Deletion of "Service Contracts" to

Avoid Pitfalls of Previous Constitutions,

Not to Ban Service Contracts Per Se

Third, we do not see how a verba legis approach leads to the conclusion that "the management or
operation of mining activities by foreign contractors, which is the primary feature of service contracts,
was precisely the evil that the drafters of the 1987 Constitution sought to eradicate." Nowhere in the
above-quoted Section can be discerned the objective to keep out of foreign hands the management
or operation of mining activities or the plan to eradicate service contracts as these were understood
in the 1973 Constitution. Still, petitioners maintain that the deletion or omission from the 1987
Constitution of the term "service contracts" found in the 1973 Constitution sufficiently proves the
drafters' intent to exclude foreigners from the management of the affected enterprises.

To our mind, however, such intent cannot be definitively and conclusively established from the mere
failure to carry the same expression or term over to the new Constitution, absent a more specific,
explicit and unequivocal statement to that effect. What petitioners seek (a complete ban on foreign
participation in the management of mining operations, as previously allowed by the earlier
Constitutions) is nothing short of bringing about a momentous sea change in the economic and
developmental policies; and the fundamentally capitalist, free-enterprise philosophy of our
government. We cannot imagine such a radical shift being undertaken by our government, to the
great prejudice of the mining sector in particular and our economy in general, merely on the basis of
the omission of the terms service contract from or the failure to carry them over to the new
Constitution. There has to be a much more definite and even unarguable basis for such a drastic
reversal of policies.

Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners,
suffers from certain internal logical inconsistencies that generate ambiguities in the understanding of
the provision. As the intervenor pointed out, there has never been any constitutional or statutory
provision that reserved to Filipino citizens or corporations, at least 60 percent of which is Filipino-
owned, the rendition of financial or technical assistance to companies engaged in mining or the
development of any other natural resource. The taking out of foreign-currency or peso-denominated
loans or any other kind of financial assistance, as well as the rendition of technical assistance --
whether to the State or to any other entity in the Philippines -- has never been restricted in favor of
Filipino citizens or corporations having a certain minimum percentage of Filipino equity. Such a
restriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and even
technical assistance, regardless of the nationality of its source, would be welcomed in the mining
industry anytime with open arms, on account of the dearth of local capital and the need to continually
update technological know-how and improve technical skills.

There was therefore no need for a constitutional provision specifically allowing foreign-owned
corporations to render financial or technical assistance, whether in respect of mining or some other
resource development or commercial activity in the Philippines. The last point needs to be
emphasized: if merely financial or technical assistance agreements are allowed, there would
be no need to limit them to large-scale mining operations, as there would be far greater need
for them in the smaller-scale mining activities (and even in non-mining areas). Obviously, the
provision in question was intended to refer to agreements other than those for mere financial
or technical assistance.

In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements are in
the nature of foreign loans that -- pursuant to Section 20 of Article VII of the 1987 Constitution -- the
39 

President may contract or guarantee, merely with the prior concurrence of the Monetary Board. In
turn, the Board is required to report to Congress within thirty days from the end of every quarter of
the calendar year, not thirty days after the agreement is entered into.

And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the economic
growth and general welfare of the country? For instance, how is one to measure and assess the
"real contributions" to the "economic growth" and "general welfare" of the country that may ensue
from a foreign-currency loan agreement or a technical-assistance agreement for, say, the
refurbishing of an existing power generating plant for a mining operation somewhere in Mindanao?
Such a criterion would make more sense when applied to a major business investment in a principal
sector of the industry.

The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not
to be understood as one limited only to foreign loans (or other forms of financial support) and to
technical assistance. There is definitely more to it than that. These are provisions permitting
participation by foreign companies; requiring the President's report to Congress; and using,
as yardstick, contributions based on economic growth and general welfare. These were
neither accidentally inserted into the Constitution nor carelessly cobbled together by the
drafters in lip service to shallow nationalism. The provisions patently have significance and
usefulness in a context that allows agreements with foreign companies to include more than mere
financial or technical assistance.

Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and
limited financial service or technical assistance by a foreign company. This argument begs the
question "To whom or for whom would it be rendered"? or Who is being assisted? If the answer is
"The State," then it necessarily implies that the State itself is the one directly and solely undertaking
the large-scale exploration, development and utilization of a mineral resource, so it follows that the
State must itself bear the liability and cost of repaying the financing sourced from the foreign lender
and/or of paying compensation to the foreign entity rendering technical assistance.

However, it is of common knowledge, and of judicial notice as well, that the government is and has
for many many years been financially strapped, to the point that even the most essential services
have suffered serious curtailments -- education and health care, for instance, not to mention judicial
services -- have had to make do with inadequate budgetary allocations. Thus, government has had
to resort to build-operate-transfer and similar arrangements with the private sector, in order to get
vital infrastructure projects built without any governmental outlay.

The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms what
the ordinary citizen has suspected all along. After the reality check, one will have to admit the
implausibility of a direct undertaking -- by the State itself -- of large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Such an undertaking entails not only
humongous capital requirements, but also the attendant risk of never finding and developing
economically viable quantities of minerals, petroleum and other mineral oils. 40

It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of
only financial or technical assistance to the government was deliberately crafted by the drafters of
the Constitution, who were all well aware of the capital-intensive and technology-oriented nature of
large-scale mineral or petroleum extraction and the country's deficiency in precisely those areas. To 41 

say so would be tantamount to asserting that the provision was purposely designed to ladle the
large-scale development and utilization of mineral, petroleum and related resources with impossible
conditions; and to remain forever and permanently "reserved" for future generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language

Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either
technical or financial assistance in relation to foreign corporations' participation in large-scale EDU.
The inclusion of this clause on "technical or financial assistance" recognizes the fact that foreign
business entities and multinational corporations are the ones with the resources and know-how to
provide technical and/or financial assistance of the magnitude and type required for large-scale
exploration, development and utilization of these resources.

The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign corporations
and multinationals.

Neither were they so naïve as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter of
judicial notice, this matter is not just a question of signing a promissory note or executing a
technology transfer agreement. Foreign corporations usually require that they be given a say in the
management, for instance, of day-to-day operations of the joint venture. They would demand the
appointment of their own men as, for example, operations managers, technical experts, quality
control heads, internal auditors or comptrollers. Furthermore, they would probably require seats on
the Board of Directors -- all these to ensure the success of the enterprise and the repayment of the
loans and other financial assistance and to make certain that the funding and the technology they
supply would not go to waste. Ultimately, they would also want to protect their business reputation
and bottom lines. 42

In short, the drafters will have to be credited with enough pragmatism and savvy to know that these
foreign entities will not enter into such "agreements involving assistance" without requiring
arrangements for the protection of their investments, gains and benefits.

Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied
assent to everything that these agreements necessarily entailed; or that could reasonably be
deemed necessary to make them tenable and effective, including management authority with
respect to the day-to-day operations of the enterprise and measures for the protection of the
interests of the foreign corporation, PROVIDED THAT Philippine sovereignty over natural resources
and full control over the enterprise undertaking the EDU activities remain firmly in the State.

Petitioners' Theory Deflated by the

Absence of Closing-Out Rules or Guidelines

Seventh and final point regarding the plain-language approach, one of the practical difficulties that
results from it is the fact that there is nothing by way of transitory provisions that would serve to
confirm the theory that the omission of the term "service contract" from the 1987 Constitution
signaled the demise of service contracts.

The framers knew at the time they were deliberating that there were various service contracts extant
and in force and effect, including those in the petroleum industry. Many of these service contracts
were long-term (25 years) and had several more years to run. If they had meant to ban service
contracts altogether, they would have had to provide for the termination or pretermination of the
existing contracts. Accordingly, they would have supplied the specifics and the when and how of
effecting the extinguishment of these existing contracts (or at least the mechanics for determining
them); and of putting in place the means to address the just claims of the contractors for
compensation for their investments, lost opportunities, and so on, if not for the recovery thereof.

If the framers had intended to put an end to service contracts, they would have at least left specific
instructions to Congress to deal with these closing-out issues, perhaps by way of general guidelines
and a timeline within which to carry them out. The following are some extant examples of such
transitory guidelines set forth in Article XVIII of our Constitution:

"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this
Constitution shall have five years from its ratification to comply on a graduated and
proportionate basis with the minimum Filipino ownership requirement therein.

xxxxxxxxx

"Section 25. After the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning military bases, foreign military
bases, troops, or facilities shall not be allowed in the Philippines except under a treaty duly
concurred in by the Senate and, when the Congress so requires, ratified by a majority of the
votes cast by the people in a national referendum held for that purpose, and recognized as a
treaty by the other contracting State.

"Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3
dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative
for not more than eighteen months after the ratification of this Constitution. However, in the
national interest, as certified by the President, the Congress may extend such period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with
the proper court. For orders issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or proceeding shall be
commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or

proceeding is commenced as herein provided."  43]

It is inconceivable that the drafters of the Constitution would leave such an important matter -- an
expression of sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective
state. Indeed, the complete absence of even a general framework only serves to further deflate
petitioners' theory, like a child's balloon losing its air.

Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
purely verba legis approach to paragraph 4 of Section 2 of Article XII compel a resort to other aids to
interpretation.

Petitioners' Posture Also Negated

by  Ratio Legis Et Anima

Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to
supply the deficiencies of the plain-language approach, there is a need for recourse to the
proceedings of the 1986 Constitutional Commission. There is a need for ratio legis et anima.
Service Contracts Not
"Deconstitutionalized"

Pertinent portions of the deliberations of the members of the Constitutional Commission (ConCom)
conclusively show that they discussed agreements involving either technical or financial
assistance in the same breadth as service contracts and used the terms interchangeably. The
following exchange between Commissioner Jamir (sponsor of the provision) and Commissioner
Suarez irrefutably proves that the "agreements involving technical or financial assistance" were none
other than service contracts.

THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.

MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my
amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS
WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR
FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT AND
UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE TERMS AND
CONDITIONS PROVIDED BY LAW.

MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the
background.

MR. JAMIR. Thank you.

THE PRESIDENT. Commissioner Suarez is recognized.

MR. SUAREZ. Thank you, Madam President.

Will Commissioner Jamir answer a few clarificatory questions?

MR. JAMIR. Yes, Madam President.

MR. SUAREZ. This particular portion of the section has reference to what was popularly
known before as service contracts, among other things, is that correct?

MR. JAMIR. Yes, Madam President.

MR. SUAREZ. As it is formulated, the President may enter into service contracts but

subject to the guidelines that may be promulgated by Congress?

MR. JAMIR. That is correct.

MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the
President, not upon Congress?

MR. JAMIR. That is also correct, Madam President.

MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made
strictly in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.