Competition watchdog cautions on provisions of bill opening up retail trade

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The government has been moving to reduce restrictions on foreign investments without having to amend the Constitution. -- FREESTOCKS.ORG

REDUCING the portion of locally manufactured products carried by foreign retailers, as proposed in a Senate bill that seeks to further open up retail trade in the country, may prevent “fair competition,” the Philippine Competition Commission (PCC) said in a position paper.

The PCC recommended to remove the provision which will reduce to at least 10% the required stock inventory of locally manufactured products carried by such retailers from the current 30% of aggregate cost of their stock inventory.

This is among the provisions of Senate Bill No. 14, filed by Senate Minority Leader Franklin M. Drilon, which will amend Republic Act No. 8762, or the Retail Trade Liberalization Act of 2000.

“It is the commission’s view that there is no need for such provision, as it may unduly impede fair competition in the market,” the PCC explained in a position paper submitted to the Senate Committee on Trade, Commerce and Entrepreneurship on Nov. 4.

“The determination of where to source their stock inventory should be left to the retailers themselves to reflect the intent of liberalization in the retail industry.”

The PCC also pointed out the law had provided for the said provision to be in effect for only 10 years, hence, had expired in 2010.

Senate Bill No. 921, filed by Senator Sherwin T. Gatchalian, which also awaits committee action, did not carry the same provision.

Senator Aquilino L. Pimentel III, who chairs the committee, did not respond to a request for comment.

The PCC also noted its support on the lowering of the minimum paid-up capital requirement for foreign retailers, despite its position for its complete removal.

The law currently allows foreign entrants to set up wholly owned enterprises with minimum paid-up capital of at least $2.5 million, provided that their investment for each store will be at least $830,000.

Both bills provided paid-up capital requirement to $200,000 and remove the required investment of $830,000 per store,while the Department of Trade and Industry has recommended $300,000.

“The PCC supports the full liberalization of the retail sector by completely dispensing with the minimum paid-up capital requirement for foreign retailers,” the commission said.

“Nonetheless, considering the need to balance the demands of liberalization with other equally important policy interests, lowering this threshold to $200,000 is still a step towards the right direction,” it added, granted that it will be reduced in tranches.

The Philippine Institute for Development Studies (PIDS), for its part, supported the removal of the locally manufactured product requirement, noting that even a lower threshold can still deter entry of foreign players. “Mandating a certain share of inventory to be sourced locally will discourage entry of potential foreign retailers, if local products are not competitive,” PIDS Senior Research fellow Ramonette B. Serafica said in a September position paper.

The PIDS instead recommended other measures that will directly benefit local producers, such as capacity building as well as addressing transport and logistics constraints.

The bills also proposed to remove other qualification requirements such as the $250,000 capital per store requirement for enterprises engaged in high-end or luxury products; the five-year track record in retailing; and five retailing branches or franchises in operation anywhere in the world or at least one store capitalized at a minimum of $25 million, among others.

The PIDS in a separate position paper, dated Oct. 4, recommended that safeguards be included to avoid certain risks, particularly for sole proprietors.

“With the lowering of the paid-up capital and removal of other qualification requirements as proposed, the committee may wish to review the possible risks with this form of business organization (e.g. ease of exit or ‘flight’ by the business owner) so that appropriate safeguards could be put in place,” Ms. Serafica said.

She noted that countries such as Indonesia and Malaysia prohibit foreigners from operating as sole proprietors, while Singapore adds requirements for foreigners intending to set up as a single proprietor.

The said measure is among the bills pushed by the Cabinet economic cluster for approval in the first regular session of Congress, which closes June 5 next year. It is also on the list of measures which 14 local and foreign business groups submitted to Malacañang and Congress last July.

Its counterpart measure, House Bill No. 59, sponsored by Valenzuela-1st District Rep. Weslie T. Gatchalian, awaits plenary approval in the House of Representatives. — C. A. Tadalan