Freeport

The Cagayan Special Economic Zone and Freeport (CSEZFP) in Port Irene at the very top of Luzon was never close to what it was intended to be.

Adopting the privileges granted the Subic Freeport and the Clark Special Economic Zone, CSEZPF was imagined to be the driver for industrial growth for the Cagayan Valley, a strong node for expanding trade with Northeast Asia and a gateway for tourism in the region. Port Irene never delivered on that.

Instead, when we speak of Port Irene, only two things come to mind: the endless stream of used cars slipped in from Korea and Japan; and the global on-line gambling enterprises that use the special economic zone’s more relaxed regulatory environment to do their thing.

Except for small auto shops specializing in conversion of right-hand drives to left-hand drives and small offices for the on-line gambling operators, nothing is going on in this “special economic zone.” The on-line gambling operations do not have to be physically located in that distant place. We know that from the raids the Bureau of Immigration conducted a few months ago at Clark where hundreds of Chinese were found working without permits for the on-line gambling operations.

It is apparent that the incentives available in this “special economic zone” fail to attract real investors who create real jobs and deliver real progress in the region. Only traders in used cars exploit the relatively lax regulations at the “Freeport” and only on-line gambling operations exploit the open framework of the “special economic zone” do business at Port Irene.

The Cagayan Economic Zone Authority (CEZA) gets only 1% of revenue flows from the gaming enterprises registered under its jurisdiction. The First Cagayan Leisure and Resort Corporation (FCLRC) gets another 1% simply as “master licensor” issuing “interactive gaming” enterprises permits to operate.

In addition to these two rather seedy enterprises, we might add smugglers of black sand exiting the port. That completes what is really a bleak picture.

The on-line gambling operators took advantage of the special jurisdiction to register their enterprises without actually moving people and technology to the zone. With that, they cornered 45% of the global on-line gaming market while paying government only a pittance in taxes. This we know from the investigation of the operations of on-line gambling tycoon Jack Lam, who even brought in Chinese workers to man his business. Recall the P50 million in cash so casually handed (and so casually handled) the two Immigration officials subsequently fired from their jobs.

What was imagined to be potentially North Luzon’s biggest industrial park, complete with a township, supplied with a modern digital technology backbone and serviced by a high-grade airport, remains a dusty settlement frequented only by fly-by-night entrepreneurs.

In the aftermath of the Jack Lam scandal, President Duterte issued Executive Order 13 that put all gaming operations under Pagcor. As a consequence, the permits of all the gaming locators taking advantage of the relaxed regulations at the CSEZFP were cancelled. That means even the token taxes paid the “special economic zone” have now vanished.

At the same time, President Duterte appreciates the potential of Port Irene as a driver of economic growth in Northern Luzon. But for that to happen, government must invest in the infrastructure required to make investing in the zone attractive.

Recently, Duterte appointed his close ally Raul Lambino to be CEZA Administrator. It is now Lambino’s mission to transform the special zone into a bustling economic hub and, possibly, an eco-tourism destination.

Lambino, when he took over the post last week, seems excited by the challenge of realizing the promise of this “special economic zone.” The job is not going to be easy.

The Freeport and the economic zone sit in the northeastern tip of Luzon where the Sierra Madre mountain range ends. Its territorial jurisdiction covers over 54,000 hectares. This includes a large part of Sta. Ana town and the islands of Palaui, Fuga, Mabbag and Bait.

The two main access points – Port Irene and the Cagayan North International Airport in the town of Lal-lo – need to be made fully functional. The navigational canal for Port Irene needs dredging. Meanwhile, the airport is ready to accept its maiden flight later this month. The airport can accommodate single-isle passenger planes.

Port Irene opens to the busy shipping routes moving cargo between North America and East Asia. It should be capable of accommodating ships from Taiwan, Korea, China and Japan. That is its strategic advantage. It is capable of linking the economy of Cagayan Valley to the busy economies to the north.

The airport runway needs to be extended and a terminal built to handle increased passenger and cargo flow. Because of its location close to the projected industrial zone, it could serve as a strategic transshipment point.

Lambino has even more ambitious plans. He is proposing a railway link between Port Irene and the airport at Lal-lo. This will enhance the attractiveness of the industrial zone. Eventually, the rail line could be extended to link up with Subic and Clark. Both are envisioned to be vibrant economic hubs for East and Southeast Asia.

The new administrator is seeking to add these infra projects to the CEZA medium term plan. The economic returns on the proposed infra investments should fall squarely within the framework of the Build, Build, Build program of the Duterte administration. Meanwhile, Lambino intends to build up the viable components of the CEZA vision such as the Cyber Park and Techno Hub for BPO industries.

We can only wish him luck.