Will the Senate amend restrictive economic provisions of the Constitution?

The Senate of the Philippines found itself in the unenviable position of facing a task that the nation wants so badly, to improve policies designed to attract foreign investments.

The House of Representatives, on its own, passed the proposal to amend the restrictive economic provisions of the Philippine Constitution by 3/4 vote of its members.

The need to speed up and strengthen economic recovery. To amend the restrictive economic provisions of the Constitution announces to the world the most concrete effort of the nation regarding its readiness to welcome more foreign direct investments. It is a move that truly signals a reform to seek external private partners for more job creation, a step in raising labor productivity, and consequently, rising incomes.

The Senate now faces a diminished window of time to act on pressing legislative issues, one of them being the amendment of the economic provisions. It is time to get down to the most important matters.

Perhaps, the government administration could influence the actions by emphasizing the country’s needs. It could exercise political will. Will such an effort get the Senate to hurdle a required 3/4 majority of members as in the House?

The restrictive economic provisions on foreign investments. The provisions of law under question were originally found in the 1935 Philippine Constitution under Article XIII, “Conservation and Utilization of Natural Resources.” These provisions limited the economic rights of foreigners on land ownership and usage, on the business exploitation related to the nation’s natural resources, and on the operation of public utilities. Within the context of corporate enterprises, the limitation was a strict minority position of 40 percent for foreign enterprises.

However, the provisions of the Constitution under question in the recent amendments of the House, the bill they hope the Senate will also pass, is found in the 1987 Philippine Constitution, the nation’s current basic law

Under the 1987 Constitution, Article XII encapsulates all the said economic provisions. They are not substantially different from the Article XIII of the 1935 Constitution. In many other respects, the expanded wording of the section is just a bigger sea of unnecessary prose.

The ‘original sin’ of Philippine development policy. These provisions of the Constitution which limited certain sectors of the economy only to Filipino citizens and enterprises were placed there by our early zealous leaders who had wanted to announce that future investments in critical areas of the economy be reserved for Filipino citizens.

Below, I outline the history on why those provisions have sowed the seed of our ‘original sin’ in the nation’s conduct of development policy.

Though the provisions in the Constitution were prospective provisions, they were directed at the ownership of major enterprises, which in those days were owned by American investors. That was clear from the beginning, a plan to control the directions of the economic future.

Manuel L Quezon was the leader of the Philippine independence movement who emerged triumphant in winning the fight for independence in the US Congress. His political ally and follower, Claro M. Recto, was the president of the Constitutional Convention. They staked their demands on future investors at the outset.

One wonders whether our leaders then sufficiently calculated the reactions of their potential adversaries to understand the implications of their actions by crafting these sensitive provisions in the Constitution.

When then US President Franklin Delano Roosevelt signed the Philippine independence law (the Tydings-McDuffie Law), his main problem was focused on solving the country’s main headache – the Great Economic Depression. America was in deep depression. He had just been elected president.

The American president was in control of Philippine destiny until the final grant of independence.  As long as the US held the card on the sovereignty of the Philippine peso through a fixed exchange rate, the US president could protect American investments in the islands. He also held other important leverage on trade and other economic policies – trade and other economic relations that benefited the former colony, especially future relations.

When we woke up from the ashes of the Second World War as a country devastated by war destruction, the grant of independence was imminent. Ahead of independence, the object against which those economic provisions were written – American economic interests in the Philippines – spoke to their leaders and demanded that American citizens in the country be given all the rights of Filipino citizens.

This was the parity rights for American citizens. Looming in exchange for this demand were war damage compensation cum rehabilitation assistance, and the adjustment in trade and economic relations for a period of 28 years.

Though goodwill between America and the Philippines permeated, the Filipino people amended the political Constitution through a plebiscite to accommodate this demand. And the grant of political independence proceeded as scheduled.

One consequence of this was that it began its political independence with many opportunities not available to other countries. There continued heavy doses of American expenditures after the war – military bases expenditure, economic aid, and, as important, war damage compensation cum economic rehabilitation program. There was also a period of adjustments in trade and economic relations that lasted until 1974. This was a great amount of cash and capital inflows that enabled the country to recover quickly and resume economic development.

With all these developments, the Philippines was still poised to become well-endowed with opportunities that could make it succeed well in development. It was not surprising, therefore, that we were considered likely to succeed in development next only to Japan.

A seemingly perverse and unintended consequence of this new arrangement was that two classes of foreigners appeared within the context of Philippine economic policy: Americans and other foreigners. Most countries give national treatment to foreign direct investments or at least, what is known as the “most-favored-nation’ clause in international agreements.

So, for a number of years, the treatment of foreigners appeared dualistic for as long as the special rights for American citizens existed. This aberration was part of the original sin in early economic policy. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/