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PIDS: Ownership limits for contractors illegal 

Administrative issuances limiting foreign ownership in the Philippines’ contracting industry are unconstitutional and invalid, a study of state think tank Philippine Institute for Development Studies (PIDS) said. 

According to PIDS consultant Lai-Lynn A.B. Barcenas, author of the study, these include the implementing rules and regulations (IRR) of Republic Act (RA) 4566, also known as the Contractors’ License Law, as well as Resolution No. 605 issued by the Philippine Contractors Accreditation Board in 2011. Both include provisions limiting foreign ownership in the industry, hampering entry of potentially efficient players in the Philippine market.

“The imposition of foreign ownership limitations in the contractors’ industry was not done in accordance with the well-established hierarchy of laws and authorities,” Barcenas said, emphasizing that they were only a result of administrative legislation.

She also mentioned that a provision in the IRR saying regular licenses should only be issued to “firms of Filipino sole proprietorship or partnership/corporation with at least 70 percent Filipino equity participation and duly organized and existing under Philippine laws” is unjustifiable because it “does not actually appear in RA 4566 and Presidential Decree 1746”.

The study also said that Board Resolution No. 605, which imposes a 60-40 Filipino-foreign equity requirement in the industry, is problematic because it is inconsistent with the mandate of RA 4566, adding that the law itself does not limit foreign ownership in businesses engaged in contracting. According to Barcenas, this means there is “no statutory basis for any regulatory issuance to limit foreign ownership in these businesses, pursuant to the rule on subordinate legislation”.

“Clearly, the IRR of RA 4566 and the PCAB Board Resolution No. 605-2011 were issued beyond the authority granted by law and the Constitution to PCAB. This amounts to administrative legislation, which is unconstitutional and invalid,” Barcenas said.

According to Barcenas, had these administrative issuances not been issued, the contractors’ industry can only be subject to the general provisions of the Foreign Investments Act, as amended, which allows 100-percent foreign equity ownership in Philippine industries, provided that certain conditions are met.

Barcenas urged government to revisit the abovementioned issuances to make them more consistent with the mandate of RA 4566 and the Constitution. She also noted that the amendment will be timely given President Rodrigo Duterte’s order to remove existing foreign participation restrictions in certain government activities, including construction and repair of locally funded public works.

“As long as the 60-40 ownership requirement remains in the regulations despite the absence of justifications under existing laws, it creates an environment of unpredictability in the interpretation of Philippine laws,” Barcenas explained.

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