Wigberto E. Tanada et al, in representation of various taxpayers and as non-governmental organizations, petitioners, vs. EDGARDO ANGARA, et al, respondents.G.R. No. 118295 May 2, 1997

G.R. No. 118295               May 2, 1997

Wigberto E. Tanada et al, in representation of various taxpayers and as non-governmental organizations, petitioners,

vs.

EDGARDO ANGARA, et al, respondents.

Facts:  Respondent Rizalino Navarro, then Secretary of The Department of Trade and Industry (Secretary Navarro, for brevity), representing the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay Round of Multilateral Negotiations.

By signing the Final Act, Secretary Navarro on behalf of the Republic of the Philippines, agreed:

(a)    to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities, with a view to seeking approval of the Agreement in accordance with their procedures; and

(b)    to adopt the Ministerial Declarations and Decisions.

The Philippine President had ratified the said treaty, which was subsequently concurred by the Senate.  Hence, this case petition by Sen. Wigberto Tanada, together with other lawmakers, taxpayers, and various NGO’s to nullify the Philippine ratification of the World Trade Organization (WTO) Agreement.

(There are several issues, but for the sake of Taxation, the issue is:)

Issue: Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and impair Philippine sovereignty specifically the legislative power exercised by the Congress?

Held: NO. A portion of sovereignty may be waived without violating the Constitution, based on the rationale that the Philippines "adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of cooperation and amity with all nations."

Petitioners claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress.

However, while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations.

Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of Principles and State Policies, the Constitution "adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations."  By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which are considered to be automatically part of our own laws. One of the oldest and most fundamental rules in international law is pacta sunt servanda — international agreements must be performed in good faith. "A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties . . . A state which has contracted valid international obligations is bound to make in its legislations such modifications as may be necessary to ensure the fulfillment of the obligations undertaken."

In fact, the Philippines has entered into many other international pacts — both bilateral and multilateral — that involve limitations on Philippine sovereignty. These are enumerated by the Solicitor General in his Compliance dated October 24, 1996, as follows:

(It was a long list; below are some of the international agreements the Philippines has entered into in relation to taxation)

(a)          Bilateral convention with the United States regarding taxes on income, where the Philippines agreed, among others, to exempt from tax, income received in the Philippines by, among others, the Federal Reserve Bank of the United States, the Export/Import Bank of the United States, the Overseas Private Investment Corporation of the United States. Likewise, in said convention, wages, salaries and similar remunerations paid by the United States to its citizens for labor and personal services performed by them as employees or officials of the United States are exempt from income tax by the Philippines.

(b)          Bilateral agreement with Belgium, providing, among others, for the avoidance of double taxation with respect to taxes on income.

(c)          Bilateral convention with the Kingdom of Sweden for the avoidance of double taxation.

(d)          Bilateral convention with the French Republic for the avoidance of double taxation.

(e)          Bilateral air transport agreement with Korea where the Philippines agreed to exempt from all customs duties, inspection fees and other duties or taxes aircrafts of South Korea and the regular equipment, spare parts and supplies arriving with said aircrafts.

(f)           Bilateral air service agreement with Japan, where the Philippines agreed to exempt from customs duties, excise taxes, inspection fees and other similar duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment, stores on board Japanese aircrafts while on Philippine soil.

In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens.

The same reciprocity characterizes the Philippine commitments under WTO-GATT.

Additional Note: International Treaties & Trade Treaties. International treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. But unless anarchy in international relations is preferred as an alternative, in most cases we accept that the benefits of the reciprocal obligations involved outweigh the costs associated with any loss of political sovereignty. Trade treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically stand to gain disproportionately from trade liberalization. This is due to the simple fact that liberalization will provide access to a larger set of potential new trading relationship than in case of the larger country gaining enhanced success to the smaller country's market.