The remaining strands of protection for domestic enterprises from majority foreign control will be lifted once the three pending economic bills are passed into law.
In his last state of the nation address, President Duterte made a last ditch appeal to Congress to pass the amendments to the Foreign Investments Act (FIA), Public Services Act (PSA), and Retail Trade Liberalization Act (RTLA).
The opening of the economy to majority foreign control is anchored on the promise of more FDI inflows, more jobs, technology transfer, heightened competition, and ultimately better lives for all Filipinos.
Among the three bills, the amendments to the RTLA is the easiest to digest. It is relatable if seen from the point of the small retailers, the sari-sari store owners.
The House version or HB 59 of the RTLA amendment has called for a lower investment hurdle for foreign retailers with minimum capital requirement of only $200,000 while the Senate version has pegged a higher foreign retailer’s entry fee of $1 million. These proposed new investment hurdles are already a far cry from the current $2.5 million minimum investment requirement.
Of course the domestic retailers under the Philippine Retailers Association (PRA) are supporting the Senate version under SB No. 1840, while the foreign investors represented by the Joint Foreign Chambers (JFC) are standing behind the Lower House version.
Domestic retailers believe the Senate version more circumspect for recognizing and supporting the Filipino retail industry, especially the micro small and medium enterprises (MSMEs). They see the $1 million minimum capital requirement as good enough to welcome the big foreign retailers, but not the small foreign retailers that would only displace the small Filipino MSMEs, which represent 96 percent of registered businesses in the country.
Batting for the lower capital requirement in the House version, the JFC said that the $1 million investment hurdle in the approved Senate version “poses a major impediment to new FDI in retail during a global recession.”
The $1-million barrier to retail investors is still-protectionist level when compared to Cambodia, Indonesia, Singapore, Vietnam, Indonesia, and others, who also have large numbers of MSMEs like the Philippines.
It is, however, true 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. Deemed much higher than ASEAN members, foreign retailers stayed away.
Since 2000, only an average of two foreign retailers per year have invested in the Philippines.
Foreign Investments Act
The proposed amendment to the Foreign Investments Act (FIA) of 1991 is also on the premise of attracting more FDI and stimulate job creation.
One of the proposed amendments under Senate Bill No. 2227, sponsored by Senator Win Gatchalian, is to amend Section 4 of the FIA to expressly exclude the practice of professions from the coverage of the law, thus emphasizing that the law governs only equity investments in the Philippines by non-Filipinos.
SBN 2227 mandates the National Economic and Development Authority, in cooperation and consultation with other pertinent government agencies, to conduct an annual review of the country’s Foreign Investment Negative List (FINL) to ensure that the list is aligned with this policy.
Under the present set-up, the government releases the FINL — an enumeration of sectors where foreign investors can only exercise limited participation — every two years.
Public Services Act
Under the proposed PSA reforms, the bill proposes to define public utilities and differentiate them from public services.
Only “natural monopolies” involving distribution and transmission of electricity, water, and sewerage will be considered to be public utilities.
As prescribed in the Philippine Constitution, public utilities must be 60 percent Filipino-owned, but the Constitution provides no definition of public utilities. For 85 years Commonwealth Act (CA) 146 has regulated public services and includes a long list of 25 services which are not natural monopolies and would not usually be considered public utilities under best international practice.
JFC said these restrictions have been the basis of the reputation of the country as more closed to foreign investment than most Asian economies.
As such, it also created a business environment for the services sector that nurtured oligopolies and weakened competition to the detriment of consumers.
When enacted, the amendments to CA 146 will allow and encourage new investments from foreign firms in telecommunications, transportation, and other services.
Data from the World Bank showed how the Philippines’ lagged behind in FDI accumulation versus neighboring countries. The Organization for Economic Cooperation and Development’s 2018 FDI Regulatory Restrictiveness Index listed the Philippines as one of the most restrictive countries when it comes to FDI rules.
The restrictiveness in these investment laws has been blamed to the country’s inability to attract FDIs, which are seen the best solution to the country’s economic woes and joblessness.
There is no quarrel with that, yet there are also other factors that are turning investors away. A policy deemed to be protectionist is just one of them.
(Bernie Cahiles-Magkilat is the assistant business editor of Manila Bulletin)