This primer was made possible through the invaluable support and assistance of the Department of Trade and

Industry- Bureau of International Trade Relations (DTI-BITR), Tariff Commission, and other Government organizations.

The AJCEP Primer is a publication of the Universal Access to Competitiveness and Trade (U-ACT) under its Institutionalization of Multistakeholder Consultation for Trade Negotiations (I-MUST) project. U-ACT 3rd Floor ECC Bldg. 355 Sen. Gil Puyat Ave. Makati City Tel No. (632) 8979605 For any comments and inquiries, you may email U-ACT at info@uactphilippines.org

FOREWORD The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) is one of the most recently ratified free trade agreements of which the Philippines is a party to. With the Philippine Senate having ratified the Japan-Philippines Economic Partnership (JPEPA) and the AJCEP to be in force by December, many economic opportunities and benefits in the different sectors will open up for the Philippines. The primer will allow the different stakeholders to maximize the opportunities presented by the market openings facilitated by the trade agreements, specifically that of the AJCEP. This primer aims to explain to the stakeholders how the AJCEP will impact on the different sectors, industries, and the Philippine economy. Moreover, the primer will demonstrate how the AJCEP relates to the JPEPA, as these agreements both touch on the countrys trade arrangements with Japan. A detailed explanation of the agreement is provided for in this primer. The publication is divided into six parts. The fist part looks into the ASEAN-Japan Economic Relations. The second part talks about how the AJCEP Agreement was developed. The third part discusses the rationale behind the AJCEP. The fourth part thoroughly talks about the coverage of the agreement, while the fifth part demonstrates the benefits of the agreement to all the countries involved. Lastly, the primer will also tackle the relationship of the AJCEP to the JPEPA.

Table of Contents

I. II.

ASEAN-Japan Economic Relations Background of the AJCEP Negotiations

III. IV.

Objective of the AJCEP Coverage of the Agreement a. trade in goods b. trade in services c. investments d. economic cooperation Benefits of the AJCEP a. ASEAN b. Philippines

V.

VI. VII.

Relationship between the AJCEP and the JPEPA Annex A: Framework for Comprehensive Economic Partnership between the Association of Southeast Asian Nations and Japan, Bali, Indonesia, 8 October 2003 Annex B: Notification of the Entry into Force of the Japan-ASEAN Comprehensive Economic Partnership Agreement

VIII.

I. ASEAN-JAPAN ECONOMIC RELATIONS The roots of ASEAN-Japan relations go farther back than a quarter century ago. But the two most important impulses that gave it its present vitality were the end of the Vietnam War in 1975 and the first ASEAN Summit held in Bali in 1976. These two events had a profound impact on Japanese foreign policy. With the reduced US presence in the region, Japan was expected to take up the challenge of giving concrete support to Southeast Asian efforts at regional organization and to display its willingness to take on greater international responsibility. Japans response came clear and soon enough. Japan responded with its heart-to-heart diplomacy-kokoro to kokoro. From the heart, Japan resolved to be an active partner in the promotion of peace and progress in Southeast Asia. That was the essence of the Fukuda Doctrine, which was enunciated by former Prime Minister Takeo Fukuda in 1977. Japan became a leading light in the quest for a resolution of the Indochina situation. The development of Southeast Asian economies became a strong Japanese policy objective.1 ASEAN and Japan first established informal relations in 1973, which were later formalized with the establishment of the ASEAN-Japan Forum in March 1977. Since then, significant progress has been made in the ASEAN-Japan relations. Cooperation has broadened and deepened, covering political and security, economic and financial, and social and cultural areas. The establishment of the ASEAN-Japan Centre in 1981, which has the primary goal to promote Trade, Investment, and Tourism between the two entities, was a solid illustration of the institutionalization process that Japan and ASEAN wanted to undertake. As the economic interchanges between Japan and the ASEAN member countries are founded strongly on the economic ties, this Centre plays and is playing a crucial role in the comprehensive bilateral, multilateral, and plurilateral economic relationships. Then in 1987, the Third ASEAN Summit, which was held in Manila, heralded the advent of the special relationship between Japan and ASEAN. At that summit, Japan was the only Dialogue Partner guest of ASEAN. Then Prime Minister Noburo Takeshita, in a speech entitled Japan and ASEAN: A New Partnership Toward Peace and Prosperity, set the tone for this partnership. He stressed three policy goals, namely, to strengthen the
Remarks from former DFA Secretary Domingo Siazon in the event of the At the Opening of the ASEAN Promotion Centers Symposium on ASEAN-Japan Relations in the 21st Century New Otani Hotel, Tokyo, 27 September 2000. For the full text of the speech please refer to http://www.dfa.gov.ph/archive/speech/siazon/sp-asean21st.html
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economic resilience of ASEAN, to promote political coordination between ASEAN and Japan, and to promote cultural exchanges. Japans unwavering commitment to ASEAN showed most clearly during the Asian Financial crisis. In quick succession, Japan launched the Miyazawa Initiative, the Hashimoto Initiative and the Obuchi Plan to stave off further damage from the crisis and to lay the foundation for recovery and sustained growth in crisis-affected countries. Japan steadfastly supported ASEAN countries during the financial crisis of 1997-1998 by providing assistance amounting to about $80 billion and keeping its market open to ASEAN exports. Japan's Official Development Assistance (ODA) to ASEAN countries amounted to $23 billion in the last ten years or about 30 percent of Japan's total ODA. ASEAN is expected to continue gaining the lion share of Japanese ODA for the foreseeable future. The relations have been further enhanced and strengthened by the signing of the Tokyo Declaration for the Dynamic and Enduring ASEAN-Japan Partnership in the New Millennium and the adoption of the ASEAN-Japan Plan of Action at the ASEANJapan Commemorative Summit held on 11-12 December 2003 in Tokyo. ASEAN and Japan continued to be important trading partners. The Leaders of ASEAN and Japan signed the Joint Declaration of the Leaders of ASEAN and Japan on the Comprehensive Economic Partnership (CEP) and the Framework for CEP between ASEAN and Japan on 5 November 2002 in Phnom Penh and on 8 October 2003 in Bali, respectively In terms of trade, in 2003, ASEAN exported to Japan US$50.3 billion or 11.7% of her total exports to the world and imported from Japan US $58 billion or 16% of her total imports from the world. Meanwhile, Japanese direct investments to ASEAN increased by 17% from US$1.76 billion in 2002 to US$2.06 billion in 2003. Japanese direct investment accounted for 10% of total foreign direct investments in 2003. In 2006, Japan is the second biggest trading partner after the United States, with $165.8 billion, or 11.2% of ASEANs total trade. Japan is the largest donor of official development assistance (ODA), with $1.96 billion, or 44.6% of ASEANs incoming ODA in 2005. In terms of investment, Japan was the second largest investor in ASEAN, with FDI inflows of US$7.2 billion and US$10.8 billion in 2005 and 2006, respectively. Japan is also the largest source of tourists outside of the region, with more than 3.7 million Japanese traveling to the region, or 11.9% of all incoming visitors in 2006. In addition to being one of ASEAN's most important economic partners, Japan is a major contributor to development cooperation activities. Japan has provided technical assistance to ASEAN through several programmes, such as the Japan-ASEAN Exchange Programme (JAEP) and the Japan-ASEAN General Exchange Fund (JAGEF). Development cooperation covers wide-range of areas, including support for the Initiative for ASEAN Integration (IAI), HRD, ICT, youth, Mekong Basin Development and others.

Lastly, the expansion of the hitherto economic relations between Japan and ASEAN is being supported and strengthened by other areas like politics, security, social and cultural relations. It can be said that in the above-mentioned spheres, ASEAN-JAPAN relations has been more advanced and has developed quantitatively and qualitatively, compared to many other comparable countries or regions with similar types of relationships, because of the stabilized institutions present in both ASEAN and Japan, which are the conduits of the interchanges.

II. BACKGROUND OF THE AJCEP NEGOTIATIONS What is the background of the Agreement? During the ASEAN-Japan Summit in Phnom Penh in November 2002, Prime Minister Junichiro Koizumi of Japan stated his countrys preference to build on an economic partnership with all of East Asia. With this, Prime Minister Koizumi stated Japans goal of pursuing a two-track approach with respect to its partnership with the ASEAN, wherein Japan would pursue a framework with the region as a whole and pursue bilateral efforts with each ASEAN member country. Thus, Prime Minister Koizumi stated that Japan would want to have an economic partnership with the ASEAN that would include a free trade area, to be established within the next ten years. As such, during the same meeting, the leaders of Singapore, Malaysia, Thailand, the Philippines, Indonesia, Vietnam, Brunei, Camboadia, Laos, Myanmar, and Japan signed a Joint Declaration that called for the implementation of measures that would lead to the realization of a Comprehensive Economic Partnership (CEP). With the main goal of minimizing barriers and deepen economic linkages, the respective leaders of the Association of South East Asian Nations (ASEAN) and Japan signed a Comprehensive Economic Partnership (CEP) in Bali, Indonesia on 8 October 2003. Negotiations on the AJCEP Agreement commenced in April 2005, with 11 rounds of negotiations in ensuing between the two parties. Following more than four years of negotiations, the AJCEP Agreement was finally concluded in November 2007 during the Singapore Summit. The Agreement was signed by the ASEAN and Japan leaders in April 2008. The agreement is expected to come into force by 1 December 2008. In order to be fully accepted, Japan and at least one ASEAN Member State have to notify the Governments of the other signatory states in writing that their legal enactments have been gazetted. The final enforcement of the agreement will take place on the first day of the second month after the official notification. Both Japan and Singapore have ratified the agreement.

III. OBJECTIVE OF THE AJCEP What is the main objective of the agreement? The ASEAN- Japan Comprehensive Economic Partnership (AJCEP) was crafted in order to primarily strengthen the economic ties between Japan and the ASEAN, create a larger and more efficient market with more economic and trade opportunities, generate larger economies of scale, and attract more investments. These goals will be achieved through liberalization, facilitation, and economic cooperation. As the CEP would translate to more economic development, the agreement will thus greatly contribute to greater stability and security for both the ASEAN and Japan. The AJCEP also aims to strengthen economic cooperation among the parties through the establishment of a framework that supports ASEAN Economic Integration, by bridging the development gap in the ASEAN member states, and enhancing trade and investment among all the parties involved in the agreement. What are the overriding principles of the agreement? In pursuing the objectives and goals of the AJCEP, the parties have laid out a set of guiding principles that would allow all countries involved to fulfill their AJCEP obligations. Having recognized by the parties themselves that the levels of development among ASEAN Countries widely differ from each other, it was agreed upon that a special and differential treatment will be accorded to the ASEAN. This means that flexibilities and concessions will be given to the ASEAN, specifically those of less developed countries, in order for them to be able to meet the goals and objectives of the trade Agreement. Moreover, the parties have also agreed that flexibilities should also be given to address the sensitive sectors in both Japan and the ASEAN. IV. COVERAGE OF THE AGREEMENT In general, what will the AJCEPA agreement do? The AJCEP will eliminate duties on more than 90% of trade between ASEAN and Japan within 10 years. Under the agreement, Japan will eliminate 90% of imports from ASEAN by value immediately after the AJCEP takes effect The major six ASEAN countries Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand will remove tariffs on 90% of imports from Japan within 10 years in terms of both value and the number of items. For the other less developed countries in the ASEAN, such as Cambodia, Myanmar, Laos, and Vietnam, a more gradual tariff elimination was set. Vietnam will eliminate 6

tariffs on 90% of imports from Japan within 15 years and the others will remove tariffs 85% of tariffs within 18 years. Japan will repeal the remaining 3% portion within 10 years and lower tariffs on the remaining 6% thereafter. Aside from the lowering of tariffs, another important provision of the agreement is the Rules of Origin (ROO), wherein companies and businesses are afforded the advantage of cumulation of qualifying value contents, which would allow them to easier get hold of lower tariffs. Based on a study by the ASEAN- Japan Closer Economic Partnership Export Group (http://www.aseansec.org/14252.htm), the AJCEP will lead to the expansion of trade and economic growth in the ASEAN and Japan. Specifically, the study noted that the ASEAN will gain more compared to Japan in terms of expansion in export and economic growth. The study pointed out that by 2020, as a result of the AJCEP, export volume from ASEAN to Japan will increase US $ 20.630 billion, which is equivalent to 44.2% of the corresponding export value in 1997. On the other hand, export volume from Japan to the ASEAN will increase by US$ 20.022 billion, which is equivalent to 27.5% of export value in 1997. Moreover, the study mentioned that the AJCEP will lead to an increase of 1.99% in ASEANs GDP and 0.07% for Japans GDP by 2020, using 1997 as the base year. What does the agreement cover? The AJCEP agreement is comprehensive and covers the following areas: a. b. c. d. e. f. g. h. Trade in Goods; Rules of Origin Sanitary and Phyto-Sanitary (SPS); Standards, Technical Regulations and Conformity Assessment Procedures Trade in Services Investment Economic Cooperation Settlement of Disputes

Trade in Goods will eliminate duties on 90% of trade between ASEAN and Japan; Rules of Origin sets out the requirements and factors that will determine originating goods that will be given preferential treatment; Sanitary and Phyto-Sanitary Measures provides a platform, through the creation of a sub-committee on sanitary and phytosanitary measures that would allow SPS issues to be raised and discussed among government officials of the different countries

Standards, Technical Regulations and Conformity Assessment Procedures will ensure that there is mutual understanding of the standards, technical regulations, and conformity assessment in order for trade among the parties be fostered Trade in Services establishes a framework for continuing negotiations on the liberalization of services between the two parties Investments establishes a framework for continuing negotiations on the progressive liberalization, promotion, facilitation, and protection of investments. Economic Cooperation provides the mechanism that promotes cooperation on a variety of fields between the two parties, with the end goal of liberalizing and facilitating trade and investment and promoting the well-being of the people of the ASEAN and Japan. How does the AJCEP relate to other Free Trade Agreements? The Agreement explicitly states that all parties to the AJCEP reaffirm their rights and obligations vis--vis another party under the WTO Agreement and other agreements to which the eleven countries involved are a party to. In the event that any inconsistencies arise between the AJCEP and the WTO Agreement, the latter will be the one to be followed.

What does the AJCEP provide for in trade in goods? a. Trade in Goods What were some of the goods that were excluded by Japan from tariff elimination or reduction? While Japan will eliminate tariffs on more than 90% of imports from the ASEAN, it excluded mostly agricultural products from tariff reduction and elimination (consistent with other FTAs that Japan has entered into). The following are just some of the products excluded by Japan: a.) b.) c.) d.) e.) f.) g.) dairy products sugar beef salt some fisheries products (herring, cod, mackerel, etc.) some seafood products (scallop) wheat

What were some of the goods excluded by the Philippines? Whereas in the Japan-Philippines Economic Partnership Agreement (JPEPA), the Philippines only excluded six tariff lines under rice and salt from tariff liberalization, the Philippines commitment under the AJCEP is more extensive, as a total of 132 tariff lines were excluded from any tariff reduction. Some of the items that were not included in the tariff elimination were rice, sugar, salt, and some chemicals such as chlorine, sulphuric acid, hydrochloric acid, among others. What are rules of origin and how does the AJCEP treat ROO? According to the Tariff Commission, the Rules of origin (ROO) are the criteria used as the basis for identifying the origin of an imported good for the purpose of among others, determining whether it shall be given preferential tariff (tariff commission website). Rules of origin (ROO) are the criteria used as the basis for identifying the origin of an imported good for the purpose of among others, determining whether it shall be given preferential tariff (tariff commission website). The ROO will determine whether a good is obtained, produced, or manufactured from a particular country that is bound to receive preferential tariff treatment. Under the AJCEP, a good that is considered to be originating from any of the eleven countries part of the agreement will be given preferential tariffs. The following are the conditions in the agreement that would determine if a good is originating: a) Is a wholly obtained or produced entirely in the party; b) Satisfies the requirements when using non-originating materials; c) Is produced entirely in the Party exclusively from originating materials of one or more of the Parties The following conditions shall serve as the basis for considering a good wholly obtained or produced entirely in any of the parties in ASEAN or Japan: a) Plant and plant products grown and harvested, picked or gathered in the Party (plant refers to all plant life including fruit, flowers, vegetables, trees, seaweed, fungi and live plants) ; b) Live animals born and raised in the Party (animal refers to animal life, including mammals, birds, fish, crustaceans, mollusks, reptiles, bacterials and viruses); c) Goods obtained from live animals in the Party; d) Goods obtained from hunting, trapping, fishing, gathering or capturing conducted in the Party; e) Minerals and other naturally occurring substances, not included in paragraphs ( a) through (d), extracted or taken from soil, waters, seabed or beneath the seabed of the Party;

f) Goods taken from the waters, seabed or beneath the seabed outside the territorial waters of the Party, provided that the Party has the rights to exploit such as waters, seabed and beneath the seabed in accordance with its laws and regulations and international law (Nothing in this Agreement shall affect the rights and obligations of the Parties under International Law, including those under the United Natioms Convention on the Law of the Sea); g) Goods of sea-fishing and other marine products taken by vessels of the Party from outside the territorial sea of any Party; h) Goods processed and/or made on board factory ships of the Party exclusively from products referred to in paragraph (g); i) Articles collected in the Party which can no longer perform their original purpose or be restored or repaired, and are fit only for disposal, for the recovery of parts or raw materials, or for recycling purposes; j) scrap and waste derived from manufacturing or processing operations, including mining, agriculture, construction, refining, incineration and sewage treatment operations, or from consumption, in the Party, and fit only for disposal or for the recovery of raw materials; and k) goods obtained or produced in the Party exclusively from goods referred to in paragraph (a) through (j). Goods Not Wholly Obtained or Produced For goods that do not qualify as wholly obtained or produced, the following are the conditions for a product to be considered originating: (a) the good has a regional value content ( RVC), calculated using the formula set out in Article 27, of not less than forty (40) percent, and the final process of production has been performed in the Party; For the purpose of calculating the RVC of a good, the following formula shall be used: FOB-VNM RVC = --------------- X 100 % FOB (a) FOB is, the free-on-board value of a good, inclusive of the cost of transport from the producer to the port or site of final shipment abroad; (b) RVC is the regional value content of a good, expressed as a percentage; and (c) VNM is the value of non-originating materials used in the production of a good.

The Rules of Origin (ROO) under the AJCEP is significant for it allows the cumulation of qualifying value contents. This means that products will be recognized as originating goods and will be given preferential tariff as long as the total value added throughout the production process across Japan and ASEAN is at least forty (40) percent. In summary,

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the AJCEP ROO means that the inputs of the eleven countries involved in the AJCEP agreement are considered as ASEAN-Japan value. With this kind of ROO, businesses based in the ASEAN and Japan will have the advantage of having access to a larger sourcing base of inputs and materials from any of the eleven countries and be given preferential tariffs. The agreement will also bring forth more competitive prices and more choices for consumers. (see figure 1) Figure 1
(1) For the trade whereby parts are procured by a production base (In Country A) from other countries (Japan or Country J), tariffs are not levied as long as rules of origin under AFTA and bilateral EPAs (added value of 40%, etc.) are satisfied. (2) However, where final products are exported from Country A to the market (Country F), if the value added within ASEAN to the final product does not satisfy AFTA rules of origin (added value of less than 40%), the MFN rate (high) is applied.

(Diagram from website http://www.iist.or.jp/wf/magazine/0612/pdf/figure1-e.pdf )

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(3) Under the AJCEP Agreement, however, the accumulation on rule of origin applies, which means that products will be recognized as originating goods as long as the total valued added through the production process across Japan and ASEAN exceeds 40%. (4) For cases to which preferential tariff treatment was not granted under either AFTA or the various bilateral EPAs, AJCEP offers a new opportunity to enjoy the benefits of trade liberalization.

b. Trade in Services What does the AJCEP say about trade in services? Currently, there are no provisions in place under the ACJEP agreement that liberalizes trade in services between ASEAN and Japan. What is stated in the agreement is that both parties shall continue to discuss and negotiate provisions for trade in services with a view to exploring measures towards further liberalization and facilitation of trade in services. A sub-committee on trade and services, which shall be composed of representatives of the Governments of Japan and all ASEAN Member States, shall be established within one year from the date of entry into force of the AJCEP. Since trade in services under the AJCEP is still subject to further negotiations, the Philippines commitments in the JPEPA will be the one to be applied. In this regard, the JPEPA is more comprehensive than the AJCEP as it provides market openings for the Philippines, specifically that of Filipino healthcare workers, which the AJCEP does not currently provide. c. Investments What does the AJCEP provide for in investments? Similar to the provision on trade in services, there were no concessions given by two parties in investments. Instead, what is stated in the agreement is the provision to continue to discuss and negotiate provisions for investments, with a view to improving the efficiency and competitiveness of the investment environment of Japan and ASEAN Member States through progressive liberalization, promotion, facilitation, and protection of investment. A Sub-Committee on Investment, which shall be composed of the representatives of the Governments of Japan and all ASEAN Member States shall be established one year from the date of entry into force of the agreement. Since this area is subject to further negotiations, the Philippines commitments in the JPEPA will be the one to be applied. d. Economic Cooperation

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One of the distinct features of the Economic Partnership Agreements (EPAs) that Japan has been pursuing on a bilateral and regional basis is that the agreements are not focused mainly on trade liberalization but also touches on different areas of cooperation ( Kotera, Akira, http://www.rieti.go.jp/en/columns/a01_0216.html). Whereas previous Free Trade Agreements (FTAs) simply tackled trade liberalization, new age agreements, such as the case of an Economic Partnership Agreement (EPA) looks into other areas beyond liberalization. Under the AJCEP, economic cooperation among the eleven countries will be undertaken in the following areas: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Trade-Related Procedures; Business Environment; Intellectual Property; Energy; Information and Communications Technology; Human Resource Development; Small and Medium Enterprises; Tourism and Hospitality; Transportation and Logistics; Environment; Competition Policy; and Other fields as may be mutually agreed upon among the Parties.

It is expected that through the economic cooperation initiatives, the liberalization and facilitation of trade and investments will be further accelerated, which in turn will help enhance the well-being of the people in ASEAN and Japan. In order to reach the objectives set out by the parties, capacity-building activities, technical assistance, and other activities that will be agreed upon by the countries are to be undertaken. For the purpose of the effective implementation of the economic cooperation activities, it was agreed upon by the parties that a Sub-Committee on Economic Cooperation will be established. The Sub-Committee will be composed of representatives from the Governments of Japan and the ASEAN-Member Countries and will be co-chaired by an official of the Government of Japan and one of the officials of the ASEAN countries. The Sub-Committee was given the following functions: a) modify and formulate relevant Work Programmes setting out areas and forms of each field of economic cooperation; b) make recommendations on existing and new economic cooperation activities that have been specified in accordance with the priorities of the Paties; c) review and monitor the implementation and operation of this Chapter and the application and fulfillment of its basic principles; and

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d) report the findings and outcome of its discussions to the Joint Committee The resources to be allocated for the endeavors to be undertaken will be provided in a manner that will be mutually agreed upon by the Parties. In the implementation of the economic cooperation activities, Japan and at least two other ASEAN countries must be involved in the undertaking. But, there are also exceptions to the rule economic cooperation activities can also involve only Japan and one other ASEAN country, provided that the activities to be undertaken are regional in nature and will also benefit the other ASEAN countries. Specifically, the activities must focus on narrowing the gaps of economic development among ASEAN Countries and promote the well-being of its people.

V. BENEFITS OF THE AJCEP What will be the benefits of the AJCEP for the ASEAN? Both Japan and the ASEAN negotiated for the AJCEP since it was seen as an avenue that could bring in more economic and trade opportunities for all parties. Once the agreement is in force, it will lead to advantages and benefits for the ASEAN region and Japan. One of the benefits of the elimination of barriers to trade in the AJCEP is that it will result to the promotion and enhancement of specialization between ASEAN and Japan. The ASEAN will become an attractive production base for Japanese companies as each ASEAN country and Japan have their respective comparative advantages that can be utilized in the supply chain or production networks. With this in place, businesses can be assured of lower operating and production costs for companies. The different economic and trade dynamics in the AJCEP makes the ASEAN an integrated market of 500 million consumers, making it more attractive for Japanese companies to invest given the large consumer base. Without a doubt, the AJCEP will entice Japanese companies to move parts of or their whole operations to the ASEAN region due to lower costs, bigger consumer base, and more efficient production networks in place. Given this, there will be a surge in the foreign direct investments coming in the region as more production bases are established resulting to more businesses, jobs, and lower poverty rates in the ASEAN. Aside from the increase of investments coming in from Japan, ASEAN can also expect an increase in investments outside of Japan, as ASEAN will be an attractive area for other investors the establishment of procurement, production, and sales systems (http://www.aseansec.org/14252.htm). Aside from the ones discussed, the AJCEP will allow ASEAN to be more competitive in the global market through the transfer of technologies brought about by the increase in

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foreign direct investments. Moreover, an increase in FDIs will have a positive multiplier effect on the ASEAN countries, which will positively impact on domestic productivity. Lastly, consumers in Japan and the ASEAN will benefit through an increase in consumer profit, since consumers will have a wider range of product choices. How will AJCEP impact the Philippines? While the AJCEP is an agreement between the ASEAN as a whole and that of Japan, all countries, the Philippines included, will individually gain once the agreement is put into force. The AJCEP is an important agreement for the Philippines as it will lead to the creation of more benefits and opportunities for the country, in terms of businesses, jobs, and market opportunities. In addition, the AJCEP paves the way for the country to be more competitive as a result of the dynamics in the agreement. The Philippines and Japan maintain strong economic ties, with Japan being the Philippines second largest trading partner. In 2007 alone, export receipts to Japan stood at $ 7.304 billion, which was equivalent to 14.47% of the countrys total exports, while imports from Japan were valued at $6.842 billion (http://www.census.gov.ph/data/sectordata/sr08337tx.html). Moreover, Japan is the biggest source of investments for the Philippines. Thus, once the AJCEP is put into force, it will undoubtedly strengthen the already robust economic relations between the two countries. Once it is implemented, the AJCEP will immediately eliminate tariffs on 90% of imports (in terms of value) from the ASEAN. Given this development, it will be easier for Philippine products to penetrate the discriminating Japanese market, as they will definitely have an advantage over those being exported by other countries. As such, through the new economic dynamics, Filipino exporters will be able to increase their presence in the Japanese market. With the immediate tariff elimination, some of the products that will benefit are agricultural products such as shrimps and prawns, lobster, asparagus papaya, mangoes, coconut and coconut products. Some of the non-agricultural products such as clothing articles and articles of wood are just some of the goods covered by tariff elimination. The elimination of tariffs on these products is important since Japan serves as one of the biggest markets for these agricultural products. With this development, the Philippines will be able to strengthen and increase its presence in the Japanese market and more importantly bring in and promote products that are not yet established in Japan. Aside from opening up more market opportunities for Philippine exports, the AJCEP will also serve as an impetus for more investments to come in the Philippines, as the AJCEP makes the country more feasible as a production base for the Japanese companies. The

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Rules of Origin (ROO) under the AJCEP makes the ASEAN the most logical production base for Japan due to the dynamics of the AJCEP ROO. Under the agreement, the ROO allows for the cumulation of qualifying value contents, which means that products will be recognized as originating goods and will be given preferential tariff as long as the total value added throughout the production process across Japan and ASEAN is at least forty (40) percent. In more simple terms, the AJCEP ROO would enable companies located in the ASEAN and Japan to be more competitive since they will be able allowed to do business with zero or more preferred tariffs. With this provision, it will be practical for Japanese companies to locate their operations in the ASEAN as it will allow them to be more competitive due to the advantage that the ASEAN has vis--vis other regions and countries. In addition to providing more investments and market opportunities, the AJCEP will also benefit the Philippines through the economic cooperation activities that will be undertaken between Japan and the ASEAN countries. At present, Japan is the largest source of official development assistance of the country (http://www3.pids.gov.ph/ris/pn/JPEPA_Inquirer.pdf Josef T. Yap, Erlinda M. Medalla, and Rafaelita M. Aldaba, Assessing the Japan-Philippines Economic Partnership Agreement (JPEPA), and with the AJCEP agreement, the Philippines will be further assured that there will be more assistance that will be coming in from Japan. Specifically, the AJCEP will help the Philippines improve on the twelve areas specified in the agreement. Without a doubt, the Philippines stands to gain from the AJCEP agreement, in terms of investments, market opportunities, and official development assistance. It is thus important that the government and the private sector are able to identify the opportunities presented by the agreement in order for the domestic sectors and industries be able to map out their roadmaps with respect to the agreement.

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WHAT DID THE PHILIPPINES COMMIT IN THE AJCEP? According to the Tariff Commission, the AJCEPA trade in goods covers 5,999 tariff lines of the Philippines. The schedule covers Chapters 1 to 97 of the Tariff and Customs Code, in Harmonized System (HS) 2002 nomenclature.

The summary of the tariff schedule of the Philippines is as follows:

AJCEPA Tariff Reduction Category 1) Immediate tariff elimination 2) Gradual tariff elimination or reduction (in 4 to 10 years) 3) Phased reduction 4) Exclusion from any tariff treatment Total

No. of Tariff Lines 3,779 2,029 59 132 5,999

Percentage 62.99% 33.82% 0.98% 2.20%

The coverage of goods under the AJCEP is less than that of the Japan-Philippines Economic Partnership Agreement (JPEPA), which covers a total of 3,947 tariff lines. VI. Relationship between the AJCEP and the JPEPA What is the relationship of the AJCEP to the JPEPA? The AJCEP and JPEPA are two agreements that both touch on trade and economic relation with Japan. Yet, these agreements differ from each other but none is considered to be superior to the other, as they compliment each other. Specifically, the different dynamics of the rules of origin in each agreement affords businessmen more choices with regard to importing and exporting. As such, a company has the option to choose which rule (JPEPA or AJCEP) is more advantageous for them in the conduct of their business. According to the Tariff Commission, when a product is both covered by the AJCEP and the JPEPA and the preferential tariff for the product under the JPEPA is lower than the one under the AJCEP for the same period of time, business entities can apply for the tariff rate under the JPEPA. On the other hand, businesses also have a choice of applying for the tariff rate under the AJCEP, since the ROO in the AJCEP has an advantage as it allows for cumulation in Japan and ASEAN.

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According to the Tariff Commission, for products, which are not covered by the AJCEP but is covered by the JPEPA, the tariff rate in Japans schedule of concessions under the JPEPA would be applied to the product coming from the Philippines. As for products covered under the AJCEP, the tariff rate in the schedule would be applied to that product from the ASEAN countries to Japan, provided that the conditions of the AJCEP rules of origin is fulfilled. In general, the JPEPA is more extensive than the AJCEP as it covers more goods and has concessions in services and investments. As such, the Philippines enjoys exclusivity in the JPEPA for certain products that are not to be found in the AJCEP.

For further illustration of the point, please refer to figure 2

Figure 2

(DIAGRAM OF DR. MANZANO) which can be found at: http://www.pgtep.com/presentation/workshop2/rta_2.pdf

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REFERENCES: http://www.aseansec.org/14252.htm - Joint Report of the ASEAN-Japan Closer Economic Partnership Expert Group (AJCEPEG) http://www.aseansec.org/5740.htm - ASEAN-Japan Dialogue Relations http://www.aseansec.org/15510.htm - Scaling New Heights in ASEAN-Japan Ties http://www.aseansummit2001.org.bn/org/as2001/japan.doc http://www.dfa.gov.ph/archive/speech/siazon/sp-asean21st.html - Remarks of Former DFA Secretary Dominador Siazon at the Opening of the ASEAN Promotion Centers Symposium on ASEAN-Japan Relations in the 21st Century New Otani Hotel, Tokyo, 27 September 2000. http://www.pgtep.com/presentation/workshop2/rta_2.pdf- Philippine Participation in RTAs, Dr. George Manzano, Philippine Global Trade E-Learning Program, July 2, 2008 http://www3.pids.gov.ph/ris/pn/JPEPA_Inquirer.pdf - Josef T. Yap, Erlinda M. Medalla, and Rafaelita M. Aldaba, Assessing the Japan-Philippines Economic Partnership Agreement (JPEPA) (http://www.census.gov.ph/data/sectordata/sr08337tx.html) Foreign Trade Statistics of the Philippines: 2007 Kotera, Akira, http://www.rieti.go.jp/en/columns/a01_0216.html - What Conditions Must EPAs Fulfill to be Consistent with WTO Rules, and Who Decides them? Mahiwo, Sylvano. 2008. ASEAN-Japan Contemporary Relations: From Selective Engagement to Comprehensive Japanese Involvement. Narongchai, Akrasanee. 2007. Development of ASEAN-Japan Relations. Tokyo Japan. Symposium on Future Directions of ASEAN-Japan Economic Relations in Response to Globalization.

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ANNEX A Framework for Comprehensive Economic Partnership between the Association of Southeast Asian Nations and Japan, Bali, Indonesia, 8 October 2003

WE, the Heads of State/Governments of Brunei Darussalam, the Kingdom of Cambodia, the Republic of Indonesia, the Lao People's Democratic Republic ("Lao PDR"), Malaysia, the Union of Myanmar, the Republic of the Philippines, the Republic of Singapore, the Kingdom of Thailand and the Socialist Republic of Viet Nam, Member States of the Association of Southeast Asian Nations (collectively, ASEAN or ASEAN Member States, or individually, ASEAN Member State), and Japan gathered today for the ASEAN-Japan Summit; RECALLING the Joint Declaration made at the ASEAN-Japan Summit held on 5 November 2002 in Phnom Penh, Cambodia to implement measures for the realisation of a Comprehensive Economic Partnership ("CEP"), including elements of a possible Free Trade Area ("FTA"), which should be completed as soon as possible within 10 years, and to establish a Committee to consider and draft a framework for the realisation of the CEP between ASEAN and Japan (ASEAN-Japan CEP); INSPIRED by the significant progress made in ASEAN-Japan relations, which has spanned 30 years of an economic partnership that has been expanding over a wide range of areas; DESIRING to minimise barriers and deepen economic linkages between ASEAN and Japan; lower business costs; increase intra-regional trade and investment; increase economic efficiency; create a larger market with greater opportunities and larger economies of scale for the businesses of both ASEAN and Japan; and enhance our attractiveness to capital and talent; SHARING the view that the ASEAN-Japan CEP should benefit from and complementary to the economic integration of ASEAN and considering that achievement of the ASEAN Free Trade Area (AFTA) will enhance the value of ASEAN as a regional market and attract investment to ASEAN and that it is desirable that the Common Effective Preferential Tariff (CEPT) Scheme among ASEAN Member States be implemented on a timely basis; BEING confident that the establishment of an ASEAN-Japan FTA covering trade in goods, services and investment will create a partnership between ASEAN and Japan, and provide an important mechanism for strengthening co-operation and supporting economic stability in East Asia; RECOGNISING the important role and contribution of the business sector in enhancing trade and investment between ASEAN and Japan and the need to further promote and

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facilitate their co-operation and utilisation of greater business opportunities provided by the ASEAN-Japan CEP; RECOGNISING the different stages of economic development among ASEAN Member States and between ASEAN and Japan, and the need to facilitate the increasing participation of the Kingdom of Cambodia, Lao PDR, the Union of Myanmar and the Socialist Republic of Viet Nam, (collectively, the newer ASEAN Member States) in the ASEAN-Japan CEP; REAFFIRMING the rights and obligations of the respective countries under the Marrakesh Agreement Establishing the World Trade Organization ("WTO Agreement"), and other multilateral, regional and bilateral agreements and arrangements; RECOGNISING the catalytic role that regional trade arrangements can contribute towards accelerating regional and global liberalisation and as building blocks in the framework of the multilateral trading system; HAVE DECIDED AS FOLLOWS: 1 Objectives The objectives of the ASEAN-Japan CEP are to: (a) Strengthen economic integration between ASEAN and Japan through the creation of a CEP; (b) Enhance the competitiveness of ASEAN and Japan in the world market through strengthened partnership and linkages; (c) Progressively liberalise and facilitate trade in goods and services as well as create a transparent and liberal investment regime; (d) Explore new areas and develop appropriate measures for further co-operation and economic integration; and (e) Facilitate the more effective economic integration of the newer ASEAN Member States and bridge the development gap among the ASEAN Member States. 2 Basic Principles ASEAN and Japan will adhere to the following principles:

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(a) The ASEAN-Japan CEP should involve all ASEAN Member States and Japan and include a broad range of sectors focusing on liberalisation, facilitation and co-operation activities, noting the principle of reciprocity, transparency and mutual benefits to both ASEAN and Japan; (b) The integrity, solidarity and integration of ASEAN will be given consideration in the realisation of the ASEAN-Japan CEP; (c) The ASEAN-Japan CEP Agreement should be consistent with the rules and disciplines of the WTO Agreement; (d) Special and differential treatment should be provided to the ASEAN Member States in recognition of their different levels of economic development. Additional flexibility should be accorded to the newer ASEAN Member States; (e) Flexibility should be given to address the sensitive sectors in each ASEAN Member State and Japan; and (f) Technical co-operation and capacity building programmes should also be considered.

3 Measures for Comprehensive Economic Partnership The ASEAN-Japan CEP should be realised by: (a) Carrying out the Measures for Immediate Implementation specified in Section 4; (b) Implementing programmes on Facilitation and Co-operation between ASEAN and Japan in the areas specified in Section 5; and (c) Implementing measures for Liberalisation in (1) trade in Goods; (2) trade in Services; and (3)investment. 4

Measures For Immediate Implementation 1. ASEAN and Japan decide to work on the following activities that could provide immediate benefits on an accelerated basis: (a) Technical assistance and capacity building to ASEAN, particularly for the newer ASEAN Member States, so as to improve their competitiveness to meaningfully

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participate in the partnership and to assist ASEAN Member States who are not members of WTO and World Customs Organization (WCO) to work towards becoming members of the aforementioned organizations; (b) Trade and investment promotion and facilitation measures; (c) Trade and investment policy dialogue; (d) Business sector dialogue; (e) Measures to facilitate the mobility of business people; (f) Exchange and compilation of relevant data such as customs tariff and bilateral trade statistics; and (g) Any other measures delivering immediate mutual benefits. 2. ASEAN and Japan will continue to build upon existing or agreed programmes in the areas identified above.

5 Facilitation and Co-operation 1. ASEAN and Japan decide to conduct consultations from the beginning of 2004 on the areas of facilitation and co-operation, and to develop work programmes for the expeditious implementation of measures or activities in each of the following areas: (1) Trade Related Procedures Facilitation of trade-related procedures will be implemented in such areas as co-operation on custom procedures by computerisation, simplification and harmonisation, as far as possible, to relevant international standards. (2) Business Environment Recognising that the satisfactory business environment is an indispensable part of the attractiveness to investors, each ASEAN Member State and Japan will make the effort to improve the business environment and enhance co-operation in related fields. (3) Intellectual Property Rights (IPR) Japan will support ASEAN Member States in developing, improving, enhancing and implementing their IPR capabilities, and in promoting accession to IPR-related

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international agreements. Co-operation between ASEAN and Japan, such as information exchange, will also be encouraged. (4) Other Areas of Co-operation:

Energy

Co-operation in oil stockpiling, natural gas utilisation and promotion of energy efficiency.

Information and Communications Technology (ICT)

Co-operation in developing ICT infrastructure, Information Technology (IT)-related legal systems, and IT-related human resource, and promoting exchanges of IT researchers and engineers.

Human Resource Development (HRD)

Co-operation among the relevant organisations in each ASEAN Member State and Japan, especially in the field of HRD for experienced engineers and middle management.

Small and Medium Enterprises (SMEs)

Co-operation in exchanging views on policies relating to SMEs and expanding business opportunities of SMEs.

Tourism and hospitality

Co-operation in implementing seminars or information exchange on tourism and hospitality.

Transportation and logistics

Co-operation for efficient cargo transport system, safe and sustainable shipping and safe and efficient air transport.

Standards and conformance and mutual recognition arrangement

Exchange of information concerning the standards and conformance policies, and capacity building of standardisation organisations in each ASEAN Member State.

Other possible technical co-operation projects, including environment, automobile, bio-technology, science and technology, sustainable forest management, competition policy, food security and financial services cooperation.

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2. ASEAN and Japan will continue to develop work programmes in new areas of facilitation and co-operation.

6 Liberalisation 1. ASEAN and Japan will start the consultations on the ASEAN-Japan CEP on the liberalisation of trade in goods, trade in services, and investment, from the beginning of 2004 by discussing the basic principles of ASEAN-Japan cumulative rules of origin and customs classification and collecting and analysing trade and custom data. 2. ASEAN and Japan will initiate a negotiation on the CEP Agreement between ASEAN and Japan as a whole, taking into account the achievements of bilateral negotiations between each ASEAN Member State and Japan, and the further progress of the ASEAN integration process. Such Agreement should be consistent with the WTO Agreement. 3. During the negotiation, those ASEAN Member States that have not concluded bilateral Economic Partnership Agreement (EPA) with Japan will negotiate concessions bilaterally. Schedules of liberalisation concessions between Japan and those ASEAN Member States that have concluded a bilateral EPA should not be renegotiated in the negotiation of the ASEAN-Japan CEP Agreement. All schedules of liberalisation concessions will be annexed to the ASEAN-Japan CEP Agreement. (1) Trade in Goods ASEAN and Japan decide to progressively eliminate duties and other restrictive regulations of commerce (except, where necessary, those permitted under Article XXIV (8) (b) of the General Agreement on Tariffs and Trade 1994 in Annex 1A to the WTO Agreement (GATT)) on substantially all trade in goods in order to establish an FTA between ASEAN and Japan which will include, but will not be limited, to the following: (a) Cumulative rules of origin; (b) Detailed rules governing the tariff reduction or elimination programmes including principles governing reciprocal commitments; (c) Non-tariff measures including technical barriers to trade; and (d) Trade remedy measures based on the principles of the WTO Agreement. (2) Trade in Services ASEAN and Japan decide to progressively liberalise trade in services with substantial sectoral coverage consistent with the rules of the WTO Agreement. Such liberalisations should be directed to:

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(a) Progressive elimination of substantially all discrimination between or among ASEAN and Japan and/or prohibition of new or more discriminatory measures with respect to trade in services between ASEAN and Japan, (except for measures permitted under Article V(1)(b) of the General Agreement on Trade in Services (GATS) in Annex 1B to the WTO Agreement); (b) Expansion in the depth and scope of liberalisation of trade in services; (c) Facilitation of the entry and temporary movement of business people; and (d) Enhanced co-operation in services between ASEAN and Japan in order to improve efficiency and competitiveness. (3) Investment In order to promote investment, ASEAN and Japan decide to: (a) Create a liberal and competitive environment; (b) Strengthen co-operation in investment, facilitate investment and improve transparency of investment rules and regulations; and (c) Provide for the protection of investors and investment.

7 Most-Favoured-Nation Treatment For ASEAN Member States which are not yet WTO members, Japan will continue to apply the general Most-Favoured-Nation (MFN) treatment as stipulated in Article I of GATT. Japan will endeavour to provide MFN treatment under the WTO on a reciprocal basis.

8 General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between or among ASEAN and Japan where the same conditions prevail, or a disguised restriction on trade within the ASEAN-Japan CEP, nothing in this Framework should prevent any individual ASEAN Member State and/or Japan from adopting or enforcing measures, in accordance with the rules and disciplines of the WTO Agreement, for:

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(a) The protection of the national security of each ASEAN Member State and/or Japan; (b) The protection of articles of artistic, historic and archaeological value; or (c) Such other measures which each ASEAN Member State and/or Japan deems or deem necessary for the protection of public morals or to maintain public order, or for the protection of human, animal or plant life and health. 9 Consultation Any differences concerning the interpretation or implementation of this Framework should be settled amicably by consultations and/or mediation. 10 Timeframes 1. ASEAN and Japan will start consultations on the ASEAN-Japan CEP on the liberalisation of trade in goods, trade in services and investment, from the beginning of 2004, as set forth in Section 6, paragraph 1. 2. ASEAN and Japan will make maximum efforts to commence the negotiation on the CEP Agreement between ASEAN and Japan as a whole, referred to in Section 6, paragraph 2, from the beginning of 2005. ASEAN and Japan will endeavour to conclude the negotiation as soon as possible, taking into account the need to leave sufficient time for implementation. 3. The implementation of measures for the realisation of the ASEAN-Japan CEP, including elements of a possible free trade area, should be completed as soon as possible by 2012, taking into account the economic levels and sensitive sectors in each country, including allowing additional five (5) years' time for the newer ASEAN Member States.

11 Institutional Arrangements for this Framework 1. The ASEAN-Japan Committee on Comprehensive Economic Partnership ("AJCCEP") will continue to carry out the work set out in this Framework. 2. AJCCEP may establish other bodies as may be necessary to co-ordinate and implement this Framework, including the supervision, co-ordination and review of the implementation of other measures undertaken pursuant to this Framework.

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3. The ASEAN Secretariat will provide the necessary secretariat support to the AJCCEP whenever and wherever the meetings are held.

SIGNED on the Eighth Day of October in the year Two Thousand and Three in Bali, Indonesia, in duplicate in the English language.

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ANNEX B

Notification of the Entry into Force of the Japan-ASEAN Comprehensive Economic Partnership Agreement
October 21, 2008 1. Following the cabinet decision on October 21 (Tue), the notification of the completion of the legal procedures for the entry into force of the Agreement on Comprehensive Economic Partnership among Japan and the Member States of the Association of Southeast Asian Nations (Japan-ASEAN Comprehensive Economic Partnership Agreement) will be made to each government of the ASEAN Member States on October 22 (Wed). With this notification, the Agreement will enter into force on December 1 (Mon) with the ASEAN Member States which will have made the notification before the end of this month. With regards to the ASEAN Member States which will make the notification later, the Agreement will enter into force subsequently in accordance with the stipulations of the Agreement. 2. To strengthen the economic partnership with ASEAN, this Agreement provides for the liberalization and facilitation of trade in goods between Japan and the ASEAN Member States, promoting cooperation in such fields as intellectual property, agriculture, forestry and fisheries, and holding negotiations for the liberalization of trade in services and liberalization and protection of investment. And the Agreement has been signed by Japan and the ASEAN Member States in April this year. 3. With the entry into force of the Agreement, it is expected that the economic relationship with ASEAN will be further invigorated, contributing to enhancement of their strategic relationship.

From the Ministry of the Foreign Affairs of Japan. http://www.mofa.go.jp/announce/announce/2008/10/1184016_1060.html

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