Foreign businessmen here are disappointed with the decision of the Aquino administration to continue the country’s “restrictive” investment regime for non-nationals as contained in the recently issued Ninth Foreign Investment Negative List (FINL).
The Joint Foreign Chambers (JFC), in a statement, said the FINL—as contained in Executive Order (EO) 98—did not only not ease the restrictions in foreign capital and professional practice but was also incorrectly worded.
If this would continue for the 10th FINL to be issued two years from now, JFC said the Philippines would risk losing the wave of foreign direct investments (FDI) that are headed for the region.
“Throughout 2012 we have been encouraged by consistent reports of manufacturing firms of several nationalities relocating from China, Japan and Thailand because of rising costs, floods and political risks.
Vietnam, Indonesia and the Philippines—the so-called VIP economies—are being considered by these firms for new and expansion of manufacturing investments. The Philippine government can build on the growing optimism about improved opportunities to invest in the Philippines by making a serious effort to make the Negative List less negative,” the group said.
JFC is composed of the American Chamber of Commerce of the Philippines, Australian-New Zealand Chamber of Commerce of the Philippines, Canadian Chamber of Commerce, European Chamber of Commerce of the Philippines, Japanese Chamber of Commerce and Industry of the Philippines, Korean Chamber of Commerce of the Philippines and Philippine Association of Multinational Regional Headquarters.
The group noted that for two decades now, the removal of restrictions in the Philippine economy has been wanting.
The introduction of the FINL was a major reform in 1991, improving transparency for foreign investors with a negative list of business activities that foreign investors could not engage in or would be allowed to invest less than 100-percent equity.
“During the 20 years since the important liberalizing reform of Republic Act (RA) 6957, the Foreign Investments Act [1991] as amended by RA 8170 [1996], only two major changes have been made to the FINL.
“RA 8762, the Retail Trade Liberalization Act [2000] opening retail trade to foreign investors investing at least $2.5 million and EO 158 [2010], the eight FINL allowing 100-percent foreign equity in gambling in Peza [Philippine Economic Zone Authority] zones [by presidential proclamation],” it said.
With this, JFC said the World Bank, in its “Investing Across Borders 2010” report, noted that the Philippine economy remains more closed to foreign investment than its neighboring large economies.
The report measures how 87 economies facilitate market access and operations of foreign companies. It presents cross-country indicators analyzing laws and practices affecting FDI in investing across sectors.
The report aggregated sectors into 11 industry groups and measured the degree to which domestic laws allow foreign companies to establish or acquire local firms. An index value of 100 indicates that full foreign ownership is allowed. Among the 87 countries surveyed, the Philippines and Thailand have some of the strictest foreign-equity rules and fall below the East Asia and Pacific average, as well as the high-income Organization for Economic Cooperation and Development (OECD) economies.
“While constitutional restrictions on foreign capital and foreign professionals are hard to change, restrictions in legislation and/or in interpretations of what should or should not be in the FINL should be easier to liberalize. Restrictions are scattered through various laws, some quite old and most have rarely been reviewed to determine whether they remain in the national interest, especially whether they stand in the way of creating jobs,” JFC said.
JFC suggested that the government create an inter-agency team to review various restrictions on foreign equity investment in the participation in the Philippine economy of foreign equity, taking into consideration whether restrictions impede investment, job creation and competitiveness.
A report with specific proposed amendments could be ready by the time the 16th Congress is convened. One change that would make the FINL less negative that the JFC believes could be made quickly and has advocated for several years is in the area of practice of foreign nationals.
Remove the “List A. Practice of all professions” entirely from the FINL because this is not germane in a document that concerning “investment.” There are 46 individual laws that provide for the regulation of as many professions, while the Supreme Court establishes rule for practicing law. All but the laws on professions allow for reciprocity.
“The Professional Regulatory Commission [PRC] decides whether reciprocity exists when a foreign national applies to practice in the Philippines. The current FINL does not explain this. Furthermore, with some exceptions, there is a distinction between ownership of a company that employs professionals [certified by the PRC] and employees who execute professional services. The FINL needs clarification, as it is incorrectly worded in its present form,” JFC said.
The group said the Philippines should move fast as developments in the region and world, particularly the creation of the Asean Economic Community in 2015 and the various high-ambition trade agreements like the United States-led Trans-Pacific Partnership (TPP), would require a more liberalized economy.
Also, the investment chapter of the Korea-US FTA requires unrestricted foreign- equity investment between parties, and the same chapter in the TPP is expected to be similar. Parties are given time to transition their laws to meet commitments under the new trade agreements.
Source: Business Mirror; Front Page; 14 November 2012
