DOJ Opinion No. 191, s. 1982

DOJ OPINION NO. 191 , s. 1982 August 31, 1982 The Administrator Maritime Industry Authority PPL Bldg., U.N. Avenue Manila Sir : This has reference to the proposed substitute bill to Parliamentary Bill No. 733. You state that Parliamentary Bill No. 733, which seeks "to convert the Philippine into an FOC (Flag-Of-Convenience) country or open registry similar to that of Panama and Liberia", strongly opposed by the Ministry of Foreign Affairs, Maritime Industry Authority, the Ministry of Transportation and Communications, the manning sector and the Filipino shipowners engage in overseas shipping on the ground that "the bill is repugnant to the official position of the Philippines delegations in several UNCTAD meetings on FOC vessels, and [the] UNCTAD move to phase out FOC or open registry:" and that "private Filipino overseas shipowners fear that Filipino vessels in foreign ports will be open to threats of ITF interdiction if P.B. No. 733 is passed." You further state that upon the direction of the Minister of Transportation and Communications, and after consultation with Filipino Shipowners Association (FSA) and representatives of relevant government agencies, the Maritime Industry Authority (MARINA) prepared a draft of the substitute bill which removes the controversial provision of Parliamentary Bill No. 733 relating to FOC or Open Registry; that the objectives of the said Parliamentary Bill to generate foreign exchange for the country in term of registration fees/tonnage dues and provide job opportunities to Filipino seamen can still be attained under said draft; and that among others it provides "equity participation of fifty-one percent (51%) Filipino and forty-nine percent (49%) foreign in the capital stock of corporation." Specifically, you seek confirmation on whether the provision on the substitute bill, allowing an "equity participation of fifty-one (51%) Filipino and forty nine percent (49%) foreign in the capital stock or corporation" will not violate the provisions of Section 5, Article XIV of the new Constitution which provides: "SEC. 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of Philippines at least sixty percentum of the capital of which is owned by such citizen, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period of that fifty years. Neither shall any such franchise or right be granted except under the condition that is shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof." We answer your query in the affirmative in view of the discussion hereunder. The quoted provisions of the basic charter prescribe the requisite Filipino ownership for persons or entities engaged in "the operation of a public utility". And since it is settled that vessels engaged in the inter-island trade is engaged in a public utility (De Villata vs. Stanley, 32 Phil. 541, there is no question therefore that operators of such vessels should be Filipino citizens, or if an entity, at least 60% of its capital must be owned by such citizens. A close reading of the draft substitute bill discloses, however, that it shall apply only to "vessels intended for overseas trade" and that watercrafts "intended for coastwide trade shall continue to be governed by existing laws, rules and regulations" (See Sec. 5 thereof); moreover, the same bill further provides that "no vessel engaged in overseas trade shall fly the Philippine flag or be accorded the right and privileges of Philippine vessels unless such vessel is registered in accordance with the provisions of this Act." (See Sec. 4 thereof). It is thus clear that the substitute bill contemplates registration only of those vessels which are intended to engage in overseas trade. This particular intention of the subject bill becomes all the more clear when it inferentially enjoins vessels registered thereunder from engaging in domestic or coastwise trade by explicitly stating that "vessels intended for coastwise trade shall be governed by the existing laws". While there is no definite rule as to whether or not vessels plying international routes are considered public utilities, the intention of the legislative authority not to treat them as such is clear. Thus, the Philippine Overseas Shipping Act of 1955 (R.A. 1407, as amended) does not require that shipping companies engaged in international trade be owned by Filipino citizens or that at least 60% of its capital stock may be owned by such citizens. It merely provides that such companies with the requisite Philippine ownership be entitled to certain tax and other incentives allowed under said statute. Moreover, even conceding that vessels used in the overseas shipping business are deemed public utilities, this Ministry has consistently held that public utilities which are engaged exclusively in international commerce are beyond the purview of the constitutional provision limiting operation of public utilities to citizens of the Philippines or to corporations or entities at least 60% of the capital of which is owned by citizens of the Philippines (Ops. Secretary of Justice, dated September 11, 1946, No. 218, s. 1975 and No. 135, s. 1977). LexLib In view of the foregoing, we hold that there is no constitutional objection to the provision in the draft substitute bill subject herein prescribing that vessels to be registered thereunder be owned by Filipino citizens or corporations at least 51% of the capital of which owned by such citizens. Please be guided accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice