More ecozones and free ports needed?

A BILL converting the Bataan Economic Zone into the Bataan Special Economic Zone and Freeport has been passed by the House of Representatives and is now being deliberated 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 free port status is not necessary.

Either the government or Peza can budget funds for infrastructure 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 free ports, namely, duty- and tax-free importation of capital equipment, raw materials and supplies and a 5-percent tax on gross income of registered enterprises, in lieu of national and local taxes.

In fact, Peza-registered enterprises have superior incentives since they are entitled to income tax holiday not granted to Subic Freeport enterprises. 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 free port.

Economic zones

There are now 154 Economic Zones administered by the Philippine Economic Zone Authority (Peza) in the country. Except for four 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.

Creation of Peza

I recall that the Special Economic Zone Act of 1995 (RA 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 Sen. 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.

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 percent of total manufactured exports and direct employment from 91,880 in 1994 to 593,108 as of 2007—all attained by ecozones without free port status or funding from the government.

As incentives tend to be the same across countries, competitiveness is determined not by incentives 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 infrastructure, such as an efficient industrial park management and stable regulatory environment, 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 free port as far as fiscal incentives are concerned, what is the distinction, if any? The distinction is that a free port 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 free port …” “Goods” include 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 free port, kept hidden in a warehouse and surreptitiously brought out after arrangement with proper “contacts” is made.

How else did almost a ton of shabu chemicals get accumulated inside a Subic warehouse? 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 Metro Manila.

In Bataan, we have not forgotten the shabu laboratory, a few hundred meters from the municipal hall of the town of Pilar, that was raided by PDEA, not once, but twice! Local lawyers are alarmed that 90 percent of the criminal cases, such as murder, homicide, robbery, rape, theft, etc. that clog the Courts of Bataan are drug-induced or -related. Nationwide, the problem has so worsened that the Philippines is listed as the fifth major source of prohibited drugs!

Free ports also make the tasks of the Customs and Security Agencies that much harder. (This was seen when 10 percent of the country’s total oil consumption was imported through Subic. This volume could not have been consumed by the few establishments in Subic.) 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 US bases, no free port 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. Bataan Ecozone is not a greenfield project; it is already operational, unlike Aurora that had to be started from the ground up, and even Cagayan and Zamboanga SEZ and Freeports, which were given P1 billion each over three years.

Besides, 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.

Protests

Recently, there was a howl when Malacañang increased the PDAF by P700 million to accommodate party-list representatives. The approval of the Bataan SEZ and Freeport Bill is like giving P2-billion PDAF to the congressman of Bataan alone, since we know that the board will be dominated by the provincial officials’ nominees to the President.

Besides, if Bataan is conferred a free port status, can we deny the same for Cavite, Mactan and Baguio? And give them P2 billion each? Shall we convert the whole country to a free port then?

(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 was a three-term representative of the first district of Bataan and former chair and administrator of the Subic Bay Metropolitan Authority. He is chair of the board of the University of Nueva Caceres. Feedback at map@globelines.com.ph. For previous articles, please visit .) –Felicito C. Payumo, Philippine Daily Inquirer