National security and privatization

Protecting a country's national security and promoting an open investment policy are two goals which may come into conflict with each other.

This conflict was illustrated by attempts of sovereign corporations to acquire American corporations -- the China National Offshore Oil Corporation, Ltd. (CNOOC) tried to purchase Unocal, a US oil company, while Dubai Ports World (DPW), a state-owned company based in the United Arab Emirates, attempted the same with terminals in six American ports.

Ensuing massive public objection and a congressional act foiled these two foreign bids. The incident led to the enactment of the Financial Investment and National Security Act, which empowered the existing review board, the Committee on Foreign Investments in the United States, to examine and investigate foreign investments in the US that may have adverse impact on national security.

Several countries such as Canada, Japan, France, Germany and UK have a foreign investment review board that sets the security implications of disposable state assets.

The primary objection is not so much on the loss of strategic assets to foreigners, but more on the foreign corporations being controlled and owned by their respective governments.

The Philippines is currently fast-tracking its privatization efforts, selling its equity in the Philippine Long Distance Telephone Co. (PLDT) and other prime assets such as shares in Meralco Corp. and San Miguel Corp. These assets pose little security threat if any as they are commercial in nature.

The World Bank has agreed to give its universal consent for the transfer of the debts and assets of the National Power Corp. (NAPOCOR) and National Transmission Corp. (TRANSCO) to the Power Sector Assets and Liabilities Management Corp. (PSALM). This consent makes TRANSCO and NAPOCOR attractive, thus inching them forward towards privatization. TRANSCO is a clear example of a vital installation and a state monopoly attracting foreign bidders controlled by their governments.

What should our policy be?

Here, the National Economic Development Authority (NEDA) classifies whether or not an industry is strategic, but its privatization requires only the President's approval.

Though the benefits of privatization are highly recognized, extra caution should be exercised with regard to the sale of state assets classified as a strategic industry, considering its serious implications on national security. The decision involves a balancing between two major national interests: that of keeping markets open for badly needed foreign investments, and safeguarding national security.

A collegial and expert body will be more effective for this purpose. Perhaps, an inter-agency review committee to be headed by NEDA, with the DOF, DFA, DND, DOE and DTI as members, will carry out a more heightened scrutiny and evaluation of national security implications of any proposed sale of strategic assets prior to its approval.