The Joint Foreign Chambers (JFC) have expressed support for the House version proposing lower minimum capitalization requirement of $200,000 for foreigners to enter the domestic retail sector, but Filipino retailers backed the Senate version with a higher foreign retailer’s entry fee of $1 million.
The Senate has recently approved Senate Bill 1840, which requires $1 million (P50 million), an improvement from their earlier version setting a minimum capital requirement of for foreign entities to engage in domestic retail enterprises at $300,000 (P15 million) while the House of Representatives earlier approved House Bill 59 with a lower limit of $200,000 (P9.6 million).
The Philippine Retailers Association (PRA) lauded the Senate for increasing the minimum investment for foreign retailer to enter the Philippine market from $300,000 (P15,000,000) to $1,000,000 (P50,000,000). PRA also noted a provision in the Senate bill requiring each store will have a $500,000 (P 25,000,000) minimum investment on Senate Bill No. 1840 - Amending the Retail Lib law of 2000 on a vote of 20 affirmative with no objection or abstention.
PRA Vice-Chairman Roberto Claudio extended the local retailers’ gratitude to the Philippine Senate for recognizing and supporting the Filipino retail industry, especially our MSME’s who represent 96 PERCENT of registered businesses in the country.
“With the approval of SB 1840, PRA welcomes the foreign investments without sacrificing our Micro, Small & Medium enterprises. Our micro & small retail operators all over the country will be the biggest beneficiary to this amendment of the Retail Liberalization law,” said Claudio.
PRA now hopes that the House version is aligned to the Senate version in the bicameral meeting. “The House should now appreciate that their version in too low that it will encroach into our MSME’s all over the country. The retail industry is already liberalize under RA 8762. Foreigners can own up to 100% if they invest $1M and above. This is already a win-win solution to attract foreign investments without sacrificing our MSME’s, who comprise 96% of businesses registered with DTI,” Claudio added.
Batting for the lower capital requirement in the House version, JFC said that the P50 million ($1 million) capitalization restriction in the approved Senate version “poses a major impediment to new FDI in retail during a global recession.”
The JFC letter was signed by 7 foreign business chambers from the US, Canada, Japan, Korea, Australia and New Zealand, EU, and Philippine Association of Multinational Companies Regional Headquarters, Inc., all potential sources of retail giant investments.
“This still-protectionist level is far higher than in Cambodia, Indonesia, Singapore, Vietnam, and others, who also have large numbers of MSMEs like the Philippines,” according to the JFC. JFC cited Indonesia with its 5 million retail firms but without such a high barrier to foreign retail investors.
The JFC letter to both the Senate and the Senate noted that little has changed in foreign ownership in the Philippine retail sector since over 20 years ago when the Retail Trade Liberalization Act (RA 8762) was passed in 2000 to amend the Retail Trade Act of 1954, which for 46 years absolutely prohibited foreign nationals from participating in domestic retail trade.
RA 8762 was enacted to allow foreign investors to own domestic retail enterprises with a minimum capitalization of $2.5 million. However, this requirement, is much higher than ASEAN members, has been deemed highly restrictive by the World Bank and the OECD, as well as foreign investors who have stayed away.
They noted that since 2000, only an average of two foreign retailers per year have invested in the Philippines. “The entry of more foreign retail investors will create jobs at every stage of the retail process as well as in firms servicing the retail sector. One new retail job is not just the employees whom customers see in a store or restaurant. These are the tip of the retail iceberg; the hidden part includes jobs in advertising, agriculture, construction, design, logistics, media, telecommunications, and wholesale retail, among others. In other words, foreign investment in retail cascades through the economy. More foreign retail players create more competition, which is good for the Filipino consumer, especially the fast-growing middle class, who can purchase higher quality and more variety of goods at lower cost. Foreign retailers can introduce better technologies for their logistics, inventory management, sales, accounting, and other business operations,” JFC explained.
The Retail Trade Liberalization Act (RTLA), along with Public Service Act and Foreign Investments Act amendments, was certified as urgent for immediate enactment by President Rodrigo Duterte in a bid to “address the immediate and continuing need for legislative reforms to provide a more conducive investment climate, increase job opportunities, foster more competition, and further spur the country’s economic growth.”
On April 12, 2021, the president, seeing how crucial this bill is for the country’s economic recovery, certified the version with $300,000 capitalization requirement, but he also certified the version with $200,000 requirement in the 17th Congress.
“We encourage legislators to look beyond the current crisis and consider the major impact this amendment can contribute to make the Philippine economy quickly recover post-pandemic,” the letter stated.
Meanwhile, the JFC said that the Senate version on the deletion of requirements for inward remittance and pre-qualification; and, the amendments on documentation to prove paid-in capital and promotion of locally manufactured products. These are all expected to lower barriers to entry of foreign retailers.
Likewise, the other JFC proposed amendments were on the per store requirement of USD 100,000, reciprocity and penalty provisions. The disagreeing provisions of the House and Senate versions of the RTLA amendments are expected to be reconciled soon by both chambers before enactment by President Duterte.
While the pandemic has resulted in growing sentiments for domestic preference, the administration, thru the economic manager secretaries, has identified key legislation to further open the economy in order to support government’s policies to increase Foreign Direct Investment (FDI) levels substantially.