Think tank hits flaws in Retail Trade Lib Act

Foreign retail trade companies are not likely to be lured by the Retail Trade Liberalization Act (RTLA) unless Congress removes certain disincentives such as mandatory divestment and a 30-percent local product-stocking requirement.

This is the conclusion of the MNC-funded think-tank Economist Intelligence Unit (EIU) which observed that in its present form, the new law is unacceptable as a measure to liberalize the industry especially following the insertions made at the congressional bicameral committee on trade.

EIU president Peter Wallace said the Estrada administration will have to persuade Congress to rethink the key provisions of the measure before it is signed into law.

"This law in its present form is a farce, it is unacceptable," Wallace said. "It was fine when it was in the Lower House but there were provisions that were added in the bicameral committee.

Under the RTLA, the retail sector will be opened up to full foreign ownership subject to a minimum capital requirement of P300 million and restrictions.

Based on a draft of the final version of the retail trade bill, foreign investors can own up to 100 percent of a local retailer but only if they invest at least $7.5 million (P300 million) in paid-up capital. Foreigners, however, are barred from buying existing retailers with a net worth of $2.5 million in the first two years of the act's effectivity.

Foreigners investing between $2.5 million and $7.5 million are allowed to own up to 60 percent of a local enterprise but the investment requirement on full foreign ownership will be lowered from $7.5 million to $2.5 million after two years.

The proposed law also seeks to allow foreigners full ownership of their Philippine branches but only if they specialize in high-end or luxury goods. They also have to invest $250,000 (P10 million) per store.

Wallace said the investment requirements are affordable to foreign investors but the provision requiring foreign owners to sell at least 30 percent of their equity after eight years is nothing short of preposterous.

"It's like telling foreign investors to come in and develop the market but we will have to get rid of you after three years," Wallace said. "It wouldn't make any sense to a foreign investors with long-term plans."

Wallace also pointed out that proposed law requires foreign-owned retail stores to sell local products up to 30 percent of their total stock inventory, presumably to promote local products. "Consumers go to foreign-owned stores to buy imported goods," he argued. "If they want local good, they will go to local stores."

Wallace said the proposed law will not actually liberalize the industry but will in fact deter foreign investors from investing in the country knowing that they can not own their businesses after three years.

Under the law, enterprises worth less than $2.5 million will remain exclusive to Filipinos. Foreigners will also be barred from using mobile or rolling stores; hiring sales representatives; door-to-door selling; restaurants and sari-sari stores; and other areas included in a negative list to be formulated by the Department of Trade and Industry.

Under the proposed law, the DTI is also mandated to pre-qualify the prospective foreign retailers which, under the qualifications cited under the act, should be major international companies whose net worth are at least $200 million (P8 billion). Luxury stores must have net worth of $25 million (P1 billion) for luxury stores with five branches franchises overseas.

Congress has agreed to adopt the reciprocity clause wherein only nationals or companies from countries that allow the entry of Filipino retailers are to be allowed to engage in retail trade in the country.