The Board of Investments (BOI) is considering to regulate the entry of foreign firms in the local retail market on a per-store basis, relaxing the current rule that mandates foreign retailers to open up at least three stores for a certain amount.
Under the law, a foreign retailer can wholly own an enterprise as long as their paid-up capital is at least $2.5 million. The law requires the retailer to divide that amount among stores that each has an equivalent of at least $830,000 worth of paid-up capital.
BOI is now considering to revise that $830,000 threshold, which most foreign retailers see as their top concern, according to BOI Legal and Compliance Service director Marjorie Ramos-Samaniego.
“The $2.5 million [threshold] is actually not the number one issue of foreign retailers. It’s more the $830,000 [paid-up capital] per store requirement,” she said during the EU-PH Advocacy Forum on Retail Competition.
“If you convert that, that’s around P40 million. That’s a burdensome area where most foreign retailers are actually crying about for us to really lower,” she added.
To do this, however, the BOI needs to balance out the sometimes overlapping interests of foreign and local retailers in an issue that puts to question how much protectionism is allowable to defend local small players.
There are bills in Congress that want to further liberalize the retail trade sector in favor of foreign players. This includes Senate Bill 1639, introduced by Senator Sherwin Gatchalan, which removes most, if not all, barriers against the entry of foreign firms.
Ramos-Samaniego, however, said that BOI would still be giving its inputs in the senator’s bill, noting that there would be “refinements.”
“We are very committed to protecting the micro and small enterprises. We are consulting with the PRA [Philippine Retailers Association] on what would be the preferred threshold because, to a certain extent, there should still be a safeguard measure,” she said.
The question, therefore, asks to come up with a capital requirement that would ensure that micro and small firms would “not be displaced” by foreign players.
“On a certain per-store [basis], there has to be a cap,” she said, noting that that they still haven’t decided on the amount.
DTI considers $500,000 threshold
The country’s economic managers themselves are advocating for the same goal but through a relatively more conservative threshold of $200,000 or around P10 million.
This proposed threshold would be under the foreign investment negative list (FINL), an important document which sets the limit on foreign investments in select critical industries.
In an interview on Friday, BOI Chairman and Trade Secretary Ramon Lopez said that the department still thinks that $200,000 is an enough adjustment, although he said that he is open to raising it to $500,000, which is still lower than status quo.
He, however, did not go into the detail of whether or not this threshold refers to the over-all capital requirement, or to the per-store basis.
EU-PH Business Community demands lower threshold
There is demand from the private sector to revise the Retail Trade Liberalization Act, which has been in place for close to two decades now. Since then, only 25 foreign retailers have set shop here.
During the forum on Friday, Walter van Hattum, the head of the trade and economic section of the European Union (EU) delegation backed Gatchalian’s bill, noting that it’s time for foreign retailers to “go small.”
In general, the European-Philippine business community wants to amend the law, “to eliminate barriers to market access for foreign retailers, namely capital and divestiture requirements,” read a Euro-PH Advocacy Brief.
“The liberalization of the retail sector would facilitate access through direct investment rather than franchise agreements. The increase in direct investment will enhance competition, enabling Philippine goods and services to become more competitive globally,” the advocacy brief further said. /jpv