A reader on Proposed Amendments to Article 12

Again, we do not need to reinvent the wheel. There is a learned consensus positively inclined to our cause since 1999.

Prepared by the Congressional Planning and Budget Department
February 2003

PROPOSED ECONOMIC REFORMS

In 1999, President Joseph Estrada issued Executive Order 43 to create the Philippine
Commission on Constitutional Reforms (PCCR) to "facilitate the study of proposals on
economic reforms that can be accomplished through constitutional amendments." President Estrada’s administration recognized that the economic provisions of the 1987 Constitution were very restrictive stifling government’s flexibility to formulate economic policy and to attract investments.

The findings and recommendations of the PCCR are discussed below.

Economic Policy Formulation.

1. The restrictive provisions of the 1987 constitution have limited the ability of our country to compete in the global economy. PCCR submits that “the basic legal framework of the (1987)Constitution presents practical and philosophical difficulties in approaches to economic,trade and investment policies.” It has limited the flexibility of the government to respond to the changes in the global environment, hence adversely affecting the economy’s capacity to achieve higher growth.

2. These restrictive provisions can be found in Sections 9 & 19 of Article II, Declaration of Principles and Article XII on the National Economy and Patrimony.

3. Section 19 of Article II needs to be reviewed because of ambiguity in language. The phraseology aspiring for “independent” national economy “effectively controlled” by Filipinos taken together with other provisions in the Constitution gives rise to controversial policy decisions that affect investments. A concrete example is the Supreme Court decision on the choice of site for a proposed petrochemical complex. When the decision was made in 1990, investments from Taiwan fell from P3.4 billion in 1990 to P329 million in 1991.

4. The provision of Section 1 Article XII dictates that the economic base of the country shall be agricultural development and agrarian reform. This precludes a shift to other economic models for development. Note that in other countries the share of agriculture to total GNP ranges only from 5-16% as compared to the Philippines' 20%. This provision together with other provisions in the Constitution “prevents responsive government action to address problems in the
management of economic affairs”. It is proposed by PCCR that the constitution give
Congress and other government institutions the flexibility to craft and formulate policies responsive to the changing economic environment.

Removing Equity Restrictions on Foreign Investments

5. We need to attract foreign capital badly needed to finance economic growth. The study cited that to achieve a growth rate of 5.2 – 5.8%, the Medium Term Development Plan for 2000 – 2004 estimates an additional investment requirement of P31.7 billion a year (US$826 million). To reach a growth rate of 8%, the additional capital resource requirement will increase to P618.3 billion per year (US$15.3 billion).

6. Compared to other Asian countries it is only in the Philippine Constitution where restrictions on foreign investments are expressly stated. In other countries, foreign investment polices are regulated by legislation. There are no provisions prescribing citizenship or foreign investment equity ratios in their constitutions. The only exception is the constitution of Thailand which restricts foreign ownership in mass media companies. Some quarters say that this kind of provision in the Philippines' and Thailand's Constitution is no longer relevant because of mass access to foreign satellite television and the internet.

7. The Commission recommended that the following restricted areas in the 1987 Constitution be liberalized and subjected to regulation by law. The arguments for liberalizing these sectors are given below:

7.1. Public Utilities, Franchises and Infrastructure

PCCR recommended that foreigners be allowed to invest in and manage public utilities,
transportation, communication, power and water supply based on a policy of nondiscrimination and merit. The power granting franchises should be given to specialized regulatory agencies, which would result in greater efficiency and expertise in the supervision of the industry.

7.2. Mass Media and Advertising

The equity restrictions in the Constitution has denied Filipinos access to new
technological innovations which require huge investments that local companies find
difficult to raise. Certain sectors oppose the liberalization of mass media because of the fear of foreign influence. However this is unfounded because foreign media is already accessible to Filipinos through cable television and the Internet. In the case of advertising the arguments for liberalizing this sector are the need for new
capital, technology and expertise. It has been noted by the study that the ten top
advertising firms are already partly owned by foreign entities.

7.3. Educational Institutions

The educational sector in the Philippines is also being left behind because of lack of funds for new technology, basic facilities and infrastructure. The latest techniques in education need greater use of information technology and alternative media, which require huge investments. There is a need therefore to open up this sector to foreign investors to give our students access to better education and raise educational standards up to par with other countries. Sectors opposed to this proposal cite the possible influence of foreigners shaping the students patriotic values. The PCCR study however contends that the curricula will still be controlled by the Department of Education. At present, the Constitution already allows foreigners to own and manage educational institutions but only through religious
orders and mission boards.

7.4. Land Ownership

The recommendation of the PCCR is to liberalize the ownership of industrial and
commercial land, which represents less than 1% of the total land area of the Philippines, in order to attract more investments and increase job opportunities.

Those against this proposal advocate that liberalizing land ownership would make
Filipinos lose control of their land. Also there is lack of evidence that land ownership would improve attractiveness of Philippines as an investment site and the current law allowing long term lease is sufficient to attract investors to the economic zones. (Some countries like China and Vietnam do not even allow private land ownership but are receiving huge amounts of foreign investment.)

7.5. Natural Resources

The huge capital requirement to develop our natural resources particularly the energy, mining, fisheries and forestry sectors is the main argument to liberalize these sectors. Likewise, the entry of foreign investors into these areas of the economy is expected to bring in not only capital but new technology and expertise in operating these industries. The PCCR recommended that these sectors be regulated by law and not through the Constitution.

Ø The capital needed to develop the country’s energy resources to meet the energy requirements of the economy is estimated at P486 billion for a five year period 1999 – 2004. (Medium Term Development Plan)

Ø The mining industry’s performance has been on a steady decline since 1993. This
sector used to be a significant contributor to the national economy in 1980,
generating 20% of the country’s export earnings. To revive this sector there is a need to infuse huge investment capital. To develop and operate a single copper or gold mine requires around US$200 million to US$ 300 million.

Ø Fisheries production in the country hardly grew to meet the needs of the population. The growth of the sector from 1997 to 2000 averaged 1.97 % compared the
population growth of 2.4%.To revitalize the fisheries industry we need to develop
capacity for distant water fleets, exploit new fishing grounds, strengthen policing and surveillance of fishing grounds, and establish new infrastructure facilities. Equally important in this program is the strengthening of government regulations against illegal fishing and environmental measures to restore the ecology of Philippine waters.

Ø The country’s forest cover has been reduced to 18% of total land area of the country or around 5.4 million hectares. Forest denudation has cost the economy P10.6 billion a year in terms of losses in productivity and utility of infrastructure. It has brought about environmental disasters such as flash floods and drought, causing more damage to the country. Forest Master Plan estimates a total expenditure of P35 to P40 billion a year to counter damage and depletion of our forests. To do this, we do not only need capital but also foreign technology and expertise.

Reference:

Proceedings of the Preparatory Commission on Constitutional Reforms, 1999.