Rep. Weslie Gatchalian, the chairman of the House Committee on Trade and Industry, has filed a bill that seeks to amend the Foreign Investments Act.
House Bill No. 300 aims to amend Sections 4 and 8 of Republic Act No. 7042, or the Foreign Investments Act of 1991.
Gatchalian said the proposed measure will make it easier for foreign businessmen to invest in the Philippines by easing the restrictions to foreign capital and limiting the barriers to entry of foreign businesses.
“The Foreign Investments Act of 1991 was last amended 23 years ago in 1996 by Republic Act No. 8179. Since its enactment, the business landscape has significantly changed. While the FIA aims to attract, promote and welcome productive investments from foreign individuals and entities, certain provisions of the law create substantial barriers in the achievement of its objective,” Gatchalian said in his sponsorship speech.
Gatchalian said such restrictions have discouraged foreign businessmen from investing in the Philippines. Data from the Bangko Sentral ng Pilipinas show that the Philippines received only $9.80 billion in net FDI inflows in 2018, compared to Indonesia’s $20.18 billion, India's $42.23 billion and Singapore's $81.86 billion.
“The low level of FDI inflows into the Philippines is being identified as a reason why the country has relatively high unemployment rate,” said Gatchalian. Among the ASEAN markets, the Philippines has the highest unemployment rate of 5.3 percent, compared to Thailand’s 0.7 percent, Singapore’s 2 percent, Vietnam’s 2.2 percent, Malaysia's 3.2 percent, and Indonesia’s 5.2 percent.
The Organization for Economic Cooperation and Development’s Foreign Domestic Investments Regulatory Restrictiveness Index for 2018 lists the Philippines as one of the most restrictive countries in the world when it comes to FDI rules.
According to the World Bank, the restriction of the Philippines providing a minimum capital requirement for foreigners of about $200,000 is substantially greater than the minimum capital requirements imposed on foreigners by industrializing or newly industrialized countries such as China, Indonesia, India, and Russia and ASEAN countries such as Malaysia, Thailand, and Vietnam.
“Ownership limitations as well as paid-up capital requirements effectively prevent smaller foreign entities with insufficiently large investments to open business in the Philippines. Given this existing regulation, foreign firms are always placed at a disadvantage, compelling them to partner with local firms,” Gatchalian said.
Under the proposed amendments, foreigners may be allowed to own small and medium-sized domestic enterprises with a minimum paid-up capital of less than $100,000 provided that it complies with conditions such as the use of advance technology and meeting employment requirements.
Gatchalian proposed that the requirement on employment be reduced from 50 to 15 in order to entice more foreign investors. “This is expected to improve FDI inflow and open up to a stronger diverse market coupled with the influx of a bevy of technical expertise in various fields, benefiting the Philippines with technological transfers, foreign exchange from exports and ultimately higher tax revenues,” he said.
The bill also proposed to exclude the practice of professions in the Philippines by foreigners from the Negative List but leave the regulation of the practice to the specific laws that govern the different professions.
“In view of the significance of this measure, the Committee on Trade & Industry joins the Committee on Economic Affairs in submitting House Bill 300 for approval,” Gatchalian said.
