Business Matters

We need Charter change—now!

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The Philippines’ macroeconomic fundamentals are sound, inflation is stable, and investment confidence is high, yet it has failed to substantially increase its share of the foreign direct investment (FDI) that has been pouring into Asia. According to figures released this week by the UN Conference on Trade and Development, the Philippines attracted FDI of $2.8 billion in 2012, up 54 percent from $1.8 billion in 2011. But this pales in comparison to our Asean neighbors, with FDI flows ranging from Vietnam’s $8.4 billion to Singapore’s whopping $56.6 billion.

Many factors influence a country’s ability to attract and grow FDI, but in the Philippines’ case, a 2011 study by Stephen Thomsen of the IFRI Center for Asian Studies identified restrictive foreign-ownership rules as one of three major impediments (the other two are perceived high levels of corruption and labor costs). A comparison of Asean countries will show we have the highest number of sectors with ownership restrictions and impose the highest percentage of minimum national ownership in a business (60 percent local, 40 percent foreign). We now see that such protectionist policies are not doing us any good in terms of improving the quality of our industries and services. According to economist Gerardo Sicat, foreign-ownership restrictions have resulted in the undercapitalization of our public utilities, leading to the high cost and low quality of utility services, which means higher production costs for industry.

I believe the time has come for us to once and for all address the limitations of certain aspects of our Constitution, specifically its provisions on the limits to foreign-equity participation, foreign land ownership, and foreign workers. There were a number of compelling reasons why I earlier opposed proposals to amend the Constitution. First, the motives of previous Charter change (Cha-cha) efforts were suspect. There was real cause to fear that a hidden political agenda—to expand powers and extend term limits—was at work. Second, the timing was always off. There were matters that seemed of greater urgency at those junctures that demanded the attention of our leaders. Finally, there is the sense of obligation to protect the basic law of the land and the fear of setting a dangerous precedent in trifling with it.

Today, however, I believe the time is right to push for Cha-cha. For one, there has been a sea change in the level of trust and confidence in our leadership, including the incoming congressional leaders who will be guiding the Cha-cha initiative, should it come to pass. More importantly, the necessity of undertaking this task can no longer be ignored. We deserve to celebrate our impressive economic growth, but we have come to the point where the sustainability and inclusiveness of our development are the bars that matter. We need to attract more investments and generate more jobs. My contention—one shared by my colleagues in the business community—is that the lifting of constitutional restrictions on specific sectors or activities will enable us to achieve these goals.

Aside from boosting our ability to compete for foreign investments, constitutional reforms are also critical for us to participate in the US-sponsored Trans-Pacific Partnership (TPP), in which our Asean neighbors Brunei, Malaysia, Singapore and Vietnam, as well as newcomer Japan, are now taking part. With Japan’s addition, the 12 TPP members will have a combined GDP of $28 trillion (almost 40 percent of global GDP) and about a third of all world trade. This is a partnership we cannot afford to be left out of!

Based on simulations in a 2012 study published by the Peterson Institute for International Economics, if the Philippines were to join the TPP, together with South Korea, Thailand, Indonesia, and Japan (the study was made before Japan signified it would join the TPP negotiations), our country would post an income gain of $22.1 billion in 2025. On the other hand, in a scenario where the TPP includes only the 11 members as of 2012, the Philippines will be looking at a $500-million income loss in 2025.

To compete in a single market governed by a high level of liberalization, as envisioned by the TPP, the Philippines will have to not only work toward efficient systems and aligned regulations but also address constitutional provisions on foreign investment and employment. The current draft of the investment chapter of the TPP agreement demands national treatment for foreign investors, eliminates requirements that investors export a certain percentage of their goods and transfer technology or proprietary knowledge to a local officer, and stipulates that investors should be able to appoint foreigners to senior management positions. These provisions run counter to Philippine laws, but will have to be accommodated somehow if the country wishes to join the partnership.

Thus, Cha-cha has become an immediate imperative. A number of measures have been filed in the House and Senate calling for constitutional changes, but I believe the proposal of Speaker Sonny Belmonte—to convene a constituent assembly, with the two chambers of Congress voting separately, and inserting the phrase “unless otherwise provided by law” to all the restrictive economic provisions, then complementing this with appropriate legislation—is a feasible plan that deserves support. It will take a monumental effort requiring enormous political will, but with great respect for the Constitution and guided by a shared vision toward the greater good, we must now do what is best for our people.

Ramon R. del Rosario Jr. (rrdelrosario@gmail.com) chairs the Makati Business Club.

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  • http://www.yahoo.com JOSE RIZAL

    …coming from the “Makati Business Club”???
    He was against it during the time of Gloria for so many a reason???…but he’s saying “it’s is imperative” becuase of the same reason…???
    You must be kidding me!

  • Eustaquio Joven

    I’m with Ramon, this time

  • resortman

    Why fix something that isn’t broken? Besides, only the rich like Ramon Del Rosario will benefit from this costly act. The poor will remain poor, you just trifle with the constitution when your appetite desire. Nothing has changed even in governance, congressmen now shoot themselves in Batasan..its getting worse..
    Give foreigner’s full ownership of property and businesses and you will have all pinoys living in squatters in esteros in Metrro..get real, they have the money to buy the entire archipelago..!! Makati Business club my @@s..!

    • gatdila

      Something isn’t broken? You know how to write but do not know how to read!

      There’s a lot of things broken in my country e.g., massive poverty, high unemployment rate, low quality of our industries and services. These problems could be aggressively addressed by a substantial increase in foreign direct investment. Philippines attracted FDI of $2.8 billion in 2012 compared to Vietnam’s $8.4 billion and to Singapore’s whopping $56.6 billion. We have been missing the boat and will continue to fall behind if we do not act soon to make the necessary changes.

      What the like of Mr Del Rosario is advocating is the elimination of barriers such as ownership restrictions which could only be done through charter change.

      • resortman

        You know how to read, short of knowing how to analyze…Do you think there is not enough laws in the Philippines to tinker with the constitution? The political culture is not rife for such schemes, it will just lead to more corruption..will open the gates for greedy politicians and opportunist’s that litter the halls of congress and the fortunate 1% of the land.

        100% ownership of properties and businesses will just be good for them, not for the masa..pinoys will generally be squatters in their homeland..u can take that to the bank!!

  • eight_log

    It beats the hell out of me why some people are focusing too much on constitutional changes to boost up FDI entry into the country!!!! If we look at the IFRI report as Cited by Del Rosario and I quote “IFRI Center for Asian Studies identified restrictive foreign-ownership rules as one of three major impediments (the other two are perceived high levels of corruption and labor costs).” , the 60/40 requirement is just one of the factors ….. funny!!! Kahit 100% ownership mo if one has to deal with massive corruption … walang mangayayari …. at the end of the day investors will just end up frustrated and leave!!!!!

    The simple approach will be to eradicate corruption!!!!! This alone will send clear signal to foreign investors that they can invest here free from prying eyes of regulators looking for pin holes with hope of extorting some money …. they can invest here where the rules are clear and not interpreted differently by different regulating bodies and the same rules are not changed in the middle of the game.

    Another major impediment cited is the high cost of labor. What makes labor cost high in the Pinas is not much because of high salaries … rather because of too much holidays including strikes and what nots. Labor instability makes it very expensive here in Pinas!!!! KAILANGAN BA ANG CHA CHA PARA BAGUHIN ETO????

    Another very important factor why investors are not keen in coming here is the high rate of taxation. Pinas corporate tax rate at 30% is higher than that of Vietnam, Indonesia and Singapore!!!!!! Maraming pang scam …. remember Shell???? Madalas puntahan ka pang nga mga investigators …. hahahahahaha!!!! Kailangan ba ang CHA CHA PARA BAGUHIN ETO????

    The very high cost of amenities …. electricity, water, etc etc etc!!!!! Umaangal nga ang mga local investors not to mention residential consumers …. KAILANGAN BA ANG CHA CHA PARA BAGUHIN ETO???????

    THE 60/40 equity ownership is not much of an impediment as the other factors. TRY ERADICATING CORRUPTION, TRY LOWERING THE TAXATION RATE, TRY STABILIZING THE LABOR CONDITION …. FIND WAYS TO LOWER THE COST OF ELECTRICITY, WATER etc etc …. YOU WILL BE SURPRISED!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    FOR SURE WE WILL ALL BE DOING THE CHA CHA OR TANGGO !!!!!!!!!!!!!

  • ConcernedCitizenPh

    Members of the Makati Business Club are among the beneficiary of 60-40 restrictions. For this group of people to welcome the entry of investors who may own 100% of the businesses and who might even compete with their businesses is very selfless. This also indicates that no investor is going into 60-40 joint ventures anymore. The government should be sensitive to the joblessness and the wave of OFWs returning like the illegal workers in Saudi. This might even end in an employment crisis in the coming months. The hesitation to change is what the investors are observing and this is not at all attracting FDIs.

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