Chapter XIV - International Protection Racket

pro forma than anything else. Being one of the most dependable general utility aircraft, the Beaver was widely utilized in Vietnam for a wide variety of supportive military functions, from detecting guerrilla movements to carrying out light machinegun attacks. The purchase of such large numbers of proven and insurgent aircraft by a government engaged in a major guerrilla was ought to have made the surplus-disposal authorities - were they serious about restricting its use - suspicious from the start and led them to more carefully investigate the Philippine government's request. With the confirmation by foreign correspondents of the predictable military utilization of the aircraft, the AID office had, in short, no other alternative but to protest, but this should not obscure what was initially a "complicity through deliberate passivity" on its part. There is no assurance that the planes have not been covertly returned to combat duty. An AID spokesperson asserted that they are currently being utilized to make aerial photographs of the land reform area in Nueva Ecija province.*130 This is a curious activity for such a large number of aircraft; it would mean one plane for every barrio. The fact that Nueva Vizcaya, where NPA activity has been reported, borders Nueva Ecija, and Isabela, the prime NPA stronghold, is less than a hundred miles away, might perhaps shed more light on the "aerial photographic" functions of these aircraft.

(*130. Interview with Christenson.)

The conjugal dictatorship of Ferdinand and Imelda Marcos is locked in a tight conspiratorial embrace with big business corporations from the United States and Japan for the further economic exploitation of the Philippines. They are engaged in a mutual protection racket.

The martial regime insures for big business from the United States an excellent investment climate in the Philippines. In turn, American multinationals help Marcos lobby with official Washington, . D.C. for continued American economic and political support for the conjugal dictatorship.

On the other hand, the post-war Japanese zaibatsus (conglomerates) - also in exchange for placing them practically on the same footing with big American business in the Philippines — flash continuing signals to their MITI (Ministry of International Trade and Industry) that Marcos deserves more dollar loans from Tokyo.

The brave talk in the New Society is that the conjugal dictatorship now has the big American and Japanese business by their balls. Marcos, it is arrogantly held out, has it in his power to withdraw all the concessions he has granted the foreign investors.

And yet, the victims of the international conspiracy are not just the Filipino people whose economic nationalism has been betrayed by Marcos to open them to wanton exploitation by the multinationals-. The groaning American and Japanese taxpayers are victims no less of this protection racket invented by

Marcos. They underwrite the multi-million dollar assistance and/or loan programs of their respective governments to the conjugal dictatorship of Ferdinand and Imelda.

Other giant companies from Western Europe and Oceania have also come in to engage in manufacturing or in the exploitation of the Philippines' natural resources. Undoubtedly, they, too, were attracted by the inducements offered by the martial regime: cheap labor, frozen wages, impotent unions, no strikes or demonstrations, no embarrassing investigations, tax holidays, relaxation of visa requirements, incentives for corporate repatriation and profit remittance.

The strongest and most appalling conspiracy of the martial regime on the exploitation of the Filipino people is with the American multinational. The scheme is actually a continuation, a perpetuation of a colonial economic relationship between the Philippines and the United States - a relationship that had in the past prevented meaningful economic planning, diversification and industrialization. Undoubtedly, it is a great sell-out. The martial regime is bartering away the national patrimony to the giant multinationals from the United States and elsewhere in exchange for continuing international recognition of the conjugal dictatorship. In the case of the United States, the license that the American multinationals obtain from the martial regime is exchanged with the continuation of the U.S. foreign assistance program to the dictatorship. The bulk of the aid, in turn, is utilized by the fear machine of the dictatorship for oppression and repression in the Philippines.*1

(*1. Refer to chapter on “U.S. Aid Misused, Abets Dictatorhsip.”)

The tragic part of the conspiracy between the multinationals and Marcos is that the former fell into a well-laid trap of the latter. Marcos himself contrived the crises and established the other factors that drove the big American business and other international merchants in the Philippines to embrace the declaration of martial law. And now that the multinationals are seemingly irretrievably mired in the quicksand of the conjugal dictatorship, they still would want to continue the conspiracy with Marcos in order to protect their investments.

The breakdown of law and order and the violence that possessed the peaceful demonstrations of the awake studentry and peasantry in the late 60s and early 70s were instigated by the special operations units of Marcos which have succeeded in infiltrating die ranks of the activists. Economic nationalism assumed a vehement anti-American tone, also at the instance of Marcos. The two Supreme Court decisions (the Quasha and Luzon Stevedoring cases) which boosted economic nationalism were handed down on cases initiated by the Solicitor General (now Associate Justice of the Supreme Court Antonio P. Barredo). Marcos directed Barredo to file those cases. Marcos also plugged vigorously for the approval by Congress of an Investment Incentives Act that would adopt the principles and objectives of economic nationalism.

When Marcos proclaimed martial law, Marcos told the international business community that his dictatorship would provide the needed peace and order and protection from the weapons of economic nationalism given out by the Supreme Court and Congress to the Filipino people.

The set-play employed by Mafia-minded Marcos was not different from the "watch-your-car" racket flourishing in the side streets of Manila. When a street urchin says, "Watch your car, Mister?" what he means is that the car owner must pay him something so that he will not slash car tires or damage any part of the car while the driver is away. The kid, however, does not guarantee that the car will not be stolen while parked.

An interesting article written by a Filipino national Proculo Rodriguez, Jr., who now resides in Silver Spring, Maryland, sheds light on the exploitation of under-developed countries by multinationals. Excerpts from the article follows:*2

(*2. Philippine Times, Feb. 1-15, 1976, page 18. The article is entitled, “Under-development Worsened by the Multinational Firms.”

AN ARTICLE, entitled "Why Companies Do Business Abroad" - prepared by the editors of the Reader's Digest and presented by the Business Roundtable as an advertisement — appeared in the November, 1975 issue of Reader's Digest.

Numerous charges have been leveled against U.S. multinationals to the effect that chronic under-development throughout the Third World is the direct result of multinational corporation policies. This controversial issue has generated so many study-surveys (See the UN Report on the Impact of Multinational Corporation on Development and on International Relations, 1974), that it is highly improbable the editors , of the Reader's Digest could be unaware of this fact.

At this juncture, it is best to present a composite definition of a multinational corporation also known as transnational enterprises. A multinational corporation is a company, having production and marking facilities in many countries, either on its own or in partnership with host-country corporations, enjoying worldwide access to capital, depending on foreign income, and being managed with a worldwide point of view. (See David Ewing, Multinationals on Trial, Harvard Business Review).

It must be noted that some of the most serious and persistent criticism of U.S. multinationals have come from Third World countries. These criticisms relate to the sheer size of these companies and their consequent powerful social and political impact in the Third World nations in which they operate. For example, the sales of Exxon, AT & T, General Motors, Ford Motor, Sears Roebuck, and General Electric are larger annually than the gross national products of the Philippines, Turkey, Korea or Thailand. U.S. investments in such countries as the Philippines, Mexico, Venezuela, and Brazil account for the bulk of those countries' foreign investments and foreign exchange earnings. (Quoting from "An Examination of Multinational Corporations, March, 1973, Corporation Information Center Brief, N.Y.)

Furthermore, the profits thatj multinationals derive from poor countries are almost incredible. United Nations figures show that in 1970, they repatriated $2.4 billion from Asia but only invested $200 million. In 1968, they repatriated $2.9 billion from Latin America but invested only $900 million. In 1971, they

repatriated $996 million from Africa but invested only $270 million. And in most instances, these multinationals dp not generate their own capital.

Unwittingly, therefore, the article-advertisement of the Business Roundtable itself lent credence to the charges leveled against U.S. multinationals, by providing its own figures, to the effect that American companies operating abroad “returned home royalties and foreign earnings of $21.4 billion — three times the outflow for new foreign investments.”

Contrary to the assertions made in the said article, it has been claimed that operations of these transnational enterprises has in fact not only stunted the economic growth of some countries, but actually such countries are worse off than before. According to the 1971 Economic Survey of Asia and the Far East, “In the first development decade of the 1960s it is apparent that large sectors of Third World populations, based on income distribution, family expenditure and dietary surveys, experienced no real improvement in their standard of living, and even became worse off.”

The best illustration of the rapacious conduct of some U.S. multinationals would be their operations in the Philippines which has a long history of trade and investment relations with the United States.

The Philippines became a colony of the United States after the U.S. victory in the Spanish-American War of 1898. What followed was typical colonial relationship between the U.S. and the Philippines, wherein the U.S. dominated Philippine trade. The Philippines exported agricultural products to the United States, and imported manufactured goods that their underdeveloped industry could not produce. This colonial free trade policy is said to have had a lasting detrimental effect on the economy of the Philippines.

The Philippines achieved commonwealth status in 1935, and was granted independence in 1946. However, the Philippines continued to be economically dependent on the United States, as the U.S. perpetuated a structure of underdevelopment. This situation was aggravated by the so-called Philippine Trade Act of 1946 which, in return for U.S. economic assistance after the Philippines was devasted in the second World War, provided for the exemption of American citizens and companies from the constitutional restriction limiting the exploitation of the Philippine natural resources to Filipinos, known as the “Parity Rights” amendment.

Presently, current U.S. investments in the Philippines are valued at $2 billion or even as high as $3 billion. Whatever the actual figure, U.S. investment in the Philippines is greater than that in any other Southeast Asian country. While investment in the Philippines represents only 1 percent of the total book value of U.S. direct investment worldwide, it also represents 80 per cent of all foreign investments in the Philippines. Thus, U.S. investment is crucial to the Philippine economy as it is currently structured.

U.S. multinationals now dominate in all major Philippine industries — automotives, petroleum, rubber, timber, mining, sugar, banking and finance, agribusiness, and even accounting and advertising services. The evidence suggests that rather than promoting economic development by applying capital, technology and managerial know-how, multinational corporations actually fostered underdevelopment in the Philippines.

A report prepared by the Corporate Information Center of the National Council of Churches of Christ in the U.S.A., entitled The Philippines: American Corporations, Martial Law and Under-development (1973) has presented the following summarized conclusions:

1. Statistics show that in the Philippines from 1966 to 1971, income levels for the bottom 20 per cent have actually declined, from 4.5 per cent to 3.6 per cent, while the upper 20 per cent holds 54 per cent of the wealth. Unemployment and underemployment continue to rise as well. 2. The largely capital-intensive orientation of multinational corporations, their penetration of foreign countries through local acquisition of would-be nationally owned competitors, and their ability to hide profits from taxation and to inflate prices represent some of the ways by which the development and living conditions in the developing countries are ultimately shaped by the impact of multinationals. 3. The increasing control foreign banks exercise on the local currency deposit favors their multi-national industrial counterparts at the expense of loans to local industry. A study conducted by the National Economic Council of the Philippines between 1956 and 1965 on 108 of the largest U.S. firms in the Philippines showed that 84 per cent of their financing was done through local currency loans. Profits remitted to foreign beneficiaries were 300 per cent greater than capital invested by these companies.

Two case studies were made in the fruit manufacturing industry in the Philippines which is virtually a monopoly of two American multinationals, the Del Monte Corporation and the Dole Philippines, a subsidiary of Castle & Cooke. These case studies (see CIC Report, pp. 36-43) are fascinating for they reveal how these two multinationals were getting 200 per cent a year return on their respective per capita (equity) on land not owned by them but owned by the Filipino people.

It must be admitted, however, that in the case of American control of banking and financing in the Philippines, this has been largely due, in recent years, to the strange policies of the Marcos martial law regime which seems to favor foreign investments — a strange development for a country that ostensibly desires to assume control of its economy. (Marcos converted this Amencan-style democratic nation to a dictatorial one when he declared martial law on Sept. 21, 1972).

With this brief evaluation of U.S. investments in the Philippines, the wider issue of multinational corporations and their implications particularly in reference to Third World development becomes apparent. The question of whether multinational corporations embody hope for economic development or, on the contrary perpetuates a structure of underdevelopment, becomes the paramount issue. Certainly, this crucial issue cannot be brushed aside by a few propaganda lines in the heretofore sacrosanct Reader’s Digest.

In conclusion, let me quote the words of Felix Greene, in his book, The Enemy (London, 1970) as quoted by Jovito Salonga in his lecture at the University of the Philippines, Sept. 20, 1974, to wit:

"The truth is that investment by foreign capitalist corporations has always accomplished precisely the opposite of what the theory claims. Whatever shortterm local stimulation of business and rise in employment and wages might initially take place, the long-term consequences are invariably that more wealth is taken out of the underdeveloped country by the foreign corporation than they invested in it. This is the whole point of such investments. The foreign investments do not diminish the disparity in the rate of development between the advanced and underdeveloped countries but aggravate and increase it. . . They are pumps designed to suck up the country's wealth and transfer it abroad."

The Rodriguez article easily points out the indubitable fact that multinationals operating in a poor country invariably tend to control its economy. They ruin or buy out local enterprises unable to compete with them, borrow working capital from local banks and financing institutions, transfer obsolete or overpriced technology, engage in transfer pricing and in the massive outflows of foreign exchange, corrupt the local ruling elite through all sorts of devices and pressures, expose the native population to consumption patterns suitable only toaffluent societies, and aggravate a poor country's dependence on foreign technology, foreign investments, foreign markets, foreign credits, and imported styles and products. Instead of helping develop a poor country, the evidence shows that most ofthem actually prolong its under-development.

And yet, it is a never ending source of pride for Marcos to be able to announce through the controlled media that new foreign loan commitments have been obtained, that a multinational company has been convinced to make Manila its regional headquarters, that another foreign group has decided to make an investment in the Philippines, that more hotels and tourist resorts are being built, and that strikes are no longer possible.

With the open-door policy of Marcos, foreigners have now assumed a quantitatively commanding role in the national economy . Filipino capital has been dispossessed of its economic birthright. Verily, the development program of Marcos is being pursued at the expense of the country and the overwhelming majority of the Filipino people and at the sacrifice of economic sovereignty.

Marcos threw the country’s investment field wide open to foreign capital and multinational corporations by offering attractive tax and foreign exchange incentives, and an even more attractive labor situation. Marcos offered the country’s large pool of unemployed and underemployed labor, ban on labor strikes and an unalterable ceiling on workers’ wages and salaries.

While offering the attractive investment incentives, Marcos dictated to the Constitutional Convention a martial law constitution that:

1) Reversed the Supreme Court decisions in the Quasha and Luzon Stevedoring cases, and 2) Gave the dictator power to disregard all restrictive laws on foreign investments in concluding treaties and executive agreements. *3

(*3. 1973 Constitution, Art. XIV, Sec. 15.)

Not content with providing for favors in the martial law Constitution to foreign investors, Marcos himself executed acts further calculated to strengthen

his conspiracy with foreign investors. In aseries of decrees, which can happen only in a dictatorship, Marcos:

1) Unilaterally extended the Parity Rights for one year, from July 4, 1974, to July 3. 1975. 2) Approved during the period of such extension schemes by which U.S. firms divested themselves of title, but otherwise retained the beneficial use and control, of land acquired during parity. 3) Ratified the Philippines-Japan Treaty of Amity, Commerce and Navigation. The treaty ratifying Senate of the Philippines sat down on the treaty for 12 years, refusing to ratify it on account of fears that the accord would open the country to Japanese economic exploitation. 4) Relaxed Filipinization laws on the retail trade, the rice and corn industry, the inter-island shipping industry, and the banking system.

Now, everybody…. Now, everybody knows that Marcos is a master of the politics of quid pro quo. He provides overwhelming investment incentives for American multinationals to enable them to reap enormous profits with minimum investments while exploiting the natural and manpower resources of the Filipinos. In exchange, the U.S. transnational enterprises report back to their mother companies in continental America that they are enjoying a bonanza under the martial regime of Marcos. The implication of the “good behavior rating” of the martial law regime is that the mother companies should see to it that Marcos is not destabilized — as yet.

Thus, with the lobbying of the multinationals with official Washington, D.C., Marcos is assured of continuing American foreign assistance that will show that he is supported still by the U.S. government and that the martial law government continues to earn dollars from abroad.

Fortunately, the multinationals do not control the United States Congress where a new wind has started blowing. A great number of U.S. lawmakers have started taking a long hard look at political repression and oppression in the Philippines. Animated by the spirit that made America great, they still believe in that worn-out principle that freedom is indivisible, that an attack on freedom anywhere — as in the Philippines — is an attack on freedom everywhere. Thus, the latest foreign aid bill passed by Congress included a proviso that assistance might be withheld from any country practising the internment of political prisoners.

There ought to be great consternation in the U.S. Congress as well as among the multinationals which are coddling Marcos, as it were, when they discover the devious designs resorted to by Marcos in winning the support of American business for his declaration of martial law.

It was Marcos himself who instigated the violent demonstrations against American firms and "the imperialist Americans" during those riotous days before martial law. It was Marcos who ordered his Solicitor General to file the suit, entitled Republic vs. Quasha which sought the nullification of sales of private lands to U.S. citizens after 1945. Marcos likewise directed his Solicitor General to take a vigorous stand in favor of nationalism in the case of Luzon Stevedoring vs. Anti-Dummy Board, which resulted in a Supreme Court ruling banning foreign directors in corporations engaged in Fihpinized industries.

Marcos played on the nationalist sentiments of a majority of the Supreme Court justices to wring out from the justices decisions dripping with nationalistic undertones. Then, he let loose his paid propagandists to write subtly that the wave of nationalism in the Philippines was taking on a rabid anti-American orientation.

On the day Marcos was to declare martial law, he told American Ambassador Henry Byroade that he was under compulsion to resort to the emergency measure on account of, among others, the growing wave of antiAmericanism fanned by the nationalistic decisions of the Supreme Court on the Quasha and Luzon Stevedoring cases.

The 1973 report prepared by the Corporate Information Center of the National Council of Churches of Christ in the U.S.A. had this to say on American corporations and martial law:*4

(*4. “The Philippine American Corporations, Martial Law, and Underdevelopment.”)

The declaration of martial law carried with it changes that have been of particular advantage to American corporations in the Philippines. In some cases these advantages have been indirect; others have been more deliberate. (Italics ours)

Very soon after the declaration of martial law, Presides Marcos began a continuing process of reassuring American business people that their interests were safe and that there would be no moves like expropriation under his administration.

One important advantage American businesses have received under martial law is the silencing of anti-American Filipino nationalism. In the years before martial law, American companies had been the object of a growing number of verbal and physical confrontations. Some of these were the result of a general trend toward “widespread corruption and lawlessness ranging from extortion to piracy.” while others were specifically anti-American movements. In recent interviews, various company spokesmen cited incidents that had taken place during this time ranging from bombings to demonstrations that, they reported, created an atmosphere of uncertainty and fear about company operations. Through the workings of a controlled press, the prohibition of all forms of protest demonstrations, and the crackdown on lawlessness and crime under martial law, American corporations have enjoyed a respite from such confrontations.

A similar advantage under martial law for American companies is the disbanding of the Congress. The economic anti-Americanism expressed there in recent years also had been a cause for uncertainty. Now disbanded, the Congress can play no part in determining economic policy.

President Marcos' direct assurances to American companies were formalized in sections of the new Constitution drafted under martial law. All the anti-American nationalist proposals of earlier constitutional drafts were omitted. Regarding the critical question of land rights, President Marcos had stated immediately after the declaration of martial law that he would clarify the meaning of the Supreme Court Quasha decision. He has, in effect, negated the ruling that American corporations do not have vested rights to the lands they own after parity ends in 1974. The new Constitution formalized the negation of the decision in recognizing that the land had been acquired legally and keeps

open the possibility that U.S. corporations will be able to continue to own the land after July 3, 1974.

The new Constitution also includes two other areas that were of concern to American companies. Despite the provision that companies in the area of public utilities must be 60 percent Filipino by July 3, 1974, the new Constitution includes an escape clause. It states that "any provision of the article notwithstanding, the state may enter into international treaties or agreements as the national welfare and interest may require," The Constitution also negates another nationalist Supreme Court decision, the Luzon Stevedoring case; the Court had determined that foreign nationals could not sit on the board of directors of a public utility even though they held equity in it. The new Constitution ignores this and simply asserts that "representation of foreign capital in the governing body of such public utility may be allowed only in proportion to the extent of its equity."

The general specific efforts toreassure the American business community reflect perhaps a close relationship between President Marcos and American business people. Various theories can be expounded to explain this relationship: Marcos desperately needs the support of American corporations and will have to satisfy their interests to stay in power; or, Marcos knows he has American corporations caught and he can threaten loss of land or privileges if they do not support his decisions. It is difficult to substantiate either theory. But it is evident that there is a close cooperation, or at least understanding, between Marcos and American business interests. They have not been and, it is safe to say, they will not be working at cross purposes. 'The businessmen are confident that Mr. Marcos is hostile to the strong trend of Filipino economic nationalism, essentially anti-American in character." (Henry Kamm, "Philippines President Held Friendly to U.S. Business," New York Times, November 13, 1972, p. 62). There are also more concrete ties between U.S. business and Marcos. Some U.S. companies are strongly identified with Marcos. "Companies such as Hawaii's Castle and Cooke and Gulf Oil have important allies of Marcos on the boards of their Philippine subsidiaries. And Ford Motor Company plans to build a stamping plant in a recently created foreign trade zone at Bataan. . . Reportedly, Marcos and his friends own most ol the land in the trade zone." ("Philippines: A Government that Needs U.S. Business." Business Week. November 4. 1972, p. 42).

One American businessman explained that Marcos needs the cooperation of all within ihc economic sphere. American investments represent a major part of that sphere and without their cooperation many of Marcos' economic programs could not go through. "Of great importance to the Philippine Government at this point is the confidence of the New York financial and corporate community. As of January 31, 1972, the Philippine external debt amounted to $2.1billion. The United States holds approximately 45 per cent of this debt . . (Committee on Foreign Relations, United States Senate, "Korea and the Philippines: November 1972, Staff Report, February 18, 1973, p. 35) Another source phrased it this way: "Marcos is asking the companies to lobby for substantial U.S. government aid and favorable treatment for Philippine exports. More important, Marcos hopes that if he continues to treat U.S. business right, U.S. bankers will continue to treat him right." ("Philippines: A Government that Needs U.S. Business," Business Week, November 4, 1972,

p. 42)

There is no clear evidence on the issue of actual collusion of American corporations with the declaration of martial law. There have been numerous allegations, however, that American business was really behind the declaration. Representatives of the American corporate community deny any involvement The role of American corporations just after the declaration is also open to debate.mAgain, allegations of secret cooperation between Marcos and American business have been made. There seems to be at least some substance to these allegations in that an American business representative stated during an interview that two officers of the American Chamber of Commerce of the Philippines conferred with President Marcos within days after the declaration on the cooperative role American corporations were to play under martial law. An American Chamber of Commerce representative vehemently denied this charge, stating that the organization had had no meetings with the President. He also stated that such political actions are not condoned by American multinational corporations. x x x

American and other foreign investments in the Philippines since martial law can be categorized into four basic groups: investments by new operations planned before martial law and implemented since; investments by new operations planned and implemented since the declaration; expansion of existing operations planned before martial law and implemented since; and expansions planned and implemented since the declaration. The major American investments fit into several of these categories.

A significant case of new American investment as a direct result of martial law is a joint venture in an investment banking involving two large American interests. Chase Manhattan Bank and the American International Reinsurance Company (AIRCO) have joined with a Filipino group increating the new Philippine-American Investment Corporation. Each American company will hold a 20 per cent interest. ("Stake in the Philippines,” U.S. News and World Report, December 4, 1972, p. 71) The initial paid-in capital of the venture is P1 million but will be raised to P10 million after approval by the Board of Investments, with the authorized capital at P50 million. The investment by the two American companies was precipitated by the martial law situation. "MR. Greenberg, AIRCO chairman, just back from Manila and talks with President Ferdinand E. Marcos, says he is 'far more optimistic' about the investment climate than he was a few months ago. The businessman finds Mr. Marcos "addressing himself realistically' to his nation's problems, rather than urging a nationalistic line." ("Stake in the Philippines.")

Another investment by U.S. companies that was a direct result of martial law proclamation is in oil exploration. The Chevron Oil Company and the Texaco Corporation joined two local Philippine companies. Abstract Mining and Industrial Corporation and Astro Minerals and Oil Corporation, in a joint venture to explore for oil. The venture was made possible by Marcos' decree opening oil exploration to foreign corporations by allowing service contracts with the government. The two U.S. companies will invest S8 million to explore through their international branches. Chevron Overseas Petroleum and Texaco International Petroleum. The approved venture will explore an area in the Sulu Sea area of 1.2 million hectares (adjacent lo Shell and Exxon concessions). Under the terms of the government agreement, the government will receive 60