Philippines Economic Relations with the United States after Independence
Source: The Library of Congress Country Studies
If the inauguration of the Commonwealth of the Philippines in November 1935 marked the high point of Philippine-United States relations, the actual achievement of independence was in many ways a disillusioning anticlimax. Economic relations remained the most salient issue. The Philippine economy remained highly dependent on United States markets--more dependent, according to United States high commissioner Paul McNutt, than any single state was dependent on the rest of the country. Thus a severance of special relations at independence was unthinkable, and large landowners, particularly those with hectarage in sugar, campaigned for an extension to free trade. The Philippine Trade Act, passed by the United States Congress in 1946 and commonly known as the Bell Act, stipulated that free trade be continued until 1954; thereafter, tariffs would be increased 5 percent annually until full amounts were reached in 1974. Quotas were established for Philippine products both for free trade and tariff periods. At the same time, there would be no restrictions on the entry of United States products to the Philippines, nor would there be Philippine import duties. The Philippine peso (for value of the peso--see Glossary) was tied at a fixed rate to the United States dollar.
The most controversial provision of the Bell Act was the "parity" clause that granted United States citizens equal economic rights with Filipinos, for example, in the exploitation of natural resources. If parity privileges of individuals or corporations were infringed upon, the president of the United States had the authority to revoke any aspect of the trade agreement. Payment of war damages amounting to US$620 million, as stipulated in the Philippine Rehabilitation Act of 1946, was made contingent on Philippine acceptance of the parity clause.
The Bell Act was approved by the Philippine legislature on July 2, two days before independence. The parity clause, however, required an amendment relating to the 1935 constitution's thirteenth article, which reserved the exploitation of natural resources for Filipinos. This amendment could be obtained only with the approval of three-quarters of the members of the House and Senate and a plebiscite. The denial of seats in the House to six members of the leftist Democratic Alliance and three Nacionalistas on grounds of fraud and violent campaign tactics during the April 1946 election enabled Roxas to gain legislative approval on September 18. The definition of three-quarters became an issue because three-quarters of the sitting members, not the full House and Senate, had approved the amendment, but the Supreme Court ruled in favor of the administration's interpretation .
In March 1947, a plebiscite on the amendment was held; only 40 percent of the electorate participated, but the majority of those approved the amendment. The Bell Act, particularly the parity clause, was seen by critics as an inexcusable surrender of national sovereignty. The pressure of the sugar barons, particularly those of Roxas's home region of the western Visayan Islands, and other landowner interests, however, was irresistible. In 1955 a revised United States-Philippine Trade Agreement (the Laurel-Langley Agreement) was negotiated. This treaty abolished the United States authority to control the exchange rate of the peso, made parity privileges reciprocal, extended the sugar quota, and extended the time period for the reduction of other quotas and for the progressive application of tariffs on Philippine goods exported to the United States.
Data as of June 1991
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