When good legislation and good execution converge

When good legislation and good execution converge, the result is the greatest good for the public. This has certainly been true in the case of the Special Economic Zone Act of 1995 (RA 7916), popularly known as the PEZA[(Philippine Economic Zone Authority] Law.

While it is true that a number of laws had been badly crafted, and some should not have even been enacted, most of our laws were well legislated. Some were only badly executed, with others remaining unimplemented. The PEZA Law is an example of a good and ably implemented law.

How the law was enacted

Congress had then passed the Bases Conversion Development Act of 1992 that created the Bases Conversion Development Authority (BCDA). It was tasked with the conversion of the former US military reservations, principally those of Subic and Clark, into alternative productive uses following the eruption of Mt. Pinatubo and the withdrawal of US military forces. Thereafter, the laws establishing the Cagayan and Zamboanga Freeports were enacted, patterned after the Subic Special Economic Zone and Freeport.

Predictably, these laws opened the floodgates for the filing of more bills creating special economic zones (SEZs). The Economic Affairs committee was swamped with bills proposing SEZs, even in obviously non-viable locations that lack basic infrastructure such as electric power, water, roads, rails and ports, and sufficient skilled and trainable workforce. Hence, each bill carried a provision for hundreds of millions—even billions—of pesos to build the necessary infrastructure. There was no way the government could fund such appropriations.

A bill was therefore drafted by the committee providing that an agency be created that would establish the framework in evaluating the suitability and viability of the proposed SEZs—then already reaching a few dozens—in sites scattered across the country. Thus, PEZA was created under RA 7916.

Congress had, in effect, selflessly delegated its power to an agency that was expected to perform the task more professionally. But for the chair and members of the committee, it was a relief that they were spared the unpleasant task of explaining to their colleagues why their bills were not moving.

Areas that do not meet the criteria on the presence of infrastructures and available skilled and trainable workforce may still be developed, but through “local government and/or private initiative under schemes provided under RA 6917 (the Build Operate and Transfer Law), and without any financial exposure on the part of the national government.”

The proof of the pudding is in the eating. If the site is truly viable, the private sector should be willing to locate in the area.

The rationale of the Act was unassailable. It recognized the “indispensable role of the private sector in building a sound and balanced industrial, economic and social development of the country, in order to provide jobs to the people and thereby raise their individual and family income…”

PEZA performance

How has the PEZA performed? To date, there are now 247 ecozones established, with 2,500 enterprises or locators that had exported $417.873 billion worth of goods.

Of the country’s total manufactured exports, 87 percent came from PEZA-registered companies. Total investment has reached P1.821 trillion. These businesses now employ 808,745 workers.

With the exception of three government-funded SEZs—Baguio, Cavite and Mactan (the fourth, Bataan, had been removed from PEZA jurisdiction and given a separate charter as a freeport)—the rest of the PEZA-established ecozones were funded by the private sector, thereby saving the government billions of pesos.

How were these accomplished? Simply by enforcing investor-friendly policies.

PEZA practices not only a one-stop-shop but a non-stop-shop. In the manufacturing zones, service is available 24/7 except Good Friday. And the director general and top officials are on call 24/7.

PEZA is ISO:2008 certified for all processes at all levels in all sites nationwide. Peza has earned a reputation that it does not tolerate graft and corruption. Anyone can send his report to the director general directly at fax number 551-3449.

A streamlined system has enabled PEZA to be the first among 40 plus import permit-issuing agencies in the country to implement a fully automated import permit system for all export enterprises and an export clearance system for electronics enterprises.

A lean organization has reduced the ratio of support employees to companies from 1,000 employees supporting 334 companies (3:1) to 532 employees to 2,498 companies (1:4.7).

A paper on SEZs worldwide by the Foreign Investment Advisory Services (FIAS) of the World Bank’s International Finance Corp. cited only the Philippines for best practices in SEZs, and an example of successful regulatory reform that is improving overall investment climate in the country.

The organization exemplifies President Aquino’s slogan that “government will not be a hindrance but an enabler in doing business in the country.”

Unfortunately, the investors, especially the foreign ones, know that the government is composed of not just the executive and the legislative, but also of the judiciary.

It is not enough that our service agencies are freed of red tape and the regulatory system of capture; our judiciary must be seen as honest and upright.

Unfortunately, the trust and confidence of foreign investors in our courts are at an all-time low if we go by the stockholders’ agreement entered between them and their local partners.

In most cases, an arbitration clause is provided with an outside country, such as Singapore and Hong Kong, as the venue.

Worse, despite Congress, the executive and the Supreme Court in express support of arbitration as an alternative dispute resolution, we still have judges who issue injunctions against arbitration even in arbitral proceedings already started in foreign countries.

The combined efforts of the three branches of government are necessary if we are to succeed in our global campaign for foreign direct investments.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines.  The author is chairman of the Bases Conversion Development Authority. He was formerly the representative of the First District of Bataan and chair of the Economics Affair Committee. Feedback at [email protected]. For previous articles, please visit <map.org.ph>).