Economic Provision

1. Constitution and specific laws. In List B, foreign ownership
is limited for reasons of security, defense, risk to health,
and morals and protection of small- and medium-scale
enterprises. The most recent is the 9th Regular FINL
released in 2012. The 9th FINL added three professions to
the no-foreign equity rule: real estate service, respiratory
therapy, and psychology.
The economic restrictions come from the nationalistic
provisions of the 1935 Constitution, adopted in
anticipation of future political independence. While there
are other factors that influence FDIs, the constitutional
restrictions do not afford the country some flexibility in
attracting foreign capital. The Philippines has one of the
lowest FDI levels in the Association of Southeast Asian
Nations (ASEAN) at USD 2.797 billion in 2012, compared
with USD 19.618 billion for Indonesia and USD 8.616
for Thailand (Table 1). The Philippine economy needs
more substantial FDIs than what it has been receiving
The Philippines has become one of the fastest-
growing economies in the region, and continues
to show strong potential for further growth amid
improvements in governance and the business environment.
But the Philippine economy is also characterized by
constitutional restrictions such as limits to foreign equity
in the exploration, development, and utilization of natural
resources; public utilities; build-operate-transfer projects;
operation of deep-sea commercial vessels; and others. The
1987 Constitution also bars foreigners from owning land
and equity in mass media and the practice of professions.
To sustain the growth of the Philippine economy, these
restrictions need to be examined and amended, as they
have constrained foreign direct investments (FDIs).
The Foreign Investment Negative List (FINL), released
every two years, serves as a guide to non-Filipinos on
what economic activities they can participate in. In List
A, foreign ownership is limited by the mandate of the
Economic Issue
of the Day
Vol. XIV No. 2 (December 2014)
Amending the economic provisions of the
1987 Constitution
Table 1. Foreign direct investment, ASEAN, 2001–2012 (in USD million)
COUNTRIES 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Brunei
Darussalam
61 230 124 113 175 88 258 222 326 496 – –
Cambodia 149 145 84 131 381 483 867 815 539 783 902 1,557
Indonesia (2,977) 145 (597) 1,896 8,336 4,914 6,928 9,318 4,877 13,771 19,241 19,618
Lao PDR 24 4 19 17 28 187 324 228 319 279 301 –
Malaysia 554 3,203 2,473 4,624 3,966 6,076 8,590 7,376 115 (10,886) (15,119) (9,734)
Myanmar 210 152 251 214 235 276 710 864 1,079 901 1,001 –
Philippines 195 1,542 491 688 1,854 2,921 2,916 1,544 2,712 1,635 1,816 2,797
Singapore 15,087 6,402 11,941 21,026 15,460 29,348 37,033 8,588 24,939 53,623 55,923 56,651
Thailand 5,067 3,342 5,232 5,860 8,055 9,455 11,327 8,538 4,854 9,104 7,780 8,616
Viet Nam 1,300 1,400 1,450 1,610 1,954 2,400 6,700 9,579 7,600 8,000 7,430 –
Source: NSCB Philippine Statistical Yearbook 2013
Philippine Institute
for Development Studies
Surian sa mga Pag-aaral
Pangkaunlaran ng Pilipinas

2. The Economic Issue of the Day is one of a series of PIDS efforts to help in enlightening the public and other interested parties on the concepts
behind certain economic issues. This dissemination outlet aims to define and explain, in simple and easy-to-understand terms, basic concepts as they
relate to current and everyday economics-related matters.
This Issue was written by Claudette S. Malana, Information Officer III at the Publications and Circulation Division of the Institute.
The views expressed are those of the author and do not necessarily reflect those of PIDS and other related agencies and sponsors. 
Philippine Institute for Development Studies
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to stimulate productivity, growth, and employment
generation (Llanto 2014). A strong example is Thailand.
Massive FDI inflows in its manufacturing sector have
been instrumental in the structural transformation of
the economy, with manufacturing as the main driver in
creating employment.
The experience of East Asian nations in attracting
foreign capital to achieve rapid growth shows that they
enacted laws needed to enable their countries to attract
FDIs. They did impose specific restrictions on foreign
capital as they saw fit for their national interests, but
they had the essential flexibility to make adjustments in
these provisions. For the country to catch up and compete
with its neighbors in the high-growth regions of East Asia
and Southeast Asia, it is crucial to amend the economic
provisions that have caused binding constraints to the
growth and productivity of the economy.
In the Philippines, constitutional change refers to
the political and legal processes to amend the 1987
Constitution. Amendments can be proposed by one of
three methods: people’s initiative, constituent assembly,
and constitutional convention. The amendments “shall
be valid when ratified by a majority of votes cast in a
plebiscite...” Constitutional change does not necessarily
mean relaxing the restrictions outright. It can be done by
simply inserting the phrase “unless provided for by law”
to the foreign ownership restrictions of the Constitution
in public utilities, land, mass media and advertising,
educational institutions, and development of natural
resources, particularly in Articles XII, XIV, and XVI
(Llanto 2014).
Sicat (2005) notes: “Reform of the economic provision
requires a simple act of removing the provisions on foreign
capital from the Constitution and placing them within the
domain, ambit, and control of the legislature. Specifically,
the amendment to the Constitution means simply to delete
those specific provisions that delimit actions on the role
of capital in sectors of the economy. Then, legislature is
empowered to enact the appropriate laws governing the
following issues: land ownership by foreigners and fixed
equity ratios between foreign and domestic capital in the
matter of public utilities and natural resource exploitation
by corporations in the country”.
Why the need for constitutional reform?
Amending the economic provisions of in Constitution
is an ideal recourse for the Philippines if it wants to
benefit from the establishment of the ASEAN Economic
Community (AEC) in 2015. The country needs to be
competitive in order to take advantage of the growing
marketplace of opportunities, especially for small and
medium enterprises. Platforms like the AEC and other
free trade agreements are gaining more success in terms
of reducing or removing market entry and access issues.
Under the AEC, market access opportunities for
Filipino firms can expand as they can sell to 600 million
people in the booming region and own majority of their
ASEAN operations. This also means giving the same
opportunity to ASEAN investors. Under the AEC, ASEAN
companies, Filipino firms included, can own 100 percent
of companies in other ASEAN countries and should be
able to own at least 70 percent of services companies
(Aldaba et al. 2012).
The regional experience indicates that where countries
have relaxed restrictions, FDIs have increased, providing
significant economic benefits to the receiving country.
Moreover, countries that have relaxed foreign ownership
restrictions have enhanced their competitiveness and
achieved a higher trajectory of economic growth. 
References
Aldaba, R., Briones, R., Israel D., Llanto, G., Medalla, E., and Milo,
M. 2012. The ASEAN Economic Community and the Philippines:
Implementation, outcomes, impacts, and ways forward. PIDS
Discussion Paper Series 2012-01. Makati City: Philippine Institute
for Development Studies.
Llanto, G. 2014. Comments on the proposal to amend certain economic
provisions of the 1987 Constitution. Submitted to the House of
Representatives, February 18.
Sicat, G. 2005. The economic argument for constitutional reform. UPSE
Discussion Paper 2005-12. Quezon City: UP School of Economics.
AMENDING THE CONSTITUTIONEconomic Issue of the Day
Vol. XIV No. 2 (December 2014)