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11th Foreign Investment Negative List bares ‘modest’ gains in easing restrictions

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MALACAÑANG on Wednesday finally issued the government’s closely watched list of sectors in which foreign participation is regulated, showing sectors where restrictions have eased including teaching in “higher education levels.”

For at least two foreign business leaders, however, the long-awaited list could do only so much in improving the Philippines’ attractiveness to foreign direct investments (FDI).

President Rodrigo R. Duterte signed Executive Order No. (EO) 65, which provides the 11th Regular Foreign Investment Negative List (FINL), on Oct. 29, three years and five months after the previous list — under EO 184 — was promulgated.

The Duterte administration hit the ground running on this point soon after it assumed office in mid-2016, with Finance Secretary Carlos G. Dominguez III telling a gathering of Japanese businessmen during Mr. Duterte’s visit there in October that year that the government “will be opening areas to investments that have been administratively limited, and this will be done in May 2017.”

Noting that the previous 10th FINL had kept virtually adopted the preceding list of domestic activities and sectors restricted to foreign participation, foreign business leaders had then asked the government to “make the next FINL less negative.”

In November last year, Malacañang issued Memorandum Order No. 17, directing agencies of the Executive branch to “take immediate steps to lift or ease existing restrictions on foreign participation” in eight sectors and activities, namely: private recruitment; practice of professions where allowing foreign participation will redound to public benefit; contracts for construction and repair of locally funded public works; public services “except activities and systems that are recognized as public utilities such as transmission and distribution of electricity, water pipeline distribution system and sewerage pipeline system”; culture, production, milling processing and trading — except retailing — of rice and corn and acquiring these grains “and by-products”; teaching at higher education levels; as well as retail trade and domestic trade enterprises.




Noting in a press statement on Wednesday that the Philippines is one of the most restrictive countries in the Association of Southeast Asian Nations (ASEAN) towards foreign direct investments, Socioeconomic Planning Sec. Ernesto M. Pernia, director-general of the National Economic and Development Authority (NEDA), said the latest FINL “will help raise the country’s competitiveness and allow us to be closer to parity with other ASEAN member-states by opening up more areas for foreign investment into the country, particularly those that will introduce new technology and stimulate innovation.”

MORE FOREIGN PARTICIPATION ALLOWED
EO 65 added areas where up to 100% foreign participation will now be allowed, namely:

• Internet businesses, a category that has been excluded from the category of mass media, which otherwise remains completely restricted to foreign ownership and participation;

• teaching at higher education levels, provided the subject being taught is not a professional subject (included in a government board or bar examination);

• training centers engaged in short-term high-level skills development that do not form part of the formal education system;

• insurance adjustment companies, lending companies, financing companies and investment houses;

• wellness centers.

The same order increased to up to 40% allowed foreign participation levels in two other sectors, namely:

• contracts for construction and repair of locally funded public works (except those that are foreign funded or assisted and required to undergo international competitive auction), which used to have a 25% foreign equity cap; and

• private radio communication networks, from 20% previously.

NOT ENOUGH
At least two foreign business leaders said the government should do more.

“There are modest gains in the 11th FINL with liberalization in insurance adjustment and slight expansion of practice of professions and foreign ownership in locally funded public works, and private radio communications networks,” Günter Taus, president of the European Chamber of Commerce of the Philippines, said in an e-mailed response to a request for comment.

“Overall, it falls short of the ‘aggressive’ changes pursued by NEDA. Given the directive towards economic liberalization stated in Memorandum Order 2017-16, we were hoping for a much less negative Foreign Investment Negative List,” Mr. Taus wrote.

“With understanding on the limitations of NEDA as part of the Executive Branch, we strongly urge Congress to institutionalize the legal framework for a competitive Philippine economy. Significant of these are amendments to the Public Services Act, to the Retail Trade Liberalization Act, to the Government Procurement Act, to the Investment Restrictions in Commonwealth Act No. 541, and to the Contractors’ License Law. These measures will help establish a level playing field and benefit Filipinos through better quality services at reduced prices.”

For John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, Inc., “[t]he new FINL reflects the first time any administration has seriously sought to shorten the list.”

Saying that “[a]ppearances can be deceptive because the new FINL is a longer document, but it has added more clarity and exceptions”, Mr. Forbes said in a separate e-mail that “the administration can only do so much without repeal of the many restrictions in the laws and constitutional provisions cited in the FINL.”

“Enactment of six bills now in Congress to amend the Public Services Act, the Retail Trade Act, the Foreign Investment Act and three laws to liberalize foreign participation in government procurement, including construction, will make the next FINL shorter,” he added.

“There is also strong support in the business community to remove restrictions of foreign equity from the 1987 Constitution. We urge Congressional leaders to prioritize such reforms that will strengthen the economy, result in more foreign investment, jobs, and competition.”

OTHER EFFORTS
Congress has trained its sights to paving the way for more foreign participation in telecommunications.

The Duterte administration has been pushing for more competition in this sector, with an auction for the selection of the country’s third major telecommunications service provider scheduled on Nov. 7.

Two bills — House Bill No. 5828 which bagged third-reading in September 2017 and Senate Bill No. 1754 which now awaits plenary action in that chamber — seek to amend the 82-year-old Commonwealth Act No. 146, or “Public Service Act,” by differentiating public services from public utility. The measures will narrow the definition of “public utilities” to transmission and distribution of electricity and water, as well as sewerage management.

“All told, these are still marginal improvements in our effort to attract FDIs,” Mr. Pernia said in the Wednesday NEDA statement.

“If we really want to be sufficiently competitive with our ASEAN neighbors, more drastic amendments in our restrictive laws are called for.”

Restrictions to foreign ownership and participation in several local sectors and activities have been blamed by foreign and local economists and businessmen alike for the Philippines’ relatively small FDI haul.

The latest Investment Trends Monitor of the United Nations Conference on Trade and Development said FDI flows to Southeast Asia increased by 18% year-on-year to $73 billion last semester, driven largely by Singapore’s $35 billion, Indonesia’s $9 billion and Thailand’s approximately $7 billion.

In comparison, data from the Bangko Sentral ng Pilipinas (BSP) showed that FDI net inflows to the Philippines rose 42.4% to $5.755 billion last semester from $4.041 billion in 2017’s first half.

The central bank has projected these inflows to hit $9.2 billion for full-year 2018 from the actual $10.049 billion actually received in 2017.

BSP data also show the Philippines’ closest Southeast Asian competitors for FDIs, Thailand and Vietnam, growing inflows by 67.08% to $6.912 billion from $4.137 billion and by 11.84% to $6.99 billion from $6.25 billion, respectively. — Arjay L. Balinbin