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La Bugal-B’Laan Tribe vs Ramos

Issues:

 Whether or not foreign-owned companies, such as the WMCP, are allowed to participate in the
exploration, development, and utilization of the natural resources of the Philippines through
FTAAs.

 If FTAAs are allowed, whether or not they are limited only to financial and technical assistance.

 Whether or not FTAAs relinquish control of national resources from the State to foreign-owned
companies.

 That the WCMP FTAA is unconstitutional.

Rulings:

 Art. XII Sec. 2

 Rules on Constitutional Construction

 Minutes of the meeting of 1987 drafters

 RA 7942 – The Mining Law

 DAO 96-40 – IRR of The Mining Law

Arguments:

Petitioner:

- The FTAA granted to WCMP, a foreign company, is unconstitutional.

- FTAAs are service contracts, which are prohibited by the Constitution.

- The Supreme Court should uphold their January 27, 2004 decision declaring the WCMP void.

- FTAAs are limited only to financial and technical assistance.

- The WCMP FTAA cedes ownership of the natural resources to foreign-owned companies.

- Mineral resources given away by RA 7942.

Analysis

Facts:

The Court promulgated its decision on January 27, 2004 declaring several provisions of RA 7942,
DAO 96-40, and the FTAA between the government and WMCP unconstitutional because they are
service contracts.

Respondents then filed separate motions for reconsideration, while the court required the petitioners to
comment thereon.
After the hearing, the Court required the parties to submit their respective Memoranda, as well as by
the OSG, the intervenor, thus leading to the case at hand.

First Issue: FTAAs, despite being service contracts, should be allowed.

To discuss the first issue, the Courts interpreted Art XII Sec 2 of the Constitution using the methods in
constitutional construction. Upon analyzing Paragraph 4 of the provision, the Court ruled that the
Constitution does not prohibit other countries from getting involved in the exploration, development,
and utilization of our natural resources. The petitioners’ claim to the contrary would adversely affect the
fundamental economic and developmental policies of the State.

The Court concluded that the drafters of the Constitution were referring to service contracts when they
were drafting the provisions for FTAAs. However, to ensure that the President will not be able to abuse
the power to enter into said contracts and to avoid what happened during the Marcos regime, the
drafters also ensured that it will have the necessary safeguards to ensure that the State will have
sufficient control over the activities in said contracts and will have revenue from the operations, such as
(1) that the service contract be crafted in accordance with a general law setting standard or uniform
terms, conditions and requirements; (2) the President be the signatory for the government; and (3) the
President report the executed agreement to Congress within thirty days. The drafters also limited the
operations only to minerals, petroleum, and other mineral oils.

Second Issue: FTAAs are not limited only to financial and technical assistance.

The Court, upon reviewing the dialog between the drafters of the constitution, ruled that foreign-owned
companies are not limited only to financial and technical assistance.

Through a verba legis interpretation of the phrase “involving either technical or financial assistance”
does not connote exclusivity in the kind of assistance foreign-owned companies may deliver.

The drafters deliberately left the provision subject to interpretation with full knowledge that it will not
only entail financial and technical assistance, but also to open the Philippines for foreign investment and
management for large-scale exploration, development, and utilization.

The rationale behind this is that the Philippines, being financially and technologically strapped, cannot
explore by itself the natural resources that the land has. Though the Philippines may have tons of
minerals hidden within the earth, without the proper resources to extract and utilize them, they will still
be worth nothing, which is why the Constitution allows for other countries to do the labor for us for our
mutual benefit.

Third Issue: The Philippines keeps full control of the natural resources.

To answer the petitioner’s claim that the State surrenders control of our natural resources to foreign-
owned companies, the Court defined “control and supervision” from Paragraph 1 of Art. XII Sec. 2.

Control, as ruled by the Court, does not necessarily mean dictatorial control, but control sufficient
enough to give the State power to direct, restrain, regulate, and govern the affairs of the extractive
enterprises, through establishment of policies, guidelines, regulations, industry standards, and similar
measures.
Said measures, which are provided in the provisions of RA 7964 or The Mining Law, DO 96-40 or the
implementing rules and regulations of the mining law, and the WMPC FTAA itself grant the government
with the power to approve or disapprove, therefore influencing, directing, and changing the various
work programs and operations of the foreign-owned companies. Through these laws, the contractor is
mandated to open its books of accounts and records for scrutiny, to enable the State to determine that
the government share has been fully paid, and to compel the company to assist the development of the
mining community, and pay royalties to the indigenous peoples concerned.

The Court also ruled against the claim of respondents that the foreign companies will get full control of
the minerals for free. As the FTAA stated, the government will get a basic government share, through
taxes, fees, and royalties, along with other payments by the contractor involving the mining operations;
a share from the earnings of the mining enterprise prescribed by the FTAA; and indirect taxes and other
financial contributions of the mining project.

On top of this, the foreign-owned companies will shell out millions of dollars for the exploration itself,
thereby paying taxes and other fees to the government during the preparatory stage alone. After which,
the company will continue to invest in the mining operations, which usually lasts 10-15 years before
revenue can be made, throughout which, the foreign-owned company will be paying the government
taxes, fees, and other such royalties.

Once the company has started profiting, the government will also earn a share of the net profits, on top
of the taxes levied from it. Therefore, it would provide an equitous benefit between the company and
the State, with the State earning immediate profits even before the operations even begin.

This opens the Philippines as a healthy and marketable investment to foreign companies, therefore
resulting to more income and in turn, more infrastructures, jobs, and other immediate benefits that the
people of the State may acquire.

Fourth Issue: Several provisions of the WMCP FTAA are unconstitutional, but FTAA still valid.

The Court ruled in favor of petitioners that two provisions of the WMCP FTAA are unconstitutional,
namely Section 7.8 (e) and 7.9.

Section 7.8 (e) provides that the sums spent by government for the benefit of the contractor will be
deductible from the States share in net mining revenues. The Court rules that this would result into
unjust enrichment on the side of the contractors against the State, therefore invalid.

Section 7.9 provides that :

The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall
be reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the
Contractor (i.e., WMCP) held by a Qualified Entity.

This provision deprives the government of some parts or the entire 60 percent share in the net mining
revenues of WMCP from the commencement of commercial production if the foreign shareholders sell
60 percent or more of the company’s share to a Filipino citizen or corporation, therefore making it
invalid.
Conclusion:

Yes, foreign-owned companies are allowed to participate in the exploration, development, and
utilization of the natural resources of the Philippines through FTAAs;

No, FTAAs are not strictly limited only to financial and technical assistance; and

No, FTAAs do not cede control of national resources to foreign-owned companies.

Yes, Sections 7.8 (e) and 7.9 of the WMCP FTAA are unconstitutional.

WHEREFORE, the Court RESOLVES to GRANT the respondents and the intervenors Motions for
Reconsideration; to REVERSE and SET ASIDE this Courts January 27, 2004 Decision; to DISMISS the
Petition; and to issue this new judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the
Philippine Mining Law), (2) its Implementing Rules and Regulations contained in DENR Administrative
Order (DAO) No. 9640 -- insofar as they relate to financial and technical assistance agreements referred
to in paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the Financial and Technical
Assistance Agreement (FTAA) dated March 30, 1995 executed by the government and Western Mining
Corporation Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are hereby
INVALIDATED for being contrary to public policy and for being grossly disadvantageous to the
government.