Ecozone veto a welcome strong signal from the President

This 2020 handout image from San Miguel Corp. shows an artist’s rendition of the New Manila International Airport in Bulakan town, Bulacan province. TMT FILE PHOTO

PRESIDENT Ferdinand “Bongbong” Marcos Jr.'s veto of House Bill (HB) 7575, the “Bulacan Airport City Special Economic Zone and Freeport Act,” which was almost his first official act as president, sent a strong signal to Congress and public observers. We hope that the welcome message that decisions will be based on relevant legal frameworks, comprehensive policy considerations and common sense is a precedent.

The bill, which was passed at the end of the previous legislative session and was coincidentally principally sponsored in the Senate by the President's sister, Sen. Imee Marcos, sought to establish a special economic zone in the so-called Aerotropolis mixed-use development that San Miguel Corp. (SMC) is building alongside its massive New Manila International Airport project in Bulakan, Bulacan.

Just prior to his departure, former Finance secretary Carlos Dominguez 3rd — who has consistently made a strong case against the creation of new ecozones since 2016 — advised President Marcos against signing the bill in a memo that pointed out several of the measure's critical flaws.

As written, the law would have allowed a degree of autonomy to the new zone that would infringe on the powers of other government agencies. In addition, the law would exempt enterprises within the zone from existing laws such as the build-operate-transfer (BOT) and joint venture (JV) guidelines, something that cannot be allowed unless the laws pertaining to those are also amended.

It was also noted that the law lacked provisions that clearly defined the boundaries of the proposed ecozone. In any case, the Department of Finance pointed out, the various fiscal incentives that have been typically made available to locators in ecozones are now available under the reforms implemented by the Corporate Recovery and Tax Incentives for Enterprises (Create) Act, making the creation of a special zone unnecessary.

In his veto message to Congress, President Marcos took note of these flaws, suggesting that in the bigger picture, any measure that would oblige the government to forego potential revenue at a time when the economy is under a great deal of strain is unwise, unless absolutely demanded by necessity. In informing Congress that he would consider the bill again, if it was revised to correct its manifold defects, President Marcos put the concept of ecozones in its proper place: an optional economic policy tool, provided it is properly crafted and applied, but not a required one.

Problematic concept

Whether he intended it or not, the President's veto message implicitly recognized that ecozones are a generally problematic concept, one that has been overused to less than desired effect here in the Philippines. Special economic zones are a product of 1970s development economics thinking, and were developed as a way for governments to bypass constraints on foreign investment — such as restrictions on foreign ownership — in a controlled fashion, while at the same time targeting economic development toward depressed areas.

In practice, while ecozones have by no means been a failure, they have largely failed to live up to their advertised benefits of creating economic growth in their surrounding areas. The simple reason for this is that whatever constraints are removed for locators inside ecozones, these still exist outside the zones, and have their same effects on stifling economic expansion. In recent years, economic thinking has come around to the realization that reducing investment barriers generally, even if not to the same extent as the “special” conditions in an ecozone, is more effective at attracting investment and catalyzing growth.

Congress, having approved the Create Law, amendments to the Public Service Act and the Foreign Investment Act, should already be aware of this, which is why the disappointment expressed by some lawmakers at the eminently sensible veto of HB 7575 is in turn disappointing to the public and potential investors. Hopefully, President Marcos' explanation of his sound reasoning in rejecting this measure will serve as the tutoring they need to close their evident logical gap, and inspire them to either produce a properly designed law, or perhaps even reconsider whether it is needed in any form.