Charter Change, a Gateway to Economic Woes

A drive to amend the economic provision of the Philippine Constitution is currently under way, and its proponents are no less than the leadership of the house of representatives. Two days ago it was approved on the committee level and will be on its way to second reading. The charter change proponents are zeroing-in on the elimination of the provisions that limits the ownership by foreigners of land and business to 40%, including management of media, franchises to public utilities and ownership of educational institution. The resolution also seeks to increase foreign participation in developing, exploring, and utilizing lands of public domain, waters, minerals, coal, petroleum, and other mineral oil, all sources of potential energy, fisheries, forest, timber, flora and fauna, wildlife and other natural resources. The Speaker of the house has pushed for the amendments, saying this will increase foreign direct investments that will create jobs, boost income, fuel economic activity and improve technology. The pace at which the proposed amendment was passed without public consultation will lead to the belief that some powerful corporate hands are lobbying and may actually be behind the push.

The basis of the house initiative and the concerted move to amend the economic provision/s of the constitution would undoubtedly attract foreign direct investment, but the consequence may not be as bright as pictured. On the other hand, the elimination of constitutional protection could result to stagnation of the Philippines economically.

The apparent and hideous reason for the initiative is to pave the way for the Philippine’s participation in the Trans- Pacific Partnership (TPP).

What is the Trans- Pacific Partnership or TPP?

TPP is currently being negotiated at the behest of transnational corporations for more than five years by the United States, Australia, Brunei, Chile, New Zealand, Japan, Malaysia, Singapore, Vietnam, Canada, Mexico and Peru into a giant free trade agreement. The negotiation is reportedly characterized by lack of transparency and is shrouded in secrecy. The draft agreement is accessible only to about 600 official corporate advisors and members of transnational corporations. The American public and even members of the US congress were not allowed to see the draft of the agreement. However, leak (wikileaks) documents on some provisions of that draft agreement points to the following:

Elevation of the foreign companies to the status of sovereign state.

Vesting the right to the foreign companies to sue for damages the host country for laws, rules, policies that undermines their profit.

The right to deregulate homegrown safety policies on food and environment.

The adoption of the US style property/ copyright by member countries.

Extend life of pharmaceutical patent, hence ending the service of 
generic drugs

Diagnostic, therapeutic, and surgical methods for treatment of humans and animals will be patented.

Elimination of tariff and other trade barriers.

At a glance, it is no longer a wonder why the negotiation is being conducted in secrecy. The TPP would literally remove sovereignty and rights inherent to a free nation in order to protect the profit and monopoly by the multi-national corporations. Barring the aforementioned, without the industrial capacity and homegrown capital to compete head to head with the transnational, the Philippines would be reduce to a mere source of cheap labor and a dumping ground for  world products that may include unsafe genetically modified organisms (GMO), and manufacturing waste resultant to unregulated and unrestricted processing or production methods. The TPP will overshadow all existing environmental laws rendering them inapplicable and would be imposable only on domestic companies. The natural resources will again be in the hands of the large multi-national companies at their disposal leaving behind the wreck and havoc we’ve seen in the past. The protection afforded to its citizen by Philippine labor law may also be affected, including disallowance of unionism and matters pertaining to security of tenure. To be embroiled in such a massive agreement that subvert domestic policies and laws would mean the death of agriculture and any other gestating industry. The most offending is that any member country can be sued before the international tribunal for executing policies that disfavor profit. These are just few of the cause and effect that the leak TPP draft is leading to, which in summation would mean a surrender of sovereign rights and self- determination for the promised benefits of a free trade. The only protection of the Philippines to prevent this from happening is the Tariff and Customs Code and the Philippine Constitution, more in particular is its economic provisions.

The purported guarantee of economic miracle by open trade agreements remains to be in question today as it was in the past. To convince ourselves to doubt, an insight to the other executed agreements before the TPP is rather necessary.

NAFTA or North American Free Trade Agreement is a trilateral free trade covenant between Mexico, Canada and the United States that among others eliminates tariff and quotas for import and export among the three countries; it took effect in January 1994. The positive effect of the agreement seemed to have favored the companies of the countries and not the economy and the citizens of the member countries. The following is much of more interest since Mexico’s economic situation is not too far with that of the Philippines;

 

Workers right has not been positively influenced by NAFTA, since it denied the establishment of democratic and independent trade unions.

While official unemployment rates in Mexico had decreased since NAFTA, there has been an increase in underemployment, as well as increase in low-pay jobs and low productivity jobs. Therefore, despite of the unemployment decrease, the income of the employed has actually fallen.

The Mexican economic growth index averaged to less than 3.5 per year since 2000.

Deepens the problems that the small-scale Mexican farmers have to deal with. Mexican farmers cannot compete against the huge corn subsidies that the U.S. and Canada receive. On January 1st 2008 the import tariffs on corn were eliminated as part of the North American free trade agreement. In practice little has changed because the tariffs on corn have gradually been dropping since 1994, but this elimination more than $10 billion in agricultural subsidies which allows them to sell their grains at a price lower than the production cost (Becker 2003). At the same time the “entire Mexican agricultural budget is only one-tenth the size of the subsidies given to American corn farmers alone.” This results in undermining Mexican farmers because the cheap American corn is flooding the Mexican markets. It is estimated that the price of corn has fallen more than 70 percent since the signing of the free trade agreement and this has reduced the income of more than 15 million Mexicans who earn a good living by producing corn. Also according to the Institute for Policy Studies (IPS), 1.3 million farm jobs have been lost since 1993. The suggestion of the experts from the World Bank is to reduce the agricultural subsidies and tariffs of wealthy nations so that the developing nations could compete.

The biggest winners from the North American free trade agreement seem to be the corporations. First of all under NAFTA’s Chapter 11 the corporations have the right to sue governments if they feel that the profit-making potential of their ventures has been threatened by governmental decisions. One of the most well known examples that resulted from this privilege is the case of the U.S. Ethyl Corporation against government of Canada in 1997. Ethyl Corporation sued the government for $250 million because “the Canadian parliament banned the import and interprovincial transport of an Ethyl product – the gasoline additive methylcyclopentadienyl manganese tricarbonyl (MMT) – which Canada considers to be a dangerous toxin.” (Sforza 1997). The argument that the corporation presented was that the ban would reduce “the value of Ethyl’s MMT manufacturing plant, hurt its future sales and harm its corporate reputation.” (Sforza 1997). Eventually, the Canadian government agreed to lift its prohibition against importing MMT, paid the Ethyl Corporation $10 million and issued a public statement that the formula posed no risk.

           

Another benefit for the corporations is the flexibility to relocate their production to Mexico where the living standards are lower and the environmental requirements are not so strict. This weakens the position of the labor unions that are now afraid of raising their voice. 

The weakening of environmental standards by NAFTA has also caused the increased use of chemical intensive production methods in Mexico’s large commercial farms. These methods include the use of harmful pesticides and fertilizers that pollute land and water resources. Specifically, they contribute to high soil salinity, ground-level ozone, lake and river acidification, and the disruption of natural forest processes. The change in land ownership and the more export oriented farming system in Mexico have also led to a dramatic loss of forests and the unique biodiversity they sustain. Peasant farmers who were driven off their lands were forced to clear forestland for farming and fuel. Since the implementation of NAFTA the annual rate of deforestation in Mexico has risen to 1.1 million hectares – practically doubling the prior rate of 600 thousand hectares. This places Mexico second behind Brazil in the rate of deforestation.

The Philippines had entered into similar agreements in the past like the General Agreements on Tariff and Trades which expired in 1994 and subsequently with the World Trade organization, but there’s nothing like the Parity Rights.

Under the risk of opening an old wound in the US- Philippine relations, the need to revisit history of early trade agreements becomes a must. In 1946, the Bell Trade Act was passed by the US Congress which was subsequently ratified by the Philippine legislature two days before independence from the United States. The Parity rights expired in 1974. Its salient and relevant features are:

The United States Congress offered $800 million for post World War II rebuilding funds if the Bell Trade Act was ratified by Philippine legislature

A system of preferential tariffs was established, undermining control over imports and exports by the Philippine government;

The Philippine currency, the peso, was pegged to the US dollar;

The Philippine government was obligated not to place restrictions on currency transfers from the Philippines to the United States;

a "parity" clause granted U.S. citizens and corporations equal access with Philippine citizens to Philippine minerals, forests and other natural resources, despite provisions in the Philippine constitution (1935) to the contrary which the act required to be amended.

History indicated that the provisions of the Bell trade Act were imposed on the Philippines in exchange for the US grant of reparation to reconstruct the war ravaged country. Filipino nationalists at that time denounced the Bell Trade Act. Even the reliably pro-American Philippine President Sergio Osmeña called it a "curtailment of Philippine sovereignty, virtual nullification of Philippine independence."

The parity rights did not help to improve the Philippine economic condition, poverty incidence in the Philippines rose from 41 percent in 1965 to 58.9 percent in 1985. This can be attributed to lower real agricultural wages and lesser real wages for unskilled and skilled laborers. Real agricultural wages fell about 25 percent from their 1962 level, while real wages for unskilled and skilled laborers decreased by about one-third of their 1962 level. According to a Central Bank study submitted to National Economic Council, during the period 1949-1960 only USD 16.2 million new foreign investment entered the country while USD 223 million were sent out as profit and invisible payments, or USD 14 sent out for every USD 1 coming in. Much more can be said about the other factors that affected the stagnation in the economy. But the similarity of the Parity rights with modern open trade agreement cannot be denied. Claro M. Recto had these statements:

“This parity clause, it need not be said, is grossly unfair. This is, indeed, the first instance in history where an independent nation has granted to citizens of another rights equal to those enjoyed by its own citizens. 

The irony of the thing lies in the fact that were we to seek, for the sake of reciprocity, the same rights from the United States.....we would be met with the observation, which is unanswerable, that it is not within the power of the United States government to grant any such equal rights to citizens of another country.-

Many of us believe that we are "independent." We are often complimented by our big "partner" in the "special relationship" that we are independent. But he behaves and acts towards us in a manner that indicates quite the contrary. He imposed upon us ten years ago the Bell Trade Act-1946, together with "Parity". 

After nine years of Filipino opposition and agitation against the Trade Agreement he finally consented to revise it, but parity has remained --nay, it has been extended to all fields of economic endeavor -- far beyond its original scope in 1946 which was confined to the ownership and exploitation of natural resources and public utilities. No other independent country in the world except ours has granted parity rights to the citizens of another.

Capital is always necessary in economic development. Other things being equal, the greater the capital the larger the production and the faster the rate of economic growth. In our present state, considering the scarcity of Filipino capital, there is a need for foreign capital if we expect any acceleration in our economic development. 

But the foreign capital we need is for the purchase of capital goods which we cannot produce or manufacture locally. Foreign capital in excess of what is necessary to meet this particular need will do us more harm than good.

I have repeatedly stressed my preference for foreign loans at reasonable rates of interest. They are not a substitute for internal financing, but merely a complement to it, and will take care only of those functions that internal financing cannot at present perform, such as the procurement of capital goods. But under any and all circumstances, foreign loans should be preferred to foreign direct investments because the latter mean foreign ownership of the business and the profits.

Our opposition to foreign direct investments is not, I repeat, the result of a purely emotional nationalism. In fact such a chauvinistic attitude devoid of all economic substance could even prove harmful in some cases. That economic substance may be simply described thus: industrialization of the country by Filipino capitalists, and not simply prevention of industrialization by foreign capitalists; exploitation of our natural resources by Filipino capital; development and strengthening of Filipino capitalism  not of foreign capitalism; increase of national income, but not allowing it to go mostly to non-Filipinos”.

Representative Carlson was certainly speaking the minds and hearts of the American people when, on the floor of the U.S. Congress, during the discussion of the Bell Bill, he observed: "In all fairness, I think, we might ask ourselves if we, as citizens of the United States, would agree to the same requirement (parity rights) were they submitted to us by another nation”.

Free trade agreements have been there before, it is still now and it will still be. The world elite through its multi-national companies intend to dominate the world economy and wealth. On the premise, that if one has the control of the economy, he controls everything. Protectionism and sovereignty are concepts alien to them. These are temporary barriers that are resolve through soft power and if need be, hard power. The Philippine natural resources is under assault from the east by China using hard power and from the western globalist using soft power.

http://thefourthperspective.blogspot.com/2013/06/the-philippines-rich-manpoor-man.html

The pertinent safeguards were institutionalized in the economic provision of the Philippine constitution by the nationalist predecessor who experienced the pain and burden of neo-liberalism. Article Xll, Section 2 of the Philippine constitution is explicit, the Philippine natural resources cannot be alienated. This is apart from the economic provision that the House leadership attempts to revise and eliminate along with their contemporaries. Whatever is the motive, the Filipinos must know. Since the authority to amend the covenant between the state and the people emanated from the latter, it is imperative that the constituency is consulted and be allowed to decide their own fate, for how can one or two or even three decide against the lessons of history and the experience of the past.

Beware of history, for no secret can be hidden from her- Gregoria De Jesus.

Here is an Update on NAFTA; http://www.zerohedge.com/news/2014-08-15/nafta-20-years-old-%E2%80%93-here-are-20-facts-show-how-it-destroying-economy