Why President Aquino needs Charter change

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[By Atty. John Carlo Gil M. Sadian, Center for Strategy, Enterprise & Intelligence]

While Malacañang has long maintained that tinkering with the Constitution is “not a priority” for President Benigno Aquino 3rd, his key initiatives may, in fact, need charter change to move forward. From the slow public-private partnership (PPP) program and the Framework Agreement on the Bangsamoro, to Aquino’s offer of access to bases for allied forces, these initiatives could face legal challenges and obstacles which may require amending the 1987 Constitution drafted and promulgated under the President’s mother.

In this analysis, the Center for Strategy, Enterprise & Intelligence (CenSEI) looks at the constitutional provisions that may pose problems for key administration priorities, and what may need to be done in addressing them.

Opening up the economy. Often used as a springboard for more comprehensive changes in the charter, the liberalization of strict nationalist provisions under Article XII also stirs much debate, especially during this time of globalization. Then President Joseph Estrada’s Constitutional Correction for Development (Concord) initiative in 2000 was the first to propose allowing foreign firms 100% ownership in industries reserved by the Constitution for Filipinos. In 2005, President Gloria Arroyo’s Consultative Commission also advocated liberalizing amendments.


Calls for loosening up continued under Aquino, especially in light of his flagship PPP program. Since it seeks to tap private investors in building traditional infrastructure projects, concern came about that the strict nationalistic provisions regarding land ownership, operation of public utilities, and investment in specialized institutions could prevent foreign investors from even considering the Philippines for their businesses.

Last year Finance Secretary Cesar Purisima admitted “that some foreign and local businessmen have been lobbying for relaxing the foreign ownership limit in the Constitution.” Economist Calixto Chikiamco of the Foundation for Economic Freedom also saw the need to open up key sectors of the economy. “Right now, under the Constitution,” he argued, “Filipino firms are allowed to operate public utilities. So there is little competition in areas like airports, ports and telecommunications. And we need well-capitalized firms to be able to compete.”

Last month the biggest business organizations asked President Aquino to push for the removal of the foreign ownership restrictions in the Constitution. That was the gist of a letter jointly signed by the Philippine Chamber of Commerce and Industry, Management Association of the Philippines, Philippine Exporters Confederation, Alyansa Agrikultura, Makati Business Club, Philippine Association of Multinational Companies Regional Headquarters, Inc., and the American, Japanese, European, Korean, Australia-New Zealand, and Canadian chambers of commerce.

The 13 groups urged Aquino “to consider amending the economic provisions in the 1987 Constitution, which restrict greater private sector participation.” The groups likewise asked the president that “Pending such Constitutional amendments we suggest an initial and immediate course of action: to revise the Foreign Investment Negative List by reducing the list of industries where foreign participation is limited” by a mere act of Congress.

Thanking the business groups for their trust, Presidential Spokesperson Edwin Lacierda nonetheless presumed to know better: “What business really wants is a predictable environment … where rules and regulations do not change midstream, and that is more important to business rather than constitutional change.” Still, despite Malacañang’s avowed position “that economic development can happen without necessarily amending the Constitution,” liberalization advocates insist economic amendments are needed.

Who can explore, extract and own? Section 2, Article XII reserves to the government “full control and supervision” over the “exploration, development, and utilization of natural resources.” However, the same provision allows the government to enter into co-production, joint venture, or production-sharing agreements with Filipino citizens or with entities with at least 60% Filipino capitalization. The Supreme Court had also ruled that technical or financial deals with foreign corporations must accord the government enough control to direct and regulate the ventures and restrain undesirable activities.

On land ownership, Section 3, Article XII reserves to Filipino citizens the right to acquire up to 12 hectares of alienable public lands, mainly agricultural. On the other hand, private entities, regardless of ownership, may lease up to 1,000 hectares of such lands for up to 25 years, renewable to another 25.

Regarding real estate, Sections 7 and 8, Article XII reserves to Filipino citizens or entities with at least 60% Filipino capitalization the right to own private land. Under this provision, up to 40% of units in a building may be owned by foreigners or foreign entities, which would then collectively possess no more than 40% of the entity owning the land on which the edifice stands.

Changes in these provisions could attract foreign investors put off by undue state interference in their enterprises, or would want to utilize a greater portion of buildings they erect than the 40% allowed, or actually own outright the land on which they build.

Where can foreigners invest? Section 10, Article XII grants Congress the power to reserve to Filipino citizens or entities with at least 60% Filipino capitalization certain sectors. While that means Congress can open up industries without need for charter change, an amendment opening up most or all sectors would remove the uncertainty that tends to discourage investment.

Moreover, there are sectors like public utilities that are expressly reserved for Filipinos or Filipino-controlled enterprises. Section 11, Article XII reserves to nationals or entities with at least 60% local equity any “franchise, certificate, or any other form of authorization for the operation of a public utility.” The High Court had clarified that the “right to operate” a public utility may exist independently and separately from the ownership of the “facilities” employed. That fine point, however, raises the question: Will an investor put up the mammoth cost of utility assets without majority control of the venture vested with the right to operate them? Charter change can eliminate that quandary.

Regarding expert services and knowledge institutions, the nation may benefit from the entry of foreigners and foreign firms with leading-edge knowhow and capabilities. Hence, modifying provisions that keep foreigners out of information- and technology-intensive industries should also be reviewed. Restrictions on foreign professionals and limits on foreign ownership of educational, media and even advertising entities come to mind. The key question: How do such restrictions help the great majority of Filipinos, especially those seeking jobs, which greater foreign investment can generate?

Also facing possible constitutional obstacles are the Bangsamoro agreement and defense policies toward American and other allied forces, as expounded in the rest of The CenSEI Report study.

(Excerpt from The CenSEI Report on constitutional revision, available with legal and other online research through report@censeisolutions.com.)

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2 Comments

  1. Reg theduffer, there is a problem regarding the ASEAN Integration commitments. If these commitments were not constitutional, we cannot be forced to comply. Right now, the government is justified if we are not complying because our officials (especially the president) would risk impeachment for culpable violation of the constitution. We really need charter change if we have to comply with these international obligations. But if charter change is not pushed thru, sorry but we have to renege on our obligations. After all, the constitution is superior than international commitments.

  2. Reg theduffer on

    Please add our commitments under the ASEAN Economic Blueprint to allow for complete ASEAN integration by 2015. This cannot take place fully due to the restrictions in the constitution. There is truly a need for charter change. Otherwise, we would be reneging on our international commitments.