2-step plan to ease ownership limit bared

By Riza Lozada

The government is currently reviewing its Foreign Investment Negative List (FINL) as a way of increasing business projects that would be allowed full foreign participation or ownership prior to an eventual plan to amend the Constitution, Finance Secretary Carlos Dominguez III said during the economic officials’ mission to China.

Dominguez said he favors lifting the foreign ownership limits for certain sectors of the economy to generate more foreign investments, except for land.

The other Philippine government officials with Dominguez at the Philippine economic briefing were Secretaries Ernesto Pernia of the National Economic and Development Authority (Neda), Benjamin Diokno of the Department of Budget and Management (DBM), and Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr.

Dominguez had also assured Japanese investors in an earlier Tokyo visit that the move to relax foreign ownership restrictions in certain industries via amendments to the Constitution might commence next year in fulfillment of President Duterte’s commitment to open up the economy to more long-term, job-generating foreign direct investments (FDIs).

In a forum on the Philippine economy held recently in Tokyo, Dominguez also informed potential investors the government’s review of the FINL targets initially the lifting of foreign ownership limits in the construction industry.

“President Duterte has committed to open up our economy. There are two ways we open up our economy to more foreign investments,” Dominguez said at the business forum held in Conrad Hotel Tokyo, Japan.

He said the first step, which is the review of the FINL, began in May this year.

“A window opened for us to review that list. We are currently reviewing it with the idea of removing areas such as construction and other areas to foreign investments,” he said.

Dominguez said the second step, which requires the cooperation of the Congress, “is through the amendment of the Constitution, and the President has called for a revision of our constitution, which we believe will start probably next year or in about 12 months.”

“We are moving towards opening up the economy to more foreign investments,” Dominguez said.

Dominguez has said in earlier forums that he favors lifting the foreign ownership limits for certain sectors to generate more foreign investments, except for land.

Data from the 2016 Asean Investment Report show that the Philippines continues to lag behind most of its fellow members in the Association of Southeast Nations in terms of foreign direct investment inflows.

The report showed the Philippines with a net foreign direct investments (FDI) inflow of $5.724 billion in 2015, representing only 4.7 percent of the total net FDI inflow of $120.818 billion in the region..

Singapore accounted for half of the net FDI inflows for that year with $61.284 billion, followed by Indonesia with $16.916 billion or 14 percent of the total net inflow; Vietnam with $11..8 billion or 9.8 percent; Malaysia with $11.289 billion or 9.3 percent, and Thailand with $8.027 or 6.6 percent of the total.

Dominguez said tax reform will play a pivotal role not only in overhauling the country’s inequitable, complex and inefficient tax system but also in attracting more FDIs.

The finance chief said he is “confident” the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP)—the Tax Reform for Acceleration and Inclusion Act (TRAIN)—would be approved by the Philippine Congress before December this year

The TRAIN, which aims to slash personal income tax rates while raising additional revenues for the government’s unprecedented spending on infrastructure, human capital and social protection, was approved by the House of Representatives last May.

The Senate ways and means committee recently passed its own TRAIN version and has submitted the bill for plenary deliberations.

“The House version is quite robust. It is close to what the administration wants. The Senate is still debating the pros and cons but we believe it will pass a bill that will yield the revenues we are expecting,” Dominguez said.

Trade and Industry Secretary Ramon Lopez said he “may agree” to lower the $2.5-million minimum paid-up capital for foreign investors to participate in retail trade in the country but the Department of Trade and Industry (DTI) would still want to keep foreign equity restrictions in the sector.

Lopez said keeping foreign equity restrictions in retail trade aims to protect the local micro and small enterprises.

“What we have to protect are the local MSMEs (micro, small, and medium enterprises), which will be affected if we liberalize the entry of foreign enterprises in the domestic market,” Lopez said.

“This is the activity where we should keep a status quo because it will impact the vulnerable sectors especially of the micro and small enterprises which are about 97 percent of all enterprises,” he added.

Although Lopez is confident that mid-size and big retailers in the country can survive the competition once the Philippines attracts more foreign brands to participate in the local retail trade activities.

“If they liberalize, foreign MSMEs will crowd out millions of struggling Filipino micro and small entrepreneurs,” Lopez noted.

“This is the group that the President through DTI and various agencies are trying to assist and level-up. Will we support foreign or Filipino MSMEs?” Lopez added.

Early this week, Socioeconomic Planning Secretary Ernesto Pernia said economic managers are looking at lowering the minimum paid-up capital for foreign players in retail trade from $2.5 million to $200,000.

Pernia said this policy would be part of the 11th FINL that is expected from the Duterte administration to be released within the year.

The country’s chief economist said that retail trade and construction industries are among the activities that economic managers aim to further open for foreign investors.

Data from the Philippine Statistics Authority showed that investment approvals from foreign sources in wholesale and retail trade and repair of motor vehicles and motorcycles in the first semester of the year dropped 87 percent compared to the same period in 2016.

Approved foreign investments in the sector fell to P335.5 million in the first half from P2.6 billion a year ago.

Likewise, foreign investment pledges in construction sector declined by 67 percent to P21.6 billion in the first half from P65 billion a year ago.