DTI urges easing of foreign equity limit, seeks manufacturing subsidy

Published August 16, 2020, 10:00 PM

by Bernie Cahiles-Magkilat

The Department of Trade and Industry (DTI) has proposed to relax the nationality restrictions for foreign investors that are locating or relocating production facilities to the Philippines during the pandemic period and grant incentives and subsidies to the manufacturing and construction sectors, which were apparently left out in the crafting of the economic stimulus package under Bayanihan 2.

Trade and Industry Secretary Ramon Lopez. (ALFRED FRIAS/PRESIDENTIAL PHOTO FILE PHOTO)

Trade and Industry Secretary Ramon M. Lopez raised these policy interventions in a letter to House Deputy Speaker Rep. Raneo Abu as the bicameral committee tackles the approved of Senate Bill 1564 and House Bill 6953.

In the letter, Lopez has pushed for the relaxation of Executive Order 226 or the Omnibus Investments Code by removing foreign equity restrictions for foreign investors that are locating or relocating production facilities to the Philippines subject to a specific time-frame coinciding with the pandemic period.

Lopez said this could include the liberalization on the use of satellite services for those facilitating shift to WFH arrangements of enterprises and for those servicing Blended Learning requirements of educational institutions.

Lamenting that the manufacturing and construction sectors were left out in the crafting of the House and Senate bills, Lopez took the cudgels for this sector, which experienced the greatest declines based on the latest report of the Philippine Statistics Authority.

Lopez pointed out that nearly 40 percent of the 16.5 percent decline in GDP was attributed to the declines in manufacturing and construction sectors recorded at 21.3 percent and 33.5 percent, respectively.

“These two sectors account for 95.4 percent of the almost six million formal employment in the industrial sector. Manufacturing, amongst all economic sectors experienced the largest decline, is besieged on all sides,” Lopez pointed out citing specific PSA figures.

To arrest the continuing decline of the manufacturing sector, Lopez also submitted some policy proposals for the Bayanihan 2 stimulus package.

These include the granting of  time-bound (one-year) and performance-based (no lay-off or retention of 90 percent of workers) fiscal incentives for all companies, and that losses in 2020 – 2021, can be carried over to 2022 to 2027, or one year income tax holiday in first year of positive income after 2021.

Moreover, government-owned export/freeport/industrial zones be

empowered to provide reprieve from lease payments to locators which have

not laid-off 90 percent of their workers.

Lopez emphasized the need for the Bayanihan Law to mandate local preference for all government purchases for all products, subject to availability and price competitiveness with internationally-accepted and certified quality standards.

“Government expenditure to effectively stimulate the economy should create demand for the domestic manufacturers. We should maximize the use of government funds to save Filipino jobs and not foreign jobs,” said Lopez noting no international or regional agreement prevents the Philippines from implementing this as the Philippines is not a signatory to the WTO Government Procurement Agreement nor is Government Procurement part of any of our commitments in the country’s free trade agreements.

The DTI has also called for the grant of incentives for those deepening the domestic value chain, including development of agri-industry and large corporation-MSME supply-network linkages; and adoption of inclusive business models such as but not limited to sourcing from MSMEs and marginalized communities.

DTI has also called for enhanced incentives for businesses locating or relocating to areas outside of the National Capital Region.

With this, the DTI would like government to facilitate land conversion and liberalize requirements for export zone proclamations for industrial and service facilities that are labor intensive.

To enable the industrial sectors to better respond and adapt to COVID-19, DTI also propose a modest budget allocation of P50 million to support the establishment of testing laboratory for PPE; subsidy for MSME construction companies; and investors’ testing.

In order to have a ready-capability to raise tariff revenues to fund COVID-19 government expenditures whenever the need arises, DTI recommended a Bayanihan 2 provision authorizing the President to amend tariffs even if Congress is in session, subject to consultation with the relevant committees of Congress.

While DTI believes the proposed CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) will provide the long-term and structural incentive framework for a development-oriented and responsive incentive regime, Lopez there is an urgent need to include the above-mentioned proposed provisions in Bayanihan 2 given the immediate objective of arresting economic recession and reinvigorate the economy through revitalizing consumption and enhancing production capacity.

“Bayanihan 2 is also the appropriate legislative vehicle as its applicability period is limited to the duration of the pandemic and its effects,” he said.