A tipping point for Philippine competitiveness

For three generations, the Commonwealth Act No. 146 or the Public Service Act (PSA) of 1936 was immutable. In the same period, the Philippine economy had also been caught in a mindset of protectionism and nationalism. With the advent of globalization in the mid-1990s, the general Filipino attitude remained the same, notwithstanding the liberalization of its economy, trade, and investments in varying degrees.

It was only lately that the Philippine legislature has pivoted to a policy more responsive to the hyperlinked global arena with the ratification of the proposed amendments to the PSA. It intends to make the law more attractive and competitive for foreign investments that will boost the quality and services of the country’s lagging infrastructure.

The Public Service Act of 2021 delineated the scope of public utilities, which must be at least 60% Filipino-owned; and of public services, which allows 100% foreign ownership. While public utilities include transmission and distribution of electricity, water pipelines and sewerage, seaports, petroleum pipelines, and public utility vehicles (PUVs), public services include telecommunications and airlines.

With the said ratification, a handful of vital sectors will remain in Filipino hands. Philippine competitiveness is expected to improve, with new capital that will bring in new technologies that will expand and upgrade public services and stimulate a vibrant economic system amidst the challenges of the COVID-19 pandemic crisis. The increased presence of foreign companies should be seen as an opportunity to adopt and integrate the best innovations and world-class standards that will ultimately benefit all Filipino consumers.

Once signed into law, vital sectors — such as seaports and PUVs that are essential of trade and logistics — must still adhere to the 60% Filipino-40% foreign ownership limits. These utilities, after all, are critical to the movement of goods and people throughout the country. So allowing foreign control of these could have drastic economic and social implications.

At the same time, the amendments will still allow the national economy to be injected with much-needed foreign direct investments that will, in turn, have a positive impact on labor productivity and boost labor markets. Human capital will likewise be augmented as the labor force will have to undergo continuous re-education and upskilling to thrive in a fast-evolving digital economy.

There will be more jobs for workers, additional livelihood for affiliate industries, particularly the micro, small, and medium enterprises (MSMEs), and more income for Filipino families. The improvement in the human and finance capital in the telecommunications and airline industries will also result in the efficient delivery of responsive public services.

Aside from the perceived potential benefits of this economic opening, the PSA of 2021 is not without the necessary regulatory safeguards in relation to the possible risks of foreign control or intervention and infringements in national security.

For instance, Section 15 stipulates that the foreign investments in covered transactions are subject to review to prevent foreign control of a business or entity considered critical infrastructure, thereby ascertaining the effects on national security. Covered transactions, for this matter, pertain to “any investment activity such as a merger, acquisition, or takeover that is proposed or pending after the effectivity of this law.”

In terms of data privacy and cybersecurity compliance of foreign investors, Section 16 provides that “an entity Controlled by or Acting on Behalf of the Foreign Government, or Foreign State-owned Enterprise shall be prohibited from owning capital in any public service classified as critical infrastructure.” Additionally, the said entity “shall not make any data or information disclosure, nor extend assistance, support or cooperation to any foreign government, instrumentalities or agents.”

This safeguard is especially important when DITO Telecommunity comes to mind. Already 40% owned by the Chinese Communist Party-backed China Telecom, Section 16 of the PSA ensures DITO, the country’s third telco, does not become wholly-owned and controlled by a foreign government. This would only have created further national security concerns and privacy and data challenges.

Another commendable feature of the PSA of 2021 refers to the presence of a reciprocity clause. Section 17 states that “Foreign nationals shall not be allowed to own more than 40 per centum of capital in public services engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine nationals as may be provided by foreign law, treaty or international agreement.” This clause clearly puts all stakeholders on an equal footing.

Further, it is set to be dynamic legislation that is subject to performance audits, to be guided by regular studies and baseline surveys, and be subject as well to Congressional oversight and periodic review.

Forward-looking is what best describes the mentality and attitude of Bicameral Conference co-chairs Senator Grace Poe and Representative Sharon Garin in laboring for the passage of this bill. When the ratified bill becomes law, this will set up the Philippine economy to a more aggressive and progressively dynamic economic trajectory. The PSA of 2021 is the tipping point for Filipino competitiveness in this highly globalized and interconnected era where government, corporations, and civil societies cannot operate in silos anymore. Instead, these social forces should work with one another for the sustainable and inclusive development of all sectors of society

Victor Andres “Dindo” C. Manhit is the president of the Stratbase ADR Institute.