HOUSE OF REPE

HOUSE OF REPRESENTATIVE
lezon City, Metro Manila

Quer Gy, Date: _04

Tiwe:__ 3?

SEVENTEENTH CONGRESS

: By:
First Regular Session :
REGISTRATION UNIT
House Bit No, 908. BILLS ANU INDEX SERVICE

Introduced by HON. DEOGRACIAS VICTOR “DV” B. SAVELLANO

EXPLANATORY NOTE

In the world market of investments and to the community of investors, a
country must look beyond the traditional way of doing things. It must innovate to
create opportunities where and by which it can give investors the maximum value of
their investment.

This bill seeks to achieve this by establishing the Salomague Freeport which
shall cover the entire Salomague Cove and some barangays in the Municipality of
San Juan and Cabugao, in the Province of Ilocos Sur. The concept and objective is
to develop the Freeport area into a self-sustaining industrial, commercial and
investment center that will put in place a wide-reaching employment and investment
generation mechanism, all to strengthen the trading and foreign exchange position
of the country. On the whole, it is looking at effectively complementing and
announced aggressive export-oriented thrust of the country, thus enhancing the
country’s global competitiveness.

As envisioned, the Salomague Freeport shall be operated as a separate
customs territory that will basically provide incentives to ensure the free flow and
movement of goods and commodities within the Freeport area and their exportation
therefrom. Likewise it shall provide tax based incentives for business activities and
concerns locating and operating within the Freeport premises, not to mention other
non-tax benefits like liberal exchange policies and the grant of permanent resident
status to investors.

This bill does away with an authority of office to run the Freeport but directly
tasks a governing body composed of the elected chief executives of the localities
involved and the private sector to do the job. It is felt that with the flexibility
already defined in the bill, creating the Freeport already as a body corporate, to

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institutionalize another office or authority for purpose of running the Freeport would
be necessary.

The competitive markets around are now moving fast already leaving the
country behind. The performance of South Korea, Hong Kong, Taiwan and
Singapore had always been a source of envy despite limited resources they have
compared to the abundance of our country enjoys. And now Thailand, Malaysia and
Indonesia are surging ahead, outpacing even other western countries. Particularly
because the proposed Freeport offers an environment that can match the
capabilities and resources of a comparable area anywhere in the country, this Bill
may help the country, at least, to keep pace with, not necessarily, to get ahead of
the pack.

There are physical geographical and natural attributes the Salomague Area
‘that can make the creation of Freeport ideal therein. Salomague cove is a natural
harbor and haven for international ships during inclement weather. There is a
channel that hugs the semicircular shorelines that is appropriate for marine traffic,
Not to be forgotten is that, it is probably the only port closest to Hong Kong, Japan
and Taiwan. It is large that it can sit dozens of vessels at any one time. It can close
to an international airport in Laoag City, Ilocos Norte and a local airport in Vigan
Tlocos Sur.

In light of the foregoing, approval of the Bill is earnestly sought.



HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

SEVENTEENTH CONGRESS
First Regular Session

905

House Bill No.

Introduced by HON. DEOGRACIAS VICTOR “DV” B. SAVELLANO

AN ACT
ESTABLISHING THE SPECIAL ECONOMIC ZONE AND FREEPORT
IN THE PROVINCE OF ILOCOS SUR, CREATING FOR THIS PURPOSE THE
ILOCOS SUR SPECIAL ECONOMIC ZONE AND FREEPORT AUTHORITY,
APPROPRIATING FUNDS THEREFORE AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress Assembled:

1 SECTION 1. Short Title. — This Act shall be known as the “Ilocos Sur Special
2 Economic Zone and Freeport Act of 2016”.

SEC.2. Dec/aration of Policy. —It is hereby declared the policy of the State to
actively encourage, promote, induce and accelerate the sound and balance industrial,
economic and social development of the country in order to provide jobs to the people
especially those in the rural areas, increase productivity and individual family income,
and thereby improve the level and quality of living conditions through the
establishment, among others, of Special Economic Zones and Freeport in suitable and
strategic locations in the country and through measures that will attract legitimate and

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productive foreign investments.


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SEC. 3. Creation of the Ilocos Sur Special Economic Zone and Freeport.
— In pursuit of the foregoing declared policy and subject to the concurrence of the
concerned local government units (LGUs) of the Ilocos Sur affected by the zone, there
is established a Special Economic Zone and Freeport in the Province of Ilocos Sur to be
known as the Ilocos Sur Special Economic Zone and Freeport, hereinafter referred to as
the Ilocos Sur ECOZONE. It shall cover the entire Salomague Cove and the area
embraced by the barangays of Dardarat, Solotsolot, Surngit and Refaro in the
Municipality of San Juan as well as Dardarat, Pila, Sagayaden, Sabang, Namruangan,
Salapasap, Daclapan, Pug-Os, Turod, and Baclig in the Municipality of Cabugao. The
specific metes and bounds of the Ilocos Sur Special Economic Zone and Freeport shall
be more particularly defined in a presidential proclamation that shall be issued for this
purpose.

SEC. 4. Governing Principles. —The Ilocos Sur ECOZONE shall be managed
and operated by the Ilocos Sur Special Economic Zone and Freeport Authority,
hereinafter referred to as the ISSEZA, to be created under Section 6 of this Act, under
the following principles:

(a) Within the framework and limitations of the Constitution and applicable
provisions of the Local Government Code, the Ilocos Sur ECOZONE shall be
developed into and operated as a decentralized, self-reliant and self-
sustaining industrial, commercial/trading, agro-industrial, tourist, banking,
financial and investment center with suitable residential areas.

(b)The Ilocos Sur ECOZONE shall be provided with transportation,
telecommunications and other facilities needed to attract legitimate and
productive investments, generate linkage industries and employment
opportunities for the people of the Province of Ilocos Sur and its neighboring
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(c) The Ilocos Sur ECOZONE may establish mutually beneficial economic relation

with the other entities or enterprises within the country or, subject to the
administrative guidance of the Department of Foreign Affairs (DFA), the
Philippine Economic Zone Authority (PEZA) and/or the Department of Trade
and Industry (DTI), with foreign entities or enterprises.

(d) Foreign citizens and companies owned by non-Filipinos in whatever

Proportion may set up enterprises in the Ilocos Sur ECOZONE, either by
themselves or in joint venture with Filipinos in any sector of industry,
international trade and commerce within the Ilocos Sur ECOZONE.

(e) The Ilocos Sur ECOZONE shall be managed and operated as a separate

customs territory, thereby ensuring the free flow or movement of goods and
capital within, into and exported out of the Ilocos Sur ECOZONE, as well as
provide incentives such as tax- and duty-free importations of raw materials
and capital equipment. However, exportation or removal of goods from the
territory of the Ilocos Sur ECOZONE to the other parts of the Philippine
territory shall be subject to the customs duties and taxes under the Tariff and
Customs Code of the Philippines, as amended, and the National Internal
Revenue Code (NIRC) of 1997, as amended.

(f) The areas comprising the Ilocos Sur ECOZONE may be expanded or reduced

when necessary. For this purpose, the ISSEZA, in consultation with the LGUs,
shall have the power to acquire either by purchase, negotiation or
condemnation proceedings, any private land within or adjacent to the Ilocos
Sur ECOZONE for the following purposes:

(1) consolidation of lands for Ilocos Sur ECOZONE development;

(2) acquisition of right-of-way to the Tlocos Sur ECOZONE; and
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(3) the protection of watershed areas and natural assets valuable to the
prosperity of the Ilocos Sur ECOZONE.

(g) Goods manufactured by an Ilocos Sur ECOZONE enterprise shall be made
available for immediate retail sale in the domestic market, subject to the
payment of corresponding taxes on raw materials and other regulations that
may be formulated by the ISSEZA, together with the PEZA, the Bureau of
Customs (BoC) and the DTI in accordance with the National Internal Revenue
of 1997, as amended, and the Tariff and Custom Code of the Philippines, as
amended. However, in order to protect domestic industry, there shall be
Negative List of Industries that will be drawn up and regularly updated by the
PEZA. Enterprises engaged in industries included in such Negative List shall
not be allowed to sell their products locally.

(h) The defense of the Ilocos Sur ECOZONE and the security of its perimeter
fence shall be the responsibility of the national government (NG) in
coordination with the Ilocos Sur ECOZONE and the LGUs.

SEC. 5. Incentives. — Investors and business enterprises within the Ilocos Sur

ECOZONE shall be entitled to the following incentives:

(a) Residents Status and Visa — Any foreign investor who establishes a business
enterprises within the Ilocos Sur ECOZONE and who maintains capital investment
of not less than One Hundred Fifty Thousand United States Dollars
(US$150,000.00) shall be granted, along with his or her spouse, dependents,
and unmarried children below twenty (21) years of age, permanent resident
status within the Ilocos Sur ECOZONE and freedom of ingress and egress to and
from the Ilocos Sur ECOZONE without any need of and special authorization from
the Bureau of Immigration (BI). Working visas renewable every two (2) years

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1 shall be issued to foreign executives and foreign technicians with highly

2 specialized skills, which no Filipino possesses, as certified by the Department of
3 Labor and Employment (DOLE).
= The foregoing is without prejudice to a foreigner acquiring permanent resident

5 status in the Philippines in accordance with the applicable immigration, retirement and
6 other related laws.

7 (b) Fiscal incentives — Business establishment operating within the Ilocos Sur
8 ECOZONE shall be entitled to the existing fiscal incentives as provided for under
9 Republic Act No. 7916, otherwise known as the “Special Economic Zone Act of
10 1995,” as amended, or those provided under book VI of Executive Order no. 226,
1 as amended, otherwise known as the Omnibus Investment Code of 1987.
12 (c) Taxation — Except real property tax on land owned by developer, no taxes,
13 local and national, shall be imposed on business establishment operating within
14 the Ilocos Sur ECOZONE shall be paid and remitted as follows:
15 (1) Two per centum (3%) to the NG;
16 (2) Two per centum (2%) which shall be directly remitted by the
7 business establishments to the treasurer's office of the
18 municipalities where the enterprises is located.
19 All persons and service establishments in the Ilocos Sur ECOZONE shall be

20 — subject to the national and local taxes under the National Internal Revenue Code of
21 1997, as amended, and the Local Government Code of 1991, as amended.


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(d) Banking Rules and Regulations. — Existing banking laws and rules/regulations
of the Bangko Sentral ng Pilipinas (BSP) shall apply to banks and financial
institutions to be established in the Ilocos Sur ECOZONE. Among other pertinent
regulations, these include those governing foreign exchange and other current
account transactions (trade and nontrade), local and foreign borrowings, foreign
investments, establishment and operation of local and foreign banks, foreign
currency, deposit units, offshore banking units and other financial institutions
under the supervision of the BSP.

(e) Profit Remittance — Without prior BSP approval, after tax profits and other
earnings of foreign investments in the enterprises in the Ilocos Sur ECOZONE
may be remitted outward in the equivalent foreign exchange through any of the
banks licensed by the BSP in the Ilocos Sur ECOZONE: Provided, however, That
such foreign investments in said enterprises have been previously registered with
the BSP.

SEC. 6. Creation of the Ilocos Sur Special Economic Zone and Freeport
Authority. —There is hereby created a body corporate to be known as the Ilocos Sur
Special Economic Zone and Freeport Authority, herein referred to as the ISSEZA, which
shall manage and operate the Ilocos Sur ECOZONE in accordance with the provisions of
this Act. This corporate franchise shall expire in fifty (50) years counted from the first
year after the effectivity of this Act, unless otherwise extended by Congress. It shall be
organized within one hundred eighty (180) days after the effectivity of this Act.

SEC. 7. Principal Office. - The ISSEZA shall maintain its principal office at
‘Cabugao, Province of Ilocos Sur, but it may establish branches within the Philippines as
may be necessary for the proper conduct of its business.

SEC. 8. Powers and Function of the Ilocos Sur Special Economic Zone
and Freeport Authority. — The ISSEZA shall have the following functions:


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(a)To operate, administer, manage, and develop the Ilocos Sur ECOZONE
according to the principles and provisions set forth in this Act;

(b)To recommended to the President of the Philippines the issuance of a
proclamation to fix and delimit the site of the Ilocos Sur ECOZONE;

(c) To register, regulate and supervise the enterprises in the Ilocos Sur
ECOZONE in an efficient and decentralized manner, subject to existing laws;

(d)To coordinate with LGUs and exercise general supervision over the
development plans, activities and operations of the Ilocos Sur ECOZONE;

(e) To regulate and undertake the establishment, operation and maintenance of
utilities, other services and infrastructure in the Ilocos Sur ECOZONE such as,
but not limited to, heat, light and power, water supply, telecommunications,
transport, toll roads, bridges, port services, etc. and fix just, reasonable and
competitive rates, fares, charges and prices thereof;

(f) To construct, acquire, own, lease, operate and maintain on its own or
through contracts, franchise, licenses, bulk purchases from the private sector
or permits under any of the schemes allowed in Republic Act No. 6957 (the
Build-Operate-Transfer Law, as amended), or joint ventures, adequate
facilities and infrastructure required or needed for the operation and
development of the Ilocos Sur ECOZONE, in coordination with the appropriate
national and local government authorities in conformity with applicable laws
thereon;

(g) To operate on its own, either directly or through a license to other tourism-
related activities, including games, amusements, recreational, and sports
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(h) Subject to the approval of the President of the Philippines and the Monetary

Board of the BSP, upon the recommendation of the Department of Finance
(DOF), to raise or borrow adequate and necessary funds from local or foreign
sources to finance its project and programs under this Act, and for that
purpose to issue bonds, promissory notes and other forms of securities, and
to secure the same by a guarantee, pledge, mortgage, deed of trust or an
assignment of all or part of its property or assets;

(i) To provide security for the Ilocos Sur ECOZONE in coordination with the

national and local governments. Military forces sent by the NG for the
purpose of defense shall not interfere in the internal affairs of the Ilocos Sur
ECOZONE and expenditures for these military forces shall be borne by the
NG. For this purpose, the ISSEZA may establish and maintain its security
forces and firefighting capability or hire others to provide the same;

(j) To protect, preserve, maintain, and develop the virgin forest, beaches, coral

and coral reefs, and maintain ecological balance within the Ilocos Sur
ECOZONE;

(k) To create, operate, and/or contract to operate such functional units or offices

of the ISSEZA as it may deem necessary;

()) To adopt, alter and use a corporate seal; make contract, leases, own or

otherwise dispose of personal or real property; sue and be sued; and
otherwise carry out its functions and duties as provided for in this Act;

(m) To issue certificates of origin for products manufactured or processed in the

Ilocos Sur ECOZONE in accordance with prevailing rules of origin, and the
pertinent regulations of the PEZA, the DTI and/or the DOF;
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(n)To issue working visas renewable every two (2) years to foreign executives
and foreign technicians with highly specialized skills which no Filipino
possesses, as certified by the DOLE;

(0)To report to the BI the names of the foreigners who have been granted
permanent resident status and working visas within thirty (30) days after the
issuance of such grant;

(p) To exercise such powers as may be essential, necessary or incidental to the
powers granted to it hereunder; as well as those that shall enable it to carry
out, implement and accomplish the purposes, objectives and policies of this
Act; and

(q) To issue rules and regulations consistent with the provisions of this Act as
may be necessary to accomplish and implement the purposes, objectives and
policies provided herein.

SEC. 9. Exemptions from Donor’s Tax. — All donations made by any person
or entity in favor of the ISSEZA shall be exempt from the payment of the donor's tax
and the same shall be considered as deductible from the gross income of the donor,
pursuant to the NIRC of 1997, as amended.

SEC. 10. Board of Directors of the Ilocos Sur Special Economic Zone
and Freeport Authority. —- The powers of the ISSEZA shall be vested in and exercised
by a Board of Directors, hereinafter referred to as the Board, which shall be composed
of the following:

(a) The chairman who shall, at the same time, be the administrator the ISSEZA;


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(b) A vice chairperson who shall come from among the members of the Board;

(c) Members consisting of:

(1) The Governor of the province of Ilocos Sur;

(2)The Congressional Representative of the district covering the site of the
Ilocos Sur ECOZONE;

(3) The Mayors of the municipalities of Cabugao and San Juan;

(4) One (1) representative from the domestic investors;

(5) One (1) representative from the foreign investors; and

(6) Two (2) representatives from labor from among the workers in the Ilocos
Sur ECOZONE.

The Governor, the Congressional Representative and the Mayors of the
municipalities of Cabugao and San Juan shall serve as ex officio members of the Board,
whose terms in the Board correspond to their term as elected officials.

The Chairman and the members of the Board, except ex officio members, shall
be appointed by the President of the Philippines to serve for a term of six (6) years
unless sooner removed for a cause or dies or resigns voluntarily. In case of death,
resignation or removal for cause, the replacement shall serve only the unexpired portion
of the term.

Except for the representative of the business and labor sectors, no person shall
be appointed by the President of the Philippines as a member of the Board unless he is

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a Filipino citizen, of good moral character, of proven probity and integrity, and a degree
holder in any of the following fields: economics, business, public administration, law,
management or their equivalent, and with at least ten (10) years relevant working
experience preferably in the field of management or public administration.

The members of the Board shall each receive per diem at rates to be determined
by the Department of Budget and Management (DBM) in accordance with existing rules
and regulations: Provided, however, That the total per diem collected each month shall
not exceed the equivalent per diem for four (4) meetings. Unless and until the President
of the Philippines has fixed a higher per diem for the members of the Board, such per
diem shall not more than Ten Thousand pesos (P10,000.00) for every Board meeting.

SEC. 11. Powers and Duties of the Chairman-Administrator. — The
Chairman-Administrator shall have the following powers and duties:

(a)To direct and manage the affairs of the ISSEZA in accordance with the
policies of the Board;

(b) To establish the internal organization of the ISSEZA under such conditions
that the Board may prescribe;

(c) To submit an annual budget and necessary supplemental budget to the Board
for its approval;

(d) To submit within thirty (30) days after the close of each fiscal year an annual
report to the Board and such other reports as may be required;

(e) To submit to the Board for its approval policies, systems, procedures, rules
and regulations that are essential to the operation of the Ilocos Sur
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(f) To create a mechanism in coordination with relevant agencies for the
promotion of industrial peace, the protection of the environment and the
advancement of the quality of life in the Ilocos Sur ECOZONE; and

(g)To perform such other duties as may be assigned to him by the Board or
which are necessary or incidental to his office.

SEC. 12. Personnel. — The Board of Directors of the ISSEZA shall provide for
an organization and staff of its officers and employees. Upon recommendation of the
Chairman-Administrator, the Board shall appoint and fix the remuneration and other
emoluments of its officers and employees in accordance with existing laws on
compensation and position classification: Provided, That the Board shall have exclusive
and final authority to promote, transfer, assign or reassign officers of the ISSEZA, any
provision of existing law to the contrary notwithstanding: Provided, further, That the
Chairman-Administrator may carry out removal of such officers and employees.

The officers and employees of the ISSEZA, including all members of the Board,
shall not engage, directly or indirectly, in partisan activities, nor take part in any

election, except to vote.

No officer or employee of the ISSEZA, subject to civil service laws and
regulations, shall be removed or suspended except for cause, as provided by law.

SEC. 13. Applicability Clause. —The provisions of Sections 30 to 41 of
Republic Act No. 7916, (The Special Economic Zone Act of 1995) as amended, on leases
of lands and buildings, land conversion, shipping and register, protection of
environment, termination of business, registration of business enterprises, one-stop
shop center and on industrial harmony in the ECOZONES shall apply to the ISSEZA.


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SEC. 14. Capitalization. — The ISSEZA shall have an authorized capital stock
of two billion (2,000,000,000) no par shares with a minimum issue of Ten pesos
(P10.00) each, the majority shares of which shall be subscribed and paid for by the NG
and the LGUs embracing the Ilocos Sur ECOZONE. The board of Directors of the ISSEZA
may, with the written concurrence of the Secretary of Finance, sell shares, representing
not more than forty per centum (40%) of the capital stock of the ISSEZA to the general
public under such policy as the Board and the Secretary of Finance may determine. The
NG and the LGUs shall in no case own less than sixty per centum (60%) of the total
issued and outstanding capital of the ISSEZA.

The amount necessary to subscribe and pay for the shares of the NG to the
capital stock of the ISSEZA shall be included in the annual General Appropriations Act.
For LGUs, the funds shall be taken from their internal Revenue Allotment and other
local funds.

SEC. 15. Supervision and Coordination of Development Plans. — For
purposes of policy direction and coordination, the Ilocos Sur ECOZONE shall be under
the direct control and supervision of the Office of the President.

SEC. 16. Relationship with the Regional Development Council. — The
ISSEZA shall determine the development goals for the Ilocos Sur ECOZONE within the
framework of national development plans, policies and goals. The administrator shall,
upon approval by the Board, submit the Ilocos Sur ECOZONE plans, programs, and
Projects to the Regional Development Council for inclusion and inputs to the overall
regional development plan.

SEC. 17. Relationship with Local Government Units (LGUs). - Except as
herein provided, the LGUs comprising the Ilocos Sur ECOZONE shall retain their basic
autonomy and identity. The municipalities of Cabugao and San Juan, Ilocos Sur shall
operate and function in accordance with the Local Government Code of 1991. In case of

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any conflict among the ISSZA and the municipalities of Cabugao and San Juan, Ilocos
Sur on matters affecting the Ilocos Sur ECOONE other than defense and security
matters, the decision of the ISSEZA shall prevail.

SEC. 18. Interpretation / Construction. — The powers, authorities and
functions that are vested in the ISSEZA are intended to establish decentralization of
governmental functions and authority and promote an efficient and effective working
relationship among the Ilocos Sur ECOZONE, the NG and the LGUs.

SEC. 19. Auditing. - The Commission on Audit shall appoint a Representative
who shall be a full-time auditor of the ISSEZA and assign such number of personnel as
may be necessary to assist said representative in the performance of his/her duties.
The salaries and emoluments of the assigned auditor and personnel shall be in
accordance with the pertinent laws, rules and regulations.

SEC. 20. Separability Clause. — If any provision of this Act shall be held
unconstitutional or invalid, the other provisions not otherwise affected shall remain in
full force and effect.

SEC. 21. Repealing Clause. - All laws, executive order or issuance or any
issuances, or any part thereof, which are inconsistent herewith are hereby repealed or
amended accordingly.

SEC. 22. Effectivity Clause. — This Act shall take effect upon its publication in
at least one (1) newspaper of general circulation.

Approved,