<p>The ongoing negotiations on the possible bilateral agreements between the Philippines and Japan cover a number of issues. However, the scope of the paper limits only to analysing the possible effects of reducing Philippine tariffs on imports from Japan of non-agricultural products and the potential impacts of increasing Philippine exports to Japan of non-agriculture products. In particular, the paper attempts to examine the possible effects of the agreements on unemployment, distribution and poverty in the Philippines using numerical simulation through the use of a computable general equilibrium (CGE) model calibrated to actual Philippine data.</p>
<p>The paper employs an integrated CGE-microsimulation approach to analyze the possible effects of the Philippine-Japan bilateral agreements on unemployment, income distribution and poverty. The results indicate contraction in agriculture but expansion in industry, particular in the nonfood manufacturing sector. Factor prices drop in agriculture while increase in industry. Unemployment in agriculture deteriorates while in industry improves. Thus income inequality worsens. However, poverty improves, but the improvement is much higher in the National Capital Region (NCR) than in other areas, especially rural. NCR has the least poverty incidence while rural has the highest. The generally favourable poverty effects are due to the overall increase in household income and the reduction in consumer prices.</p>