THE Department of Justice (DOJ) has ruled that the Executive Department has the authority to include ‘ratchet’ provisions in the ongoing Philippines-European Union Free Trade Agreement (PHL-EU FTA) negotiation subject to the foreign ownership limits under Article XII of the Constitution.
In a five-page legal opinion signed by Justice Secretary Fredderick Vida, the DOJ also stressed that consultations with relevant stakeholders should be conducted before the country’s trade negotiations commit to a ratchet provision in the PHL-EU FTA.
Under a ratchet mechanism provision, parties to an FTA commit to maintain any further openings in their respective markets that they may unilaterally decide upon.
The DOJ explains that if a party commits to allowing 40 percent foreign ownership in a particular sector, and subsequently, unilaterally allows a higher percentage, said party cannot revert to the previous rules, pursuant to the ratchet mechanism.
In other words, a party can no longer adopt and implement measures to revert to the previous restrictive regulations it has implemented.
While the Executive branch has the authority to bind the Philippines to a non-reversible baseline of liberalization, the DOJ stressed that the ratchet provisions cannot contravene the mandatory thresholds established under Article XII of the 1987 Constitution (National Economy and Patrimony).
‘We trust that consultations have been made with the relevant stakeholders before the country’s trade negotiators would commit to a ratchet provision in the PHL-EU FTA or in any other FTA, and that trade negotiators must ensure that sectors subject to the ratchet clause must comply with explicit constitutional caps,’ the DOJ said.
Furthermore, the DOJ said the PHL-EU FTA would need the concurrence of the Senate for it to be valid and effective since it imposes permanent international obligations and alters domestic regulatory space.
The Justice department noted that the existing free trade agreements such as the Philippines-Japan Economic Partnership Agreement (PJEPA), PHL-European Free Trade Association FTA, PHL-Korea FTA and the Regional Comprehensive Economic Partnership (RCEP) are all classified as treaties, thus, were submitted to the Senate for concurrence to be valid and effective.
‘In sum, this Department confirms that the Executive Department possesses the requisite legal authority to include ratchet provisions in the PHL-EU FTA to position the Philippines as a competitive investment destination, in harmony with the Philippine Development Plan (PDP) 2023-2028,’ the DOJ said.
‘To ensure that the PHL-EU FTA withstands any future legal or constitutional challenge, the negotiators must ensure that the liberalization baselines locked in by the ratchet provisions strictly respect the economic ceilings in Article XII of the Constitution, and the final text of the agreement is duly submitted to the Senate for formal ratification and concurrence,’ it added.
The DOJ issued the legal opinion upon the request of Department of Trade and Industry-Undersecretary for International Trade Group Allan Gepty.
In his letter-request, Gepty sought the DOJ’s confirmation of the DTI’s understanding that committing trade liberalization in the services and investments, specifically the inclusion of ratchet provisions in the PHL-EU FTA negotiations, is a policy matter that the Executive branch may consider and enter into, subject to the necessary consultations and constitutional limitations.