Foreign Relations of the United States, 1948, The Far East and Australasia, Volume VI

711.962/12–1348

The Secretary of State to the Embassy in the Philippines

confidential
No. 263

Washington, December 13, 1948.

The Secretary of State transmits herewith for the information of the Embassy a copy of a memorandum which summarizes the main points on which the United States and the Philippine negotiators of the proposed Treaty of Friendship, Commerce and Navigation had not reached an agreement as of the close of discussion in September 1948. This memorandum was requested by Mr. Pedrosa, Philippine Budget Commissioner, for his own information, following an informal conversation between him and two officers of the Department prior to his departure from Washington, December 5, 1948.

The Department would appreciate a report on developments since the negotiating sessions of September 15, 1948. Information on the significance of the item relating to the Treaty of Friendship, Commerce and Navigation which appeared in the Evening News, November 30, 1948 is also desired, as well as the Embassy’s view on whether the Philippine Government can be expected to act favorably on the proposed treaty at any time in the near future.

[Enclosure]

Principal Issues Outstanding in United States–Philippine Treaty Negotiations

a. trade matters

1. Principle of unconditional m-f-n treatment

The Philippine negotiators felt that acceptance of the unconditional m-f-n principle would influence their policy in treaties with other countries and requested an exception to the unconditional rule in this treaty. The United States consented to meet the Philippine position insofar as the principle is set forth in the Preamble providing the Protocol carried a clear statement affirming the unconditional m-f-n principle. The Philippine negotiators then presented a proposal which would permit the Philippines to enter into special arrangements with third countries for specified purposes. The United States considered this proposal but found it unacceptable, inasmuch as it (1) undermines most of the unconditional m-f-n provisions of the treaty and (2) is inconsistent with the policy now accepted by most trading nations to further the expansion of world trade on a nondiscriminatory and multilateral basis.

2. M-f-n treatment with respect to indirect trade

Filipinos have objected to giving m-f-n treatment to United States articles “from whatever place arriving” maintaining that between 1909 and 1946 duty-free entry into the Philippines was conditioned by the United States Congress “upon direct shipment under a through bill of lading from the country of origin to the country of destination”. In addition, the Filipinos did not wish to see distributing centers for United States goods build up in the Far East outside of the Philippines. They felt that their position was consistent with their objective of industrializing the Philippines and developing the country as a distribution center. The United States negotiators pointed out that the Philippine position was not consistent with the objective of stimulating trade by reducing barriers and that the Philippine position, if taken by other countries, would result in preventing entrepôt trade anywhere. It was also pointed out that provisions of the treaty would not require the Philippines to accord the same treatment to an article assembled in a third country from U.S. materials as accorded a United States item imported directly. It was also pointed out that the Trade Act and the Trade Agreement do not continue to require shipment on through bills of lading.

3. National treatment with respect to matters relating to importation and exportation

Philippine negotiators objected to the broad wording of this provision and proposed restricting national treatment to specific matters. United States negotiators stressed the mutual advantage resulting from granting national treatment with respect to all matters relating to importation and exportation. Provisions of this paragraph are by no means one-sided, as Philippine nationals and companies have considerable interest in the treatment accorded them by the United States in matters pertaining to export control and certain import quotas, e.g., sugar. American nationals and companies on the other hand are interested in the treatment to be accorded under the Philippine import control program.

4. National treatment with respect to taxation, sale, distribution, or use of imported goods

Philippine negotiators did not accept the provision of the Treaty on this subject and proposed instead a provision which would give imported goods m-f-n treatment. The Philippine negotiators stressed the point that their attitude was consistent with their general philosophy of promoting industrialization in the Philippines. The United States negotiators on the other hand pointed out that the treaty provision on this subject has been accepted by the major trading countries and is included in such instruments as GATT and ITO. Furthermore the provision is entirely mutual.

5. National treatment with respect to financial transactions

The Filipinos presented a counter-draft substituting mutual m-f-n for national treatment as provided in the United States draft. This is unacceptable to the United States. The United States proposal for national treatment is entirely mutual. In addition it mutualizes the terms of Article V of the Trade Agreement.

b. establishment provisions

1. National treatment with respect to commercial, financial and professional activities

Whereas both sides agreed to m-f-n treatment with respect to activities specified by the treaty, national treatment was agreed to by the Philippines only with respect to manufacturing, processing, scientific, religious and philanthropic activities. The Philippine objection to according national treatment for commercial activities would make the provisions of the treaty one-way, in as much as the United States has granted national treatment for such activities in many of its treaties. The Philippines would be entitled to all of these by virtue of an m-f-n provision of the treaty on this subject. It was also pointed out that United States entrepreneurs would not be encouraged to establish manufacturing and processing plants in the Philippines if the Philippines pursued a policy of excluding American merchants; such a policy would be taken as a nationalistic measure which might in the future endanger their investments in the Philippines.

Under the treaty Philippine nationals and companies would be in no less favorable a position with respect to financial activities in any state in the United States than citizens and companies of other states of the United States in such state. No known regulations against employment of Filipinos in banking activities exist in the United States, and if any do exist the treaty would remove them. The treaty would also remove any possible United States discrimination with respect to professional activities on grounds of nationality.

2. Rights of unregistered corporations to sue in courts

The Filipinos were wary of permitting free access to courts by alien corporations not registered to do business in the Philippines because (a) there would have to be some way for Philippine courts to determine the identity of the corporations, and (b) United States corporations could afford to hire counsel and sue in Philippine courts, whereas Philippine corporations, being small and having limited financial resources, could seldom afford to sue in United States courts.

The first reason was answered by the United States negotiators proposing for inclusion in the treaty a provision requiring that corporations desiring to sue first file in the courts any “reasonable particulars” required by the laws and regulations of the country in which suit was instituted. As regards the second point, it was pointed out that generally in both countries suit would seldom be instituted unless the amount of anticipated damages would defray the cost; that the question usually is not one of the size or financial resources of the complainant, but the size and value of the complaint.

3. Real property

The Philippine negotiators objected to the United States proposal and requested that the United States accept an addition to the Protocol mutualizing the provisions of Article VII, Paragraph (i), of the Trade Agreement relating to access to the public domain. The United States negotiators expressed regret that they were unable to consider the Philippine proposal in view of the fact that the United States Congress by domestic legislation had authorized all terms and conditions of the Trade Agreement and had specifically forbidden the President of the United States from entering into a trade agreement with the Philippines on any other terms. In view of the existing legislation in the United States and the Philippines, and also taking into account provisions of the Trade Agreement and the treaty, it was the belief of the United States negotiators that the situation with respect to land ownership is highly favorable to the Philippines. Acceptance of the United States proposal was advanced for the following reasons.

a. While the Trade Agreement is in force, and thereafter, the Philippines would, under the United States proposal, enjoy whatever rights as to both public and private lands may be available to them under the laws in force in any state, territory, or possession of the United States; particularly since the Act of July 2, 1946, made Philippine citizens eligible for United States citizenship, they have been able to enjoy the right of land ownership in many States even without being naturalized, because in these States the restrictions on land ownership bear only against persons not eligible for United States citizenship. There is a marked tendency in the United States towards the liberalization of land laws which works to the advantage of Philippine citizens.

b. When the Trade Agreement is not in force, the Philippine citizen still gets, under the United States proposal, whatever the laws in force in the States permit, but the United States citizen gets m-f-n treatment in the Philippines as a maximum and, the Philippine Constitution remaining as at present, that maximum is “zero”.

c. When the Trade Agreement is not in force, and assuming the alien land holding provisions of the Philippine Constitution to be liberalized, the United States citizen still gets m-f-n treatment under the United States proposal in the Philippines as a maximum, but not more than his State allows Philippine citizens as a minimum.