Philippine Reparations Policy and Commission Act

Policy and overall implementation

Section 1 declares it to be the policy of the Government of the Philippines to utilize all reparations payments procured in whatever form from Japan under the Reparations Agreement in a way that assures maximum possible economic benefit to the Filipino people and in an equitable and widespread manner.
Section 2 requires that procurement, disposition, and utilization of all goods and services procured from Japan be carried out as closely as possible to promote economic rehabilitation and development of the country and according to broad program, criteria and priorities established by the National Economic Council, plus the additional criteria in Section 2.
Section 2 directs that the five-year reparations program and related schedules, rules, and regulations be prepared and administered consistently with the overall economic program and the policy in the Act (Section 6).

Eligible reparations goods, services, and users

Section 2(a) makes capital goods and services available to approved government projects for each year included in the National Economic Rehabilitation and Development Program upon application from the agency concerned and duly endorsed by the proper department head and the National Economic Council.
Section 2(a) also makes capital goods and services available to Filipino citizens and entities wholly owned by Filipino citizens who will use such goods and/or services as bona fide producers or manufacturers.
Section 2 prohibits the Government from procuring or utilizing reparations goods for the purpose of entering into business in competition with private industries where such industries have shown their capacity and readiness to serve the public fairly and adequately.
Section 2 requires top priority for reparations intended for electrification, firefighting equipment, telecommunications, railroad, base metal mining, steel and cement manufacturing, logging and shipping, and requires the list of projects—upon approval of the President—to be disseminated and publicized as widely as possible.
Section 2 limits goods other than capital goods to those not obtainable from normal sources of imports and to highly essential consumer goods and construction materials, with the total value and detailed listing made by the Commission and approved by the President upon recommendation of the National Economic Council.

Procurement limitations and allocation rules

Section 2(a) prohibits procurement under the Agreement when the domestic supply is adequate.
Section 2(a) requires that no goods except those that are brand new and of the latest model shall be procured.
Section 2 limits goods other than capital goods to sale through National Marketing Corporation (NAMARCO), or—if NAMARCO is unable—through any other agency selected by the Commission, and only to bona fide retailers who are Filipino citizens or entities wholly owned by Filipino citizens, who must resell directly to consumers or end-users.
Section 2 gives general preference in procurement of reparations goods and services to private productive projects, subject to the following allocation and earmarking conditions:
- During the first year of the effectivity of the Agreement, all reparations goods and services to be procured must be earmarked exclusively for government projects.
- After the first year, government projects receive preference only if they concern electrification, firefighting equipment, telecommunication or railroad, or would foster private productive capacity, or are needed for essential public services, or involve productive projects private enterprise is not yet capable or desirous of developing but are urgently necessary for overall national economic growth.
- Where goods are procurable under the Agreement in sufficient quantities, no dollar allocation may be made, and no bond, debenture, or bond issues may be floated for importation of such goods for use in any government projects.
- Not more than sixty percent (60%) of the total value of the reparations to be paid by Japan during the twenty-year period must be allocated to the private sector.
- If the private sector does not or cannot make full use of its allocation, the unused portion must be made available to the government.
Section 2(d) provides that the proceeds from the sale of reparations goods and the utilization of services must be placed in a Special Economic Development Fund and used only for the purposes specified in Section 3.

Cash payment and fund structure

Section 2 provides that the twenty million dollars cash payment accrues to a Trust Fund used exclusively for the benefit and rehabilitation of veterans of the Philippines in World War II, and their widows and/or orphans, as Congress may from time to time provide.
Section 3 creates a Special Economic Development Fund consisting of proceeds from the sale of reparations goods and utilization of services (excluding the cash payment referred to in Section 2(d)), together with interests earned.
Section 3 authorizes Congress to appropriate, from time to time, amounts necessary to constitute a Special Trust Fund available to the Rehabilitation Finance Corporation and the Philippine National Bank for loans for economic and industrial development projects and for construction, reconstruction, repair and/or improvement of public school buildings.
Section 3 caps the loan amounts and terms as follows:
- Loans must be in amounts not exceeding eighty percent (80%) of the value of the securities.
- Loans must be payable within a period not exceeding twenty years, depending on the kind of loan.
- Loans must carry interest at a rate not exceeding four percent (4%) per annum.
Section 3 limits lender profit: Rehabilitation Finance Corporation and Philippine National Bank must charge for services only the actual cost and must not make any profit therefrom.
Section 3 divides the Special Trust Fund allocation as follows:
- Fifty percent (50%) for industrial loans.
- Thirty percent (30%) for agricultural loans, with the additional limit that not more than twenty percent (20%) of such agricultural loans may be granted on any single agricultural crop.
- The remaining twenty percent (20%) for public school building construction, reconstruction, repair and/or improvement, as Congress may provide from time to time.
Section 3 requires additional set-asides:
- PHP 20,000,000 set aside as a revolving fund used exclusively to aid in the establishment of rural banks, subject to the Rural Banks Act (Republic Act No. 720, as amended).
- PHP 50,000,000 set aside for the purchase of landed estates provided for in the Land Tenure Act and such other landed estates provided for by other special Acts.

Japanese technicians and procurement of services

Section 4 limits services procured from Japan to services of Japanese technicians needed for installation of the capital goods and initial operation, and in other specialized fields in industry and agriculture.
Section 4 restricts technician services to only as long as there exists definite need.
Section 4 requires that the services of the Japanese technicians be utilized within one month after their arrival in the Philippines.
Section 4 bars entry of Japanese technicians if any qualified and equally competent Filipino citizen is available for the work to be performed.
Section 4 subjects entry of Japanese technicians to immigration laws, rules and regulations.

Reparations Commission and Mission in Japan

Section 5 establishes the Reparations Commission (the Commission) composed of a Chairman and two other members, appointed by the President with the consent of the Commission on Appointments, serving until removed for cause or by reason of death or disability.
Section 5 sets salaries: the Chairman receives PHP 18,000 per annum, and each other member receives PHP 15,000 per annum.
Section 5 creates a Mission in Japan composed of a Chief of Mission and senior officials as necessary; appointments are by the President with the consent of the Commission on Appointments.
Section 5 sets Mission compensation: the Chief of Mission receives PHP 12,000 per annum and is a career Minister of the Philippine Foreign Service; senior officials’ compensation and ranks are fixed by the President, except that the Chief of the Legal Section is not accorded diplomatic rank or status.
Section 5 directs appointment and staffing:
- Subordinate officials and employees of the Commission are appointed by the Commission and their compensation fixed by the Commission.
- Subordinate officials and employees of the Mission are appointed by the Chief of Mission and their compensation fixed by the Commission upon recommendation of the Chief of Mission.
- Employees are generally subject to the Civil Service law, except positions that are policy determining, primarily confidential, or highly technical.
Section 5 imposes bonding and disclosure:
- All officials and employees must be properly bonded in amounts determined by the Commission.
- They must file with the Office of the President a schedule under oath of assets and liabilities before assuming office and every six months thereafter.
Section 5 requires conflict-of-interest restrictions:
- Commission members, Mission Chief, and senior officials must devote full time and must not be interested financially or otherwise, directly or indirectly, in any business or transaction relating to reparations goods and services received, nor in loans under the exchange of notes on reparations loans.
- Relatives within the third degree of consanguinity or affinity are similarly prohibited from having any such interest.

Commission powers and administrative requirements

Section 6 empowers the Commission to administer the acquisition, utilization, and distribution of reparations goods and/or services under the Reparations Agreement and the Act.
Section 6 requires the Commission to prepare and submit to the President for approval (upon recommendation of the National Economic Council):
- A five-year reparations program, revised yearly as conditions warrant, with a broad list of eligible projects/undertakings/activities.
- The first year must be as firm as possible and sufficiently detailed to form the preliminary basis for the schedule of goods and service under Article four of the Reparations Agreement.
- The program must specify the amount, extent, conditions, and terms of payment for production, distribution, and utilization.
- The program must include rules and regulations for administering procurement, distribution, and utilization, including procedures and forms for applications.
Section 6 requires weekly publication of the reparations program, conditions of procurement, distribution utilization, and administration rules and regulations once a week for three consecutive weeks, in two newspapers—one in Tagalog and one in English—of general circulation in the Philippines.
Section 6 authorizes the Commission to submit proposed amendments to the rules and regulations, program, and yearly schedule for Presidential approval, upon recommendation of the National Economic Council.
Section 6 gives the Commission these specific operational powers and duties:
- Prepare a tentative annual schedule of goods and services to be procured from Japan, based on approved program and approved applications, and submit it for Presidential approval upon recommendation by the National Economic Council for consultation purposes with Japan.
- Verify, alter, and approve all proposed contracts and bids between the Mission and Japanese firms before the Mission accepts any bid, concludes any contract, or sends it to the Japanese Government representative, ensuring compliance with the Reparations Agreement and the Act.
- Provide Philippine entities/persons for whom goods/services are procured an opportunity to examine bids, make selections with cooperation of the Commission’s technical staff, and verify final contract specifications and terms.
- Accept all goods and services and cash procured as reparations by the Philippine Government.
- Provide for care, custody, protection, and proper delivery to end-users, and endeavor to have end-user inspection/acceptance and expeditious shipment from Japan to installation point to minimize storage costs, extra handling costs, deterioration, and damage.
- Collect and accept payments for delivered goods/services and deposit them with the Central Bank, which—upon consultation with the Commission—determines what portion may be placed as time deposits with commercial banks designated by the Central Bank.
- Enter into contracts and sue and be sued in Philippine courts.
- Publish every month in two newspapers (Tagalog and English) a list of goods disposed of and services required, including items not disposed of, indicating nature of goods, names and addresses of favorable disposition recipients, and consideration amounts.
- Hear and decide questions and controversies regarding the Commission’s rules and regulations, with decisions appealable directly to the President.
- Perform other functions necessary or imposed by law or executive order.

Mission powers and procurement process

Section 7 makes the Mission the sole and exclusive agent of the Philippine Government in Japan responsible for implementing the Reparations Agreement, including conclusion and performance of reparations contracts, serving as the Commission’s procurement branch.
Section 7 requires the Mission to undertake procurement of all goods and services requisitioned by the Commission, including calling for bids, verifying bids against approved plans and specifications, inspection, award, and supervision of shipment to the Philippines, subject to the Commission’s direct supervision and control.
Section 7 requires cooperation and liaison with the Embassy in cases requiring high-level diplomatic intervention beyond the Mission’s powers, including keeping the Embassy fully informed and providing copies of reports to the Commission.
Section 7 requires annual schedule negotiations with the Japanese Government through negotiation and conclusion of the agreed annual schedule within the limits of the Commission’s tentative annual schedule.
Section 7 requires the Mission to conclude contracts on behalf of the Philippine Government directly with Japanese nationals or Japanese entities controlled by Japanese nationals to procure desired goods and/or services, based on the agreed schedule and the Commission’s procurement order.
Section 7 requires necessary supervision and control for selection, inspection, and shipment.
Section 7 governs procurement for government and private orders:
- For procurement orders of Philippine government offices, agencies, instrumentalities, including government-owned or controlled corporations, the Mission must award contracts after public bidding with sealed bids.
- Where bids are unsatisfactory (e.g., unduly overpriced, inferior quality, suppliers combine to defeat public bidding, or like reasons), the Mission may conduct another public bidding or procure through negotiated sale.
- For procurement orders of private parties, the Mission generally procures from the manufacturer/producer/supplier expressly chosen by private parties.
- The Mission must be able to reject a chosen supplier if necessary to protect the party’s interest (e.g., unduly overpriced, reputed inferior quality, or similar reasons), securing desired goods from another source or by public bidding.
Section 7 requires the Mission to fix, in consultation with authorized Japanese Government representatives, the pesos details of the twenty million dollars cash payment.
Section 7 requires payment agreements with authorized Japanese foreign exchange banks.
Section 7 authorizes negotiations with the Japanese Government for survey and salvage of sunken vessels in Philippine waters.
Section 7 provides that the Chief and Mission officials are members of the Philippine panel to the Joint Committee under Article ten of the Agreement, with the Chief able to designate additional panel members from Mission staff.
Section 7 provides a jurisdiction limitation: only the Chief of Legal may sue and be sued in Japanese courts.
Section 7 requires the Mission to submit annual reports of operations and other reports as required to the Commission.
Section 7 authorizes procurement exclusively for official use of necessary immovable property, equipment, supplies, and other goods and services.

Technical staff and feasibility evaluation

Section 8 requires the Commission to maintain a competent technical staff to:
- Determine technical feasibility and soundness of projects in applications.
- Evaluate projects under criteria or program approved by the National Economic Council.
- Evaluate plans/specifications for suitability for bidding.
- Submit findings and recommendations to the Commission.
Section 8 requires the Mission to have engineers, inspectors, and economists, supplemented by inspection/testing services of internationally recognized licensed commercial organizations to ensure compliance with plans and specifications.
Section 8 authorizes using technical staffs of other government offices/institutions until the Commission and Mission have their own trained technicians, with corresponding expenditures provided in the Commission and Mission budget.

Budgeting, operating funds, and fiscal controls

Section 9 requires the Commission to prepare and submit for Presidential approval its plantilla and annual budget for the first year.
Section 9 requires future budgets to be prepared and submitted through the Budget Commission to the President for inclusion in the budget to be submitted to Congress, with the Mission portion prepared upon the recommendation of the Chief of Mission.
Section 9 requires inclusion in the agreed schedule of the Mission portion payable in Japanese yen.
Section 9 subjects all financial transactions to existing budgetary and fiscal controls, including accounting and auditing as provided by law.
Section 10 requires operating funds to come from reparations proceeds by imposing a service fee not greater than two percent (2%) on all transactions except those where government agencies are the end-users of reparations goods and services.
Section 10 authorizes the Commission, for initial operating fund, to obtain temporary advances from the Central Bank not exceeding PHP 1,000,000, reimbursable from reparations proceeds.

Procurement terms, sale terms, and restrictions

Section 11 provides that reparations goods are procured generally on an F.O.B. Japanese port basis.
Section 11 authorizes alternative bases if circumstances warrant: the Mission may procure on C. & F. Philippine port or C.I.F. Philippine port basis, requiring suppliers to quote freight separately.
Section 11 provides that when goods are paid in installments, only the F.O.B. cost (exclusive of insurance, ocean freight, and other expenses incident to importation) is considered in computing installment amounts.
Section 11 requires insurance to be obtained from domestic insurance companies qualified under the Act subject to no dollar remittance condition.
Section 11 allows use of foreign insurance companies with a reinsurance agreement with a domestic insurance company only if domestic insurers cannot cover without any dollar remittance, and only with preference to entities wholly or substantially owned by Filipino citizens; such insurance is barred if Filipino participation in the domestic insurer’s capital is less than sixty percent (60%).
Section 11 requires that insurance, ocean freight, and importation incident expenses be paid by the end-user according to usual business practices.
Section 11 directs that Philippine registry carriers be preferred when transporting reparations goods from Japan to the Philippines.
Section 11 requires inspection and testing of reparations goods—whether for government or private sector—to be undertaken only by agencies specifically designated by the Philippine Government through the Mission.
Section 11 states that nothing exempts the end-user from paying in full all necessary costs, charges, and expenses incident to application for, procurement, production, delivery, and acquisition of the goods.
Section 12 sets transfer and sale rules:
- Capital goods and complementary services for non-revenue producing government projects transfer without cost to agencies concerned.
- Capital goods and complementary services for revenue producing government projects transfer at cost.
Section 12 provides that capital goods and complementary services disposed to private parties are sold on a cash or credit basis under Commission rules and regulations.
Section 12 sets credit terms:
- The first installment must be paid within twenty-four months after complete delivery.
- The remaining balance must be payable within ten years at landed cost or factory cost if delivery is ex-factory, plus the service fee in Section 10.
- Unpaid balance bears interest at not more than three percent (3%) per annum.
Section 12 requires non-capital goods to be sold to private parties for cash only at prevailing mail prices for similar goods.
Section 12 prohibits sales through middlemen and requires direct sales to end-users.
Section 12 imposes a five-year resale/lease/disposition restriction:
- Capital goods acquired by authorized private parties cannot be resold, leased, or otherwise disposed of within five years from acquisition.
- The exception allows resale/lease/disposition when to Filipino citizens or entities wholly owned by Filipino citizens, who continue utilization in original intended projects or similar projects of comparable priority, subject to Commission approval on good and reasonable grounds (including death or bankruptcy of the original buyer).
Section 12 prohibits later changes in control/ownership:
- Recipient groups/associations/corporations must not permit subsequent changes in ownership/control such that Filipino citizens wholly hold any changed control or ownership.
Section 12 requires the contract to mandate that any transfer of ownership through private contract or court proceedings must be to Filipino citizens or entities wholly owned by Filipino citizens, and the transferees must begin utilization in the projects as determined by the National Economic Council within one year from notice of the Council’s decision.

Contract award standards and performance guarantees

Section 13 requires the Mission to consider these factors for award when evaluating bids or negotiating procurement not to be made through contracts:
- (1) prevailing export prices in Japan for similar goods/services,
- (2) world market prices for similar goods/services,
- (3) delivery dates,
- (4) availability of spare parts and service arrangements.
Section 13 requires performance security: in all contract awards, the Mission must require a suitable guarantee for faithful performance, consistent with commercial practice.

Tax treatment, foreign exchange allocation, and depositories

Section 14 exempts all reparations goods obtained by the Government from all duties, fees and taxes.
Section 14 exempts reparations goods obtained by private parties from customs duties, consular fees, and the special import tax only.
Section 15 treats reparations as part of foreign exchange resources and requires allocation as part of the foreign exchange budget according to foreign exchange policy principles and priorities.
Section 15 provides a foreign exchange adjustment mechanism during the effectivity of the Agreement:
- If at the end of any year the aggregate value of reparations goods/services received that year is lower by fifteen percent (15%) or more than the average yearly total receivable for that year under the Agreement,
- and the deficiency is not due to lack of demand by the Philippine Government,
- the Central Bank must reduce the ensuing year’s foreign exchange allocation for importation of Japanese goods/services not chargeable to reparations by an amount equal to the difference.
- The Central Bank must then make the corresponding foreign exchange available for importation from other sources of goods/services that would have been received under reparations but were not received.
Section 16 requires reparations payments by Japan to be deposited in authorized Japanese foreign exchange banks as the official depository of the Philippine Government in Japan.
Section 16 authorizes the Mission, subject to Commission approval, to designate the Japanese bank depositories.
Section 16 contemplates that these banks may help finance the Philippine Government’s reparations requirement to the extent not covered or coverable by Japanese Government payments in any single year, at the prevailing rate of discount and for a time not exceeding the period of reparations payments.

Reporting and end-use checks

Section 17 authorizes the Commission to conduct field examinations and evaluate actual utilization of reparations goods and services.
Section 17 requires an annual report of the status and progress of distribution and utilization of reparations to be submitted to the President, to the Senate through its President, to the House of Representatives through its Speaker, and to the National Economic Council through its Chairman.
Section 17 requires the annual report to include an analysis of results and whatever recommendations are necessary.
Section 17 authorizes the Commission to prepare other periodical reports when requested as may be necessary.

Economic development loans limits

Section 18 establishes policy against authorizing any development loan in capital goods under the executive agreement contained in the exchange of notes on development loans where the capital goods can be procured by way of reparations.
Section 18 requires that the Commission shall not authorize, sanction, or abet any development loan in capital goods when capital goods are procurable by way of reparations.
Section 18 requires the Commission to determine fields of investment for loans under the criteria and priorities of the government economic development program.
Section 18 requires prioritization of private financial institutions and industries liquidated and commandeered by the Japanese Imperial Army of occupation and/or Japanese military administration that have not yet been rehabilitated or granted benefits.
Section 18 prohibits loan-funded activities that result in unwise depletion of the country’s natural resources.
Section 18 requires development loan recipients to be Filipino citizens or entities wholly owned by Filipino citizens.
Section 18 requires the Commission to:
- publish as often as deemed necessary the fields of investment and projects where the Government will expedite extension of development loans from Japanese financing agencies under the exchange of notes on development loans; and
- publish the conditions under which the Government will facilitate extension of development loans and the fields of investment where loans may be utilized.

Violations, penalties, confiscation, and disqualification

Section 19 imposes a five percent (5%) penalty for capital goods misuse or non-utilization:
- Any person who fails to utilize capital goods acquired from the Commission for their intended purpose within twenty-four months after actual complete physical delivery, or who does not continue to utilize them without reasonable cause as long as serviceable after starting operations, is subject to a fine of five percent (5%) of the value of the goods for every year of default or fraction thereof.
- The goods, as well as payments already made, are subject to confiscation and forfeiture by the government.
Section 19 penalizes technician misuse or failure to utilize:
- A person who does not utilize the services of a technician within one month after arrival, or uses the services partly or wholly for another purpose, is punished by a fine of not less than PHP 5,000 nor more than PHP 10,000.
- The technician is subject to immediate deportation.
- Any payments already made for such services are deemed forfeited to the government.
Section 19 criminalizes trade secret divulgence:
- It is unlawful for a Commission or Mission member, or for any employee, agent, or clerk, to divulge or make known trade secrets or processes to anyone in any manner not provided by law regarding examinations/investigations by the Commission or by order of any member.
- Violations are penalized by dismissal from service with prejudice to reinstatement, subject to whatever action the aggrieved party may take against the offender.
Section 19 bans unauthorized fees and commissions:
- No fee, charge, or commission in any form may be exacted, demanded, or paid for obtaining reparations directly or indirectly by any person, officer, member, employee or agent of the Commission or Mission in Japan