Lessening the negative: Balancing the nationalist foreign investment policy towards integration

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Date: 09 Jul 2015

Pursuant to the Foreign Investment Act (R.A. 7042, as amended by R.A.8179), the President of the Philippines promulgated the 10th Regular Foreign Investment Negative List (FINL) last May 29. The FINL covers the areas or activities reserved 100 percent to Filipino nationals as mandated by the Philippine Constitution and other laws, as well as those areas which are partly-nationalized wherein foreign investors are allowed to participate to a certain extent.

The 10th FINL has substantially adopted the provisions of the 9th FINL. However, the most notable difference is that under the 10th FINL, the list of professions in which no foreign participation is allowed has been significantly reduced from 26 (with sub-categories) down to five. Under the 10th FINL, only pharmacy, radiologic and X-ray technology, criminology, forestry and law are reserved for Filipino citizens.  Aside from this, other economic provisions are substantially unchanged.

The change in the 10th FINL comes close at the heels of a recent study by the Economic Research Institute for Asean and East Asia (ERIA) entitled FDI Restrictiveness Index for Asean: Implementation of AEC Blueprint Measures. This study analyzed the restrictiveness of foreign direct investment (FDI) activities in Asean countries. It evaluated the FDI restrictiveness in six areas: foreign ownership or market access, national treatment, screening and approval procedures, board of directors and management composition, movement of investors, and performance requirements. One of its conclusions is that developing economies in Asean, such as Cambodia and Vietnam, tend to have a more open policy towards foreign investments compared to economies with more developed and mature industries. It further mentioned that Vietnam and Cambodia have adopted key FDI policies to “maintain their momentum of economic liberalization and integration in the region.” On the other hand, more developed economies which includes the Philippines, Malaysia, Thailand and Indonesia “have not progressed further from their relatively higher investment base.” The study suggests the more developed countries need to liberalize their services sector as it is an important part of their growth.

Hence, the 10th FINL may be considered as a response to the call for a less restrictive foreign direct investment policy. For years, some foreign investors have been advocating for a more open investment policy in the Philippines.  Following the promulgation of the 9th FINL in 2012, the Joint Foreign Chambers (JFC), a coalition of foreign Chambers of Commerce, has openly encouraged the Philippine government to make the 10th FINL “less negative.”  It cited a World Bank report wherein the Philippine economy in 2012 was described as remaining more closed to foreign investment compared to its large neighboring Asean economies. One of the suggestions of the JFC is the entire removal from the FINL of practice of professions since it does not concern investment.

The prohibition on foreigners to practice some professions in the Philippines can be traced back to the Constitution. Section 14 of Article XII provides for the promotion and sustained development of national talents, including that of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields. This is to ensure Filipino workers and professionals would be given the support they need and given priority in the practice of their profession. However, although the practice of all professions is limited to Filipino citizens, the Constitution also provides this can be prescribed by law. This means laws may be passed prescribing the rules on the practice of professions in the Philippines by foreigners. While the 10th FINL did not entirely remove the Practice of professions from the list, the same has been limited to five professions. Foreigners are allowed to practice those professions not specifically prohibited in the FINL provided their country allows for reciprocity.

While the objective of the law to give priority to Filipinos is noble, it may be argued that with the current move towards integration and rapid changes in technology, strict prohibition on foreign professionals is no longer practical. In fact, Filipino professionals are no longer confined to practice in the Philippines, and their work overseas is no longer limited to domestic work and manual labor. There is already a market abroad for Filipino nurses, doctors, engineers and accountants. What needs to be addressed is the enhancement of the skills of Filipino professionals to make them globally competitive, whether they choose to work in the Philippines or abroad.  Another argument against the restrictive policy against foreign professionals is that it would also impede the development of the different professions. This restrictive policy discourages highly-specialized professionals trained and licensed in other countries from working or teaching in the Philippines. This hampers the chance of other Filipinos who have no access to foreign training and education from learning more advanced technical or scientific skills.

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Aside from the practice of professions, the JFC also expressed support for House Bill No. 5544 which seeks to remove the foreign equity restrictions in adjustment, lending and financing companies. HB 5544, filed by Rep. Giorgidi B. Aggabao is pending in the House Committee on Trade and Industry. The bill is aimed to attract, promote, liberalize and welcome foreign investments to comply with the commitments to the Asean Economic Community (AEC). This is a move towards making the FINL “less negative”.

As the Asean gears towards the AEC, the foreign investment policy of the Philippines would be crucial in ensuring the Philippines will not be left-out by its Asean neighbors during the regional economic integration. One of the pillars of AEC is to establish Asean as a single market and production base through the free flow of goods, services, investment, capital and skilled labor.

More than ever, with this integration and rapid changes in technology, it is important for our legislature to enact laws that would balance the nationalist goals and the need to make the Philippines globally competitive.  While the economic and social benefits to the Philippines of this integration may still be debatable, the Philippines cannot afford to be left behind by its neighbors. It may need to catch-up in certain areas, but it has to move forward.

Elaine P. de Guzman is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.


Source: PhilStar

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