IT’S a hard pill to swallow for some, but for many others, further opening up the retail sector to foreign investors will result in greater competition in the market, bring in capital, generate jobs, and facilitate transfer of technology in the sector.
House Committee on Ways and Means Chairman Joey Sarte Salceda, Deputy Speaker for Trade and Industry Wes Gatchalian and Marikina Rep. Stella Luz Quimbo all agree that the recent ratification of the bill amending the Retail Trade Liberalization (RTL) Act will boost the country’s economic recovery amid the Covid-19 pandemic, as it could bring more foreign investments.
The two chambers of Congress have already ratified the bill, which is now awaiting President Duterte’s signature.
According to Salceda, “the main impact [of this proposal] will be in the provinces. The RTL amendments will lower minimum investment to just around P25 million, which practically opens the entire provincial retail market to foreign ownership.”
For his part, Gatchalian said, “The first and most obvious effect of lowering the barriers to entry of foreign retailers is increasing competition.”
“We, the principal authors of the amendments to the RTLA, believe that competition is good and increased competition will drive down prices for the benefit of the consumers,” the deputy speaker said.
Quimbo, for her part, said, “Because these new thresholds [provided under the bill] are evidence-based, I am optimistic that this new version of the law will succeed in increasing foreign investments in retail trade.”
Good impact
SALCEDA believes that the main impact of the passage of these RTL law amendments will be in the provinces.
“The RTLA amendments will probably have little impact on big Metro Manila malls, because foreigners were already allowed to own such establishments even before the RTLA amendments, under the old RTLA,” he said.
“First of all, setting up a big mall in Metro Manila probably takes more than P47.5 million, and full foreign ownership is already allowed for that bracket, under the original Retail Trade Liberalization Act, or RA 8762. So, you will not see a sea change in Metro Manila,” he added.
With this proposal, Salceda said a broader range of cheaper products sold in the provinces is expected.
“That’s a good thing for consumers, because typically, provincial large retail is highly oligopolistic and undercapitalized,” he added.
The Joint Foreign Chambers lauded the ratification of the bill, saying “the 18th Congress has recognized the potential contribution to Philippine economic growth and job creation of allowing more foreign investment in the dynamic retail trade sector.”
Original law falls short
IN 2000, Quimbo recalled, there was an attempt to liberalize the retail market through the enactment of Republic Act 8672.
However, in her view, that law fell short of its objectives because of its more restrictive provisions compared to what the country’s neighbors have.
“To illustrate, under the RTL of 2000, the minimum paid-up capital requirement for a foreign entity wishing to participate in our retail markets is pegged at $2.5 million, while in Thailand, the required paid-up capital is $66,300 only. In Vietnam, $10,000, while there is no requirement in Brunei,” she said.
According to Quimbo, RA 8672 also failed to spur growth and the retail sector remains uncompetitive.
From 2000 to 2019, she said only 43 foreign retail investments have been recorded, and only generated approximately 22,000 jobs.
“This aligns with the finding of the Department of Trade and Industry that the meager share of the Philippines in the total FDI to Asean wholesale and retail trade was due to the ‘relatively restrictive and less competitive Philippine policy on retail trade vis-à-vis its Asean neighbors,’” Quimbo said.
The recently approved RTL amendments bring down this paid-up capital threshold substantially, and now allow foreign retail investors to participate in the local retail market with a P25-million paid-up investment, and a minimum requirement of P10 million per store.
The bill also directs DTI, SEC, and Neda to review the required minimum paid-up capital every three years to ensure that the threshold upholds the spirit of liberalizing the retail sector.
Based on data on value of assets owned by businesses drawn from the Annual Survey of Philippine Business and Industry, Quimbo said this per-store requirement is consistent with the objective to protect the micro and small enterprises and to open up medium and large corporations to foreign competition.
“Even sari-sari store owners will benefit from this. Because greater market competition leads to better quality products at more affordable prices, sari-sari store owners will potentially have access to cheaper goods on a wholesale basis,” she added.
‘Hard pill’
WHILE he sees positive changes with the amendments of the RTL, Deputy Speaker for Trade Gatchalian acknowledged that there “will be winners and losers” brought about by this change.
“[However] we believe that the overall net effect is positive, not only for Filipino consumers, but also for businesses, manufacturers and all allied enterprises,” he said.
From the manufacturer’s side, Gatchalian said some have argued that allowing foreign firms to compete with local firms will drive local firms out of business.
“However, history and experience has taught us otherwise. Many countries who opened up their retail economy to foreign investment, like China, Japan and Korea, experienced growth in all aspects of their economy,” he said.
“Now, this may be a hard pill to swallow but if we think about it and study the effects of competition on businesses, we see that competition increases technology transfers and efficiency,” said Gatchalian.
Philippine Chamber of Commerce and Industry (PCCI) Chairman Alegria Limjoco earlier expressed some concern.
Lowering the capital requirements for foreign firms will hurt the local micro and small businesses, Limjoco said, pointing to competition.
Technology transfer
WITH the amendments to the RTL law, Gatchalian projected an increase in technology exchange because foreign retailers can learn from local firms and vice versa.
“Also, to remain competitive, firms will be forced to adopt more technologically advanced and more efficient means of producing goods. When this is achieved, the same set of inputs can produce more output, thereby increasing the total factor productivity of the country,” he said.
“While we do recognize that there will be some who will get the short end of the stick with this change in the country’s business environment, the net long-term benefits of increased competition are much greater compared to protectionist policies,” he added.
Gatchalian also said that “when we factor in the grim picture that the pandemic has painted for the mall-driven economy we have had in the past, the post-pandemic economy definitely looks brighter with these amendments.”
The House leader also said the country can expect more jobs in the service industry to be created to cater to the operating requirements of foreign retailers.
The service industry in the country has long been the biggest employer of Filipino labor. In 2017, the services industry accounted for 56.3 percent of Filipino employment. Four years later in 2021, the services industry now employs 57.9 percent of Filipino labor.
“While the capital infused in the economy may be foreign, they will require local employees to operate the retail outlets, move their goods and services, and perform aftersales requirements,” he said.
“Definitely, change in Philippine malls is to be expected because of the pandemic. But the mall-driven economy in the country goes deep into the Filipino culture and the liberalization of retail trade in the country will simply complement the service-oriented economic driver of the country,” he added.