Senate panel OK’s foreign retailer rules

The Philippines is hoping to attract more foreign retailers with the passage of amendments to the Retail Trade Liberalization Act. — BLOOMBERG

By Charmaine A. Tadalan, Reporter

A PRIORITY measure aimed at further opening up the retail sector to foreign companies hurdled the Senate Committee on Trade, Commerce and Entrepreneurship on Monday, although a local retailers’ group warned this may further hurt micro, small and medium enterprises (MSME) still reeling from the pandemic.

The committee approved Senate Bill (SB) No. 1840, which seeks to amend Republic Act No. 8762 or the Retail Trade Liberalization Act (RTLA) of 2000.

Under the bill, the minimum paid-up capital for foreign retail investors will be lowered to $300,000. It also requires retailers with more than one physical store to invest at least $150,000 for each store.

The RTLA currently allows foreigners to set up wholly owned enterprises with minimum paid-up capital of $7.5 million, provided investments in each store will be at least $830,000, while enterprises with $2.5 million to $7.5 million will be wholly owned by foreigners except in the first two years.

SB 1840 also removed other qualification requirements such as the $250,000 capital per store for enterprises engaged in high-level or luxury products; the five-year track record in retailing and the required five retailing branches.

The bill also states that only foreign retailers whose country of origin allows entry of Filipino retailers will be covered.

The Department of Trade and Industry (DTI) and major business groups have been pushing for the passage of the measure, along with the bill to amend the Public Service Act, under Commonwealth Act No. 146, saying these will boost foreign investments in the country.

Foreign direct investments (FDI) fell by 23% to $7.647 billion in 2019, which Trade Secretary Ramon M. Lopez attributed to the competitive environment in the region and pending structural reforms.

“(FDIs) are affected, of course, by the competitive environment. In other words, other countries are also trying to invite other investors,” Mr. Lopez said at a Senate hearing on Monday.

“The other thing is of course, there are structural reforms, we are still supposed to do. For example, on the retail trade, public service act, and of course the tax reform we are trying to do under CREATE (Corporate Recovery for Enterprises Act),” he added.

Mr. Lopez was attending the Senate Finance Committee hearing on DTI’s 2021 budget, during which Senate Minority Leader Franklin M. Drilon asked about the possibility of investors relocating from China.

“There are companies… na lumipat (that relocated) from China and there are more coming. We are not the first choice, I must admit, we’re not getting the biggest, but there are good indications that we are able to attract investments,” Mr. Lopez said.

Under SB 1840, the DTI, the Securities and Exchange Commission, Bangko Sentral ng Pilipinas and the National Economic and Development Authority will review the minimum paid-up capital requirement every five years.

Its counterpart measure, House Bill No. 59, was passed by the House of Representatives in March. The House version proposed to reduce the minimum paid-up capital to $200,000 and the minimum percentage of locally manufactured products to be sold by foreign retailers to 10% from the current 30%.

House Trade Committee Chairman and Valenzuela Rep. Weslie T. Gatchalian said in a phone message he is “amenable to work with the Senate version pushing for $300,000.”

However, Philippine Retailers Association Vice-Chairman Roberto S. Claudio opposed the drastic reduction in paid-up capital for foreign retail investors.

“There can be a compromise to reduce the minimum investment from $2.5 million to possibly $1 million,” he said in an e-mail.

“First, we don’t expose our MSMEs to unfair competition and we get substantial financial investment from foreign investors who will benefit from our market base. Government wants financial investments not market disruptors,” he added.

Meanwhile, the European Chamber of Commerce of the Philippines (ECCP), which is among the 14 business groups that supported the measure, said it supported the House version.

“While lowering the capital requirements to $300,000 is a step towards the right direction, the ECCP maintains its advocacy of further bringing down the capital requirements to $200,000 in line with the requirements of the Foreign Investments Act,” ECCP President Nabil Francis said in a phone message on Monday.

“By doing so, we can stir healthy competition in the retail industry, which is good for the Filipino consumers, especially the growing middle class, who can purchase a broader variety of goods at lower costs. It is also worth noting that our peers in the region have less restrictive business environments for potential foreign retailers.”

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