Timing is everything

Michael Alan Hamlin

Posted on July 22, 2010

Six days before the 90-day constitutional ban on appointments leading up to national elections, former president Gloria Macapagal-Arroyo appointed a nine-member board to oversee the Authority of the Freeport Area of Bataan (AFAB), including its chairman, Mr. Deogracias Custodio. The Freeport was created with the passage of Republic Act 9721. The bill that led to the new law was principally authored by Congressman Albert S. Garcia, who represents the 2nd District of Bataan.

Cong. Albert Garcia is the son of former congressman and current Bataan governor Enrique “Tet” Garcia, Jr. The governor was reelected to a second term in May. Gov. Garcia’s family is closely identified with the former president, and like other political dynasties across this archipelago, maintains a strong grip on its sphere of influence. Jose Enrique S. Garcia III was elected mayor of Balanga City, the capital, in May. A close associate of the Garcia clan, Jesse I. Concepcion, was elected mayor of Mariveles where the Freeport is situated.

At least some investors suspect the AFAB board was handpicked by Gov. Garcia to ensure the clan’s control of the Freeport. Board members are ostensibly elected to represent the various constituencies with interests in the Freeport, such as the national, provincial, and city governments, domestic and international workers, and the Freeport itself. An investor I have corresponded with frequently over the past two years tells me that foreign investors are unfamiliar with their representative on the board, and were not consulted in his selection.

Those investors have 25-year contracts-renewable for another 25 years-with the Philippine Export Processing Zone Authority (PEZA), which administered the export zone that forms the heart of the Freeport since its creation. Originally, AFAB intended to take control of the export zone the month after its board was appointed by the former president. That proved to be administratively difficult, and so AFAB assumed control of the export zone June 29, the day before the incoming president, Benigno S. Aquino III, assumed office.

Subsequent events suggest that AFAB was again hasty. PEZA had agreements with other government agencies that facilitated the operations of the former Bataan Export Processing Zone. When AFAB assumed control abruptly on the 29th-just a day after the implementing rules and regulations were signed by national and government officials-those agreements became meaningless for investors continuing to operate in the Freeport.

The consequences were felt immediately. For example, under PEZA administration, the Bataan Export Processing Zone was charged a set “conduction fee” of P450 for each container of supplies permitted into the Zone by the Bureau of Customs (BOC). Because the BOC had no similar agreement with AFAB, tax collectors began charging investors non-PEZA rates, which increased fees dramatically to between P3,000 and P6,000 per container. There was no advance warning to investors, some of whom have been operating in the Zone for close to 20 years.

Timing is everything, and an incident such as this shows the timing was rushed, perhaps to firmly establish control over the Freeport prior to the assumption of power by a new administration. Clearly, AFAB should not have assumed control of the Zone-now Freeport-until it had made the necessary administrative arrangements, including inter-agency agreements with other national government agencies that have a shared interest in the Freeport’s operations, such as BOC.

In a phone conversation with Mr. Custodio early last week, the AFAB chairman told me that he expected to sign an agreement with BOC in a day or two. Mr. Custodio is also working on other inter-agency agreements. Mr. Custodio seems to understand the tasks that are required to ensure the smooth operation of the Freeport, and at least over the phone seems more than capable of accomplishing them.

However well-meaning and capable Mr. Custodio is nevertheless, abrupt and significant rule changes are not an effective way to convince investors that the AFAB board really has their best interests at heart. That’s particularly the case when those investors were, from my discussions, overall pleased with the administration of the Freeport when it was a PEZA zone under PEZA administration.

The investors have other concerns. The biggest is the cumbersome and perhaps costly requirement to re-register with AFAB, despite the legally binding PEZA contracts investors signed. Mr. Custodio says that AFAB wants to be certain that investor operations are above board in the Freeport. But since the investors have been regulated by PEZA for many years-an agency that gets high marks from investors and pundits-shouldn’t the presumption be that they are engaged in approved activities?

President Aquino has vowed to make the Philippines increasingly attractive to investors who create jobs and opportunity for Filipinos. Resolving the misalignment in perception between AFAB and its investors might be a good place to start.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand . Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.). Copyright © 2010 Michael Alan Hamlin. All Rights Reserved.)

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