Retail trade liberalization

September 01, 2015News

Historically, the Philippine retail trade industry has undergone two significant policy shifts. The Third Congress at the time of the Magsaysay Administration has enacted in 1954 Republic Act 1180 or the Retail Trade Nationalization Act, restricting the previously open retail sector to Philippine nationals. More than four decades later, the protectionist regime on retail trade was overturned in 2000 when the Eleventh Congress, under the Estrada Administration, enacted R.A. 8762 or the Retail Trade Liberalization Act, allowing limited entry of foreign investments in the retail trade sector.
R.A. 8762’s intended liberalization has resulted to low levels of foreign investments in the retail sector since 2000, due to its imposition of excessive restrictions that effectively deters rather than attracts investment inflows. In fact, the Philippines has in place a distinctively restrictive and uncompetitive retail trade investment policy in comparison to most of its competitors within ASEAN and other Asian economies that have truly liberalized their domestic retail sectors.
R.A. 8762 subjects foreign equity participation to the following categories:

• Category A: Enterprises with paid-up capital of US$2.5 million shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.
• Category B: Enterprises with a minimum paid-up capital of US$2.5 million but less than US$7.5 million may be wholly owned by foreigners except for the first two years after the effectivity of the law wherein foreign participation shall be limited to not more than 60 percent of total equity.
• Category C: Enterprises with a paid-up capital of US$7.5 million or more may be wholly owned by foreigners, provided, that in no case shall the investments for establishing a store in Categories B and C be less than US$830,000.
• Category D: Enterprises specializing in high-end or luxury products with a paid-up capital of US$250,000 per store may be wholly owned by foreigners.

The act also contains a divestiture requirement for all retail trade enterprises under Categories B and C in which foreign ownership exceeds 80 percent of equity to offer a minimum of 30 percent of their equity to the public through any stock exchange in the Philippines within eight years from the start of their operations.
The law furthermore instructs that no foreign retailer shall be permitted to operate in the Philippines unless the following qualifications are all satisfied:

• The foreign retailer must have a minimum of US$200 million net worth in its parent corporation for Categories B and C, and US$50 million net worth in its parent corporation for Category D.
• The foreign retailer must have five retailing branches or franchises in operation elsewhere in the world unless such retailer has at least one store capitalized at a minimum of US$25 million.
• The foreign retailer must have five years of proven track record in retailing.
• Only nationals from or juridical entities formed or incorporated in countries that allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines.1

Since the partial liberalization of the local retail industry in 2000, large retailers from Europe and the U.S. have taken a close look at the Philippines. Despite intensive cooperation discussions and bringing teams of experts to study the market, companies like Tesco, Carrefour, Metro and Walmart have decided not to do business in the Philippines. The only European company that entered the market through a joint venture with Ayala and SM was Makro; unfortunately, this partnership did not see the success that was anticipated. S&R was another attempt, but eventually the American partner moved out. H&M, the Swedish clothes company, however, stepped into the market recently, determined to open at least 22 stores in the Philippines.
The European Chamber of Commerce of the Philippines still believes there is room for smaller retail investments, and consequently supports the further opening of the retail sector through the revision of R.A. 8762, in line with our advocacy in making the Foreign Investment Negative List more positive.
The entry of more foreign retail investors will benefit the Philippine economy as it can promote more competition that will benefit Filipino consumers as well as generate jobs at every stage of the retail process and indirectly in those sectors that service the retail industry.
To campaign for the further liberalization of the retail sector through legislation, the ECCP will continue its dialogue with both the Senate and House Committees on Trade, Commerce and Entrepreneurship. The ECCP and other member organizations of the Joint Foreign Chambers of Commerce of the Philippines have already prepared and discussed a draft bill amending R.A. 8762 with Senator Bam Aquino who chairs the Senate Committee on Trade, Commerce and Entrepreneurship.  

Source: Edge Davao