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Lawmakers agree to lift economic provisions that restrict FDI inflows

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Lawmakers who are pushing for Constitutional amendments have reached a consensus to lift “overly-protective economic provisions” that restrict the inflow of foreign capital, the leader of the House of Representatives said on Wednesday.

Speaker Ferdinand Martin G. Romualdez said congressional deliberations on the proposed Constitutional amendments are more focused now on the need to encourage investments that would further stimulate economic activities, create job opportunities, reduce poverty and lower prices of goods and services.

Meanwhile, Senator  Robin C. Padilla on Wednesday took the first major step towards amending the economic provisions of the 1987 Constitution, saying it would help the economy better respond to the needs of the times.

Romualdez made a statement following the Constitution Day celebration in Malacañang, with President Ferdinand R. Marcos Jr. as guest of honor.

Romualdez, who is Philippine Constitution Association (Philconsa) president, said the House Committee on Constitutional Amendments is currently conducting public hearings and consultations on proposed changes in the 36-year-old Constitution.

He said aside from hearings in the House at the Batasan complex in Quezon City, the committee chaired by Cagayan de Oro City Rep. Rufus Rodriguez has scheduled public discussions and dialogues in other parts of Luzon, Visayas and Mindanao.

“The proponents of the lifting of the economic provisions in the Constitution agree on one thing, opening the economy wide for inflow of foreign capital is the key to address the aspirations and ideals of Filipinos in present times,” Romualdez said.

“That is why, when the President in his travels as the number one salesman of the country, we are often asked that after you have made so much progress and gains in opening up the Philippine economy, the last missing piece of the puzzle remains, how about your restrictive Constitution? That is why we in Congress are facing up to this question and to this issue that burns to our minds today and may actually open up the aspirations of the Filipino people for tomorrow,” he added.

He highlighted the need for foreign direct investments or FDIs by citing data and the experiences of other countries, culled from the reports of the Congressional Policy and Budget Research Department, which show how FDIs stimulate economic growth.

Based on UN data, he noted that FDIs account for the largest source of external financing in developing countries, greater than remittances, private debt and portfolio equity, or official development assistance.

“Higher FDI inflows can ease capital constraints and contribute to output and employment growth. Given the appropriate host-country policies and a basic level of development, a preponderance of studies shows that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprise development,” he said.

“All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries,” he said.

Romualdez lamented that the country has not been receiving as much FDIs as its neighbors are getting.

In 2020, he said the Philippines ranked third-most restrictive out of the 84 countries in the Organization for Economic Cooperation and Development’s (OECD) foreign direct investment regulatory restrictiveness index (FDI Index).

“Barriers to FDI in the Philippines comprise of four main types of restrictions: Foreign equity limitations; Discriminatory screening or approval mechanisms; Restrictions on the employment of foreigners as key personnel; and Other operational restrictions, e.g., restrictions on branching and capital repatriation or land ownership by foreign-owned enterprises,” he said.

He said investment restrictions on foreign ownership range from requiring at least 60 percent Filipino ownership, to total prohibition.

The Speaker added that the Constitution prohibits foreign ownership in mass media and allows only 30 percent foreign capital in advertising agencies, and 40 percent in educational facilities.

“In the education sector, foreign ownership caps prevented the Philippines from hosting topnotch universities seeking to establish a presence in Asia,” he emphasized.

He pointed out that while the country has been addressing foreign ownership limitations that has constrained investment in many sectors through legislation such as the Public Services Act, the Retail Trade Liberalization Act and the Foreign Investment Act, “fundamental investment restrictions enshrined in the Constitution could not be corrected by simple legislations nor by executive decisions.”

The House leader noted that 36 years after the Charter was ratified on February 2, 1987, there are questions being raised about the Charter, such as: “Is the Constitution still relevant to our people as they envisioned it to be? Is it still reflective of the aspirations and ideals of the Filipino people? Nilalaman pa rin ba nito ang pangarap ng bawat pamilyang Pilipino?”

He said lawmakers “are currently swamped with requests from our constituents on the need to revisit certain provisions of the 1987 Constitution.”

“That was the reason why a number of congressmen have filed several bills proposing amendments to the Constitution for various reasons, ranging from lifting economic restrictions to structural reforms,” he said.

Amendments via Con-Ass

In Resolution of Both Houses No. 3, Padilla proposed the changes to the Charter via constituent assembly, with both Houses of Congress–the Senate and House of Representatives–voting separately.

“To accelerate economic growth, and fulfill its international commitment, the Philippines must amend its Constitution by removing these restrictive economic provisions to allow foreign businesses to directly invest in a more conducive landscape,” he said.

Padilla chairs the Senate Committee on Constitutional Amendments and Revision of Codes.

The Philippines, with its complicated investment regulations stemming from the Constitution’s prohibitive economic provisions, is now lagging behind its neighbors in the Association of Southeast Asian Nations in terms of foreign direct investment registry “despite its offer of tax holidays, and other fiscal incentives,” he noted.

Moreover, while the Philippines ratified international trade and investment liberalization treaties to secure foreign investments and foster economic cooperation, the Constitution’s current economic provisions “restrict certain activities of foreign investors on exploration, development and utilization of natural resources; ownership of private lands; grant of congressional franchises; ownership and operation of public utilities; ownership of educational institutions; and ownership and management of mass media and advertising,” the senator said.

“These economic provisions are perceived to be barriers to trade and investment responsible for the continuous decline of foreign direct investments, and placed the country as one of the most restrictive economies by international standards,” he lamented.

Under the resolution, the Senate and the House of Representatives–by a vote of three-fourths of all members, with each House voting separately–will tackle amendments to:

* Sections 2, 3, 7, 10 and 11 of Article XII;

* Section 4(2) of Article XIV; and

* Section 11 (1) and (2) of Article XVI

The proposed amendments include:

*The State may undertake exploration, development and utilization of natural resources or may enter into coproduction, joint venture or production-sharing agreements with Filipino citizens, or corporations at least 60 percent of whose capital is owned by such citizens, unless provided by law;

* Private corporations may not hold alienable lands of the public domain except by lease for at most 25 years, renewable for not more than 25 years, and not to exceed 1000 hectares, unless otherwise provided by law;

* Congress may by law solely for the purpose of foreign direct investment allow aliens to acquire private lands not exceeding 1,000 square meters in area; and foreign-owned corporations to acquire rural private lands not exceeding five hectares in area;

* Upon recommendation of the economic and planning agency, and when the national interest dictates, Congress shall reserve certain areas of investment to citizens of the Philippines or, unless otherwise provided by law, to corporations at least 60 percent of whose capital is owned by such citizens;

* Authorization for operating a public utility shall be granted only to Philippine citizens while the executive and managing officers must be Philippine citizens, unless otherwise provided by law;

* Educational institutions other than those established by religious groups and mission boards shall be owned solely by Philippine citizens while the control and administration of educational institutions shall be vested in Philippine citizens, unless otherwise provided by law;

* Ownership and management of mass media shall be limited to Philippine citizens and only Filipino citizens or corporations at least 70-percent owned by Filipinos shall be allowed to engage in the advertising industry, unless otherwise provided by law; and    

* Political provisions, including the terms of elected officials, are not included in the resolution.

While a plebiscite will be held to ratify the resolution of both Houses of Congress, all existing provisions of the Constitution will remain in effect until their enabling laws take effect.

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