Statement of the Philippine Council on Foreign Relations on foreign ambassadors’ statement of support for BBL

THE European and other ambassadors’ statement appearing in media today supporting the CAB and the BBL, whose constitutionality has been challenged by various sectors of Philippine society and which is now pending in the Supreme Court and being deliberated in Congress, show a lack of respect for Philippine laws and can be considered an undue interference in the affairs of a nation to which these ambassadors have been accredited.

The joint statement is allegedly an expression of “concern(ed) with the delay in the implementation of the CAB,” according to the news reports.

Specifically, the concern is in regard “to the long term political, economic and social pillars that will bring the peace dividend to the country as a whole” according to the “unity” statement.

The “unity” statement “ask(s) for a continued commitment … to enable the Bangsamoro people to form an effective and inclusive, devolved administration as called for in the 2014 Comprehensive Agreement on the Bangsamoro.”

The final point in the “unity” statement declares that “it is important that work on normalization progresses credibly.”

The Philippine Council for Foreign Relations take exception to this manifesto for the following reasons:

Firstly, the above is a value judgment on the impact of the CAB/BBL of the nation.
Secondly, it is politically incorrect for foreign diplomats to comment on matters that are of purely domestic concern in their host country which is a violation of the historically-honored rule of non interference in domestic affairs of other countries.

In the above instance, this is compounded by the fact that:

1. The matter is currently being deliberated before the Congress of the Philippines

2. The matter is now “sub-judice” before the Supreme Court of the Philippines
Before the statement is construed as exerting of undue influence by the diplomats on branches of this government, the PCFR therefore requests the above group to cease and desist in making statements like the one they have made and make an apology to the Philippine government.

Signed for the Trustees and the general membership by Amb. Jose V. Romero, Jr. Ph.D.
President, Philippine Council for Foreign Relations, Inc.

The PCFR is composed retired ambassadors, multi-sectoral organizations, retired flag officers, members of academe, businessmen, and distinguished members of civil society.

source:  Manila Times

Elections, information, and governance

It’s that time again, the filing of certificates of candidacy that’s the prelude to the months-long extravaganza-cum-freak show that we call elections.

Thanks to the media focus on who’s running for such national offices as the Presidency, the Vice-Presidency, and the Senate, an observer unfamiliar with the Philippine system can’t be blamed if he or she were to conclude that Philippine elections have nothing to do with community issues.

The reality is that the Philippines has the distinction among its neighbors -- all of which have parliamentary systems of government -- of holding national elections every six years and local elections every three. In 2016 as in 2010, both national and local elections will be held, which imposes on the electorate the immense burden of having to choose from among tens of thousands of aspirants -- from President of the Republic to municipal councilor -- the people who will govern in their name.

Few will argue that the voters always, or even often, choose wisely.

The evidence is not only in the huge mistakes they’ve made in electing clowns, scoundrels, thieves, morons and even killers to office. It’s also evident in the unmitigated gall with which the unqualified, the corrupt and the simply clueless presume that they stand a chance of being elected to even the highest office in the land. (How else explain Emmanuel “Manny” D. Pacquiao’s decision to run for Senator despite his putrid attendance record in the House of Representatives, or former actress Alma Moreno’s decision to seek the same post in the same chamber in which Recto, Laurel, and Tañada distinguished themselves except the assumption that the voters will elect anyone to office?)

I do not necessarily mean the so-called “nuisance candidates,” some of whom have been and will be so declared because, according to the Commission on Elections (Comelec), they can’t wage “a credible nationwide campaign” (meaning they don’t have the billions needed to compete with the hierarchs of the political dynasties that have monopolized political power in this country for decades).

With the exception of those who are certifiably insane, it is certainly possible that even those who have been so declared have sound ideas. I am instead referring to the clueless, but who not only have the means and the political machinery to campaign throughout the length and breadth of this archipelago, but also the billions needed to keep themselves in the public eye through the media between now and May 2016.

No matter how hard the Comelec may proclaim the sanctity and seriousness of Philippine elections, the results are nevertheless almost always disappointing, primarily because the money-driven process is itself flawed, and would even be laughable if its consequences weren’t so tragic.

And yet elections are the only means through which an allegedly free people can delegate their sovereign powers of governance to leaders they can trust to enforce their will. The results suggest, however, that while most Filipinos whine about corruption, joblessness, lack of social services, etc., etc., the kind of people they themselves elect suggests that they’re not really serious about solving those problems. Of course it has happened that to correct their mistakes, the electorate -- or at least some of them -- have removed the officials that they themselves elected.

Electing the right officials isn’t the same as removing the wrong ones, whom they can oust through direct action, recall through a petition, or impeach through Congress.

The first has twice happened in the Philippines, the first time in 1986 when a civilian-military mutiny overthrew Ferdinand Marcos (who had been twice elected to the Presidency), and the second in 2001 when Joseph Estrada, despite his having amassed an avalanche of votes in 1998, was ousted in the aftermath of the failure of the attempt to remove him through impeachment. Only local officials have been recalled and by-elections subsequently held in some communities in the Philippines since 1986.

But none of the above options to correct electorate error would be necessary if voters chose their leaders carefully. The Philippine experience with EDSAs 1 and 2 may be a positive indication of the extent to which Filipinos are prepared to correct their mistakes at the polls. But it also does show how flawed their judgment has often been.

Other than through fraud, violence, intimidation and bribery, the bad choices the Filipino voter too often makes have been attributed to the insufficient, distorted, or outright absence of accurate and meaningful information. It’s a deficiency that leads citizens into voting on the basis of name recall, or such entertainment rather than political values as the ability to sing and dance, and even how pretty a candidate is.

While the persistence of political dynasties and all its consequences limit electorate choices to candidates with whose names they’re already familiar, awareness of the merits of other candidates and the social, economic, and other issues that need to be addressed and the policy options available can theoretically help correct that, and the press is the only institution that can provide the necessary information quickly and on a wide scale.

Although the coverage of Philippine elections is far from perfect, in the last two Philippine elections (2010 and 2013) the major players in Philippine media seem to have recognized the inadequacy of their past, mostly reactive reporting by interviewing lesser known candidates, providing readers, viewers and listeners the track records of candidates, and/ or pressing them to commit to the adoption of clear policies on current issues.

But that’s only at the level of the so-called national media.

An executive of a major broadcast network once declared -- apparently as something she had just discovered -- that most of the voters in local communities are not familiar with the issues, but saw no connection between that fact and media performance. Indeed little has changed at the community level, with voters being besieged by candidates who publish newspapers for the duration of the campaign, who buy radio stations outright, pay off local journalists for favorable coverage, finance block-timers, or are block-timers themselves.

The affiliates of local networks are in default, because they’re unable or unwilling to provide the information that could temper the influence of bought and paid-for reporting and comment.

The coverage of elections at the local level therefore remains mostly incomplete, distorted and biased -- the exact opposite of the informative and fair reporting that’s most needed.

The consequences are not limited to bad choices at the local level, in the offices of which warlords, members of political dynasties, the corrupt and even the criminal proliferate. The consequences also include voting for candidates for national office on the basis not only of the “command votes” local political kingpins control, but also of assumptions drawn from the same absence of reliable information in many communities.

And yet the challenge to the media is most urgent at the local level, where the most relevant information is needed -- but where the news media are failing to provide the information the voters need. The crisis of information during elections inevitably leads to a crisis of governance, whether at the national or local levels through its inevitable consequence: the election of incompetent and corrupt leaders.

Luis V. Teodoro is on Facebook and Twitter (@luisteodoro). The views expressed in Vantage Point are his own and do not represent the views of the Center for Media Freedom and Responsibility.

www.luisteodoro.com

source:  Businessworld Column of 

Vantage Point 
Luis V. Teodoro

How to reacquire Filipino citizenship

As the late Justice Isagani A. Cruz puts it, “Philippine citizenship is a gift that must be deserved to be retained. The Philippines, for all her modest resources compared to those of other states, is a jealous and possessive mother demanding total love and loyalty from her children.”

Philippine citizenship has always been valued and treasured by our Supreme Court as it once described it as “not a cheap commodity,” In the case of In Re Petition For Habeas Corpus Of Willie Yu v. Defensor-Santiago, the Supreme Court said that “Philippine citizenship is not a commodity or ware to be displayed when required and suppressed when convenient.” Justice Melencio-Herrera dubs it as “a priceless heritage”.

The 1987 Constitution expressly provides that “Philippine citizenship may be lost or reacquired in the manner provided by law.” Thus, Congress can provide for specific grounds that could result in loss of Philippine citizenship such as those provided under Commonwealth Act No. 63. In said law, acquisition of foreign citizenship is a ground for the loss of Philippine citizenship.

However, this is modified by the enactment of Republic Act (RA) No. 9225, an Act making the citizenship of Philippine citizens who acquire foreign citizenship permanent. This law is also known as the Citizenship Retention and Reacquisition Act of 2003 or, simply, the Dual Citizenship law.

Under RA 9225, the general rule is that citizens of the Philippines who become citizens of another country shall be deemed not to have lost their Philippine citizenship under the conditions of the law. The exceptions are: (1) when there is express renunciation of Filipino citizenship; (2) being in the service of the armed forces of a foreign country; and (3) seeking public office in a foreign country.

Even though Philippine citizenship is lost, it may be reacquired according to the provisions of the law by taking an oath of allegiance under RA 9225, naturalization, repatriation, or through direct act of law.

Repatriation is the recovery of original citizenship. Thus, if what was lost was naturalized citizenship that is what will be reacquired. If what was lost was natural-born citizenship, that will be reacquired. Technically, it is merely reverting back what was once your citizenship.

Reacquisition of Philippine citizenship does not take effect automatically. In the case of Frivaldo v. Commission on Elections (COMELEC), the Supreme Court enunciated that even if Frivaldo lost his naturalized American citizenship, by actively participating in the elections in the Philippines, such forfeiture did not and could not have the effect of automatically restoring his citizenship in the Philippines that he had earlier renounced.

As what the Supreme Court held in the case of Labo, Jr. v. COMELEC: “Philippine citizenship is not a cheap commodity that can be easily recovered after its renunciation. It may be restored only after the returning renegade makes a formal act of re-dedication to the country he has abjured and he solemnly affirms once again his total and exclusive loyalty to the Republic of the Philippines.”

Moreover, RA 9225 provides that natural born citizens of the Philippines who have lost their Philippine citizenship by reason of their naturalization as citizens of a foreign country, are hereby deemed to have reacquired Philippine citizenship upon taking the oath of allegiance to the Republic of the Philippines.

Also, natural born citizens of the Philippines who, after the effectivity of the law, become citizens of a foreign country, shall retain their Philippine citizenship upon taking of the aforesaid oath.

Philippine citizenship will not only be reacquired by the applicant, but will also be acquired by his unmarried child, whether legitimate, illegitimate, or adopted, who are below eighteen (18) years of age. Those who retain or reacquire Philippine citizenship under the law shall enjoy full civil and political rights and be subject to all attendant liabilities and responsibilities under existing laws of the Philippines and certain conditions.

For those who lost their Philippine citizenship and want to run for office, Section 5 (2) of RA No. 9225 compels natural- born Filipinos, who have been naturalized citizens of a foreign country, but who reacquired or retained their Philippine citizenship (1) to take the oath of allegiance under Section 3 of Republic Act No. 9225, and (2) for those seeking elective public offices in the Philippines, to additionally execute a personal and sworn renunciation of any and all foreign citizenship before an authorized public officer prior or simultaneous to the filing of their certificates of candidacy.

Further, in Jacot v. Dal and COMELEC, the Supreme Court ruled that a candidate’s oath of allegiance to the Republic of the Philippines and his Certificate of Candidacy do not substantially comply with the requirement of a personal and sworn renunciation of foreign citizenship.

The Supreme Court pronounced that the intent of the legislators was not only for Filipinos reacquiring or retaining their Philippine citizenship under Republic Act No. 9225 to take their oath of allegiance to the Republic of the Philippines, but also to explicitly renounce their foreign citizenship if they wish to run for elective posts in the Philippines. To qualify as a candidate in Philippine elections, Filipinos must only have one citizenship, namely, Philippine citizenship.

By the same token, the oath of allegiance contained in the Certificate of Candidacy, which is substantially similar to the one contained in Section 3 of Republic Act No. 9225, does not constitute the personal and sworn renunciation sought under Section 5 (2) of Republic Act No. 9225.

It bears to emphasize that the said oath of allegiance is a general requirement for all those who wish to run as candidates in Philippine elections; while the renunciation of foreign citizenship is an additional requisite only for those who have retained or reacquired Philippine citizenship under Republic Act No. 9225 and who seek elective public posts, considering their special circumstance of having more than one citizenship.

Additionally, the Supreme Court elucidated in Maquiling v. COMELEC, that the requirement of renunciation of any and all foreign citizenship, when read together with Section 40 (d) of the Local Government Code disqualifying those with dual citizenship from running for any elective local position, indicates a policy that anyone who seeks to run for public office must be solely and exclusively a Filipino citizen. To allow a former Filipino who reacquires Philippine citizenship to continue using a foreign passport -- which indicates the recognition of a foreign state of the individual as its national -- even after the Filipino has renounced his foreign citizenship, is to allow a complete disregard of this policy.

It stressed that what is at stake here is the principle that only those who are exclusively Filipinos are qualified to run for public office.

If we allow dual citizens who wish to run for public office to renounce their foreign citizenship and afterwards continue using their foreign passports, we are creating a special privilege for these dual citizens, thereby effectively junking the prohibition in Section 40 (d) of the Local Government Code.

Felice Suzanne D. Soria is an associate at ACCRALAW Cebu.

source:  Businessworld

LISTEN: Poe a naturalized citizen, argues Justice Carpio

MANILA, Philippines — Supreme Court Associate Justice Antonio Carpio, acting as chair of the Senate Electoral Tribunal on Monday, said Sen. Grace Poe is a naturalized citizen of the Philippines and may not be a natural-born Filipino.

During the oral arguments on the disqualification case against Poe, Carpio said international law allows foundlings like Poe to become citizens of the country where they were found.

“There is a principle of international law that every state must avoid statelessness and there is also principle that every person has a right to acquire nationality, if you add this together, that is part of the law because it does not contravene the Constitution,” Carpio said in questioning petitioner Manuelito Luna.

Luna, for his part, insisted that Poe, who recently announced her intention to run for president in 2016, is a not a natural-born Filipino as she has “no parentage.” The Constitution requires candidates for president to be natural-born Filipinos.

Carpio said international law can be applied in the Philippines with the same weight as a statute of Congress, but it cannot contravene the Constitution, which defines natural-born Filipinos as those who have either a father or a mother who is a Filipino citizen.

“To be natural-born you must show blood relationship,” Carpio said.

The magistrate said the Constitution gives way to customary international law in providing citizenship to foundlings, but does not necessarily identify them as natural-born citizens.

The 1987 Constitution states that natural-born citizens “are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their Philippine citizenship.”

It also states that those born before Jan. 17, 1973, of Filipino mothers and “who elect Philippine citizenship upon reaching the age of majority” are deemed natural-born citizens.

Toward the end of the oral arguments, Poe’s counsel, Alexander Poblador, admitted that Poe’s biological parents are still unknown. Carpio noted that Poe’s birth certificate does not directly state her status as a natural-born citizen.

“If you look at the certificate of live birth of Sen. Grace Poe, at the face alone, you wouldn't know if she is a natural-born citizen because there is no father or mother there,” Carpio said.

Poblador said Poe is “in the process” of conducting DNA tests to prove her status as a natural-born citizen.

source:  Philippine Star

The ‘dark side’ of political dynasties

dy·nas·ty (dî’nə-stê)

n. pl. dy·nas·ties

1. A succession of rulers from the same family or line. 
2. A family or group that maintains power for several generations: a political dynasty controlling the state.

[Middle English dynastie, from Old French; from Late Latin dynastîa, lordship; from Greek dunasteia, fromdunastês, lord; see dynast.] 
[http://www.thefreedictionary.com/dynasty]

Some social scientists (including political scientists) work on their theoretical constructs and argue that they can make equal cases for political dynasties being a force for social good, even as others make a case for these being social evils.

I think we need to deal with our current realities and our experiences with the phenomenon of Filipino political dynasties.

A number of my friends observed that the bill seems aimed squarely at the Binay clan. I agree with their observation only to the extent that the Binays are one of the obvious targets.

But they are not the sole targets.

Our officially written and approved history, incomplete, and many times inaccurate, records all kinds of socially, economically, and politically influential and powerful families that often got to dictate what should happen.

I remember growing up in the 1950s and hearing that there were in the country “big and powerful families that could make things happen,” and that people were well warned not to cross.

I heard names like the Osmeñas and the Duranos of Cebu; the Arroyos at one time and then the Eugenio and Fernando Lopez brothers of Iloilo; in Negros, the dynasties were more socio-economic rather than political but they, too, were known to support certain politicians.

There were the Romuladezes of Leyte and the Teveses of Negros Oriental. And there were the Muslim overlords in Mindanao -- names like Kiram, Ututalum, Pendatun, and Alonto. In Luzon, we heard of the Crisologos and Singsons of Ilocos Sur; the Montaños of Cavite; the Lazatins of Pampanga; the Cojuangcos of Tarlac; and the Reyeses and the Santoses of Bulacan.

To be fair, many of these families did a lot of good for the people they served initially. A number were known not to abuse their position. Many of those families of my youth are still there but are no longer considered dynasties. They are just “well-situated”.

What made these powerful families remain as powerful as they had?

The shift to the “dynasties-as-evil” phenomenon came with the Marcos-Romualdez reign. Marcos was probably the most intelligent and far-thinking president we ever sat in office. He had parlayed his skills to build political, economic and social capital, and once seated, worked to increase all of those.

Assured of his popularity with a re-election, he then connived with his cabal to consolidate his hold on the country by declaring Martial Law. Within this context, he was able to do what he wanted, but always cloaked in legality. The allies who worked with him were given the chance to develop their own fiefdoms, their own satrapies.

The Marcos-Romualdez alliance developed the first of the deep dynasties -- family members holding appointive positions in many sectors and elective positions at many layers of government. Through various means he managed to hold a nation enthralled, then much later in thrall as his administration’s various means of securing agreement or negating dissent became more widely known. And for a while it seemed that the country would be under this dynasty’s stranglehold for a long while.

Ferdinand’s and Imelda’s dreams, jointly and singly, fell apart as the illusion of prodigious Philippine growth development melting away, at first slowly, then with gathering speed and the lies were revealed.

It took ex-Senator Benigno “Ninoy” S. Aquino Jr.’s murder to catalyze the nation that until that time had been stricken into inaction by fear.

As a taxi driver told me a week after Ninoy’s murder, “Duwag po ako pero noong pinatay nila si Ninoy, para hung sinabi nila na kung nakaya nilang patayin ang isa, kaya nilang pumatay ng marami; Kung nakuha nilang patayin ang magaling at popular, kahit sino kaya nilang patayin.” [I am a coward but when they killed Ninoy, it was as if they were saying they can kill one and they can kill many. If they can kill one of the best, they can kill anybody.] The fellow never read Joseph Conrad’s “Lord Jim”.

We no longer have Marcos in power, though the rest of family are around, unrepentant, even defiant, eager to re-establish themselves. But the family’s resurrection into prominence isn’t what I call “Ferdinand’s Revenge”.

His real revenge is the way he has corrupted the minds of even some of of the best of us, people who spoke the right sentiments when in rebellion against him and his cabal but who were astute students of the cabal’s ways and means.

These people, given the opportunity, did not hesitate to build their own empires. They managed to get either appointed or elected into positions of power and influence from where they built their political, social and economic networks.

Instead of dismantling the mechanisms of abuse, they retained and improved them, drawing more resources than even the Marcos cabal did.

Today we not only hear of the Binays but the Revillas, the Remullas, and the Ejercitos. And there are many more that have chosen to stay regional and provincial but dynastic nonetheless.

Our anti-bribery/anti-extortion laws punish both the extorter and the extorted. If the extorter can plant the seed of seeming willful collusion on the part of the extorted, he or she turns them into bribers instead. Under such conditions, no business owner would risk blowing the whistle. No one will testify that foundational work permits are given only to outfits linked with the mayor; and that on top of that, that the company had to yield a condominium unit per tower.

Last I heard, one powerful political family demand a floor per tower. But that is rumor, of course, because one cannot get anyone to testify. And it will remain rumor until someone is brave enough to risk jail.

Our current cultural norms, rooted in agrarian society and feudal systems, is in confluence with the poverty of our people to ensure a system where powerful politicians can distribute ill gotten largesse, distributing these freely, promising more benefits while keeping people a state of false hopes.

To be sure, the system provides patronage through “KBL” -- kasal, binyag, libing [marriage, baptism, and internment] -- gifts and contributions help the poor, as do helping them get jobs; subsidized basic (substandard) education (assured by beggaring the education budget) and intervening in appointments of teachers and officials; subsidized health services; birthday cakes plus a P1000 gift; free movies for seniors, etc.

But the costs are clear to those who would understand.

We need to change our corrupt system.

A long term solution is improved mass education and continuing information, communication and education programs for our out-of-school and even our employed and supposedly knowledgeable people.

Ours is a steep uphill battle.

But fight it we must, for our self respect and dignity as a people, and more so for our children and grandchildren who will inherit all these. There is a saying that the worst thing that can happen is for our children to spit on our graves. Let us make sure this does not happen.

Mario Antonio G. Lopez teaches at the Asian Institute of Management and consults for business, government and civil society.

maglopez@gmail.com

source:  Businessworld

Changing our game by changing the Charter

This column will re-echo the popular call for the amendment of the 1987 Constitution’s economic provisions (only), with accompanying enabling laws and budgetary commitments, even if it’s falling on deaf ears and empty minds.

And I favor a process where results are obtained from inclusive, open, and transparent nationwide consultations, processed in a constitutional convention and approved in a national referendum.

I disfavor amending the Constitution by adopting the phrase “unless otherwise provided by law” because it seems to me that current restrictions will remain in place until Congress decides to amend these on its own good time, ignoring the urgency of the matter. A caveat: deceitful overreach into political territory like term limits and language to accommodate the Comprehensive Agreement on the Bangsamoro-Bangsamoro Basic Law might be attempted. It must be prevented.

We need to grow the economy, attract foreign direct investments (FDIs), improve our competitiveness, reverse the diaspora, increase purchasing power and disposable income, raise gross national well-being, and enhance national security. The Philippines, although awash with domestic savings, needs long-term capital particularly in strategic services and infrastructure, energy, mining, national defense, public safety and others required to attain and sustain a 7%-10% growth in Gross Domestic Product (GDP).

Our average foreign direct investment in the past five years has been below $3 billion.

While 2015 is expected to be a banner year compared to past performance, the FDI flows today versus that of other countries in the region would still pale in comparison. Although we’ve improved our report card in the “Ease of Doing Business,” and Japan’s taking the risk of divesting and relocating some of its China business to the Philippines, we’re still generally unattractive because of the Constitution’s restrictions, institutional unreliability, and corrupt practices that turn off foreign investors.

Lack of foreign competition has enabled local conglomerates to tighten their grip of the economy.

If inclusive growth is the way to go, Article 2 of the 1987 Constitution should be restated as follows: “The State shall develop a self-reliant, productive and competitive economy that will best serve the interest of the Filipino people.” The Filipino people should be the ultimate beneficiary of dynamic economic growth and sustainable development.

The lack of vital infrastructure is a disincentive to FDIs needed in manufacturing, agriculture, and services to effectively reduce poverty. We need FDIs to build and operate new, efficient airports and seaports; tollways, telecom facilities; irrigation systems; power utilities; information technology and defense capacities, to name some strategic areas that investors weigh, consider, and compare before making a decision.

Unlike Vietnam that recently lifted its ownership restrictions to boost FDI flows, we still need to amend our land ownership and 60/40 rules that encourage dummyism and restrict the choices of foreign players to a limited bench of local partners. We must plug the entry of dubious investors with hidden agendas that feed the corruption of our institutions and harm national security. A telltale sign is when the scope and quality of bids in public-private partnership projects fall below expectations.

As such, the following game changers should be considered:

• Limit the negative list to vital infrastructure impinging on public safety and national security.

• No equity limit.

• Allow foreign investors in the exploration, development and utilization of natural resources.

• Allow foreigners to own residential, commercial and industrial property.

• Liberalize investments in new media and tertiary education.

Globalization, science, and technology have facilitated with ease the movement and spread of information, funds, goods, services and human capital. Transnationals are quick to spot new markets and opportunities and move their resources to the planet’s farthest corners. Direct investments reduce transportation costs, and take advantage of the local workforce and natural resources.

Properly directed and well-managed FDIs expand the pool of capital; speed up technology transfers and know-how; compel domestic firms to innovate and compete; and create other positive spillover effects. Economic downturns in leading economies have intensified competition to attract global FDI inflows. This leads to the big question as to what factors encourage or discourage foreign investors from placing their bets on a specific location.

The World Bank cites the following:

Market size
Market size, which is usually decided by the host country’s population, GDP and per capita income, is one of the most important in FDI location decisions. Market size provides insights about the host location’s general economic and demographic conditions; potential demand, purchasing power and growth; economies of scale and local resources.

Trade openness
Openness and market freedom encourages FDI and economic growth. Companies prefer host countries that are close to their export markets, have friendly import-export policies and participate actively in regional or global trade agreements.

Tax incentives
Tax incentives serve as an indicator for investors where the host country wants to channel investments to preferred growth areas. All things being relatively equal, tax incentives impact on investors’ decisions when compared to other locations. The records show that countries with tax havens and low corporate tax rates attract a steady stream of FDIs.

Labor costs
Export-oriented FDI companies tend to move their production to places offering low tax rates, labor rates, raw materials, and energy to control costs and optimize profits.

Economic and political stability
Stability and predictability increase investors’ trust and sense of security about returns on their investment. Corruption, confusion, and dysfunction do not. Geopolitical instability also drives away risk-averse investors. Example: China’s aggressive military expansion and recklessness in the East and South China Seas.

Due to the tensions and hostility toward Japanese investors, their companies are divesting from China and relocating elsewhere.

What’s clear is the region’s geopolitical and economic dynamics that are changing the direction of foreign direct investment flows.

We must be quick and nimble to catch the waves of change to alter course to where the sun burns bright and never sets on all Filipinos.

Rafael M. Alunan III is chair of the M.A.P. National Security Committee. He was former Secretary of the Interior and Local Government, and also held the post of chair of the National Action Committee on Anti-Hijacking and Terror in the Ramos administration.

rmalunan@gmail.com

map@map.org.ph

http://map.org.ph

source:  Businessworld

Grandfather Rule, a supplement to the Control Test

Certain provisions of the Philippine Constitution were crafted to protect the rights of Filipino citizens to utilize our natural resources and to engage in nationalized activities. However, this should not deter foreign economic investments that would allow the country to efficiently explore these natural resources and effectively operate public utilities or reserved activities.

In determining compliance with the minimum Filipino equity requirement, there are two acknowledged tests. One is the control test or the liberal rule. The other is the Grandfather Rule, which is known to be the stricter and more stringent test. In applying these tests, there had been confusion as to whether one method excludes the use of the other.

The control test provides that shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered of Philippine nationality. This test is straightforward and does not scrutinize further the ownership of the Filipino shareholdings.

On the other hand, the Grandfather Rule determines the actual Filipino ownership and control in a corporation by tracing both the direct and indirect shareholdings in the corporation.

According to the January 2015 Resolution of the Supreme Court in the case of Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp. (G.R. No. 195580), “the Grandfather test was originally intended to look into the citizenship of the individuals who ultimately own and control the shares of stock of a corporation for purposes of determining compliance with the constitutional requirement of Filipino ownership”.

The shareholdings should ideally be traced (i.e. grandfathered) to the point where natural persons hold the shares. However, this may be impractical and a limit must be set when tracing through the corporate layers to attribute nationality. Citing a memorandum from the Securities and Exchange Commission (SEC), the Supreme Court noted the suggestion of the SEC to apply the Grandfather Rule on two levels of corporate relations for publicly-held corporations or where shares are traded in the stock exchange, and to three levels for closely held ones or those which are not traded in any stock exchange. Clearly, the limits should not go beyond the level of what is reasonable.

The Supreme Court clarified the role of these tests in determining compliance with the required Filipino equity threshold. The Court explained that the use of the Grandfather Rule is a supplement to the Control Test in implementing the wisdom of the “Filipinization” provisions of the Constitution.

The Supreme Court recognized the intention of the framers of the Constitution to apply the Grandfather Rule in cases where there is corporate layering. It likewise noted that corporate layering, while admittedly allowed by the Foreign Investment Act, becomes illegal if used to circumvent the Constitution and other applicable laws.

The Court further discussed that the Grandfather Rule applies only when the 60-40 Filipino-foreign ownership is in doubt or where there is reason to believe that there is non-compliance with the provisions of the Constitution on the nationality restriction.

How then we do we determine the existence of doubt? In its Resolution, the high court clarified that “doubt” does not automatically mean the mere failure of the Filipino ownership to meet the 60% threshold of the corporation’s equity. “Doubt” refers to various indicia that the “beneficial ownership” and “control” of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.

To demonstrate these signs of doubt, the Court referred to the indicators of a dummy status as identified in a Department of Justice Opinion on the Anti-Dummy Law. These would be where the foreign investors provide practically all the funds and technological support for a joint venture undertaken with their Filipino partners, and where such foreign investors get to manage the company even while being minority stockholders.

In the Narra Nickel Mining case, the Supreme Court found that while the petitioning corporations complied with the Control Test, factual circumstances nonetheless raise doubt as to their true nationality and therefore requires the application of the Grandfather Rule. Some of the indicators of “doubt” found by the Court in the said case are the following: (1) the three mining corporations had the same 100% Canadian owned foreign investor, (2) the similar corporate structure and shareholder composition of the three corporations, (3) a major Filipino shareholder within the corporate layering did not pay any amount with respect to its subscription, and (4) the dubious act of the foreign investor in conveying its interests in the mining corporations to another domestic corporation, among others. These instances demonstrate that corporate layering was utilized to allow a foreign corporation to gain control of these mining corporations in the Philippines.

After applying the Grandfather Rule, the Supreme Court was able to trace and conclude that the Filipino shareholders did not actually have the required amount of control and beneficial ownership in the mining companies, and consequently failed to comply with the nationality requirement under the Constitution.

In a fitting ending, the Supreme Court enunciated its original April 2014 decision that “the Control Test is still the prevailing mode of determining whether or not a corporation is a Filipino corporation”. It is only in case of doubt, based on the attendant facts and circumstances of the case, that the Grandfather Rule is applied.

Elinor E. de Gracia is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-2728

elinor.e.de.gracia@ph.pwc.com

source:  Businessworld