The three measures amend three older laws: the Public Service Act (PSA) (1936), the Retail Trade Act (RTA) (1954 as amended in 2000), and the Foreign Investment Act (FIA) (1991).
Business groups issued this call as time is running out for the 18th Congress to pass these crucial economic reforms before they are completely distracted by election campaigns.
The Commission on Elections has set the one-week filing of Certificates of Candidacy for all elective positions for the May 9, 2022 National and Local Elections from October 1 to 8 this year.
In a statement, the groups stressed that all the three measures are far advanced in the 18th Congress and certified by President Rodrigo Duterte. They are a critical reform package – first advocated immediately after the May 2016 elections as part of the administration’s socio-economic agenda – and are prominent in the Philippine Development Plan of NEDA.
Foreign investors and foreign governments have been following the progress of these reforms closely to determine whether the Philippine economy will be more open to investors or maintain its protectionist reputation. Global FDI in 2019 reached $2 trillion but only 0.5 percent flowed into the Philippines. For decades FDI rules in the Philippines have been more restrictive than neighboring economies which receive more FDI and enjoy higher standards of living and have less poverty and OFWs. While FDI rules are not the sole reason the Philippines has fallen behind Indonesia, Malaysia, Thailand, and Vietnam, our economy is less likely to catch up unless we open up.
The House passed all three reforms in 2019 and 2020. A bicameral conference committee will soon decide the final provisions of the RTA amendments to encourage more foreign investment in retail trade. Meanwhile, the PSA and FIA amendment bills are pending final approval in the Senate, where they are expected to be decided when session resumes.
All three measures will relax FDI restrictions and together could result in many billions of new investments in future years, creating more jobs, diversifying the economy, bringing new technology, and increasing competition, and providing better services to the benefit of Filipino consumers.
The business groups cited Finance Secretary Carlos G. Dominguez recently urged our business sector to support these bills, telling businessmen that “Our economy cannot be competitive in the 21st century unless we adopt 21st century policies” and amend laws made in the last century. We agree.”
With the pandemic, businessmen do not expect the GDP to return to its 2019 size until 2023 . The higher unemployment and poverty caused by the pandemic cannot be remedied by indefinite government borrowing alone. Domestic investment will remain weak for at least two years. “Thus, we need to attract much more foreign capital at a time when UNCTAD predicts global FDI will be lower by 50 percent to less than $1 trillion due to the pandemic,” the business groups added.
In particular, the groups noted that Article 12 Section 11 of the Constitution contains the restriction that public utilities must be 60 percent Filipino-owned. For the first time in 86 years the PSA amendment bill provides a legal definition of a public utility in order to differentiate such from the numerous public services listed in the 1936 Public Service Act. These four natural monopolies are electricity distribution and transmission, water distribution, and sewerage pipeline systems. All other public services would be open to foreign ownership up to 100 percent.
The Senate debate in early August revealed that some senators support making the PSA more restrictive than when it was legislated during the Commonwealth. These senators are proposing amendments to broaden the 60-40 rule and apply it to most forms of common carriers, airports, dams, roads and railroads, seaports, and telecommunications. For justification, they selectively cite Supreme Court rulings and argue that national security will be in danger if foreigners own public services.
However, foreign firms have been allowed to own ice plants, power plants, and shipyards for some time and invested heavily in all three major telecommunication firms and the national transmission grid concession.
The bill before the Senate contains adequate provisions to protect national security concerns, similar to Australia, Japan, the United States, and many others who welcome foreign investment in public services but also apply national security reviews.
“Thus, we call on the Senate to decline all amendments to the PSA that will apply the 60-40 rule to any public service not classified as public utility defined in the bill. We agree that we need 21st century laws, that we need to open our public services to more competition in the interest of consumers, and to protect our national security through Executive and Congressional oversight,” the statement added.
PSA amendments for 60-40 that will include industries that do not fall within the definition of a public utility as provided in Senate Bill 2094 will worsen the rank of the Philippines for restrictiveness. The country was recently ranked by the OECD as the 3rd most restrictive of 83 economies in 2020. Only Palestine and Libya are worse. “That is not a reputation we want to have,” they added.
The proposed amendments will damage not strengthen our foreign investment climate and weaken foreign investor interest in the country. They would deprive Filipinos of the better public services that other countries in our region enjoy. Currently, the Philippines ranks low in ASEAN infrastructure rankings, in part because foreign capital is prevented rather than welcomed to invest fully in public services.
The statement was approved by ACI Philippines, American Chamber of Commerce of the Philippines, AmCham North Luzon Chapter, AmCham Visayas Chapter, Association of Certified Public Accountants in Public Practice, Australian-New Zealand Commerce of the Philippines, Bankers Association of the Philippines, British Chamber of Commerce of the Philippines, Canadian Chamber of Commerce of the Philippines, Cebu Business Club, Cebu Leads Foundation, Inc., Dutch Chamber of Commerce in the Philippines, EU-ASEAN Business Council, European Chamber of Commerce of the Philippines, ECCP Northern Luzon Business Council, ECCP Cebu Business Council, ECCP Northern Mindanao Business Council, ECCP Southern Mindanao Business Council, Financial Executives Institute of the Philippines, FinTech Alliance Philippines, Foundation for Economic Freedom, French Chamber of Commerce and Industry in the Philippines, German-Philippine Chamber of Commerce and Industry, Institute of Corporate Directors, Investment House Association of the Philippines, Institute for Solidarity in Asia, Japanese Chamber of Commerce & Industry of the Philippines, Korean Chamber of Commerce of the Philippines, Management Association of the Philippines, Makati Business Club, Money Market Association of the Philippines, Nordic Chamber of Commerce of the Philippines, Organization of Socialized and Economic Housing Developers of the Philippines, Inc., Philippine Association of Multinational Companies Regional Headquarters, Inc., Philippine Life Insurance Association, Inc., Philippines-Swiss Business Council, Philippine Business Coalition for Women Empowerment, Semiconductor and Electronics Industries in the Philippines Foundation, Inc., Shareholders’ Association of the Philippines, Spanish Chamber of Commerce in the Philippines,Tax Management Association of the Philippines, US-ASEAN Business Council, and Women’s Business Council Philippines.
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