DTI seeks capital limit on foreign contractors’ entry in PH

The Department of Trade and Industry  (DTI) is strongly batting for a limit on the capital requirement for foreign contractors to protect the small and medium contractors.

Trade and Industry Secretary Ramon M. Lopez stressed this during the Senate budget hearing when asked on the impact on small Filipino contractors the Supreme Court’s ruling liberalizing the entry of foreign-owned firms in the construction services sector in the country.

“If we can put a threshold for a certain level reserved for Filipinos,” said Lopez. He said that companies with capitalization of up to P100 million are defined as medium and those with higher capitalization are considered large.

“Offhand that should be a threshold, but large firms obviously be open for competition,” he said. He added that putting a threshold also protects local firms dealing with small foreign contractors as it would be difficult to run after foreign firms for liability issues and other problems that may arise in the future.

Lopez explained that being the country’s premier investment promotion agency, the opening of the construction services sector would be a welcome development as it should spur foreign investments  in the construction services sector.

But he also stressed the need to protect and develop the capability of local construction services firms who may be displaced because foreign firms are more capable and competitive.

Thus, DTI is supporting a move by the private construction industry and the Philippine Contractors Accreditation Board (PCAB) to appeal the SC decision.

As the country’s competitive watchdog, the Philippine Competition Commission (PCC) lauded the SC decision, declaring certain anti-competitive regulations implementing the Contractors’ License Law unconstitutional. It said the decision paves the way for a level playing field for local and foreign firms to undertake construction activities in the Philippines.

PCC Chairperson Arsenio Balisacan cited that with the regulatory barrier struck down, competition among contractors should fall squarely on merit and not based on undue advantage based on nationality alone. The PCC also underscored the importance of fostering competition by enabling the entry of new players, local or foreign, on equal footing with incumbents. 

PCC said the decision is expected to encourage contractors to enter the market, produce and price their products competitively, provide consumers with more choices in carrying out infrastructure projects, and open the construction sector to new technologies and global best practices.  

“This is a game-changing ruling that unlocks the benefits of competition through effective competition advocacy. The country stands to significantly benefit from this development especially amid the government’s Build, Build, Build program. With fair competition in the construction industry, Filipinos obtain more value from taxpayers’ money through lower priced and better quality infrastructure projects,” said Balisacan.

“As opined by the PCC, it would encourage healthy competition among local and foreign contractors and the market will have alternative options depending on the needs of each construction project. This will also open opportunities for development and innovation that the foreign industry may introduce to our local contractors to make them more competitive in the world market,” reads the SC decision.

The SC ruling stemmed from the dispute between PCAB and Manila Water Company Inc., where PCC intervened as amicus curiae (friend of the court) with its mandate to issue advisory opinions on competition matters and advocate pro-competitive government policies.

In a 14-1 vote, the high court voided the nationality requirement in licensing rules set by the PCAB. Prior to the ruling, regular licenses for multiple projects per year were reserved only for local firms, while foreign contractors were only granted a special license per project. Based on PCC’s study, a foreign contractor would have to spend 12 times more for license applications than a local firm in order to engage in the same level of activity.

The SC cited PCC’s amicus curiae brief that the nationality-based restrictions by PCAB effectively barred entry of foreign contractors and violates the state’s constitutional policy against unfair competition.

The PCC also earlier submitted a position paper to a Congressional inquiry to spur competition in the construction sector and issued a policy note on the same concern.