To: Commentary
Philippine Daily Inquirer
August 24, 2009

Another SEZ and Freeport?

A Bill (HB 1425) converting the Bataan Economic Zone into the Bataan Special Economic Zone and Freeport has been passed by the House of Representatives. It is now under deliberation in the Senate. The Department of Finance (DOF) is opposing it, and so are the Philippine Economic Zone Authority (PEZA), the Export Processing Zone Chamber of Exporters and Manufacturers, Inc. and employees of the Bataan Economic Zone.

The objectives of the Bill are written in the Explanatory Note. They are: to improve the infrastructures such as roads, buildings and communications; to help create jobs; and to attract tourists. On all three counts, a Freeport status is not necessary.

Either the National Government or PEZA can budget funds for infrastructures improvement; the latter has, in fact, already allotted P250 million for implementation in 2008-2009. As for creating jobs, the fiscal incentives are the same for registered enterprises, whether in PEZA-administered Ecozones or in Special Economic Zones and Freeports, namely, income tax holiday, duty and tax-free importation of capital equipment, raw materials and supplies and a 5 per cent tax on gross income of registered enterprises, in lieu of national and local taxes. And there is no reason why tourists will stop visiting the “pristine beaches and forests” of Bataan, which are outside the Bataan Ecozone in the first place, if it is not converted to a Special Economic Zone and Freeport.

Private-sector led Economic Zones

There are now 154 Economic Zones administered by the Philippine Economic Zone Authority (PEZA) in the country. Except for 4 Public Economic Zones built with Government funds under the defunct Export Processing Zone Authority (EPZA), namely, the Bataan, Mactan, Cavite and Baguio Economic Zones, the rest were developed and managed by the private sector mostly in partnership or in joint- venture with foreign companies. They are spread out in the country, and include industrial and IT parks and Tourism zones, such as the Laguna Technopark, Light Industry and Science Park, Carmelray Industrial park, Gateway Business Park, Cebu Light Industrial Park, etc.

Creation of the Philippine Economic Zone Authority (PEZA)

I recall that the Special Economic Zone Act of 1995 (R.A. 7916) that created PEZA was passed to provide the legal framework and mechanisms for the creation, operation, administration and coordination of special economic zones. As respective Chair of the Economic Affairs Committee of the House and Senate, then Senator Gloria Macapagal Arroyo and I decided that objective criteria be followed by the Authority in accrediting economic zones. As a politician, I understood the desire of every Congressman to uplift the economic conditions of his district, but my private sector experience also told me that many proposed sites were not viable. And the best test for viability is the willingness of the private sector to invest in developing the ecozone. If it does not think it is viable, Government cannot make it so by simply pouring on funds.

And the results proved the soundness of allowing the private sector participate in developing ecozones: from P33 Billion in 1994, investments in ecozones totaled P1.173 Trillion or 35 times in 1995-2007; exports increased from $2.739 Billion in 1994 to $40.889 Billion in 2007 or 86 per cent of total manufactured exports, and direct employment from 91,880 in 1994 to 593,108 as of 2007- all attained by ecozones without Freeport status or funding from the National Government. As incentives tend to be the same across countries, competitiveness is determined not by costs alone but by what Bill Gates referred to as “velocity’” or the ability of an enterprise to deliver goods, data and services to the market place ahead of its competitors. Hard, as well as soft infrastructures, such as an efficient industrial park management, sound regulatory system, consistent policies, and absence of graft and red tape have become more important.




Distinction

If there are no differences between an ecozone and a Special Economic Zone and Freeport as far as fiscal incentives are concerned, what is the distinction, if any? The distinction is that a Freeport is “managed and operated as a separate customs territory, thereby ensuring the free flow or movement of goods and capital within, into and out of the Special Economic Zone and Freeport…” “Goods” includes consumption goods such as liquor, cigarettes, chocolates, perfumes, fuel, etc. which are not allowed tax and duty-free entry in ordinary ecozones. And herein lies the danger- contraband goods such as the prohibited drugs discovered inside Subic Freeport (786 kilos of shabu chemicals) or high powered guns such as those raided a few days ago in a vessel off the shores of Bataan may be misdeclared and allowed into the Freeport, kept hidden in a warehouse, and surreptitiously brought out after proper “contact” is made. How else did almost a ton of shabu chemicals get accumulated? The open shoreline of Mariveles makes it more vulnerable. Even small bancas with outriggers can negotiate the mostly calm waters of Manila bay to bring the goods to the market of MetroManila.

Freeports make the tasks of the Customs and Security Agencies that much harder. That is why after Cagayan and Zamboanga Freeports, which are in the far north and south extremities of the country, and Subic which was given exception in the aftermath of the eruption of Mt. Pinatubo and the withdrawal of the U.S. Bases, no Freeport has been created by Congress.

One more dampener- the House approved Bill provided that the powers of the Bataan Special Economic Zone and Freeport shall be vested and exercised by a Board of Directors which includes the Governor, the Congressman and Mayor of the town. Even SBMA, Clark, Cagayan and Zamboanga did not have that provision. That would, in effect, transfer the administration from the PEZA to the Local Government Unit. Some enterprises already sent signals they would move out of Bataan Ecozone if that happened. The P2 billion budget is also not needed. The airport of Clark and seaport of Subic are only an hour away from Mariveles, Bataan on the SCTex. There is no need to duplicate these facilities in Central Luzon.

But if Bataan is conferred a Freeport status, can we deny the same for Cavite, Mactan and Baguio? Shall we convert the whole country to a Freeport then?

Felicito C. Payumo was three-term Representative of the First District of Bataan and author of the PEZA Law and former Chairman and Administrator of the Subic Bay Metropolitan Authority.