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April 12, 1988

Excellency,

I have the honour to confirm the following understanding recently reached between the representatives of the Government of Japan and of the Government of the Republic of the Philippines concerning a Japanese loan to be extended for vitalization of the existing projects with a view to promoting the economic development efforts of the Republic of the Philippines:

1. A loan in Japanese Yen up to the amount of fourteen billion three million yen (¥14,003,000,000) (hereinafter referred to as "the Loan") will be extended, in accordance with the relevant laws and regulations of Japan, to the Government of the Republic of the Philippines by the Overseas Economic Cooperation Fund (hereinafter referred to as "the Fund") to implement the Philippine-Japan Friendship Highway Rehabilitation Project (hereinafter referred to as "the Project").

2. (1) The Loan will be made available by a loan agreement to be concluded between the Government of the Republic of the Philippines and the Fund. The terms and conditions of the Loan as well as the procedures for its utilization will be governed by the said loan agreement which will contain, inter alia, the following principles:

(a) The repayment period will be twenty (20) years after the grace period of ten (10) years.
 
(b) The rate of interest of the Loan will be three (3.0) per cent per annum.
 
(c) The disbursement period of the Loan will be six (6) years from the date of coming into force of the loan agreement.

(2) The loan agree ment mentioned in sub-paragraph (1) above will be concluded after the Fund is satisfied of the feasibility of the Project.

(3) The disbursement period mentioned in sub-paragraph (l)(c) above may be extended with the consent of the authorities concerned of the two Governments.

3. (1) The Loan will be made available to cover payments to be made by the Philippine executing agency to suppliers, contractors and/or consultants of eligible source countries under such contracts as may be entered into between them for purchases of products and/or services required for the implementation of the Project, provided that such purchases are made in such eligible source countries for products produced in and/or services supplied from those countries .

(2) The scope of eligible source countries mentioned in sub-paragraph (1) above will be agreed upon between the authorities concerned of the two Governments.

(3) A part of the Loan may be used to cover eligible local curre-ncy requirements for the implementation of the Project.

4. The Government of the Republic of the Philippines will ensure that products and/or services mentioned in sub-paragraph (1) of paragraph 3 are procured in accordance with the guidelines for procurement of the Fund, which set forth, inter alia, the procedures of international tendering to be followed except where such procedures are inapplicable or inappropriate.

5. (1) The Government of the Republic of the Philippines will exempt the Fund from all fiscal levies or taxes imposed in the Republic of the Philippines on and/or in connection with the Loan as well as interest accruing therefrom.

(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products of Japan and/or services of Japanese nationals to be provided under the Loan.

6. (1) With regard to the shipping of products purchased under the Loan, the two Governments will promote mutual cooperation for the development of shipping, under the Treaty of Amity, Commerce and Navigation between Japan and the Republic of the Philippines signed at Manila on 10 May, 1979.

(2) With regard to the marine insurance of products purchased under the Loan, the two Governments will refrain, within the scope of the relevant laws and regulations of their respective countries, from imposing any restrictions that may hinder fair and free competition between the marine insurance companies of the two countries.

7. Japanese nationals whose services may be required in the Republic of the Philippines in connection with the supply of products of Japan and/or services of Japanese nationals to be provided under the contracts referred to in sub-paragraph (1) of paragraph 3 above will be accorded such facilities as may be necessary for their entry into the Republic of the Philippines and stay therein for the performance of their work.

8. The Government of the Republic of the Philippines will take necessary measures to ensure that:

(a) the Loan be used properly and exclusively for the Project, and
 
 (b) the facilities constructed under the Loan be maintained and used properly and effectively for the purposes prescribed in this understanding.

9. (1) The Government of the Republic of the Philippines will, upon request, furnish the Government of Japan with reports on the progress of the Project.

(2) The two Governments will jointly review from time to time, on the basis of the reports mentioned in sub-paragraph (1) above, the progress of the implementation of the Loan and take, if necessary, appropriate measures to secure smooth and effective utilization of the Loan. The Fund will be invited to participate in such review.

10. The two Governments will consult with each other with respect to any matter that may arise from or in connection with this understanding.

I should be grateful if Your Excellency would confirm the foregoing understanding on behalf of the Government of the Republic of the Philippines.

I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

His Excellency RAUL S. MANGLAPUS
  Secretary of Foreign Affairs
  Department of Foreign Affairs
  Republic of the Philippines

(Sgd.) TSUNEO TANAKA
  Ambassador Extraordinary and Plenipotentiary
  of Japan to the Republic of the Philippines

RECORD OF DISCUSSIONS

In connection with the Exchange of Notes dated 12 April 1988 (hereinafter referred to as "the Exchange of Notes"), concerning a Japanese loan (hereinafter referred to as "the Loan") to be extended for the Philippine-Japan Friendship Highway Rehabilitation Project (hereinafter referred to as "the Project") with a view to promoting the economic development efforts of the Republic of the Philippines, the representatives of the Japanese Delegation and of the Philippine Delegation wish to record the following:

1. The representative of the Japanese Delegation stated that the Project mentioned above consists of three sections. The names of the sections and the allocation of the Loan for each section are as follows:

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.

2. With reference to sub-paragraph (1) of paragraph 3 of the Exchange of Notes, the representative of the Japanese Delegation stated that, even if purchases are made for products produced in and/or services supplied from the Republic of the Philippines, the financing will be made from the Loan for those products and/or services in cases where they fall under the category classified as "foreign currency portion" in the loan agreement.

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.

3. The representative of the Japanese Delegation stated that the products which contain components originating from countries other than the eligible source countries will be eligible for the financing under the Loan, if they meet the following:

(1) The total cost of components imported into the country of production from countries other than the eligible source countries will be less than fifty (50) percent of the price per unit of such products.
 
  (2) For the purposes of (1) above:

(a) "the total cost of components" means the price C.I.F. of the imported components plus import duties levied thereon in the country of production; and
 
  (b) "Price per unit of such products" means:

(i) in the case where the country of production is not the Republic of the Philippines, the price F.O.B. of such products, and
 
  (ii) in the case where the country of production is the Republic of the Philippines, the price ex-factory of such products.

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.

4. The representative of the Japanese Delegation stated that the Philippine side should give such due consideration to the importation of the products required for the implementation of the Project under the Loan as it had given in the course of the implementation of the projects under the successive Japanese loans for projects.

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.

5. With reference to sub-paragraph (1) of paragraph 3 of the Exchange of Notes, it was the shared view of the two Delegations that suppliers and contractors of eligible source countries mean nationals of eligible source countries or juridical persons incorporated and registered in the mentioned countries, and which have their appropriate facilities for producing or providing the goods and services in those countries, and actually conduct their business there, and that the consultants of eligible source countries mean nationals of the eligible source countries or juridical persons controlled by the nationals of the mentioned countries.

6. With reference to sub-paragraph (3) of paragraph 3 of the Exchange of Notes concerning the financing of eligible local currency requirements for the implementation of the project mentioned in the said sub-paragraph of the Exchange of Notes, the representative of the Japanese Delegation stated that:

(1) The amount to be used to cover the local currency requirements for the implementation of the following sections should not exceed in any case the following amounts for each of the sections:

(2) Such requirement of local currency as general administrative expenses, interest during construction, taxes and duties, expenses concerning office, remuneration to employees of the executing agencies and housing, not directly related to the implementation of the projects, as well as purchase of land properties, compensation and the like, however, will not be considered as eligible for financing under the Loan.

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.

7. The representative of the Japanese Delegation stated that the Loan will be extended under the effort of the Government of Japan to secure flexible implementation of the ODA loan by means of vitalization of the existing projects and that this loan should be counted as an additional loan to the ODA loans ordinarily extended to the Government of the Republic of the Philippines.

The representative of the Philippine Delegation stated that his Delegation has no objection to the above-mentioned statement.