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Foreign investment liberalization and national security

foreign investment liberalization and national security 816x427 - Foreign investment liberalization and national security
Chikiamco 071519 - Foreign investment liberalization and national security

The purveyors of “zombie apocalypse” scenarios, as a friend put it, are at it again. They take the most extreme and scariest scenarios and project these to keep change from happening. Don’t change. Keep the status quo. Otherwise, the zombies will come and get you.

Well, this is the argument of those who don’t want to liberalize foreign investment rules in the economy, whether by amending the Public Service Act (PSA) and other related laws, and/or removing the foreign ownership restrictions in the Constitution. The zombie apocalypse argument is this: if we open up the economy, the Chinese will take over our strategic industries and undermine our national security.

This is the line of the Leftists and a few “nationalistic” legislators. They are exploiting a growing anti-Chinese sentiment to say foreigners aren’t welcome to invest, particularly in telecommunications and transport industries.

Let’s take this zombie apocalypse argument apart and show that the opposite is true.

First, keeping these foreign investment restrictions doesn’t mean that the Chinese will be kept out and our national security won’t be compromised. In fact, adverse selection will operate in a restrictive foreign investment environment, i.e. we will attract only those foreign investors who are willing to skirt our laws.

There’s supposed to be a rule prohibiting foreigners from operating small retail shops and restaurants, right? But weren’t some Chinese- and Korean-owned restaurants found operating in Boracay? Also, the Department of Trade and Industry found some restaurants in Aseana City sporting only the Chinese language on their signage and menus and reportedly catering only to Chinese clients in violation of the law.

It’s also a well-known fact that the two telcos are effectively owned and controlled by Indonesian and Singaporean companies through a variety of equity and quasi-equity instruments, despite the Constitutional restrictions.

Second, removing the foreign investment restrictions will enable the country to diversify its sources of foreign investment and strengthen its national security. Perhaps, President Duterte is so weak-kneed and kowtowing to the Chinese government over the Reed Bank incident because he’s afraid that the Chinese government will crack down on the Chinese POGOs (Philippine Offshore Gaming Operators) which are propping up the real estate market.

However, if we remove these foreign investment restrictions, investors from all nationalities will come in (even Arab investors to BARMM). Our economy won’t be held hostage to the threats of a single foreign power. And if Chinese POGO investors do leave, non-Chinese investors can take up the slack — but only if our policies welcome them, rather than push them out.

As for the concern that the Chinese will take over our strategic industries with an intent to sabotage our national interests, well, there’s a solution for that. There could be a provision in the amended Public Service Act or legislation that would vest in the National Security Council the power to vet proposed foreign investment in certain sensitive companies or industries, just as how it’s done in the United States, Australia, and the European Union.

Besides, let’s not discriminate on the basis of race or citizenship. Not all Chinese companies are security threats. Some of them are world-class companies with world-class technologies, such as the drone company giant DJI, which just want to make money. Their presence here will be a boon to the economy. Unlike now, with the restrictions we have in place, most of the Chinese investors are in POGO operations, and some say these are money laundering operations and are giving us a black eye reputationally.

Third, by getting more foreign investments into the country, then more foreign governments will have an interest to keep our sea lanes open and help us defend our territorial integrity. This is true if we become part of the global supply chain because foreign companies have set up factories here. However, the “nationalists” want to keep the Philippines isolated, xenophobic, and economically weak.

What the zombie apocalypse propagators don’t want the people to know is that China grew on the back of foreign investments. Apart from the US, China is the biggest recipient of foreign investments. It was huge foreign investments that allowed China to import technologies and to innovate, where before they were backward and agrarian. If we want to strengthen our country so that we have the confidence to confront all manner of threats without being dependent on anyone, then we should follow the same path as China, i.e. welcome foreign investments, increase agricultural productivity, and industrialize. Focusing on service industries alone isn’t sustainable and will keep us weak. On the other hand, the zombie apocalypse propagators, the so-called “nationalists,” want the exact opposite: keep out the foreign investors even if we remain weak with a submissive and defeatist attitude.

Fourth, getting more foreign investments in transport and telecommunications via the PSA Act is important not only for the economy, but for national security as well. The poor state of our telecommunications, ports, shipping, and other infrastructure represents the soft underbelly of our national security infrastructure. This was shown dramatically during and after the Yolanda superstorm. Tacloban and many parts of Leyte went incommunicado. Rescue and food vehicles took days to go to Tacloban and bring relief to the affected communities. Why? Because our ships, ports, and roads were decrepit.

Opening up telecommunications and transport to foreign investments will solve the problem of weak infrastructure. Foreign investors will give competition to the local duopolies which refuse to modernize. They will also bring new technologies and modernize our infrastructure.

A final point: President Duterte has said that the present Constitution must be changed because it enables corruption. Therefore, he said that the military is angry and might stage a coup.

It’s the usual hyperbole from President Duterte. However, if there’s a provision that enables corruption, it’s those foreign investment restrictions in the Constitution. Those restrictions are keeping away foreign companies whose countries have strong anti-bribery laws. They also attract the wrong kind of investors who are willing to bribe their way into going around the present restrictions.

President Duterte should have used the Reed Bank incident to galvanize the country into accelerating development and modernization in the same way that the humiliation of the Japanese by Commodore Perry’s “iron ships” in 1853 galvanized the Japanese into the Meiji Restoration. The Meiji Restoration started Japan’s modernization because after it, Japan opened up and adopted Western practices, such as universal education, constitutional monarchy, and industrialization. In just 50 years after Commodore Perry humiliated it, Japan became a modern world power. On the other hand, the Japanese feudalists, just like our so-called “nationalists,” wanted Japan to remain xenophobic and isolated.

We want strength and national security? Open up the economy.


Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.

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