Foreign retail trade rules relaxed

By next week or on Jan. 21, the country’s retail trade industry will open its doors wider to more foreign businesses and investments.

This, after President Duterte signed into law last Dec. 10, 2021 Republic Act 11595, which amends the Retail Trade Liberalization Act (RTLA) and lowers the amount of investment required of foreign-owned retail trade enterprises.

The new law provides for a minimum paid-up capital requirement of P25 million for all retail enterprises and lowers the minimum investment requirement per store to P10 million. It also removes the categories for prequalification set forth under RA 8762 or the Retail Trade Nationalization Act (RTNA).

Previously, under RA 8762, foreign-owned partnerships, associations, corporations, and single proprietorships formed and organized under the laws of the Philippines that will engage or invest in the retail trade business are grouped into four categories.

Category A or enterprises with paid-up capital of less than $2.5 million shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.

Category B is for enterprises with a minimum paid-up capital of $2.5 million, but less than $7.5 million, may be wholly owned by foreigners, while Category C or those with paid-up capital of $7.5 million or more may be wholly owned by foreigners, provided that investments per store under Categories B and C shall be not less $830,000.

Meanwhile, Category D, which is for enterprises specializing in high-end or luxury products, may also be wholly owned by foreigners, but are required to have a paid-up capital of $250,000 per store.

RA 11595 reduces the minimum investment per store requirement to only $200,000 or around P10 million.

Retail enterprises that are more than 80 percent foreign owned will no longer be required to offer a minimum of 30 percent of their equity to the public through the local stock exchange within eight years from start of operations.

The new law, likewise, provides that foreign retailers that have established or will establish corporations, associations or partnerships engaged in retail trade will now be monitored and regulated by the Securities and Exchange Commission instead of the Department of Trade and Industry, although the DTI will continue to regulate foreign retailers that are sole proprietorships.

It also reduces the penalties for violation of the law’s provisions. Instead of six to eight years imprisonment and a fine of anywhere  from P1 million to P20 million, it will now be four to six years imprisonment and a fine of P1 million to P5 million. In case of partnerships, associations, or corporations, the penalty shall be imposed upon its partners, president, directors, general manager, and other officers responsible for the violation.

The new minimum paid-up capital requirements are, however, subject to review by the DTI, SEC, and NEDA every three years from the law’s effectivity.

Previously, foreign retailers were required to obtain a certificate of prequalification from the Board of Investments upon proof that they satisfy the pre-qualification requirements, such as a minimum net worth requirement of $200 million, the presence of five retailing branches or franchises in operation around the world unless they have at least one store capitalized at a minimum of $25 million, a five-year track record in retailing, and they must be a national from or a juridical entity formed or incorporated in countries that allow the entry of Filipino retailers.

RA 11595 removes the requirement for this certificate, as well as compliance with the said prequalification requirements. Instead, they are now required to have a minimum paid-up capital of P25 million, that the foreign retailer’s country of origin does not prohibit the entry of Filipino retailers, and a minimum investment per store of at least P10 million in the case of foreign retailers engaged in retail trade through more than one physical store.

The last requirement shall not apply to those who were not required to comply with the minimum investment per store at the time the new law took effect.

The newly enacted law, likewise, encourages foreign retailers to have stock inventories made in the Philippines and requires compliance with provisions of the Labor Code on the hiring of foreign nationals, but only in case of non-availability of a competent, able, and willing Filipino citizen.

According to Senate Minority Leader Franklin Drilon, the new law easing restrictions on the entry of foreign retail enterprises into the country will help improve the retail trade investments portfolio here, which he describes as very poor. As of 2021, he said there are only 46 foreign retail corporations registered with the DTI or a growth of two retailers per year since 2000 when the retail trade industry was first liberalized under RA 8762.

That remains to be seen. It has been observed that the lower paid-up capital requirements under the new law are still higher compared to those imposed under the retail trade laws of other countries.

Will the new law protect Filipino-owned retail trade enterprises?

The old law reserved exclusively for Filipino citizens and corporations those retail trade enterprises with paid-up capital of less than $2.5 million or around P125 million. Under the new law, foreign-owned retail enterprises must have a minimum paid-up capital of P25 million. So now, only those with less than P25 million paid-up capital is reserved for Filipino nationals.

Restrictions under the law also do not apply to sales by manufacturer, processor, laborer or worker, to the general public the products manufactured, processed or products by him if his capital does not exceed P100,000, sales by a farmer or agriculturist selling the products of his farm, sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount capital: provided, that the restaurant is incidental to the hotel business; and sales that are limited only to products manufactured, processed or assembled by a manufactured, processed or assembled by a manufacturer though a single outlet, irrespective of capitalization, are not covered by the law since they do not constitute retail trade, which refers to any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or good for consumption, except those specifically excluded as mentioned above.

Marikina City Rep. Stella Quimbo, author of the new retail trade law in Congress, observed that only medium and large establishments will be directly affected by increased foreign competition under these amendments, and they make up less than one percent of all establishments. However, the one percent will possibly face stiffer competition from foreign retail firms. She said the effect of lowering the minimum paid-up capital would increase and big companies and monopolies would face tight competition.

As pointed out by Drilon, small and medium retail trade enterprises would continue to be protected.

Prior to 2000, retail trade in the country was nationalized under RA 1180 or An Act to Regulate the Retail Business, which meant that only Filipinos can engage in such business. After the RA 1180 came into effect in 2000, the likes of Watsons, Zara, Forever 21, Mango, Uniqlo, luxury brands Louis Vuitton and Hermes, and recently, Ikea, set up stores in the Philippines. Some entered into  partnership with Filipino companies, while others were wholly foreign-owned.

In 2019, there was a report that retail giant Walmart would establish stores in the Philippines, specifically in Muntinlupa, Alabang, and New Manila in Quezon City.

Let us see if the new thresholds will indeed attract more foreign stores to invest in the Philippines. The more the merrier for us consumers.

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