Counsel: Rethink trade-zone law

The legal counsel of the Commonwealth Ports Authority has asked board members to examine the proposed Free Trade Zone Act of 1999 because it would intrude on the autonomy of the agency to decide how much of its property must be set aside for the establishment of a trade zone.

Based on the proposed measure, some 60 hectares of land shall be made available in the vicinity of Saipan International Airport to be leased at reasonable rates.

“This FTZ designation of what would most likely be airport property, by legislation, essentially removes CPA from independently determining how 60-hectares of airport land should best be used,” said lawyer Jose Dela Cruz.

The legal counsel reminded CPA executive director Carlos H. Salas that the ports authority was established as an autonomous, self-sustaining government corporation to run and operate airports and seaports. “I believe it should be given the discretion and flexibility to decide how much of its property should be dedicated for FTZ purposes,” said Dela Cruz.

In connection with payment of leases, the proposed legislation provides that FTZ Authority shall represent FTZ licensees in negotiating with the land owner the charges, rentals or fees to be assessed for use of the property.

The proposed legislation’s provision on the rental would adversely affect CPA since the Federal Aviation Administration require airport authorities to maintain a fee and rental structure that will make the airport as self-sustaining as possible.

Such FAA grant assurance mandates CPA to charge a fair market rental rate “for non-aeronautical uses of airport property.” “Charging less than the fair market rate is the exception and is permissible only for certain limited areas such as transit facilities, public recreational purposes, enhancement of public acceptance of the airport, use by certain organizations (e.g. aviation museums), or where the property is not expected to produce more than the minimal rent. This is the reason why any reduced fee structure, I believe, should be run by the FAA for its review and comments,” said Dela Cruz.

He said he is not comfortable in including such a provision because the FTZ Authority becomes a “broker” for the FTZ tenants with respect to the rental to be assessed. At the same time, a subsection in the proposed law that sets a rental “floor” or limit is unusual because the apparent intention is to begin negotiation using the floor minimum established by statute, he added.

“It would be difficult to negotiate a rate upwards when the statute itself has established what it determines to be the minimum rental. This, coupled with the overall intention of the measure to provide all incentives to FTZ industries, would make it difficult to negotiate a higher rate,” Dela Cruz said.

The airport bond indenture agreement requiring the ports authority to operate its airport s in an efficient and economical manner will also pose a problem. CPA’s airport revenue bonds recently got an investment grade rating because of the rating agency’s determination that the airport’s revenue stream will remain sufficient to service the bond payment obligation. The legal counsel warned that using a rental rate structure that is lower than the market rate may affect its bond rating.

The third point to be considered in setting rental fees to be assessed for the use of CPA property is the port authority’s own enabling statute which requires the agency’s rental charges to be reasonable and uniform for the same class of service; and take into account the value of the property and improvements used and expense for the operation of the FTZ Authority.

Based on the CPA Act, the right to levy charges or rental shall be exclusively that of the agency, as such, it has been applying uniform rental rate structure for all airport tenants and users. Furthermore, the Airport Rules and Regulations provides any exclusive use of the ground space on the airport shall be subject to ground rate.

The legal counsel advised that the proposed legislation should specify clearly that where CPA property is designated as an FTZ site, CPA Rules and Regulations should be more important since the port authority’s mission is more superior to FTZ and are applicable to all airport tenants and users.

“This would eliminate any dispute between CPA and FTZ in terms of their “overlapping” jurisdiction regarding FTZ sites,” Dela Cruz said.