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ECOZONES IN-DEPTH: PEZA and Ecozone Development Program—a resounding success story!

ECOZONES IN-DEPTH: PEZA and Ecozone Development Program—a resounding success story!
March 3, 2020
ECOZONES IN-DEPTH: PEZA and Ecozone Development Program—a resounding success story!

by DDG Tereso O. Panga

3 March 2020 (Tuesday)

One of the finest pieces of legislation passed by the Philippine Congress is Republic Act (RA) 7916 or the Special Economic Zone Act of 1995 where incumbent Philippine Economic Zone Authority (PEZA) Director General Charito B. Plaza (former Butuan City representative) was one of the bill's principal authors in the Lower House. Enacted into law on 21 February 1995, RA 7916 created the PEZA and provided for the legal framework and mechanism for the creation, operation, administration and coordination of special economic zones in the Philippines. Through this law, PEZA was empowered with a broader mandate to develop ecozones all over the country to generate incremental investments, jobs and exports, and to spur industrialization and countryside development.

Prior to PEZA, there were the predecessor laws/agencies: the Foreign Trade Zone Authority (FTZA) as mandated by RA 5490 of 1969 and the Export Processing Zone Authority (EPZA) as created by Presidential Decree (PD) 66 of 1972. These pioneered the creation of ecozones as a government strategy to attract FDIs and export-oriented industries into the country. The Philippines was actually second to Taiwan in Asia that experimented with the freeports and export-processing zones (EPZs) in the 1960s when it was first introduced as a policy tool for development and export-oriented growth particularly for developing economies.
Over the last five decades, the ecozones have proliferated in the region and have become increasingly common in Latin America, Africa and more recently in China, Russia, South Korea and the Middle East. Even the advanced countries in the US, Canada and Europe have their own form of ecozone or zone policy for the supply of goods and services to the global market. The creation of ecozones is widely used across all economies because of the many benefits to the host country of designating a Special Economic Zone (SEZ), which is treated as foreign territory for trade operations, duties and tariffs. According to Investopedia, "The SEZ regulations tend to be conducive to FDIs. Conducting business in an SEZ typically implies that the company will receive tax incentives and the opportunity to pay lower tariffs.”

In the Philippines, the ecozones continue to exist with great success. Apart from PEZA, other ecozone/freeport authorities that are doing well include the SBMA, CDC, BCDA, AFAB, CEZA, APECO, TIEZA, JHMC, PHIVIDEC and ZFA. Among them, PEZA happens to be the biggest ecozone authority and the largest contributor to the country's local and national development.

In fact, PEZA's growth over the last 25 years has been phenomenal. The original 16 ecozones it inherited from EPZA has today multiplied to 404 operating ecozones nationwide. Except for the 4 public ecozones, the rest are all owned, developed and managed by the private sector. From EPZA's original 331 companies operating in the zones, PEZA now has a total of 4,478 locator companies as of December 2019.

For its 2019 performance, under the helm of DG Plaza, PEZA has generated P117.541 Billion investments and $54.597 Billion exports, 540 number of projects, and employed 1,601,492 Filipino workers. In the same year, PEZA has also remitted P750 million in annual dividends to the National Government.
Undoubtedly, PEZA's brand of service and package of fiscal incentives have become a magnet for foreign investors to locate in the Philippines, allowing the ecozones to grow by leaps and bounds over the years. Thus, the ecozone program was adopted by the government as an important development strategy despite changes in the administration.

Moreover, ecozone exports constitute 70% of the country's total commodity exports and 16% of the GDP. 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 hosting the ecozones have achieved a higher level of economic and social progress compared to those LGUs with fewer or no ecozones at all. Even the World Bank-IFC has cited PEZA as a success story in terms of regulatory reform, besting the other 67 ecozones surveyed worldwide. If these are not enough as proof of PEZA being relevant and critical to the country's economic growth, no less than President Rodrigo Duterte has issued Administrative Order (AO) 18 to accelerate rural progress through robust development of special economic zones in the countryside in support of PEZA!

As such, in light of ongoing talks to rationalize the fiscal incentives for ecozone investors which may erode the country's competitiveness, and to repeal some critical provisions in the PEZA Charter which will render the agency ineffective in performing its mandate, PEZA Director General Plaza has appealed for status quo so as to preserve the ecozone strengths and gains. This will also allow PEZA and other IPAs to be vibrant and competitive as they bring in the needed FDIs and exports and promote further integration of the ecozones with the domestic market through the retention of fiscal incentives and in pursuit of the ecozone development program. These measures will contribute to the government's efforts to reduce unemployment, address the development gaps in the regions and narrow the trade deficit--which are all essential towards our bid to sustain the Philippines' status as one of the fastest-growing economies in the region and in our transition to upper-middle-income economy. PEZA’s call for status quo is, therefore, justified given the Authority’s strategic role in nation-building and huge contributions to the economy for the past 25 years.

On the legal aspect, DG Plaza emphasized that "We cannot afford to lose our gains nor damage the country's reputation with the international community by allowing the changing of our rules in the middle of the game or introducing new laws that apparently negate basic legal doctrines such as grandfather rule, non-impairment of contracts, prospectivity in law application, and log-rolling legislation."

DG Plaza added, "As far as we are concerned, PEZA incentives are working and that we continue to generate investments, jobs, exports and other economic opportunities for the country. The ecozone program is tried and tested, and has proven to be an effective economic driver despite our inefficiencies and many inadequacies."

As the old saying goes—if it ain't broke, don't fix it! and more importantly, don't kill the goose that lays the golden eggs!