Nov 14, 2012

Philippines - Foreign businessmen complain negative list turns more negative

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The Joint Foreign Chambers (JFC) of the Philippines yesterday criticized the recently released 9th Foreign Investment Negative List (FINL) as being more negative as it failed to remove restrictions in sectors that would otherwise encourage more investments.

In a five-page statement issued to the media yesterday, the JFC said despite continuous advocacy over the past decade,  the government has yet to shorten the list of activities where foreigners are not allowed to participate.

The FINL, issued every two years,  is one of the windows where the Philippines can loosen restrictions on several sectors.

The group said 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.

As it is, the JFC said restrictions are scattered through various laws, some quite old, and most have rarely been reviewed.

The JFC in particular cited as one way to make the FINL less negative fast is to remove the practice of all professions from the negative list.

“This is not germane in a document that concern “investment.”  There are 46 individual laws that provide for the regulation of as many professions,” the JFC said.

The group is seeking clarification and explanation on some of the provisions of the FINL on the practice of professions.

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.

It said that 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.

The 9th FINL bars foreigners from engaging in psychological and respiratory therapy and real estate services, on top of other professions already set aside for Filipino nationals: engineering, medicine, nursing, veterinary medicine, accountancy, architecture, customs brokerage, interior design and law.

The JFC called these as four new minor restrictions legislated during the 14th Congress in 2007 to 2010.

EO. 98 expanded the list of sectors reserved for Filipinos to include real estate and psychological and respiratory therapy as industries based on foreign ownership and foreign practice limitations imposed under four separate laws: the Real Estate Service Act of the Philippines, Philippine Respiratory Act, Philippine Psychology Act and the Lending Company Regulation Act of 2007.

The negative list comprises List A and List B.

List A specifies the areas of economic activity where foreign ownership is prohibited or limited by the Constitution or laws. These include mass media, practice of all professions, cooperatives, private security, small-scale mining, private radio communications, private recruitment for local or overseas employment, advertising, ownership of private lands, lending, financing, and investment houses regulated by the Securities and Exchange Commission.

List B contains limitations on economic activities regulated by law such as small-and medium-scale domestic enterprises, defense-related industry (i.e., manufacture of firearms, etc.), and businesses that have implications on public health and morals (i.e., gambling, sauna, massage clinics, etc.).

List A may be amended any time to reflect changes brought about by new laws. List B may be amended not more than once every two years.

The JFC said while net foreign direct investment inflow into the Philippines remains very low compared with five other ASEAN countries, there is good reason to expect the amounts to rise in 2013 due to encouraging reports of foreign interested to expand or invest in the Philippines.

But it noted that a “Negative List that is too negative is one of the factors effecting FDI that can be further liberalized.”

“The 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 JFC said.

JFC said the economy remains more closed to foreign investment than its neighboring large ASEAN economies, citing the World Bank in its Investing Across Borders 2010 report, which measures how 87 economies facilitate market access and operations of foreign companies.

Among the 87 countries surveyed, the Philippines and Thailand have some of the strictest foreign equity rules and fall below the East Asian and Pacific average. In mining, oil and gas, the equity restriction in the Philippines is 40 percent when the average is 75.7 percent in East Asia and the Pacific; agriculture, the cap is 40 percent when the average is 82.9 percent; light manufacturing, 75 percent versus 86.8 percent; telecom, 50 percent compared to 64.9 percent; electricity, 65.7 percent versus 75.8 percent; banking, 60 percent compared to 76.1 percent; transport, 40 percent against 63.7 percent.

Among ASEAN countries, it is only the Philippines and Vietnam which restrict foreign participation in media.

The Philippines, however, is open to 100 percent equity in insurance, construction, tourism and retail and healthcare.

The group said since the Foreign Investment Act was passed in 1991, only two major changes have been made to the FINL: the Retail Trade Liberalization Act in 2000 which opened retail trade to foreign investors investing at least $2.5 million, and Executive Order 158 in 2010 or the 8th FINL which allowed 100 percent foreign equity in gambling in economic zones by presidential proclamation.

The JFC said a review is overdue on the FINL to be done by an inter-agency committee taking into consideration whether restrictions impede investment, job creation, and competitiveness in time for 16th Congress.

Although reissued every two years, the FINL rarely contains any significant reforms, and that year after year, government departments passively apply the same legal restrictions and add new ones when Congress creates them.

The group urged government to be more proactive and make the 10th FINL in 2014 “less negative.”

As ASEAN moves towards the Asean Economic Community there will be more advocacy under the 2007 AEC Blueprint to lower barriers to cross-border investment in priority sectors. The same is true for other free trade agreements where the Philippines is engaged in.

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