Open arms for the Foreign Investments Act

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Amelia H. C. Ylagan-125

Corporate Watch

At the AmCham Legislative and Trade & Investment Committees forum last week in Makati, the recommended easing of constitutional restrictions on foreign equity amendments was the hot topic. Hot, because a joint statement of major Chambers of Commerce and business and trade organizations had already been submitted in July, 2019 to the 18th Congress and to President Rodrigo Duterte for their consideration and enactment, recommending a list of priority legislation for business. This included the much-debated, top two laws, the Foreign Investments Act (FIA) and the Retail Trade Act (RTA) that would necessitate amendments to the 1987 Constitution.

The speakers at the AmCham forum were Dr. Bernardo Villegas, head of the Center for Research and Communication (CRC) at the University of Asia and the Pacific (UA&P), and Margarito “Gary” Teves, former Finance Secretary in the time of President Gloria Macapagal Arroyo, who both pushed for economic liberalization in the Constitution to accommodate what would be the revised FTA and the RTA allowing expanded, up to 100% foreign ownership in certain economic activities, including the ownership of land.

Dr. Villegas, a member of the Constitutional Convention that drafted the 1987 Constitution under President Corazon Aquino, reiterated at the AmCham conference what he said in his columns in the Manila Bulletin (on Jan. 10 and 17) that “a serious error we made was to enshrine in the present Constitution too many restrictions against Foreign Direct Investments (FDIs), provisions which have brought us to the bottom of Southeast Asian countries in FDIs.” He decried the fact that in 2019, FDIs hardly exceed $7 billion, a “precipitous drop” of 30% after peaking at $10 billion in 2017. How this has deprived the poor, even as the national poverty incidence dropped from the revised 23.3% in 2015, the year before the present administration was voted into power, to 16.6% in 2018! He is not impressed that National Economic and Development Authority (NEDA) Secretary Ernesto Pernia thinks we can attain a poverty incidence of 10 to 11% instead of the formerly targeted 14% by 2022. A poverty incidence of 10% by 2022 would still mean that some 12 million Filipinos (10% of an estimated population of 115 million by that year) would still be living in dehumanizing poverty, Villegas said.

Gary Olivar of the Foundation for Economic Freedom (FEF), and a member of the Duterte administration’s inter-agency task force on constitutional reform, said the amendment to the Constitution would be needed as the country is “one of the heavily restricted and protectionist economies in the world.” In the OECD FDI Restrictiveness Index 2018, the Philippines is highest of 72 countries in shunning foreign investors. Look at how FDIs have helped our nearest neighbors, Dr. Villegas pointed out. Vietnam still has a lower per capita income than the Philippines, but ended last year with more than $35 billion in FDIs, attracting most of the manufacturing enterprises that were fleeing from China as a result of its trade war with the US.

Amidst the hard sell for economic reforms for the Constitution, a question was asked from the floor at the AmCham forum — But how are we going to isolate the economic provisions only, when many legislators seem inclined towards a radical change in government to federalism, while even at one time unabashedly proposing term extensions for themselves under a tailored new constitution? Will the common people understand the cerebral macroeconomics for allowing foreigners to own land in our crowded country to entice FDI, and will the FDI surely translate to more jobs and a better life for the Filipino?


Gary Teves replied that it takes just our very popular President to say so, and it will happen. “Maybe we can tinker with the Constitution now about changing or amending the 60-40 to make them (foreign investors) comfortable,” then-presidential candidate Rodrigo Duterte told Rappler in a live interview after the closing of polling precincts on Monday, May 9, 2016. “(But) I cannot accept the selling of the lands of our country. I cannot take that. I will object,” he said back then. Unfriendly minds might think that he might yet change his attitude, as Duterte is controversial for “giving away” Philippine territory to China by ignoring the clear and final UNCLOS award of the West Philippine Sea territory that defined the boundary of what belongs to the Filipinos. President Duterte is generally known for changing his mind.

But that is an aside. Still, the West Philippine Sea victory recalls its staunchest fighter, “Almost Chief Justice” Antonio T. Carpio, who was ponente for a Supreme Court decision on a “request for reconsideration” for the Court’s definition of the term “capital” in the Constitution, as regards a case filed by the “heirs of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al.”

“As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term ‘capital’ in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the Philippine national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshold legal issue presented in this case,” Justice Carpio stated ab initio.

In summary, Justice Carpio stated, “The Constitution expressly declares as State policy the development of an economy ‘effectively controlled’ by Filipinos… defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60% of whose capital with voting rights… (gives them) full beneficial ownership.

“Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment (which expired in July 1974), which gave Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and control of public utilities in the Philippines. (Relaxing the 60-40 definition of the 1935, 1973, and 1987 constitutions) effectively giving foreigners parity rights with Filipinos… opens up our national economy to effective control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements,” Justice Carpio concluded.

Another interesting aside gleaned from the oral arguments in the June 2011 Decision on FIA:

“JUSTICE CARPIO: I would like also to get from you Dr. Villegas (amicus curiae or resource person at the oral arguments) if you have additional information on whether this high FDI countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we can compare apples with apples.

DR. VILLEGAS: Correct (meaning these countries have not ceded control to foreigners), but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not to “Filipinize” or “Vietnamize” or “Singaporize.” Their solution is to make sure that those industries are in the hands of state enterprises. So, in these countries, nationalization means the government takes over. And because their governments are competent and honest enough to the public, that is the solution. x x x”

Is the Philippine government as competent, and honest enough to the public, when it comes to offering exuberant open arms for foreign direct investments?


Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.