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December 20, 1984

Excellency,

I have the honour to refer to the recent discussions held between the representatives of the Government of Japan and of the Government of the Republic of the Philippines concerning Japanese economic cooperation to be extended with a view to strengthening friendly and cooperative relations between the two countries, and to propose on behalf of the Government of Japan the following arrangements:

1. For the purpose of contributing to the execution of the Pilot Rural Environmental Sanitation Project (hereinafter referred to as "the Project") by the Government of the Republic of the Philippines, the Government of Japan will extend to the Government of the Republic of the Philippines, in accordance with the relevant laws and regulations of Japan, a grant up to NINE HUNDRED AND SIXTY-FIVE MILLION YEN (¥965,000,000.00) (hereinafter referred to as "the Grant11).

2. The Grant will be made available during the period between the date of coming into force of the present arrangements and December 19, 1985, unless the period is extended by mutual agreement between the authorities concerned of the two Governments.

3. The Grant will be used by the Government of the Republic of the Philippines, properly and exclusively for the purchase of the products of Japan or the Philippines and the services of Japanese or Philippine nationals listed below: (The term nationals whenever used in the present arrangements means Japanese physical persons or Japanese juridical persons controlled by Japanese physical persons in the case of Japanese nationals, and Philippine physical or juridical persons in the case of Philippine nationals.)

(a) products and services necessary for the construction of pumping stations, water distribution facilities and toilet facilities for elementary schools (hereinafter jointly referred to as "the Facilities");

(b) equipment and vehicles necessary for the execution of the Project; and

(c) services necessary for the transportation of the products referred to in (a) and (b) above to ports in the Republic of the Philippines and those for internal transportation therein.

(2) Notwithstanding the provisions of sub-paragraph (1) above, when the two Governments deem it necessary, the Grant may be used for the purchase of the products of the kind mentioned in (a) and (b) of sub-paragraph (1) above, which are products of countries other than Japan or the Philippines and the services of the kind mentioned in (a) and (c) of sub-paragraph (1) above, which are services of nationals of countries other than Japan or the Philippines.

4. The Government of the Republic of the Philippines or its designated authority will enter into contracts in Japanese yen with Japanese nationals for the purchase of the products and services referred to in paragraph 3. Such contracts shall be verified by the Government of Japan to be eligible for the Grant.

5. (1) The Government of Japan will execute the Grant by making payments in Japanese yen to cover the obligations incurred by the Government of the Republic of the Philippines or its designated authority under the contracts verified in accordance with the provisions of paragraph 4 (hereinafter referred to as "the Verified Contracts") to an account to be opened in the name of the Government of the Republic of the Philippines in an authorized foreign exchange bank of Japan designated by the Government of the Republic of the Philippines or its designated authority (hereinafter referred to as "the Bank").

(2) The payments referred to in sub-paragraph (1) above will be made when payment requests are presented by the Bank to the Government of Japan under an authorization to pay issued by the Government of the Republic of the Philippines or its designated authority.

(3) The sole purpose of the account referred to in sub-paragraph (1) above is to receive the payments in Japanese yen by the Government of Japan and to pay to the Japanese nationals who are parties to the Verified Contracts. The procedural details concerning the credit to and debit from the account will be agreed upon through consultation between the Bank and the Government of the Republic of the Philippines or its designated authority.

6. (1) The Government of the Republic of the Philippines will take necessary measures:

(a) to secure lots of land necessary for the construction of the Facilities and to clear the sites;

(b) to provide facilities for distribution of electricity and other incidental facilities outside the site;

(c) to ensure prompt unloading and customs clearance at ports of disembarkation in the Republic of the Philippines and internal transportation therein of the products purchased under the Grant;

(d) to exempt Japanese nationals from customs duties, internal taxes and other fiscal levies which may be imposed in the Republic of the Philippines with respect to the supply of the products and services under the Verified Contracts;

(e) to accord Japanese nationals whose services may be required in connection with the supply of the products and services under the Verified Contracts such facilities as may be necessary for their entry into the Republic of the Philippines and stay therein for the performance of their work;

(f) to ensure that the Facilities constructed and the equipment and vehicles purchased under the Grant be maintained and used properly and effectively for the execution of the Project; and

(g) to bear all the expenses, other than those covered by the Grant, necessary for the execution of the Project

(2) The products purchased under the Grant shall not be re-exported from the Republic of the Philippines.

7. The two Governments will consult with each other in respect of any matter that may arise from or in connection with the present arrangements.

I have further the honour to propose that this Note and Your Excellency's Note in reply confirming on behalf of the Government of the Republic of the Philippines the foregoing arrangements shall be regarded as constituting an agreement between the two Governments, which will enter into force on the date of Your Excellency's reply.

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

(Sgd.)YOSHIO OKAWA

Ambassador Extraordinary & Plenipotentiary of Japan to the Republic of the Philippines