Philippine business groups and foreign chambers are urging Congress to pass three investment reform measures that would help the country’s economy grow, improve national competitiveness, create jobs, and aid recovery from the continuing pandemic.
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).
Some 43 business organizations and international chambers, in an issued statement, said all three three proposals achieved considerable progress in the 18th Congress and have been certified by President Rodrigo Duterte.
They are a major reform package that was first presented soon after the May 2016 elections as part of the administration’s socio-economic agenda, and they are included in the Philippine Development Plan of the National Economic Development Authority (NEDA).
Foreign investors and governments have been carefully monitoring the changes to see whether the Philippine economy would open open to international businesses or retain its protectionist image. In 2019, the Philippines received just 0.5 percent of global FDI, they said.
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.
“Finance Secretary Carlos G. Dominguez recently urged the business sector to support these bills, telling 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,” they said.
“Our GDP is not expected 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% to less than $1 trillion due to the pandemic,” they added.
In his April 11 message to Senate President Vicente Sotto, President Duterte certified “the immediate enactment of the three bills in order to…provide a more conducive investment climate, increase job opportunities, foster more competition, and further spur the country’s economic growth”.
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%.
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, they said.
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,” they stated.
They said 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,” the business groups and foreign chambers said.
They said proposed amendments will damage not strengthen the foreign investment climate and weaken foreign investor interest in the country. They would deprive Filipinos of the better public services that other countries in the 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, they said.