Threat to Filipino retailers

The proposal of Socioeconomic Planning Secretary Ernesto Pernia to reduce the minimum paid-up capital that foreign business entities should have before they can engage in retail business in the country has pitted the Philippine Chamber of Commerce and Industries (PCCI) against the Joint Foreign Chambers of the Philippines (JFCP).

The Retail Trade Nationalization Law of 2000 states that retail business (or the sale of goods and products to direct consumers) that is capitalized below $2.5 million is reserved exclusively for Filipinos. Foreign players should have a paid-up capital of $2.5 million and above.

The capital requirement is aimed at giving Filipinos engaged in micro, small and medium-sized enterprises (MSME) the opportunity to develop without being bothered by competition from foreigners.

Pernia wants to reduce the capital threshold to $200,000. He believes opening the market to foreign players would force local companies to be more competitive internationally.

PCCI has opposed the proposal as unnecessary and even harmful to local MSMEs. For obvious reasons, JFCP welcomed the idea of liberalizing the retail trade business.

In a surprise move, Trade and Industry Secretary Ramon Lopez has sided with JFCP. He said “More retail stores mean a larger market for MSME products if this would be sourcing from local producers, including MSMEs.”

It is reasonable to give Lopez the benefit of the doubt that he sincerely believes it’s in the country’s best interests that the exclusivity clause of the law be substantially reduced.

How he arrived at the conclusion, however, is unclear. He did not explain how allowing foreigners to compete with MSMEs would lead to a larger market for the latter.

Does Lopez honestly believe that foreign retailers would prefer local products or materials to sell over those coming from their home countries or, for that matter, other sources of cheaply priced products?

The foreign retailers will enter the local market to provide an outlet for the promotion and distribution of their own products, not local products. If it all, the local products in their retail lineup would only be for show.

The porous state of our importation or customs system does not inspire confidence that local products would be attractive to foreign retailers in case retail trade rules are relaxed.

If, for example, a China-based foreign retailer is permitted to engage in retail business, it is a foregone conclusion that China-made products would constitute the bulk of its retail goods. The 168 Shopping Mall in Divisoria, Manila, validates this prediction.

For years, cheap and often toxic Chinese products have flooded the market through legal and illegal means (but more of the latter) to the detriment of MSMEs that manufacture similar products. If retail trade rules are liberalized, expect the Chinese retailers to be first on the line to take advantage (or exploit) that opportunity.

In pushing for the relaxation of our retail laws, Pernia and Lopez seem to be enamored by the mantra of “globalization.”

But, as the saying goes, charity begins at home and our MSMEs, not deep-pocketed foreign retailers, are entitled to that consideration and more from their own government.