Amending the Philippine Constitution to increase FDIs?

Published July 28, 2020, 10:29 PM

by Atty. Gregorio Larrazabal

#ASKGOYO

(Part II)

Last Monday, we discussed the Mandanas Ruling, and how the same can be implemented by simply passing a legislation, without need of amending the Philippine Constitution.  If you missed it, you can click the link to read it https://mb.com.ph/2020/07/26/amending-the-1987-philippine-constitution/

As mentioned, we’ll discuss now the second issue, which is allowing foreign ownership of corporations and encouraging Foreign Direct Investments (FDIs).  Some proponents of the charter amendments claim that, the removal of foreign ownership restrictions for certain industries under the Constitution would likely encourage and increase more Foreign Direct Investment inflows. They added that this would significantly help in our COVID-19 expenses and revive our present economy as exacerbated by this pandemic.  Even though the proponents were not categorical about which particular industries with Filipino ownership limitation are sought to be amended, we assume that they mainly pertain to public utilities and mass media, among others.

For public utilities, the Constitution requires a minimum of 60% Filipino ownership or capital, particularly stated in Section 11, Article XII https://www.officialgazette.gov.ph/constitutions/1987-constitution/ .

In the case of the mass media and other business industries, Section 11 (Article XVI) of the Constitution is pertinent https://www.officialgazette.gov.ph/constitutions/1987-constitution/ .

Clearly, with a view to encourage more foreign investment, some proponents wish to amend the above provisions, by decreasing or at the extreme, removing the % requirement of Filipino ownership or capital, for public utilities and the mass media.

I am one with the government, in devising ways to jolt our economy and generate as much capital investment as possible, domestic or foreign.  However, amending these provisions of the Constitution is, at this time, neither necessary nor an effective means to guarantee an increase in foreign investment.  On the contrary, it’s in this regard that I must stress that the proposal, particularly, the intention to decrease or probably remove Filipino ownership or capital on public utilities and mass media, among others, will distinctly be inimical to public interest.  The public interest and the long-term effect on our national economy and patrimony, including the rationale behind the Filipino First Policy should far outweigh, the “urgent” need to entice Foreign Direct Investments (FDIs), on the premise of boosting the economy

        The ownership restriction provisions were not placed in our constitution without strong considerations.   It must be stressed that, a corporation or entity considered as a public utility is deemed to perform a public service.  For this reason, the government representing the people has an interest, on how a public utility conducts its business activities as well as the nationality of the owners thereof.  It is certainly imbued with public interest, such that, the entity must be at least 60% owned by Filipinos or its capital because Filipino citizens are deemed to have patriotism and presumably have the national interest in mind, in the operation of such services.

Similarly, Section 11, Article XVI, of the Constitution on the ownership of mass media, advertising, etc., could be a target for amendments as well.  The opposition to amend this provision is based on the same sentiments as in the case of a public utility.

The limitation on foreign ownership or capital for public utilities, mass media and the like should be retained and respected as a non-negotiable requirement, to protect national interest. 

The constitutional amendment of these provisions is not the solution, not to mention that it is untimely, a waste of public funds and obviously unnecessary.

Even so, we are not without available legal options, to increase foreign investment.  For one, it is within the power of Congress, to redetermine the nature of the business activities, consider the need of the times and the situation of our country, and as a result, redefine which entities or services should fall within the category of a public utility or public service.

Take the case of the Public Service Act (Commonwealth Act 146, as amended) which was approved by Congress, as far back as 1936.  Many legal luminaries and legislators believe that it is about time to redefine what would constitute as public service, defined in Chapter II, Sec. 13 (b), as:

“b) The term “public service” includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whether may be its classification, freight or carrier service of any class, express service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railways, marine repair shop, [warehouse] wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or wireless broadcasting stations and other similar public services: Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle is offered for hire or compensation to a third party or third parties engaged in agriculture, not itself or themselves a public service, for operation by the latter for a limited time and for a specific purpose directly connected with the cultivation of his or their farm, the transportation, processing, and marketing of agricultural products of such third party or third parties shall not be considered as operating a public service for the purposes of this Act.”

Together with the Supreme Court decision in the case of NAPOCOR vs. CA (G.R. No. 112702, September 26, 1997) & PHIVIDEC Industrial Authority vs. CA (G.R. No. 113613, September 26, 1997), the High Court defined public utility, as:

“a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service. The term implies public use and service.”

Such need to amend the Public Service Act was manifest when the Supreme Court, in at least two cases, declared certain services or business activities as not within the coverage of public service or public utility.

The first one is the case of NAPOCOR vs. Bataan (G.R. No. 180654, March 6, 2017) where the Supreme Court is instructive http://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/62957 :

“Indeed, the enactment of EPIRA separated the transmission and sub-transmission functions of the state-owned Napocor from its generation function, and transferred all its transmission assets to the then newly-created TRANSCO, which was wholly owned by PSALM Corporation at that time. Power generation is no longer considered a public utility operation, and companies which shall engage in power generation and supply of electricity are no longer required to secure a national franchise.

X xx”

The second one is the case of J.G. Summit Holdings, Inc. vs. CA (G.R. No. 124293, January 31, 2005) where the Supreme Court interpreted that shipyards are not public utilities ( http://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/47672 ), thus:

“Also, the ruling that shipyards are not public utilities relies on established case law and fundamental rules of statutory construction. “

Clearly, the exclusion of these business activities within the purview of public service or public utility, effectively removes the limitation on foreign ownership. 

It appears that Congress takes a cue from these Supreme Court declarations.  In fact, several representatives coming from various Legislative Districts submitted a consolidated bill, seeking to amend the Public Service Act by redefining public utility and/or services and setting up parameters, as to when a particular public service will be considered a public utility (see, House Bill No. 78 – 18th Congress).  This move to pass it into law could remarkably pave the way, to increase foreign direct investments without the need to amend the constitution.

Another option is to revisit the services and activities where various laws put a limitation on foreign ownership which are not otherwise expressly regulated by the Constitution.

Article X, Section 10 of the Constitution empowers Congress, to determine areas of investments where % of Filipino ownership or capital may be imposed.

(https://www.officialgazette.gov.ph/constitutions/1987-constitution/)

The legislative discretion to declare certain business activities or industries as nationalized activities, necessarily carries with it, the same authority, to increase or decrease the list of investments with nationality requirement or to remove them altogether from the said list.  These investments, business activities or services are mostly enumerated in the Foreign Investments Negative List (see, Executive Order No. 65, Series of 2018 pursuant to R.A. 7042 also known as, “Foreign Investments Act of 1991”).  On this score, Congress can revisit the services, investments or activities where the nationality requirement was imposed by different laws (and not otherwise proscribed or limited by the Constitution), for possible removal from the list, reduction of the % of Filipino ownership or capital, or redefinition of such services, investments or activities.

I’m not saying that the limitations in the Constitution on foreign investment is not a factor that hinders foreign investment inflows, and as already discussed, can possibly be addressed through the above suggestions.  What I am saying is that, this constitutional limitations on foreign ownership is just one of the many factors which account for a less than ideal level of foreign direct investment in the country.  The more important ones to look into by the government are the factors which would make the foreign investors want to do business in the Philippines, despite our 1987 Constitution’s foreign ownership limitations.  Thus, instead of pushing for charter amendments, it is high time that the government seriously do something about the following:

  • A stable and reliable government where government or private contracts with foreign entities will be respected, regardless of the change in the administration.
  • Serious efforts to rid the government of corruption.
  • Effective implementation of ease of doing business (R.A. 11032).
  • Development of our infrastructure (both physical and digital).
  • Grant of implementable tax incentives.
  • Building trust in our legal system, among others.

To encourage and increase foreign investment, what we need is to create a conducive political, legal, physical and financial landscape for foreign investment opportunities, without having to surrender our fundamental rights as a nation, such as, to reserve certain activities and industries only to Filipinos or majority of the Filipinos. 

Stay Safe. Stay Healthy.

 
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