DOJ Opinion No. 030, s. 1997

DOJ OPINION NO. 030 , s. 1997 April 22, 1997 Secretary Salvador H. Escudero III Department of Agriculture Elliptical Road, Diliman Quezon City Sir : This refers to your request for legal opinion on "whether or not corporations with 70% Filipino ownership may be allowed to undertake exploration, development and utilization of natural resources like collection of precious and semi-precious corals in Philippine waters " You state that prior to the effectivity of the 1987 Constitution, Presidential Decree No. 1219, as amended by Presidential Decree No. 1698, otherwise known as "The Coral Resources Development and Conservation Decree", authorized then Secretary of Natural Resources (now Secretary of Agriculture) "to issue Special permit to a Filipino citizen or corporation at least 70% of the capital stock of which is owned or controlled by Filipinos for a limited period to conduct experimental collections of precious and semi-precious corals"; and that on the basis of PD 1219, as amended, the Secretary of Agriculture, upon recommendation of the Bureau of Fisheries and Aquatic Resources, had issued Special Permits to corporations with 70% Filipino ownership in accordance with Section 7 thereof which reads: "SEC. 7. Special Permit . Minister of Natural Resources [now Secretary of Agriculture] may issue a special permit to only one person/corporation for a limited period to conduct experimental collection of precious and semi-precious corals. The applicant for a special permit must be a Filipino citizen, or a corporation, at least seventy (70%) per cent of the capital stock of which is owned or controlled by Filipinos Vessels to be used for such operations shall be of Philippine Registry. Provided , That if foreign vessels are used, prior clearance from the government agencies concerned shall first be obtained." Apparently, the query has arisen because of the provision of the 1987 Constitution, mandating the protection of the nation's marine wealth in its archipelagic waters, territorial seas, and exclusive economic zone, and reserving the use and enjoyment of marine wealth exclusively to Filipino citizens, viz: "Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizen, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. The State shall protect the nation's marine wealth in its archipelagic waters, territorial seas, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution." (see Article XII) The first Regular Foreign Investment Negative List (RFINL) issued pursuant to R.A. No. 7042, to give effect to the aforecited constitutional provision, included in List A, under the heading "No foreign equity" the utilization of marine resources. except deep-sea fishing (No 7), among other investment areas or activities. Another category under the same List allowing up to 40% foreign equity, included the exploration, development and utilization of natural resources (No. 12). Hence, the issue arose as to which of the two items in the List (No. 7 or 12) is applicable to coral gathering. R.A. No. 7042, has been modified by R.A. No. 8179 and the first RFINL issued pursuant to R.A. No. 7042, referred to in your query, expired on October 23, 1996. Accordingly, the second RFINL has been issued to replace the first RFINL and to reflect the amendments made by R.A. No. 8179. The second RFINL, carries over the item (No. 7) "utilization of Marine Resources in archipelagic waters, territorial seas, and exclusive economic zone" under the heading "No Foreign Equity" while the item (now No. 14), "Exploration, development and utilization of natural resources" is retained under the heading "Up to Forty Percent (40%) Foreign Equity". The inclusion of No. 7 in the areas of activities where no foreign investment is allowed is based on the mandate of Article XII, Section 2, of the 1987 Constitution that the State shall reserve the use and enjoyment of marine wealth exclusively to Filipinos. The inclusion of No. 14 in the areas of activities where foreign equity up to 40% is permissible is also based on the same provision insofar as it allows the State to enter into co-production, joint venture, or production sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens, in the exploration, development, and utilization of natural resources. Fr. Joaquin Bernas, a member of the 1986 Constitutional Commission explains how the above constitutional limitations are applied: ". . . A more strict rule is imposed regarding the use and enjoyment of the nation's 'marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone.' These are reserved for the exclusive use and enjoyment of 'Filipino citizens,' that is Filipino natural persons . . . (see p. 1015, emphasis supplied.) "With regard to natural resources other than agricultural land, two questions need be answered. First who may participate in their exploration, development and utilization ? Second, if natural resources cannot be alienated, how may they be explored, developed, or utilized ? The answer to the first question is that only Filipinos and Filipino corporations may engage in the development and utilization of these natural resources. . . The answer to the second question departed from earlier provisions which had prescribed that natural resources could be explored, developed or utilized only by license, concession, or lease.' The 1987 Constitution no longer speaks of 'grant, lease or concession' but either direct undertaking of activities by the state or 'co-production, joint venture, or production-sharing agreements' with the State and all 'under the full control and supervision of the State' . . . (The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 Edition, p. 1012, emphasis supplied) Precious and semi-precious corals are no doubt part of the country's marine wealth while "experimental collection" of such corals necessarily involve the utilization and enjoyment of such resources which under the 1987 Constitution are exclusively reserved to Filipino citizens, that is, Filipino natural persons. Hence, such activity properly falls under the category of "no foreign equity" particularly item No. 7 of the second RFINL, not under item No. 14 of the heading "Up to Forty percent (40%) Foreign Equity". The latter cannot be invoked as the basis for the grant of Special Permit because it refers to other non-alienable natural resources which can be explored, developed and utilized either by direct undertaking of activities by the State or through co-production, joint venture, or production sharing agreements, a situation that does not obtain in the instant case. The Secretary of Agriculture can no longer issue Special Permit for experimental collection of precious and semi-precious corals to corporations at least 70% of the capital of which is owned or controlled by Filipinos. Section 7 of P.D. No. 1219, as amended by P.D. No. 1698, insofar as it allows, through Special Permit, experimental collection of corals to any corporations with foreign equity, is deemed repealed by Article XII, Section 2 of the 1987 Constitution. Please be guided accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary