Charter change: The 2014 version

JOINT SESSION President Aquino joins Senate President Franklin Drilon and Speaker Feliciano Belmonte Jr. in the House of Representatives before delivering his fifth State of the Nation Address. Malacañang Photo

The House of Representatives is currently debating Joint Resolution No. 1 (JR-1) to amend six “economic” provisions of the Constitution on land, natural resources, public utilities, media, advertising and educational institutions.

The proposed amendment is the wholesale insertion of the phrase “unless otherwise provided by law” with respect to the foreign equity caps and management limitations on foreigners in these provisions.

When launched last March by the House, which is traditionally allied with the President, JR-1 might have been a trial balloon which, if passed quickly without too much fuss, political or legal, would be followed by the same insertion in all provisions on term limits, to the benefit of incumbents.

But the latest Pulse Asia survey showing a large majority (62 percent) against another term for the President may be an unforeseen game changer for that option.

In the same survey, opposition to foreigners owning residential and industrial lots is 85 percent.

5 previous attempts

There have been five previous attempts to change the Constitution:

1. Ramos administration (1997). Articulated purpose: Remove obstacles to reform and growth, including the term limit of the President. Aborted when Pirma (People’s Initiative for Reform, Modernization and Action) by Ramos allies was struck down by the Supreme Court as unconstitutional.

2. Estrada administration (1999). Articulated purpose: Remove obstacles to reform and growth, but limited to changing foreign equity caps in the economic provisions. Aborted by Estrada when his popularity waned from accusations of corruption.

3. Arroyo administration (2001). A proposal to change from a presidential to a parliamentary system, French version. It died a quiet death when Arroyo did not support it.

4. Arroyo administration (2006). Articulated purpose: Good governance and economic growth with major revisions to a parliamentary and federal system, and a unicameral legislation plus changes in economic provisions. Aborted when the Supreme Court struck down the Sigaw ng Bayan people’s initiative as unconstitutional.

5. Arroyo administration (2009). Proposal by the House to make changes by a joint session with a joint vote, i.e. giving equal vote for congressmen and senators. Withdrawn in the face of widespread opposition, including from the Senate.

Smokescreen

The attempts were unsuccessful because the people perceived the articulated purposes as a smokescreen for Ramos and Arroyo to stay in power. As for Estrada, it may have been self-interest as well. More business transactions from new opportunities are also an opportunity to make money in public office without calling it corruption.

The articulated purpose of JR-1, like the previous attempts, is to improve the well-being of the people through inclusive economic growth driven by foreign direct investments (FDI).

JR-1 insidious

But JR-1 is a worrisome if not a dangerous move because it gives too much power to Congress. It also opens the door wider to corruption.

It is insidious because it is innocuous and seemingly harmless, and is being represented as giving Congress only the flexibility to make actual changes at an appropriate time.

But it sets a bad precedent in trivializing amendments to our basic law and forecloses debate at this time because no specific changes are being proposed on the foreign equity caps. The only issue on the table is the wholesale insertions.

The implication of the insertions is that Congress will have the power to increase the foreign equity cap from 40 percent to, say, 60 percent, 75 percent or even 100 percent through ordinary legislation, without a need for a plebiscite.

Majority vote of quorum

Only a majority vote of a quorum is necessary. In the case of the Senate, the vote can be as low as 7 senators compared with the present threshold of 18. In the House, of 290 members, the equivalent number is 73 instead of 218.

Once the insertions are in place (by a vote of three-fourths of all the members of the two chambers, voting separately, and approved in a plebiscite), the present provisions would become meaningless and the insertions would be impossible to undo.

Can we trust our legislators with a power that is so vulnerable to abuse and corruption? Especially since those most interested in the changes—foreign business and foreign countries—have the money to support their advocacy?

The example is China with such deals as the ZTE and railway projects, the management control of our national grid, the aborted deal to lease more than 1 million hectares for food production to be exported to China. That deal is unconstitutional under Section 3 of Article XII, which is one of the provisions targeted for an insertion.

Divisive, costly

JR-1 is potentially a divisive and costly exercise. It stops if the Senate does not deliver 18 votes. But if that vote is secured, the plebiscite can be tumultuous once the people realize its implications. And it will cost us precious time and opportunity to attend to more urgent matters.

Despite its implications, the business community reportedly endorsed JR-1 in a House committee hearing earlier this year. Either business is disarmed by the resolution’s innocuousness or does not mind transactional politics on legislation as long as it is a beneficiary.

There are examples in this regard, such as:

The loophole of stock distribution instead of land in agrarian reform that the Supreme Court finally struck down as unconstitutional in the case of Hacienda Luisita; and

The loophole in banking laws that allows an alternative compliance of buying government bonds in lieu of devoting 25 percent of a bank’s portfolio to agricultural development, which is critical to a sustained high and inclusive growth rate.

Why FDI

Advocates say that restrictions on foreign ownership stifles the investment climate, resulting in lost employment and growth opportunities, and that such restrictions are, therefore, antipoor. That sounds hypocritical.

The truth is closer to what Prof. Emeritus Michael Meyer of Wharton pointed out in a BusinessWorld article (Sept. 24) that the “ethos of capitalism is you operate for your shareholders rather than for the whole people.”

THE 1987 Constitution is facing a sixth attempt to have it amended. photo: www.anvilpublishing.com

Quality of investment

Another argument for opening our doors fully to FDI is that any investment is worth attracting because “at least they contribute something” and “everything helps.”

But the empirical evidence is clear—FDI does have a role to play in development but what counts is not the quantity but the quality of the investment. And to determine quality, we need to make a full accounting not just of its benefits but also of its costs.

Also take account of such long-term considerations as brown-field vs green-field investment, its contribution to raising the trajectory of our technological development and downstream plants for our minerals that increase the value added in the country.

Inequality

It is no longer debatable in economic theory that a sustained high growth rate is necessary for poverty alleviation and that growth does not result in development without an equitable distribution of its benefits. Inequality is now a major issue even in developed countries. As for the role of FDI in development, these are some findings:

Macrolevel data may show an association between FDI and higher levels of income, but they do not establish causality. Similarly, no generalization can be made between the activities of foreign firms and income distribution.

Historically, FDI played only a minor role in the growth of high-performing Asian economies. From 1966 to 1986, their fast growth period, FDI was more than 5 percent of total gross domestic investment (GDI) only in Hong Kong, Malaysia and Singapore.

Countries where FDI was less than 2 percent of GDI were Taiwan, Korea, Japan and China. More recently, except for China and Singapore, FDI in Northeast Asia and Southeast Asia have been less than 10 percent of GDI.

The factors that affect investment decisions according to the World Investment Report and others are:

– Adequate infrastructure

– Skill levels (human capital)

-Quality of the general

regulatory framework

– Clear rules of the game

– Fiscal determination

– Graft and corruption

The World Bank does not put lifting restrictions on reserved areas for local control as a priority condition to attract FDI. It knows that it is a fact of public policy in most developing countries as it was for developed countries when they were themselves developing.

Restrictions

Have we closed the door to FDI? What is the Philippine situation on the restrictions, especially on land, natural resources and public utilities?

1. Land. Leases are allowed up to 50 years, with another 25 years on public land; condominium laws allow ownership of residences. Actually, any project that relies on the windfall on land for its viability is invariably not a good project.

But there is a more important dimension to land in our culture. Unlike in the United States and Europe where land is just another economic commodity, and because of the history of colonization and injustices related to land, land is not just an economic commodity. It is also a social asset.

We cannot talk about land rights in the context of western culture and western legal maxims because, to the poor, land represents their emancipation into mainstream society. Hence, social justice and agrarian reform.

Even the chambers of commerce admit that lifting land restrictions may raise land prices beyond the reach of the poor. Those who argue for equal ownership rights to a foreigner on the ground that he cannot bring land out of the country, just don’t get it.

2. Public utilities. Under Epira (Electric Power Industry Reform Act), the only natural monopolies are public utilities, i,e, transmission and distribution. Power generation and retailing can be 100-percent foreign-owned. Our problem today is generating capacity, why then are foreign interests not investing?

3. Natural resources (minerals, petroleum and other mineral oils). A 100-percent foreign-owned company is allowed in FTAA (financial and technical assistance agreement) under Art. XII, Sec. 2, par. 4, including management rights (courtesy of the La Bugal Supreme Court decision).

4. Media. The issue of content has been overtaken by technological developments and globalization, i.e. cable TV, Internet, social networking.

5. Advertising. The separation of creative work from the advertising function in partnerships appears to be a workable compliance with the Constitution.

6. Control. Foreign equity with 40 percent or less ownership can be protected by super-majority votes on key decisions.

7. For foreign investors interested only in financial returns, there are innovative financial instruments like the global depositary receipt that separate financial benefits from voting rights.

8. Educational institutions. Their inclusion does not make sense. This is not even an economic provision. Besides, the Constitution allows fully foreign-owned schools for the diplomatic community and transient foreigners, and mission schools.

But the content of education is part of our patrimony—our history and cultural roots, our values, patriotism, the heroism of our ancestors, the Edsa event that is already being subjected to revisionism, etc. These cannot be left for foreigners to interpret. If reports are true about Isis (Islamic State of Iraq and Syria) recruiting from schools in Mindanao, this underlines why educational institutions should be firmly under Filipino control.

OECD rankings

Those who invoke the 2014 OECD rankings on restrictiveness where the Philippines is No. 1 for lifting the constitutional restrictions on foreign equity do not mention that China is No. 2, Indonesia No. 5 and Vietnam No. 10 in the rankings of 60 countries and yet get considerably more FDIs. And Singapore is the top investment destination for reasons other than land or mineral resources.

The question thus begs to be asked: Is the Constitution the real hindrance to FDI? Those who cite that OECD study should also note its acknowledged limitations, among others, the Asean scores are preliminary except for Indonesia, Malaysia and Myanmar; the study does not purport to capture the full measure of the investment climate.

In that regard, the 2014 Doing Business rankings of 189 countries by the World Bank point to another direction where the Philippines improved 30 places from 138 in 2013 to 108 in 2014, without any changes in the economic provisions of the Constitution.

Unlikely to open doors

Amending the Constitution is not likely to open new doors to FDI because for all intents and purposes, they are already open.

For the quality FDI that we want to attract, it is more critical to address the real hindrances cited by the World Investment Report, which would create a favorable investment climate not just for FDI but for local investments as well.

As for JR-1, it is not the answer to anything. Like previous attempts at Charter change, it is just another exercise on the taking and the use of political power for self-serving ends. And it should not be allowed to succeed.

(Christian S. Monsod, former chair of the Commission on Elections, is a member of the 1986 Constitutional Commission that drafted the 1987 Constitution. This article is an updated and shortened version of what he delivered at the Rotary Club of Makati on Sept. 30.) )