How martial law paved the way for creation of ecozones in PH

By Kris Crismundo, Joann Villanueva and Ernie Esconde

September 21 2022, 6:39 am

<p><strong>ECONOMIC BOOST.</strong> The government is attracting investors, both local and foreign, to put up businesses in the country to boost economic activities nationwide. One way is enticing them into various economic zones as locators enjoy tax perks. <em>(PNA file photo)</em></p>

ECONOMIC BOOST. The government is attracting investors, both local and foreign, to put up businesses in the country to boost economic activities nationwide. One way is enticing them into various economic zones as locators enjoy tax perks. (PNA file photo)

MANILA – Economic zones, which started operations in the 1970s, are great magnets for foreign direct investments (FDIs) which the government aims to attract more as the economy continues to recover from the pandemic.

Just almost two months after placing the country under martial law, former President Ferdinand E. Marcos signed on Nov. 20, 1972 Presidential Decree (PD) 66 establishing the Export Processing Zone Authority (EPZA), the predecessor of the Philippine Economic Zone Authority (PEZA).

PD 66 and Republic Act 5490 of 1969, or the Foreign Trade Zone Authority, pioneered the country’s creation of ecozones as a government strategy to attract FDIs and export-oriented industries into the country.

These policies made the Philippines the second oldest economy in Asia, only next to Taiwan, that experimented with freeport zones and export processing zones.

Economic gains, job creation

A business leader recalled that the establishment of export processing zones (EPZs) during the 1970s, even while martial law was in place, benefited the country.

Businessman and former Federation of Philippine Industries (FPI) chair Jesus Arranza told the Philippine News Agency (PNA) that the declaration of martial law was a plus for the business community then because investors were assured of peace and order.

“It was a good climate for businesses because of the peace and order situation. We need that kind of discipline,” he said.

Arranza said EPZs that started during the first Marcos administration thus really helped businesses prosper and attracted more FDIs.

Ludwig Daza, chief of staff of the PEZA Deputy Director General, who is the agency’s officer-in-charge, told the PNA that weighing in the net gains to the economy from hosting these locator companies, the government adopted the ecozone program as an important development strategy despite changes in the country’s political landscape from 1969 to present.

Data from the Bangko Sentral ng Pilipinas (BSP) and the Philippine Statistics Authority (PSA) show that PEZA contributed 16 percent to the Philippines’ gross domestic product (GDP), with 59.05 percent on merchandise exports and 56.44 percent on service exports.

“The ecozone locators generate huge employment and quality jobs for the Filipinos, while the ecozone developers create pockets of development and industry clusters nationwide stimulating growth in the countryside. Many LGUs (local government units) hosting the ecozones have achieved a higher level of economic and social progress compared to those LGUs with fewer or no ecozones at all,” Daza explained.

PEZA data show that as of end-November 2021, there were 415 economic zones across industries around the country namely manufacturing, information technology, tourism export enterprises, agro-industrial, and medical tourism.

Conducive to investments

PEZA’s Daza said the creation of special economic zones (SEZ), treated as foreign territory for trade operations, duties, and tariffs, has been conducive for foreign investors as conducting business within an SEZ means receiving fiscal incentives and the opportunity to pay lower tariffs.

Locators at the various SEZ around the country enjoy perks like an income tax holiday for about four to seven years depending on the location and industry priorities, special corporate income tax rate, tax and duty-free importation of capital equipment, and value-added tax (VAT) exemption on the importation, among others.

“In the Philippines, the ecozones continue to exist with great success,” Daza said. “PEZA inherited the four public-owned ecozones from (Foreign Trade Zone Authority) FTZA/EPZA such as the Bataan Economic Zone (BEZ), Mactan Economic Zone (MEZ), Baguio City Economic Zone (BCEZ), and Cavite Economic Zone (CEZ).”

BEZ was established in June 1969, MEZ in January 1979, BCEZ in November 1979, and CEZ in May 1980.

A list of registered business enterprises (RBEs) in PEZA furnished by the agency to PNA showed that at least three companies are still thriving in PEZA zones since the 1970s.

Pasig Industries, Inc. formerly Kanematsu Gosho Ltd.-Manila registered on Feb. 18, 1974 is engaged in producing leather goods, luggage, handbags, and footwear; TMX Philippines, Inc., a PEZA-registered RBE on Dec. 28, 1978, is involved in manufacturing of medical, precision, and optical instruments, watches, and clocks; and wearing apparel firm Mactan Apparels, Inc. was registered on Dec. 27, 1979.

“In 1979, Timex Philippines became the first locator in the newly developed Mactan Export Processing Zone in Cebu. Out of the 29 locations in Asia, Timex chose Cebu for its strategic location -- a virtual walk to the airport plus the English-speaking, very available and very trainable workforce,” Daza said.

Timex Philippines now has grown from a workforce of 500 to thousands of employees and manufactures millions of watches annually.

“Texas Instruments Philippines, Inc. (TIPI), located in BCEZ since 1979 and a subsidiary of one of the world’s largest manufacturers of semiconductors, opened its second manufacturing site in the Philippines in 2007 -- USD1 billion production Clark Economic Zone in Pampanga. From a workforce of 300 in 1979, TIPI employs thousands today, plus hundreds of service providers,” Daza added.

Daza said the package of fiscal incentives in SEZs has become a magnet for foreign investors, including some top fortune 500 companies and leading global industry players in manufacturing and information technology services to locate in the Philippines, allowing the ecozones to grow by leaps and bounds over the years.

PEZA Promotions and Public Relations Group manager Aleem Siddiqui Guiapal said PEZA has stepped up the game by offering its brand of service -- providing a one-stop shop for its investors.

“We give premium assistance to our investors. PEZA is an established institution in itself in terms of its brand of service of providing ease of doing business, such as replying to emails and queries on time, assistance and promotions of businesses in their expansion, and other services provided both by our promotions, policy and operations group,” Guiapal said.

From BEPZ to FAB, more locators coming in

The former BEZ, now the Freeport Area of Bataan (FAB), may have its ups and downs but it is holding tight and inching up fast towards becoming the fastest-growing freeport in the Philippines.

The Authority of the Freeport Area of Bataan’s (AFAB) Corporate Affairs Department, through information officer Hazel Keith Elloren, furnished the transition period from the creation of BEPZ to FAB.

On Feb. 21, 1995, RA 7916 was passed into law creating the PEZA. The law placed the then-BEZ under PEZA’s control.

RA 9728 was signed into law on Oct. 23, 2009 that converted BEZ into FAB and created the AFAB. AFAB was tasked to manage FAB.

On June 29, 2010, AFAB became fully operational. RA 11453 passed on Aug. 30, 2019 further strengthened the powers and functions of AFAB.

AFAB’s Elloren narrated how the FAB seized the opportunity to take advantage of its strategic location and natural endowments to attract investments.

With its promise to give out the best incentives and its ability to supply the most exceptional workforce, she said, more investments came in from 39 locators in July 2010. The number increased to 53 or by 40 percent in May 2011, just less than a year after it started operation.

Elloren said there are 97 operational locators as of July 2022 which the AFAB looked to retain this number up to the end of this year.

She said the AFAB has been synergizing its promotions effort with the national government, through the Philippine Investments Promotion Plan (PIPP), to focus on attracting priority sectors that are viable investments in the country.

Asked what are the benefits of locating in AFAB or other economic zones or freeport zones, Elloren pointed to the tax and fiscal incentives provided by Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Ease of Doing Business laws.

She said they ensured that all their resources such as the FAB dam, seaports, standard facility buildings, and water treatment plans were put to good use to maximize the freeport’s potential given its proximity to famous tourism sites in Manila, Cavite and Corregidor.

Elloren said AFAB has partnered with the Bureau of Immigration (BI) for the establishment of the Immigration One-Stop Shop in the area, and has collaborated with various local and national agencies to strengthen the workforce and attract more investors.

FAB was officially recognized as the first Labor Law Compliant (LLC) freeport zone in the country in 2015, she added.

Elloren said since AFAB began operations in 2010, the number of FAB workers increased from 12,777 to 38,326 as of July 2022, and a high of over 44,000 before the pandemic.

She sees this growth as directly proportional with investment, trade facilitation, port services, and income growth that enables the AFAB to contribute bigger shares to the government.

“If things remain on course, we foresee us reaching 40,000 workers again by the last quarter of the year,” she added.

One of the locators, Mitsumi Philippines, Inc., a manufacturer of various electronics components, has been with the Mariveles zone for 33 years.

Jun Fevidal, Mitsumi’s human resource senior supervisor, said the Japanese-owned company has been established in Mariveles since 1980.

“It remains operational and competitive in producing new product line(s) to cope up with global demand and requirements,” he said.

He added the ecozone gave a boost to Mitsumi since locating and operating in Mariveles.

Fevidal is in favor of the government’s plan to open more freeports to help boost the economy.

“Yes, for more employment opportunities and revenues in the future,” he said.

William Verzon, turning 60 in October, started as Mitsumi’s human resource senior manager. He has been with the company for about 33 years. He now holds the position of human resource/general affairs senior manager.

Asked about the advantage of working in a freeport-based firm, Verzon cited the ease and convenience of dealing with different government agencies through their one-stop shop.

He said putting up additional freeport zones around the country can provide more job opportunities.

Proper restriction

Business leader Arranza said gains from the establishment of SEZ around the country will be maximized if policies on its operations are properly implemented.

“We can put more (economic zones) but put the proper restriction and implement that,” he said.

Arranza said some erring businessmen were able “to go around the rules” and engaged in illegal activities within the special economic zones.

He cited as an example the discovery by the Bureau of Internal Revenue (BIR) of the illegal cigarette manufacturing inside the Clark Special Economic Zone in Pampanga, wherein some 1.65 million packs of cigarettes supposedly for export to Malaysia were seized in 2020.

Arranza said the government is losing around PHP250 billion worth of VAT annually due to smuggling activities, and this should be addressed because it is not only disadvantageous to government coffers but also to local businesses.

“Because of smuggling, you’re robbing from the government, limiting the growth of the industries, and taking away job opportunities for the workers,” he added. (PNA)