accept terms less than what they have submitted to Japan.