9.12.14

Again: competition law? Maybe.


(Remarks at the 1st National Competition Conference, Philippine International Convention Center, Manila, Philippines; 09 December 2014)

Good morning.

And thank you for inviting me to participate in today’s discussion on “Competition Policy and Regional Economic Integration”. Indeed, prevalent in today’s mind would be the subject of ASEAN integration. As it should.

With countries touted as interconnected and technology perpetually advancing, nevertheless, most international trade remain affected significantly by geography. And thus ASEAN will always play, should always play, an important part in the formulation of Philippine economic policy.

Competition policy is said to constitute a vital cog leading up to ASEAN integration by 2015. And members are “endeavored” to introduce competition policy and legislation by that year to “ensure a level playing field and to foster a culture of fair business competition for enhanced regional economic performance in the long run.”

It is worth exploring, however, the thought that before the Philippines indeed contribute to enhancing regional economic performance that its own economic interests – both in the short and long term – be solidified. And perhaps it is in that light that we best look at competition policy and legislation.

The trouble with assumptions

One fundamental problem with present discussions on competition law is the implicit reliance on this one assumption: monopolies are bad and government is the solution. But note, not even our Constitution see monopolies with that perspective: the “State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.” (italics supplied)

As my own newspaper BusinessWorld reported (Competition Law Urged, 28 August 2013) on the East Asia Forum on competition law, the consensus seemed to be that “a competition policy is considered important for a country to grow and consider itself an advanced economy.” Furthermore, “competition law should also be separated from politically motivated industrial policy as the latter allows the government to choose which industries to champion instead of letting natural competition occur in the market.”

Urging must be made to re-examine the assumptions on which such assertions are made. It is not dogma that monopolies are inefficient and stifles innovation. And because of the way today’s economic system is, with globalization and technology, the probability of a new entrant, whether locally or elsewhere, breaking in will always serve as an impetus to improve products or services.

Even claims related to predatory pricing need not go unexamined. Predatory pricing can work if the “predator” is willing (and able) to suffer deep financial losses and even then such would only be effective if the market itself is inundated with regulations that exempt, protect, subsidize current players.

Even declarations like “all advanced economies have a competition policy” should be rendered suspect. Simply because we’re not an “advanced economy”. Not yet anyway. Which should tell you a lot about the wisdom of importing and imposing a regulatory framework tailored for countries whose circumstances are not similar to the Philippines.

Indeed, the logic of the foregoing assumptions seems to be is that to further regulate the market will set it free. But we’ve known from trade policy history that such never benefits consumers and that protectionism has generally harmed the economy. And we’ve known from trade policy history that monopolies are created precisely because of regulations: that such regulations before had to do with tariff barriers and subsidies and now identified as monitoring and review really is of no difference.

A question of necessity

And then, there is the question of necessity. Or, more accurately, the degrees thereof. At the outset, let us get this straight: to agree to “endeavor” to have a competition law by 2015 does not mean we should have a competition law by 2015. The only deadline the Philippines must consider at this stage is its own interests and the welfare of its people.

Reference has been made (here and elsewhere) of the 2014 Economic Freedom Index. As its name indicates, the Heritage Foundation’s study measures a country’s openness to trade, economic mobility, and prosperity.

The Philippines is currently ranked 89 (out of 186 countries), although the same is said to be an improvement by 1.9 points. Amongst Asia-Pacific countries, the Philippines placed 16th out of 42. Overall, the Philippines is considered “slightly below the world average” or “moderately free”.

Of particular interest is the Index’s category of “Rule of Law”. For the Philippines: “Corruption and cronyism are rife in business and government, with a few dozen leading families holding an outsized share of wealth and political power. Judicial independence has traditionally been strong, but the rule of law is generally weak. A culture of impunity, stemming in part from a case backlog in the judicial system, hampers the fight against corruption. Delays and uncertainty negatively affect property rights.” In this regard, it is to be noted that as of 2010, Vietnam has overtaken the Philippines in terms of lessened corruption and is currently three ranks higher.

The Economic Freedom Index goes on to discuss ease of doing business or “regulatory efficiency”, noting that in the Philippines “launching a business takes 15 procedures and 35 days.”

The foregoing makes informative reading when set alongside the World Economic Forum’s 2014-2015 Global Competitiveness Index.

The Philippines certainly made improvements, ranking 52 out of 144 countries. However, the data seems to give the impression of the huge role that the private sector played in our improved ranking.

One can see this in our high scores in “business sophistication” and market size (which perhaps can be related to the fact that the Index declares our population to be at 97.5 million, with a substantial chunk of that, it must be added, belonging to the youth sector – more on this later). High scores in innovation and financial market complement this.

However, what is telling are the areas where the Philippines rank lowest: infrastructure, corruption, health and primary education, ease of starting a business, inefficient bureaucracy, and wage determination, hiring and firing procedures, and redundancy costs.

The media trumpets Philippine improvement in one pillar: “institutions” (rank: 67, formerly 79). But even then, when broken down, one sees that it is private institutions that gave us that higher score (at 48), with public institutions at 75. Two additional figures worth noting in this regard: judicial independence (77) and transparency in policymaking at 85 (and which probably highlights why a Freedom of Information Law can help attain better competitiveness for the country).

Nevertheless, the undoubted key for whatever prospects that may open to the Philippines is in education. There is one striking Philippine statistic that everyone should be aware of and that is in the area of demographics: Filipinos 30 years old and below comprise around 70% of the population (with those below 14 years at 35%, with the median age at 22.9 years old). Those at 65 years old comprise only about 4.1%. The future of this country quite simply depends on how well that 70% is educated.

In this regard, let us take note of The Times Higher Education World University Rankings 2014-2015, which declares itself to be “the only global university performance tables to judge world class universities across all of their core missions - teaching, research, knowledge transfer and international outlook. The top universities rankings employ 13 carefully calibrated performance indicators.”

The usual suspects are there: Cambridge and Princeton definitely (as well as some school called Oxford). From the Asian region, the list is filled with Japanese, Singaporean, Hong Kong, South Korean, Taiwanese, Indian, Israeli, Turkish, Saudi Arabia, and Thai schools.

And yet (although one is free to ignore the rankings for whatever excuse) not one of our schools joined the list of top universities. Not even in the “looser” Times Higher Education World Reputation Rankings, which is based on “nothing more than subjective judgment”.

Relate the foregoing with recent figures indicating that teenage pregnancy in this country rose by 70% in the past 10-year period (114,205 in 1999 to 195,662 in 2009). 2010 figures show 206,574 of such pregnancies. Data from the National Youth Commission show that the Philippines is third highest in Southeast Asia and among the highest in the ASEAN region and the only country where such number is increasing.

Furthermore, of the almost 3 million Filipinos currently unemployed, 48.2% are within the 15-24 age group, with 29.9% from those 25-34 years old. Most of them are high school graduates.

Also disconcertingly, 13-14% of all registered marriages are among teenagers below 20 years old while. On the other hand, perhaps not coincidentally, there is also a rise in annulment cases (records indicate a 100% increase in the past 10 years). Add to that the increasing incidences of rape.

Why are these numbers important in relation to our economy? Because the basic economic unit and source of productivity are people. And nothing develops people better than a strong family unit.

Potrykus and Fagan tell us that: “It is worth emphasizing that though economic production generally, and growth particularly involve three components, economic enterprise is a human activity. Human beings, by the measure of growth accounting, contribute over half of what is valuable to production. Only one third of growth may be attributed to non-human, physical capital. Domestic production is affected massively by the human component’s contribution.”

It bears worth pointing out that despite ASEAN integration being packaged as turning ASEAN into one big “production base”, the Philippines nevertheless is also hinging its strategy on expanding our services industry. But services require people. And people need to be educated and trained.

To further press the matter, while the Global Manufacturing Competitiveness Index recognized the importance of infrastructure, the economic, trade, financial and tax system, and the rule of law as drivers of competitiveness, the biggest driver of competitiveness and economic growth is, you guessed it, a country’s people: “the availability of high quality human talent will always remain in the top set of competitiveness drivers.”

And this is key for the Philippines: Demographics, more specifically aging populations, will have a significant impact on market attractiveness over the coming decades, with some nations like Japan, and even China, despite its large population, significantly inhibited by their aging populations and others, including the U.S. with favorable population age demographics gaining the upper hand as time passes.”

How the foregoing, which are clearly urgent matters all, are to be addressed by a competition law is something that needs further examination.

Competition Law? Maybe.

At this point, perhaps it’s best to state some caveats: do we need a competition law? Yes. But we need one that will work effectively for the interests of Filipinos. And the measure of its importance tells us that we better not be too eager in passing such legislation.

And indeed, when we say that we want to foster better competition then we better address the question: competition for whom? And competition where?

So, on a substantive level, and inasmuch as he pulled me to the punch in saying it, then I might as well borrow the words of Teddy Boy Locsin (in his 04 September 2014 “Teditorial”): “If the anti-competition law seeks to stop giant local companies from keeping local competition down and foreign competition out, then that law is a yes. But if seeks to break up local giants now dominating the local market and getting a lion’s share of a cash rich country after beating the foreigners who were taking all the money long ago, then it is a big, fat no.”

If we say better competition to benefit our consumers, then we have to remember that our consumers need money to consume. Which they can’t do if they’re unemployed or underemployed. Which means that they need companies, preferably Filipino companies, succeeding and succeeding well not only in the Philippines but also in an ASEAN integration and beyond.

Ultimately, size is relative and what may seem like giants in our neighborhood that is the Philippines may actually be puny when placed in regional and global arenas.

Consequently, the size of our market should lead us to appreciate the idea of “natural monopolies,” whereby maximum efficiency is derived by way of economies of scale through one or two suppliers.

As such, Filipinos should be supportive of even larger Filipino conglomerates. Take any as example and one would see that despite their size and reach, could not really be considered possessing monopoly power due to the nature and threat presented by global (or regional) competition.

Again, Teddy Boy Locsin gets it remarkably right: “Big is better if it is Filipino because capital has a nationality” but “big is bad if it is foreign, which will destroy what we have, milk it by big bonuses, siphon profits abroad, and make sure no Filipino ever gets big again. If foreign competition wants to break up Filipino giants, let the free market do it. Do not make a Filipino law tailor-made for foreigners do the job for them. Foreign competition does not believe in Filipino competition in their home countries. It only believes in foreign competition here and elsewhere abroad.”

That is why questions on the need to regulate mergers through a competition law at this point are with merit. Not all countries with competition laws even have provisions on merger regulation. As Lisa Campbell, Senior Deputy Commissioner, of the Canadian Competition Bureau, remarked: “the size of a business, even one that dominates a particular market, is not in an of itself, a cause for concern. Businesses may need to become large to achieve lower production costs or to compete against foreign and domestic competitors.” (International Antitrust Forum Fifth Annual Chicago Forum on International Antitrust Issues, June 12-13, 2014)

Further on the substantive, we know that a government-managed competition will not result in free competition. We know that doing so results in inefficiency. Instead, at this point, the best competition policy that we could advance would simply be to strictly enforce the rule of law. The many many laws that we already have now.

Instead, if we must have a competition law by next year, then let it include provisions on the possibility of foreign corporations sneaking up in acquiring Filipino companies or influence to the point that monopoly powers are exercised from beyond Philippine jurisdiction, constricting Filipino entrepreneurial efforts, and damaging local consumer interests. And let us explore more vigorously the idea of implementing the “effects” doctrine as a manner of acquiring jurisdiction over those who seek to damage Philippine economic interests from abroad.

One last point on the substantive: if we must have a competition law then why are the competition law drafts essentially similar in text to foreign competition laws? To have influences is understandable but that is not the point. US laws are worded generally, for example, but that is so because the core provisions were made a century ago. But that was followed by more than a hundred years of US jurisprudence (plus that of Europe and Japan) that we should have learned from and could have been inputted into the draft competition law, thus giving the same more depth and precision.

At the institutional level, I invite everyone to peruse BizNewsAsia’s 01 December 2014 issue. There it reiterates a fact that every economist and policymaker knows: the Philippines has “24 million families and 100 million people.” And yet, political and economic power has been held only by a select few. With that, “since 1962, the country has deteriorated, from Asia’s richest to being the region’s economic laggard.”

I mention that because indeed, another area we need to look at is the connection that competition policy has with corruption, and thus, relatedly, the need to constrain the ill-effects of having both political and economic power held by a select number of families in the country, which is something that even the latest drafts of our competition laws seem to ignore.

Because, what is the point of having trade commissions, legal procedures, and the like if in the end the judged and the judge are from the same side of the fence? Competition laws work in the US and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exists between the two groups in any country, that is a far cry from having the same families actually in control of both business and government.

In conclusion --

I should wrap up here before I exceed your patience (if I had not done so already!).

Competition policy and law are definitely important. But they are not panaceas. And like everything else, they would need a certain context to have any positive effect.

In this regard, we must consider that competition-wise we are not as ramshackle as others would have us believe. The Global Competitiveness Index gave us good marks for “intensity of local competition” (61), “prevalence of trade barriers” (51), and “prevalence of foreign ownership” (51). And studies (such as Ajit Singh’s) suggest that policymakers should consider “optimal” degrees of competition rather than maximum competition as apt for a developing country economy (such as the Philippines’).

Contrast this with the scantiness of our resources and experience, administratively and judicially, that are necessary to implement a competition law. Couple this with the abundant reliance on outside analysis that may not have thoroughly considered the peculiarities of the Philippines.

On this point I agree there is a huge need to develop competition advocacy: the thorough education of both Bench and Bar, and the eventual creation of experienced and trained competition and consumer champions.

From years of policymaking we know that if there’s a thing that the ruling sector wants immediately accomplished, with zero fuss, then generally it’s best to make a fuss about it. It is precisely at such moments that time for further study becomes a necessity.

In relation to crafting our competition law, the same thought should apply considering the profound effect it will have on the country’s economy and Filipino lives.

Thank you. I think shall stop here.

= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

References:

ASEAN Competition Law and Policy: Toward Trade Liberalization and Regional Market Integration (Pornchai Wisuttisak & Nguyen Ba Binh; ICIRD 2012)

Drafting Competition Law for Developing Jurisdictions: Learning from Experience (Eleanor M. Fox
 and Michal S. Gal; 2014)

The Divorce Revolution Perpetually Reduces U.S. Economic Growth: Divorce Removes a Fourth of Head-of-Household Productivity Growth (Henry Potrykus and Patrick Fagan; 2012)

Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions (Ajit Singh; G-24 Discussion Paper No.18, 2002)

2014 Economic Freedom Index (Heritage Foundation)

2014-2015 Global Competitiveness Index (World Economic Forum)

2014-2015 Times Higher Education World University Rankings

2013 Global Manufacturing Competitiveness Index (Deloitte Touche Tohmatsu Limited and the U.S. Council on Competitiveness)

2010 ASEAN Regional Guidelines on Competition Policy

27.11.14

Philippine trade: identity as strategy

is my Trade Tripper column in this weekend issue of BusinessWorld:

It will be likely correct to say that when it comes to international trade, the Philippines essentially relies on “road maps.” And indeed we do have one, particularly to “eliminate” poverty by 2016, which coincidentally is the year the term of the present administration ends. Usually, our road maps focus on certain “key sectors,” such as agriculture, business process outsourcing, road infrastructure, power infrastructure, manufacturing, mining, and tourism.

The question, really, is how effective those road maps are. Any good plan goes beyond concrete goals to include possession of necessary information grounded in experience and real world circumstances. And, at present, the issue for the Philippines (and study after study confirms this) has to do with competitiveness. Because no matter how many trading partners we have or trade agreements signed, the same would still not matter when brought alongside demands of competitiveness.

A significant area of our competitiveness issues goes beyond that of red tape (though indeed a huge problem) and corruption (which still needs to be actually addressed). Equally as important are management practices and productivity. When one looks at the world competitiveness surveys, these are the usually overlooked areas where the Philippines lags behind its competitors. This is a real issue, with quite actual, quantitative consequences.

Unfortunately, it has to be said as well, our response to international trade seems to be stuck in the 1990s. We fail to realize, as William H. Overholt (“It’s time to update our thinking on trade”) ably pointed out, that the “GATT and the WTO were devised for a simpler era, when it was possible to think about world trade in the way Ricardo taught -- namely that a good is produced in one country and consumed also in a single country. That two-country model worked relatively well until about 1978, when China started opening its economy by establishing special economic zones across the border from Hong Kong. By the last decade of the 20th century, production had become a complex global process. The logic of increasing efficiency by reducing trade barriers remained completely valid, but policy adaptation of that logic to a new era has faltered.”

This inability to recognize how trade evolved also feeds our continuing incapacity to measure it properly. An idea of this can be taken from Stephen Grenville (“Are we measuring international trade correctly?”): “Perhaps the most fundamental change in international trade in recent decades has been the development of multinational ‘supply chains.’ The production process has been ‘unbundled,’ with different stages of production taking place in different countries. An iPad is assembled in China, but only $10 of the total production costs takes place in China; most of the total cost comes from inputs made in other countries, including the intellectual property and design input from Apple in California. In conventional trade statistics, exports are counted in gross terms, so the cost of the assembled iPad (including those elements imported into China) is counted in China’s export figures.”

Essentially, what he suggests is to examine “value-add” statistics, which provides a perspective on the value of services. Admittedly, “value-add statistics don’t replace the conventional gross statistics, which are available more quickly and don’t rely on so many assumptions. Nor are they the last word in the ongoing process of refining statics to reflect a changing world. But they provide a valuable alternative perspective, sometimes with policy implications. At the very least, they are a reminder of the complexity of international trade.”

And these complexities increase exponentially with free trade agreements (FTAs). And I have long bemoaned our inability to take advantage of the FTAs we joined. Studies have shown (and confirmed) that Philippine use of the FTAs, particularly that of the 1992 Asean Free Trade Area, have consistently lingered in the region of 20-25%.

Of course, trade officials keep underscoring initiatives to increase awareness of the said preferential trade provisions available to our businessmen. But, frankly, I’ve been dealing in international trade for more than a decade now and I know that it would definitely take more than seminars or workshops to address this perpetual utilization issue. And our products’ competitiveness is still paramount: even assuming that markets are indeed opened, that does not necessarily mean that the consumers in those markets will buy our products or services. The Japan-Philippines Economic Partnership Agreement is a good example of this.

Overall, there has to be a greater degree of calculation relative to our trade policy. This is all the more compounded by our lack of governmental resources and the obsessive insistence that our trade policy research and negotiations work be kept within a small pool of bureaucrats.

And while ideally, multilateralism remains the best avenue for the Philippines, nevertheless, I encourage waking up to reality. The options open to us -- multilateral, regional, bilateral -- all require a tight balancing of priorities and a refusal to think in dichotomies.

But ultimately, it requires from our leadership a keen concrete sense of what the Philippines’ place in the world is.

The WTO's faded glory

was my Trade Tripper column in the past weekend issue of BusinessWorld:

To say that the World Trade Organization (WTO) is struggling is an understatement. Particularly regarding relevance, the WTO is grappling with a global economy that currently seems to have no use for it. That may not seem like the case here, with law schools in the Philippines still treating it (i.e., “international trade law” or “international economic law”) as some sort of prestige program. But the truth is that local “trade lawyers” today are merely living off faded glory.

It doesn’t mean that the WTO is dead and should stay dead. But it would have to take a fair amount of change at profoundly varying levels for it to recover its significance.

And the stakes are worth it. As I wrote previously, the best way to ensure “developmental” success for developing countries is through multilateralism. But that requires the developed countries to practice what they preach. Instead, the tact of the developed countries is to break up developing country positions through regional or bilateral trade agreements.

Though the United States is more successful than the European Union in that aspect, yet, as seems systemic in anything having to do with international affairs today, the US’ (more specifically, the Obama administration’s) lack of leadership in this area is calamitous.

Melbourne economics professor Peter Lloyd more descriptively states: “The US has joined the EU in preferring improved market access through preferential trade agreements with small groups of countries over general multilateral trade liberalization. Now in the WTO few members seem convinced of the gains from multilateral trade liberalization. After a session of negotiations relating to industrial goods in 2009, the chair likened himself to ‘the captain of a boat no one seemed to want to board.’”

Obviously, there is a need to “fix” the WTO. But how? Most blame the “consensus”-driven system of the WTO, as Emily Jones reported: “The World Trade Organization’s (WTO) director-general, Roberto Azevêdo, has called for an urgent shake-up of his institution. Last week, he declared the WTO to be in ‘the most serious situation [it] has ever faced,’ and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision making -- one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.”

However, such presents an irony. Developed countries only resorted to that reasoning simply because of Doha.

Doha’s unintended importance is that it publicly revealed developed country calculations: launch a round with some nice motherhood statements, let the developing countries flounder in their under-resourced and unorganized way through the talks, conclude like Uruguay, and developed rich countries happy again. Unfortunately, the developing countries were apparently not given copies of the script. Learning from the Uruguay Round and gaining further experiences from Cancun and Hong Kong, the poorer countries learned to stand their ground and maintained focus.

Hence, a further aspect of developed country efforts to “fix the WTO” and that is free trade agreements. As Jones puts it: “These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on the Trade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade -- China, India and Brazil. The reason most of the large ‘plurilateral’ negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial -- hence the proposal to abandon the rule.”

Which leads to the second irony: that the trading system is stuck due to the developed countries’ inability to recognize fundamental developments. As Fung Global Institute William H. Overholt writes: “We must begin addressing the world as it is and will be, not the world of generations past. Ironically, in the process the WTO remains crucial to a vibrant world economy. Without the WTO’s dispute settlement mechanism, trade wars will ignite everywhere. By allowing the WTO system to decay, and by blaming globalised trade for problems that are unique to the past generation, we risk going back to pre-World War II trade wars. We need a modern, multilateral structure that updates the WTO, not a degeneration of the global trade and investment system based on a failure to recognize the shape of the new world we are entering.”

Unless that happens, the likely probability is that the WTO remains sidelined. And with that, the interests of developing countries.

18.11.14

Submission to the Ad Hoc Committee on the Bangsamoro Basic Law, House of Representatives Congress, 18 November 2014

AD HOC COMMITTEE
ON THE BANGSAMORO BASIC LAW
House of Representatives
Congress, Manila

Sirs,

This is with regard to the deliberations on House Bill No. 4994.

With a deliberate intention of not replicating what I expect have been discussed previously before this body, I limit this submission and focus on certain remaining key points.[1] Essentially, what I would like to say is this:
  • Discussions on the Bangsamoro Basic Law have, respectfully, served as a distraction from the actual issue: the constitutionality of the Comprehensive Agreement on the Bangsamoro. Whatever draft the outcome of these deliberations may be on the BBL, the same would be futile as ultimately the arbiter of the BBL’s effectiveness would not be the Constitution but rather the CAB;
  • Having said that, it is respectfully the duty of the Congress to legislate constitutional laws and laws that are not in the nature of a “grave abuse of discretion”. It is submitted that the BBL does not satisfy this standard, their being other possible solutions available to address the concerns faced by our brothers in the South and in a manner that does not discriminate against other citizens.
I would now expound on these two points, as briefly as possible:


CAB as International document

The subject proceedings before the House of Representatives have to do with House Bill No. 4994, popularly identified in the media as the Bangsamoro Basic Law. The declarations made in relation thereto are that the planned BBL could “fix” or “cure” any possible or alleged infirmities in the CAB. It is submitted that such is not the case.

Firstly, the BBL cannot “fix” (amend) the express provisions of the CAB, and, finally, the BBL is only applicable to those who admit themselves Filipinos and subject to the Constitution.

It is in the nature of international agreements that they are not to be thwarted by local laws (including the Constitution).[2] As to the latter part, the same is brought about by the ambiguities relating to the nature of the identity of the Bangsamoro vis-à-vis the Philippines and the fact that the Constitution itself was mentioned only once in the CAB and only for purposes of saying that it is to be amended.

The fact is, the government, by agreeing to terms in the CAB like “armed conflict”, “self-governance”, “combatants”, the “justness” and “legitimacy” of the “cause of the Bangsamoro”, “internal waters”, “core territories”, and the unwitting use of the term “self-determination” (which essentially under international law is akin to “secession”)[3], and the participation of other States in the process (e.g., Malaysia) has arguably elevated the CAB to the level of an international instrument.

Malaysia’s “witnessing” of the CAB is a definite eccentric development in this matter.[4] It further bolsters the contention of the internationalization of the CAB and also raises questions of prudence: Malaysia, after all, is contesting our ownership of Sabah.

One interesting matter is the Department of Foreign Affair’s leading role in this issue. After all, the matter of autonomous governments has always been within the purview of the Department of the Interior and Local Governments.[5] There was no reason why the same was not done in the matter of the Bangsamoro. The foregoing is not merely an administrative question. It actually signals how the government sees the nature of this issue. As it is, the DFA’s participation strengthens the possible claim that the CAB is an internationalized document and issue.

Bottomline: whether or not the BBL is constitutional may, at present context, be ultimately irrelevant. If it is constitutional, it will still (by the express provisions of the BBL) have to be read within the context of the CAB’s doubtful constitutionality. Its effectiveness also becomes doubtful. If the BBL is not constitutional, then that situation speaks for itself.


Statehood and unconstitutionality

Focusing then on the CAB, the biggest issue (at least to my mind) is the fact that it actually created a new State.

It is to be noted, as an aside, that the CAB imposes on Filipinos a “peace” under a very specific set of conditions that does not require conformity to the dictates of our Constitution. It is a “peace” that demands we acquiesce to the notion of certain “hurts” allegedly inflicted by our Republic. This is to forget that the Muslims contemplated part of the Bangsamoro have freely participated in the democratic process and thus share responsibility for any development (or lack thereof) in this country.

In any event, that the Bangsamoro is geared towards Statehood independent of the Philippines is palpable. One sees that in Article I.5 of the Framework Agreement on the Bangsamoro (which forms an integral part of the CAB), the Bangsamoro getting their wish that their continued insistence of the quite discredited (under international law) “First Nation” argument be acknowledged in an official instrument.

And as I have pointed out in other venues, it can be argued – by anyone inclined to do so – that all four elements of a State[6] have been granted to the Bangsamoro. That it has the elements of “people” and “government” are seen from the provisions of Arts. 1.1, I.2 and 1.5 of the Framework Agreement. That it has the element of “territory” are seen from the provisions of Article I, as well as Article V, particularly Article V.1. That the fourth and final element (“the capacity to enter into relations with other States”) is also already acquired by the Bangsamoro can be seen from the provisions of the Framework Agreement and the Power Sharing Agreement, example of which is that the Bangsamoro has “the power to enter into economic agreements.”[7]

The Bangsamoro, furthermore, has been granted all the powers of a State: police powers[8], taxation, and eminent domain. It even has its own executive, legislative, and judicial branches of government.[9] At this point, for the Philippines to refuse “recognition” is inutile. The fact that it’s provided for under the Agreements that the Bangsamoro and the Philippine government has an “asymmetric” relationship means nothing.

Thus, as of 27 March 2014, all the Bangsamoro needs to do is declare that they are a new State. No recognition is required from other States (as recognition is not an element for Statehood). And even then, at least for political reasons, it is not farfetched to believe that the countries thanked in the “Acknowledgement” portion of the Comprehensive Agreement would readily give that recognition.

Accordingly, it is submitted that the provisions of the CAB, supplemented by certain provisions in the BBL, have utterly laid futile any determination on the propriety and constitutionality of the BBL. They key really is to determine the CAB’s constitutionality and as long as it exists in its present form, then a palpable detriment to Philippine interests remain that a BBL will not be able to solve.


Constitutionalism as duty of all

At the outset and this time looking at the constitutionality of both the CAB and the BBL, it must be emphasized that Article VIII Section 1 of the 1987 Constitution has broadened the scope of judicial review. Traditionally, constitutional theory has distinguished between political and justiciable questions. Political questions refer to questions of policy, “those questions which, under the Constitution, are to be decided by the people in their sovereign capacity; or in regard to which full discretionary authority has been delegated to the legislative or executive branch of government”.[10]  In other words, a political question is a question regarding the wisdom, not the legality, of a particular measure.[11]

However, while this doctrine still holds, the scope of justiciable questions has expanded with the adoption of Article VIII, Section 1 of the 1987 Constitution, which defines judicial power as “the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of Government.” (Underscoring supplied.)

“Grave abuse of discretion” is frequently defined as "capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction."[12] In addition, explanations of the concept of “grave abuse of discretion” frequently state that, “[t]he abuse of discretion must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.”[13]

The foregoing also must be accomplished with the directive of the Constitution, that the State must “promote the common good, conserve and develop our patrimony, and secure to ourselves and our posterity the blessings of independence and democracy under a rule of law and a regime of truth, justice, freedom, love, equality, and peace.”[14]

The point here is that the mandate given to the Supreme Court also results in the logical corollary duty on the legislature: that the broad discretion that the legislature enjoys in enacting laws is not absolute but must follow, among others, such standards on legislation being “sound”, fair, and reasonable.

Equally importantly, constitutional law, properly understood, does not give to the Supreme Court the exclusive power to determine the constitutionality of an issue. It is not meet or proper that the other branches of government pass such questions to the Supreme Court. The questions of constitutionality is something that must be addressed and answered by all. And Congress is certainly authorized, empowered, and mandated to pass only legislation that in its rightful use of judgment is in compliance with our Constitution.


Unequal treatment

The CAB and BBL does not serve consistency and serves as bad precedent.

Government and others’ numbers peg our indigenous peoples’ population to be between 14 to 17 million. In any event, the numbers, whatever they may be, they constitute a far bigger group than the Muslims (around a mere 5%). Although the latter is indeed more concentrated in the South, nevertheless, again in scope of territory claimed (by way of ancestral domain or ancestral lands), indigenous peoples would account for around 20% of the total land area of the Philippines.

Hence, there’s the issue of consistency and of precedence. Inasmuch as indigenous peoples have a far larger population, claim a bigger land area, have consistently proclaimed their being of the Philippines and that they are proudly Filipinos, and – most importantly – have been quite peaceful in their advocacy for better rights and contented themselves with resorting to our legal system, then the indigenous peoples have been given short shrift indeed.


Living and originalist constitutional readings

A short word on how some tried to justify the Bangsamoro agreements and draft law by advocating for a more 'flexible' reading of the Constitution. Their position is that the words of the Constitution should be interpreted "liberally" (actually loosely) to fit the policy advocacy of the present. This is representative of the “living constitution” theory so beloved by the "progressive" left.

But ultimately, it is just that: a theory. Which upon closer inspection makes no sense when one considers how carefully words are considered during the Constitutional Commission process and the fact that we have amendatory provisions in the Constitution. Put another way, if one can interpret the Constitution any which way one wants, then whats the point of having an amendatory provision?

In that regard, to give a further point against the “living constitution” reading, it must also be pointed out that both the CAB and BBL expressly ask for the amendment of the Constitution should the former be seen not to comply with the latter. Such a provision would hardly be necessary if indeed anyone believes (particularly those who negotiated the CAB) that the Constitution can be read in such a flexible manner as to justify the CAB/BBL.

University of Navarre trained law expert Cristina Montes explains the matter more directly: “With all due respect, this mentality towards the constitution is flawed and dangerous. First, it assumes that only lawyers have the duty to uphold the constitution. Second, it forgets that the Constitution has been enacted precisely by ‘the sovereign Filipino peopleto define and limit the exercise of the fundamental powers of government. The flexible reading of the Constitution that the said legal expert espouses could justify exercises of government powers beyond the limits imposed by the Constitution, and thus could spiral into tyranny or anarchy. This would defeat the purpose for enacting a written constitution in the first place.”

Furthermore, as Ms. Montes explains: the “comparison of the situation of the Muslim population in the Philippines with slavery and apartheid is off-base. The situation of the Muslim population in the Philippines is a far cry from that of the blacks under the regimes of slavery and apartheid. The Muslims in the Philippines enjoy the same rights as other citizens under the Constitution, including freedom of religion and equal protection of law.

The Sharia courts are part of the Philippine judicial system, and Congress enacted the Muslim Code of Personal Laws to accommodate their unique religious customs. The Constitution even provides for the creation of an autonomous region in Muslim Mindanao. No other religious group in the Philippines enjoys governmental protection to that extent. The issue is not whether or not the rights of the Muslims in the Philippines are to be upheld, but rather, whether they have a right to secede from the Republic of the Philippines and establish their own Islamic state.”[15]

The point here is this: the provisions of our Constitution have been carefully worded and deliberately so. It has been done to amply consider our past and account for the foreseeable future. Its words are to be respected and not disregarded cavalierly. If indeed the provisions of the Constitution do not meet the exigencies of the time, the remedy is to follow the amendatory procedures outlined therein and not to merely stretch the Constitution’s words and make believe that its words can mean anything. That path, the latter path, leads to despotism.


Other possible solutions

To support the creation of the planned Bangsamoro, the Bangsamoro Development Plan (BDP) was conceptualized as a “comprehensive roadmap for the social recovery and rehabilitation of the Bangsamoro.” It was “tasked by the MILF Central Committee on March 22, 2012” and is supposed to “address the underlying sources of conflict in the region through the strengthening of institutions, provision of equitable access to social services and jobs and livelihood; and the establishment of citizen security, stability and rule of law. All these to promote and lead to the eventual realization of a just, peaceful and prosperous Bangsamoro.”

Incidentally, the European Union pledged on Wednesday to provide at least 5 million euro worth of assistance by next year to implement the Bangsamoro Development Plan (BDP).[16] The Australian ambassador, on the other hand, hailed the BDP as “a key milestone to lasting peace and prosperity in Mindanao.”[17] Meanwhile, the Japan International Cooperation Agency looks “forward to the plan’s sound implementation to help Mindanao and its people realize the impact of peace and development in their lives.”[18]

This is interesting when you consider that most Filipinos haven’t even seen the BDP.[19]

And which also raises this question: why is it necessary for there to be a Bangsamoro before a development plan appreciated by many is made?

With all the constitutional and political concerns surrounding the CAB and BBL, perhaps it may be a good time to review the Brunei Darussalam-Indonesia-Malaysia-the Philippines East ASEAN Growth Area, otherwise known as the BIMP-EAGA.

The BIMP-EAGA was a project started during the presidency of Fidel Ramos and had for its objectives “increased intra- and extra-trade among EAGA focus areas; increased investments in the EAGA subregion by 10%, and increased tourism arrivals in the EAGA subregion.” One of its defining characteristics is a strong working relationship between the private and public sectors. And according to most accounts, it worked.

In its early days, the BIMP-EAGA made gains in the area of transportation (both for goods and people), telecommunications, and tourism. The latter had the collateral effect of raising awareness in the region, thus giving strong potential to investment.

From the Philippine perspective, the problem is that succeeding administrations have paid merely lip service to this project. Surely, there were recent government nods to a “regional and international cooperation”, as well as the Davao City-General Santos City-Tahuna-Bitung sea route. But the latter is more of a private sector initiative than anything else.

The fact is, we already have a constitutionally approved autonomous system in place in that area and that is the Autonomous Region in Muslim Mindanao (ARMM). And most of ARMM’s problems are traceable to the economic, more than anything else. Despite its wealth in resources, it remains a quite impoverished area, with a per capita gross regional domestic product around 70% below that of the national average. Ironically, ARMM depends on the national government for a huge bulk of its revenue needs. And yet that is what the BIMP-EAGA was designed to solve.

The BIMP-EAGA is certainly a more palatable, mature route than the CAB’s “peace” made up of conditions that fail to conform to the dictates of our Constitution. And most damningly, it is a “peace” that demands the Philippines meekly submit to the accusation that it indeed inflicted “hurts” on Muslims.

Just to be clear: this submission does not say that the BIMP-EAGA can solve the concerns that the CAB/BBL purportedly seeks to solve. No. It was merely stated here to serve as an example that there are other possible solutions, developmental mechanisms, that could be done without resorting to the CAB/BBL and that such could be done within the present legal framework.

Or to be more succinct, the fact that the CAB/BBL seems to present a consistency problem vis-à-vis indigenous peoples, serves as bad precedent, and that with all the constitutional issues laid against it and yet with there being other possible and less controversial solutions that could be explored, then an insistence on the CAB/BBL seems to be fairly imprudent and a grave abuse of discretion.


- - in sum - -

The real issue before us is not the Bangsamoro Basic Law but rather the constitutionality of the Comprehensive Agreement on the Bangsamoro. Whatever outcome may be of the BBL, the same would be futile as ultimately the arbiter of its effectiveness is not be the Constitution but rather the CAB. As long as the CAB exists in its present form, then a palpable detriment to Philippine interests remain that a BBL will not be able to solve. Nevertheless, having said that, it is respectfully the duty of the Congress to legislate constitutional laws and laws that are not in the nature of a “grave abuse of discretion”. It is submitted that the BBL does not satisfy this standard, their being other solutions available to address the concerns faced by our brothers in the South and in a manner that does not discriminate against other citizens.

Very truly yours,



JEREMY I. GATDULA




[1] Details of the previous hearing on this matter can be seen here http://www.manilatimes.net/former-sc-justice-says-bbl-illegal/137648/
[2] See Handbook of International Law by Anthony Aust (Cambridge University Press, 2005, p.79): “Treaty law and domestic law operate on different legal levels. Treaty law creates rights and obligations binding on states and other international legal persons.”
[3] Briefly put, self-determination is a right that gained wide recognition under international law only insofar as regard colonial peoples. It is essentially a right against colonialism and foreign military occupation. It does not give license to secession. In the 1975 Advisory Opinion in the Western Sahara Case, the International Court of Justice, taking note of General Assembly Resolution No. 2625, declared that self-determination could be exercised in the following ways: a) by asserting oneself as an independent State, b) by associating freely with another independent State, or c) integrating with an already existing independent State. It is therefore well worth pointing out that the right to self-determination would not necessitate the entity allowed under international law to assert such right to becoming an independent State.
This right to self-determination could be found in Articles 1.2 and 55 of the United Nations Charter, as well as common Article 1 of the two 1966 Covenants of Human Rights. The right could also be found in several General Assembly Resolutions, such as the abovementioned GAR 2625, as well as GAR 1514 of 1960 (or The Declaration on the Granting of Independence to Colonial Territories and Peoples). It must be emphasized that such Resolution pointedly states: “Any attempt aimed at the partial or total disruption of the national unity and the territorial integrity of a country is incompatible with the purposes and principles of the Charter of the United Nations.”
Admittedly, in a certain limited sense, the right to self-determination could be seen as a right for certain racial groups to claim equal and full access to government. However, that is as far as it goes. Insofar as cultural, religious, ethnic, or linguistic minorities are concerned, no general rights under the ambit of self-determination is applicable to them.
[5] With regard to Native American issues, the same is under the US’ Department of the Interior. For a time, the Northern Ireland issue was under the purview of the UK’s Home Office.
[6] As normally considered under the formulation of Article 1 of the 1933 of the Montevideo Convention.
[7] See International Law by Malcolm Shaw, Fifth Edition, Cambridge University Press, p.181: “The capacity to enter into relations with other states is an aspect of the existence of the entity in question as well as an indication of the importance attached to recognition by other countries. It is a capacity not limited to sovereign nations, since both international organisations and non-independent states can enter into legal relations with other entities under the rules of international law. But it is essential for a sovereign state to be able to create such legal relations with other units as it sees fit. Where this is not present, the entity cannot be an independent state. The concern here is not with political pressure by one country over another, but rather the lack of competence to enter into legal relations. The difference is the presence or absence of legal capacity, not the degree of influence that may affect decisions.”
[8] Relatedly, as to a police force, under the Annex on Normalization law enforcement and maintenance of peace and order in the Bangsamoro shall be the primary function of the police force of the Bangsamoro.  This, it can be argued, is not compliant with Art. XVI, Sec. 6 of the Constitution: “The State shall establish and maintain one police force, which shall be national in scope and civilian in character, to be administered and controlled by a national police commission. The authority of local executives over the police units in their jurisdiction shall be provided by law”.
[9] Notably, the Constitution provides for a Presidential form of government and yet the Bangsamoro documents call for a ministerial form, a stark departure from the unitary form designed by the Constitution. Taking due regard of Article X, Sec. 3, nevertheless, it is expected that the BBL’s governmental structure be consistent with the governmental structure of the Philippines.
[10] Casibang v. Aquino, G.R. No. L-38025, August 20, 1979.
[11] Ibid., citing Tañada v. Cuenco, G.R. No. L-10520, February 28, 1957.
[12] See, for example, De Vera v. De Vera, G.R. No. 172832, April 7, 2009.
[13] Ibid.  Citation omitted.
[14]  see the Preamble
[15] See “Bangsamoro: a question of consistency and constitutionality”; BusinessWorld, 14 November 2014
[16] See http://www.gmanetwork.com/news/story/386766/news/nation/european-union-pledges-euro-5-million-to-bangsamoro-programs
[17] http://www.gmanetwork.com/news/story/386934/news/regions/bangsamoro-devt-plan-key-to-peace-prosperity-in-mindanao-aus-envoy
[18] http://www.gmanetwork.com/news/story/386569/economy/business/jica-hails-bangsamoro-devt-plan-vows-assistance-to-mindanao-s-growth-sectors
[19] The Bangsamoro Development Agency website (see http://bangsamorodevelopment.org, as of 14 November 2014), for example, does not even contain a text of the BDP but only a :primer” and “executive summary”.