Amending the constitution

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Monday, February 24, 2014

I WOULD suggest that our lawmakers take a second look at the proposed plan to open wide the economy to foreign investors.

For one, Rep. Mercedes Álvarez (Neg. Occ., 6th District) co-authored House Resolution No.1, principally authored by House Speaker Feliciano Belmonte, for the amendment of the 1987 Constitution, not to change the term limits.

A Facebook friend, I’ve seen how Rep. Álvarez burns the midnight oil for her constituents. But I disagree with her on the purpose of amending the Constitution to open the economy to foreign investors.


Are the Charter provisions on ownership of foreign investments that’s stifling their entry?

For one, the US Trade Representative (USTR) said in its 2013 National Trade Estimate Report on Foreign Trade Barriers that rampant and persistent corruption on top of the stifling foreign investment cap in the constitution hinder the trade and investment relations of the US and the Philippines to fully blossom.

“Corruption remains a pervasive and longstanding problem in the Philippines and one that can place US companies at a disadvantage in the Philippine market,” the study showed.

In the 2012 Corruption Perceptions Index released by Transparency International, the Philippines scored 34 out of 100 (least corrupt) and ranked 105th out of 176 surveyed countries.

To be sure, the USTR claimed that the provision impedes foreign investment flows in the Philippines. The agency outlined some industries affected by this foreign ownership rule: advertising - foreign ownership only at 30 percent; public utilities - foreign investment only at 40 percent; professional services - licensing of practitioners limited only to Filipinos; express delivery services - foreign equity participation only at 40 percent; and retail trade - foreign investment in small retail ventures only to Filipino citizens.

How do other countries in Southeast Asia address the issues on ownership of foreign investments?

Thailand welcomes foreign investments but restricts their entry on certain key businesses. It’s not an open season for all. The main legislation governing foreign investment is the Foreign Business Act which sets out the types of businesses open to foreigners as well as regulations and restrictions. For certain specific sectors such as financial institutions business, insurance business, and real estate; foreign participation is set out under specific laws.

Then there’s Vietnam. According to Prime Minister Nguyen Tan Dung, the country will allow foreign companies to own up to 49 percent of local banks in the “near future.”

Although not part of Southeast Asia, China deserves special mention on the issue.

China attracted a record $117.6 billion in foreign direct investment in 2013, underlining investors’ confidence that the world’s second-largest economy can keep growing at a solid pace while retooling its growth model.

What makes China attractive to foreign investment are its huge domestic market, strong infrastructure support, skilled labor force, and relatively stable social system.

According to the International Tax Review, China has moved to ease the impact of the enterprise income tax that is levied on foreign companies by offering reduced rates for foreign businesses, so long as they satisfy certain conditions.

As we can see, it takes more than liberalizing the constitutional ownership of foreign investments. It’s as if ownership is more important than suppressing corruption. Let’s liberalize – up to a point. But more important, the State should go hook-and-thong against corrupt politicians and bureaucrats.



Published in the Sun.Star Bacolod newspaper on February 24, 2014.


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