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Opposing the PSA amendment is serving China’s interests

opposing the psa amendment is serving chinas interests - Opposing the PSA amendment is serving China’s interests

There are some who are so blind in their hatred against China that they are opposing bills amending the Public Service Act (PSA bill) because it allegedly compromises national security in favor of China.

The PSA bill seeks to declassify entities engaged in the operation of telecommunications and transportation as public utilities, thereby exempting them from the 40% foreign investment cap. In other words, the PSA bill seeks to open the transport and telecom industries to more competition.

On the contrary, those opposing the PSA bill are ironically serving China’s interests.

Why? Firstly, the status quo wherein telecom services must be provided by 60% Filipino-owned companies protects the dominant telco duopoly by preventing other foreign companies — not just Chinese — from entering the market and providing competition. The status quo is unable to deliver fast and affordable internet, making the country and the economy more vulnerable to disasters and uncompetitive in a world economy quickly moving towards the Fourth Industrial Revolution. Indeed, in the present time of the pandemic, the need for digital access is more important than ever but more companies cannot provide these digital and broadband services because of the foreign investment restrictions imposed on telecom companies.

Secondly, the status quo encourages “adverse selection” where only foreigners willing to skirt the law can invest in telecom and transportation companies. It is well known that the two leading telco providers, for example, have majority foreign ownership, using legal maneuvers from layering to the use of preferred stock.

Under the status quo, world-class American, European, and Japanese companies that play by the rules will not come to the domestic market and provide healthy competition. That leaves the industry at the mercy of the dominant duopoly, or those willing to bend the rules — a situation which fails to promote the rule of law.

Thirdly, our current investment regulation framework has more holes than Swiss cheese. Lack of foreign investment vetting for national security risk, a paper tiger National Telecommunications Commission, and the dearth of third-party audits for cybersecurity risk are but some of the many deficiencies in our law. These can all be corrected by the PSA bill.

Is the US pro-China because they have an open investment environment? Obviously not. However, the US ensures foreign investments are consistent with national security through vetting by the Committee on Foreign Investments of the United States (CFIUS). The PSA bill seeks to establish a similar vetting mechanism.

The PSA bill may further strengthen national security by: a.) prohibiting State-Owned Enterprises (SOEs) from investing in the voting stock in entities engaged in operating critical infrastructure (e.g. telecommunications and transportation); b.) mandating acquisition and retention of ISO data security certifications as a condition to retain a legislative franchise or other authority to operate in the telecommunications field, c.) increasing the power of the National Telecommunications Commission and other regulatory agencies to punish misbehaviour compared to the absurdly fines of P200 a day currently imposable under the law, and, d.) mandating that executive and managing officers of entities engaged in the operation of critical infrastructure (e.g. telecommunication and transportation) be Filipino nationals.

Fourthly, the PSA bill will enable the country to diversify sources of foreign investment, ensuring that our country will not be hostage to investors from China or a few foreign nationals. Opening the economy would mean investors all over the world can legally and openly invest in our telecommunications and transportation sectors which are critical to our economy. However, if any of them will compromise national security, then the PSA bill’s vetting provision enables the government to bar these investments, Chinese or not.

Lastly, the growing US-China cold war has prompted the US to announce a “CLEAN NETWORK” program, wherein US citizens’ data and internet infrastructure cannot be accessed by malign actors, specifically naming the Chinese Communist party. Under this CLEAN program, Huawei has been banned from supplying 5G equipment to US companies. The US is also beginning to certify whether those accessing US citizens’ data are “clean” (i.e. not using Chinese made equipment that could be a source of malign actions). There is an increasing risk, therefore, that all three telecom companies — Smart, Globe, and Dito — could be barred from accessing the US internet or US citizen’s data because they are heavily using Chinese made equipment. Under this rule, the Philippine banking industry can be cut off from using US-based financial services if they use the services of these three telecommunication companies. If such a thing happens, that would mean unmitigated disaster for the Philippine economy. That is the likely scenario under the status quo desired by those opposing the PSA bill.

However, if other foreign companies are allowed to invest and use non-Chinese equipment, then the country would have the flexibility and resiliency to overcome the problems posed by the growing US-China tensions and the US’ CLEAN NETWORK program.

Besides, Philippine majority ownership doesn’t necessarily mean that the country is safe from foreign attacks and influence. The Russians were able to meddle and interfere in the US presidential elections in 2016 without owning a single share in a telecom company.

As for the argument that the PSA bill is unconstitutional, that’s for the Supreme Court to determine. However, the Supreme Court has acknowledged the legislature’s power to define what are “public utilities,” affirming the declassification of shipyards and power generation as such. Moreover, the Supreme Court, the Constitutional Commission, and various treatises and articles have said that the rationale for public utility regulation is the regulation of natural monopolies, and telecommunications and transportation are not natural monopolies.

Therefore, those opposing the PSA bill in their hatred of China are unwittingly serving Chinese interests. They have cited false Constitutional issues in order to bar what they perceive as the threat of a Chinese company taking majority control of the third telecom provider. However, in their blind rage, they would rather have a status quo that leaves the country weak and economically uncompetitive, unattractive to non-Chinese foreign investors, and more vulnerable to Chinese influence.

 

Calixto Chikiamco is a political economist, and a board director of the Institute for Development and Econometric Analysis.

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