r
Republic of the Philippines
House of Representatives
Quezon City, Metro Manila
Nineteenth Congress
First Regular Session
HOusE`i3irL^fto.6667
Introduced by Representative Arnan C. Panaligan
EXPLANATORY NOTH
This  bill  seeks  to  provide  for  the  development  of a  National  Defense
Industry and grant incentives to enterprises engaged in the defense industry.
The establishment of a domestic defense industry is a vital strategic move
that   will   enable   the   Philippines   to   effectively   pursue   the   long   delayed
modemization  of the  Armed  Forces  of the  Philippines  and  acquire  a  credible
defense posture for the country. This will likewise enable the Philippines to assert
a truly independent foreign policy. By having our own domestic defense industry,
we can lessen our reliance on foreign sources for our military's requirements.   It
bears  stressing that our diplomatic  initiatives  are  best pursued  if other nations,
whether friend or would be foe, know that our words are backed up by a credible
defense capability.
A  robust  domestic   defense   industry  will  also  underpin  our  country's
industrialization  strategy.   The  manufacture  of  amiaments  and  other  defense
materiel will   generate employment opportunities to thousands of Filipinos.  The
armaments that we produce can also be exported and thus Cam revenues for the
country. Thus, the establishment of a National Defense Strategy will serve a dual
purpose: modemize our Amed Forces into a credible fighting force and advance
the industrialization of the country.
Under this bill, the Secretary of National Defense is mandated to formulate
plans and programs geared towards the development of a national defense industry
to  further  enhance  national  security  against  internal  and  external  threats  and
consistent with the  purposes  of the  self-reliant  defense  posture  program  of the
Department of National Defense.
This  proposed  measure  will  also  allow  foreign  nationals  to  own  sixty-
percent (60%) ownership of a defense enterprise and grant incentives to all defense
enterprises to encourage the development of the defense industry in the country.  A
robust   defense   industry   will   also   be   an   impetus   to   develop   the   steel,


semiconductor,   information  and  communications  technology  and  other  allied
industries.
The present administration has expressed its support for the development of
a self-reliant defense program which can be best achieved by setting up a local
capability to produce, service, assemble and develop defense equipment weapons,
materiel, and systems which have greater strategic impact on national security and
economic interests.
In view of the foregoing, the early passage of this bill is earnestly sought.
#.Ggiv
RNAN C. PAN
2


Republic of the Philippines
House of Representatives
Quezon City, Metro Manila
Nineteenth Congress
First Regular Session
HousErm£No.6667
Introduced by Representative Arnan C. Panaligan
12
AN ACT
pRovlDING FOR THH DEVELopMnNT oF A NATloNAL DEFENSE
INDUSTRY AND GRANTING INCENTIVES T0 ENTERPRISES
ENGAGED IN DEIFENSE INDUSTRY IN ORDER TO ENHANCE A SHLF-
RELIANT DEFENSE POSTURE FOR THE PHILIPPINES
Be it  erracted by the  Senate  and House Of Representatives  Of the  Philippines  in
Congress assembled:
SECTION  1.   S#orf rit/c. -  This Act shall be known as  "IVcrfz.o#cz/ De/e72se
Indrstry Act. "
13              SEC. 2.  Dcc/¢ro/I.o# a/S/o/tz po/j.ey. -It is the policy of the state to secure
14     and defend the national sovereignty and territorial integrity of the Philippines by
15     ensuring a strong, credible and effective national defense.   Towards this end, the
16     State shall develop and promote a national defense industry that is responsive to
17     the  needs  and  requirements  of  a  modem  and  capable  Armed  Forces  of the
18     Philippines and the other armed services of the country.   The State considers the
19     defense industry as a strategic industry that has a vital contribution in enhancing
2o     national   security  and  in  promoting  national   industrialization.   The   State  also
21     recognizes the  indispensable role  of the private  sector in the establishment of a


1     national  defense  industry  and  shall  encourage  private  enterprises  by  providing
2      incentives to  needed  investments.    The  State  also  recognizes  the  role  of foreign
3      defense  enterprises,  particularly  from  allied  countries  and  shall  allow  them  to
4     participate and invest in the development of the national defense industry subject
5     to certain limitations as may be provided by law.
6              SEC.  3. IV¢/i.o#¢/ Dc/c"sc J#dwstry.  -The  Secretary  of Defense  shall,  in
7     coordination with the secretary of the National Economic Development Authority
8     and the Secretary of the Department of Trade and Industry, formulate plans and
9     programs  that  aim  to  develop  a  national  defense  industry  strategy,  which  is
lo     responsive  to  the  requirements  of  intemal  and  extemal  national  security  and
11     consistent  with  the  purposes  of the  self-reliant  defense  posture  program  of the
12      Department of National Defense. In developing the national defense industry, the
13      following principles shall be observed:
14           (a) Local and foreign enterprises with substantial production in the country shall
15                 be given preference in the purchase ofmateriel;
16           (b) Investments in defense research and development shall be encouraged;
17           (c) Innovations shall be actively pursued in developing defense technology and
18                   systems;
19           (d)Relevant technical  and  financial  support to  private  enterprises  engaged  in
2o                 defense industry shall be provided;
21           (e) Import materiel with the objective of acquiring the technology for the local
22                 production of such materiel; and
23           (I) The importation and purchase of the necessary armament and materiel shall
24                 include in the purchase agreement a technology transfer clause.
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1              SEC.  4.  Dc/e"sc  E#ferpri.scs.  -     A  defense  enterprise  may  be  a  sole
2     proprietorship,  partnership  or  corporation that  are  registered  in  accordance  with
3      existing laws, rules and regulations on the registration ofbusinesses.
4              Filipino  citizens  are  authorized  to  own  one  hundred  percent  (100%)  of a
5      defense enterprise-while  foreigri nationals may own sixty percent (60°/o).  A sole
6      proprietorship defense entexprise is reserved to Filipino citizens.
7              For purposes of this Act, defense enterprise refers to an enterprise engaged in
8     the  production,  assembly,  manufacturing,  delivery  and  maintenance  of defense
9      equipment such as arms, munitions, weapons systems, electronic surveillance and
lo     warfare   systems,   combat   management   systems,   radar   and   communications
11      systems, armoured and other military vehicles, naval vessels and aircraft and other
12      materiel  as  may  be  determined  by the  Secretary  of the  Department  of National
13      Defense.  A defense enterprise shall also include an entity engaged in research and
14     development of weapons systems and other defense materiel.
15                No defense enterprise may operate without the approval of the secretary of
16     the  Department  of National  Defense.    Each  defense  enterprise  shall  submit  a
17     biannual report to the Secretary of National Defense that includes, among others,
18     type  and  quantity  of materiel,  timeline  of production,  source  of materials  and
19     research and development undertakings, if any.
2o              SEC.  5. Pri.orrty.  -The  Secretary  of the Department of National  Defense
21      shall  approve  and  give priority  to  defense  enterprises that  are responsive to the
22     modemization programs  of the  Armed Forces  of the  Philippines  (AFP)  and the
23      Philippine National Police (PNP) and competent to  supply the required type and
24      quantities  of materiel  to  develop  the  capabilities  of  the  AFP  and  PNP.  The
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1      Secretary of the Department of National Defense shall also give priority to defense
2      enterprises that are one hundred percent (100%) owned by Filipinos.
3               SEC. 6. J#dwsrtyJ fi.#Aages. -All defense enterprises shall employ services
4     locally and use local materials in manufacturing materiel and may only resort to
5      importation  if the  needed  services  or  materials  are  not  available  locally.    The
6     defense enterprises shall coordinate with and purchase services and materials from
7      the  local   steel,   semiconductor,   information  and  technology,  and  other  allied
8      industries.
9                 For this puxpose, the secretary of the Department of National Defense shall
lo     identify and include in the national defense strategy the development of all allied
11      industries and facilitate the establishment of linkage between the defense industry
12      and allied industries.
13               SEC. 7. Fi.sc¢/ J#cc#fi.vcs. -Defense enterprises shall be entitled to avail of
14      the following incentives:
15               a) Fiscal incentives under Title Ill and Title Iv of Executive order No. 226,
16      Series  of 1987,  otherwise  known  as  the  "O"7zz.b24s J7cves/"e#/s  CocJe  a/ /987, "
17      Republic Act No.  7916, otherwise known as  ``77ze fpecz.cz/ Eco#omz.c Zo77e £4cf o/
18      /995, " Title XIII of the National Internal Revenue code and other existing laws on
19      incentives.
2o                b) Defense  enterprises  are  likewise  exempt  from  customs  duties  and taxes
21     payable  on the  importation  of materials  to  produce  defense  and defense  related
22      materiel.
23              c) Nothwithstanding any provision of law to the contrary, defense enterprises
24      shall also be exempted from the payment oflocal business taxes and real property
25     taxes for a period of seven (7) years from the commencement of their operations in
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1     the local government unit concerned. Provided, however, that the exemption shall
2     not include the payment of reasonable regulatory fees such as health and sanitation
3     permits and waste management fees.
4               SEC.  8.    The  fiscal  incentives  provided  in  Section  7  hereof shall  also  be
5      extended   without   diminution   to   defense   enterprises   located   outside   special
6      economiczones.
7               SEC.  9.  The President of the  Philippines,  upon the recommendation  of the
8     Secretary  of the  Department  of Finance  after a thorough  study  of the  need  for
9      incentives,  may grant additional  fiscal  incentives to  defense enterprises with the
lo     aim to develop a robust defense industry in the country that is responsive to the
11      national security requirements of the country.
12               SEC.10. Government financial institutions shall support the defense industry
13     by formulating and extending financial products that would hasten its development
14      and sustainability.
15               SEC.11.  Incentives  to  Research  and  Development.  ~   In  aLdditiion to the
16      existing tax  incentives under the National  Internal Revenue  Code or other laws,
17      rules and regulations, any defense enterprise engaged in defense related research
18     and  development  may  apply  for  a  subsidy  from  the  government,  subject  to
19      conditions that the  President  of the  Philippines  may  impose.    The  research  and
2o      development   activities   may   also   be   conducted   and   entered   into   through   a
21     partnership agreement between any defense enterprise and the government.
22               SEC.12. Regi.srty; ¢#d J#ve#/Dry.  -The Department of National  Defense
23      shall  keep  a registry  of all  the  defense  enterprises  in the  country,  including the
24     enterprises of the allied industries.  The registry shall include the data submitted by
25      each defense enterprise as provided under Section 4  of this Act and the updated
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1     inventory    of   all    defense    infrastructure,    equipment,    weapon   systems    and
2      components and supplies.
3              The chief of staff of the AFp and the chief of the PNP shall ensure that such
4      inventory is updated and sufficient to protect the national security.
5              SEC.   13.   Co#/rocfi.#g.   -     Upon  the   approval   of  the   President   of  the
6     Philippines,  the  Secretary  of National  Defense  may  directly  negotiate  with  any
7     registered defense enterprise to procure the necessary defense materiel.
8              The secretary of the Department of National Defense may also negotiate with
9     defense entelprise of another country with which the philippines has entered into a
lo     defense cooperation agreement or otherwise maintains diplomatic relations for the
11     procurement  of major  defense  materiel  or  defense-related  consultancy  services,
12      subject to the following conditions:
13               (a)         Interest of the country is protected and the paramount consideration;
14               (b)         Expertise or capability required is not available locally;
15               (c)         Defense equipment or materiel or defense related consultancy services
16     to be procured is included in the AFP Modernization program; and
17               (d)        The contract includes the transfer of technology, ifapplicable.
18              SIEC.14. Iiil!I|Ilementing Rules and Regulations. -W.ENrn rilnety  (90) days
19     from the approval of this Act, the secretary of the Department of National Defense
2o      shall,  in coordination with the  Secretaries of the Department of Finance and the
21     Department of the  Department of Trade and Industry,  promulgate the necessary
22      rules and regulations for the effective implementation of this Act.
23               SEC.   15.  Scp¢robi.Jrty  CJflwsc.  -    If any  provision  or  part  of this  Act  is
24     declared invalid or unconstitutional, the remaining parts or provisions not affected
25      shall remain in force and effect.
8


1               SEC.   16.  Repco/i.#g   CJ¢wsc.   -     All   laws,   executive   orders,   rules   and
2     regulations inconsistent with or contrary to the provisions of this Act are amended,
3      modified or repealed accordingly.
4               SEC.17.   EJLTec/I.tJrty.  -This Act shall take effect fifteen (15) days after its
5      publication in the oJorcz.cz/ Gczze#e or in a newspaper of general circulation.
6              Approve d,
9