Committee on Corporations and Franchise

September 2, 1988 The Secretary Committee on Corporations and Franchise Room 208, South Wing House of Representatives Quezon City Sir : This refers to your letter, dated August 26, 1988, requesting for comments of the Commission on the proposed House Bill entitled "An Act to implement the provisions of the 1987 Constitution on the advertising industry by prohibiting the operation in the said industry of any foreigner or any corporation or association at least seventy per centum of the capital of which is not owned by Filipino citizens, requiring existing advertising entitles to divest of their foreign holdings which exceed the constitutional limit within the deadline prescribed by the Constitution, prescribing the use of foreign-made commercials, and providing penalties therefor." cdlex The following general observations on subject House Bill are made in the light of Section 11 Article XVI of the Constitution which states: SECTION 11 (1). The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens. xxx xxx xxx (2) The advertising industry is impressed with public interest and shall be regulated by law for the protection of consumers and the promotion of the general welfare. Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is owned by such citizens shall be allowed to engage in the advertising industry. The participation of foreign investors in the governing body of entities in such industry shall be limited to their proportionate share in the capital thereof, and all the executive and managing officers of such entities must be citizens of the Philippines." The term "mass media" in the Constitution refers to any medium of communication, a newspaper, radio, motion pictures, television, designed to influence the masses and that tends to set the standards, ideals and aims of the masses. (Opinion No. 163, S. 1973, Secretary of Justice). The distinctive features or characteristics of any mass media activity is the dissemination of information and ideas to the public, or a portion thereof. (Op. No. 120, S. 1982). The Filipino citizenship requirement is intended to prevent the use of print and broadcast media by aliens to influence public opinion to the detriment of the best interest of the nation. (Op. No. 24 S. 1986, Secretary of Justice, citing Quisumbing-Fernando, Constitutional Law, 1984 ed., p. 345) The Commission is pleased to confirm the provisions of Sections 1 and 2 of the subject House Bill considering that they are mere restatement of paragraphs 4 and 5 * , Section 11, Article XVI of the Philippine Constitution. In connection with Section 3 of the House Bill, the following comments are submitted. Basically, "the function of advertising agencies is to serve as agents or counselors of advertisers by writing, preparing, or producing the commercial messages or materials by advertisers in selling their goods and services, and by selecting and recommending the medium or media to be used as the vehicle for disseminating such messages to the public. Advertising agencies do not actually disseminate the materials they prepare as they have to utilize or avail of the facilities of mass media, i.e., newspapers, radio, television, etc., for this purpose, in the same manner that a motion picture producer would have to go to a film exhibition to make his films available to the public." (Op. nos. 22, s. 1975; 163, s. 1973, Secretary of Justice). Advertising agencies falling within this concept are not mass media, considering that they do not operate or control any medium of communication designed to reach or influence the masses, although the activities of such agencies, by their nature, are closely related to those of mass media. (Secretary of Justice Opinions, Supra.). However, where advertising agency actually disseminate information, or operates, controls or otherwise engages in the business of mass media, a specific example of which is an outdoor advertising firm which sells billboard space to advertisers, then such advertising agencies would fall within the purview of the constitutional limitation. (Op. No. 22, Supra.). Thus, the Commission, in an opinion dated September 21, 1987, ruled that the constitutional provision prescribing Filipino ownership of at least 70% of the capital for advertising agencies, should not be construed as a license or permit for advertising agencies to engage in mass media. The Commission interposes no objection to Sections 4 and 5 of the proposed legislation, and our Office assures the House of our full cooperation thereon. Likewise, the Commission expresses its unqualified support to Section 6 of the House Bill, for the same is in consonance with the avowed declaration of investment policy of the state, recognizing that there are appropriate roles for local and foreign capital to play in the development of the Philippine economy and it is the responsibility of the government to define these roles and provide the climate for their entry and growth. (Article 2, par. 6, E.O. 226). Government's interference with the workings of the market system is yet kept at a minimum even with the introduction of such a restriction postulated in Section 6. The Commission also adheres to Section 7 of the proposed legislation. We trust that the foregoing observations merits your request. cdlex Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .