International chambers back lower capital for foreign retailers

MANILA, Philippines — The Joint Foreign Chambers (JFC) is supporting a proposal in the House of Representatives that seeks to lower the minimum paid-up capital requirement for foreign retailers to $200,000.

In a letter to both chambers of Congress, the JFC – composed of the American, Australian-New Zealand, Canadian, European, Japanese and Korean chambers in the Philippines, as well as the Philippine Association of Multinational Companies Regional Headquarters Inc. – expressed support for the proposed amendments to the Retail Trade Liberalization Act.

Last week, the Senate approved on third and final reading its version of the bill, which seeks to reduce the minimum paid-up capital to $1 million for foreign entities that will engage in domestic retail, from the current $2.5 million.

The Senate initially proposed a minimum paid-up capital of $300,000.

The JFC said the $1 million capitalization under the Senate version would hinder new foreign direct investments from entering the country.

“This still-protectionist level is far higher than in Cambodia, Indonesia, Singapore, Vietnam, and others, which also have large numbers of MSMEs (micro, small and medium enterprises) like the Philippines,” the JFC said.

In Indonesia, which has five million retail firms, the JFC said there is no high barrier for foreign retail investors to enter the market.

Since the Retail Trade Liberalization Act was passed in 2000 to amend the Retail Trade Act of 1954, the JFC said not much has changed in foreign retail investments in the country, with the current required minimum capitalization of $2.5 million much higher than neighbors in Southeast Asia and still considered highly restrictive by both the World Bank and the Organization for Economic Cooperation and Development.

Since 2000, the country has seen only an average of two foreign retailers investing per year.

As the proposed amendment to the Retail Trade Liberalization Act has been certified as urgent by President Duterte for the country’s economic recovery from the coronavirus pandemic, the JFC wants legislators to look beyond the current crisis and consider the bill’s impact post-pandemic.

“The entry of more foreign retail investors will create jobs at every stage of the retail process as well as in firms servicing the retail sector,” the JFC said, noting jobs would also be made in advertising, agriculture, construction, design, logistics, media, telecommunications and wholesale retail as foreign retail investment cascades in the economy.

The JFC said the entry of more foreign retail investments would also lead to competition, which would benefit consumers through a variety of products at lower cost.

As foreign retail investments are made, new technologies may also be introduced for logistics, inventory management, sales, accounting and other business operations.

Meanwhile, the JFC said it supports the deletion of requirements for inward remittance and pre-qualification and the amendments on documentation to prove paid-in capital and promotion of locally manufactured products under the Senate’s version.

“These are all expected to lower barriers to entry of foreign retailers,” the JFC said.