Rule of law more important than tax cuts in attracting foreign investment —Ateneo dean

The strength of the rule of law may directly impact the entry of foreign investments to the Philippines, according to Ateneo School of Government Dean Raul Mendoza on Tuesday.

"An already large body of literature asserts that weak rule of law is associated with anemic foreign investment flows," Mendoza said during Stratbase ADR Institute's virtual forum on government transparency and accountability.

Citing information from Dr. Raul Fabella of the University of the Philippines School of Economics, Mendoza said the government should better focus on improving the rule of law rather than imposing tax incentives to attract foreign investments.

"Lowering the corporate income tax rate is not the main constraint the Philippines presently needs to address. Instead, the focus should be on key constraints including infrastructure, high power costs, red tape and unstable regulatory regimes as well as the weak rule of law," Mendoza said.

"The area with the least progress in the last four years is in the rule of law," he added.

Mendoza mentioned, for example, Manila Water's decision to waive the multibillion-peso payment from the government that it won in court to cover the losses incurred by the water concessionaire from disapproved rate increases.

In December, Manila Water president and chief executive officer Jose Rene Almendras even apologized to Duterte for the international court ruling ordering the said payment.

"Kaya ho namin inatras ang arbitral ruling dahil nagsalita na po ang Pangulo na hindi niya gusto ito. Kami naman po nakakaintindi, marunong naman po kaming makaintindi, kaya kami nagpasya na hindi na lang po namin itutuloy," Almendras said.

Mendoza said the government's move was seen by some as "political pressure" and "extralegal" maneuver that sent investors into panic.

"The entire episode was a potentially reputation-damaging precedent, casting a shadow over the sanctity of contracts and the rule of law in the Philippines," he said.

"Can tax cuts and incentives reform mask the erosion of the rule of law in investors' eyes? I think not," he added.

Further he said that the rule of law protecting the sanctity of contracts should not be taken separately from the rule of law protecting human rights. He stressed that it was a "false dichotomy."

Mendoza also emphasized the importance of a strong judiciary system to attract foreign investments.

"A professional and independent judiciary that can uphold human rights is likely the same one that stands to uphold the sanctity of contracts and property rights most effectively," he said.

Amid the COVID-19 pandemic, the biggest business groups in the Philippines expressed disappointment over the "double standard" in the rule of law when reports of public officials allegedly violating quarantine protocols with impunity came out.

The Philippines ranked 91st out of 128 countries in an international organization's rule of law index for 2020. — BM, GMA News