As one of his last official acts, former president Rodrigo Duterte, promulgated last 12 June 2022, the 12th regular foreign investment negative list by issuing Executive Order 175.
As a background, the regular foreign investment negative list, which is a requirement under the law, enumerates the areas or activities open to foreign investors and those exclusively reserved for Filipino nationals. With the issuance of EO 175, the new list aims to ease restrictions on foreign participation in certain investment areas or activities.
The 12th regular foreign investment negative list, which replaces the 11th regular foreign investment negative list approved in 2018, reflects the changes to the list pursuant to existing laws and upon recommendation of concerned government agencies.
One of the salient features of the 12th regular foreign investment negative list is that it is aligned with the recently passed amendments to the Public Service Act (PSA), Retail Trade Liberalization Act (RTLA), and Foreign Investments Act (FIA).
Notably, these recently enacted three key legislative measures — PSA, RTLA, and FIA — aim to attract foreign investors by easing the barriers to inbound foreign investments. Moreover, these measures were enacted to push economic recovery by welcoming new capital, ideas, and technology that come along with foreign investments.
First, the 12th regular foreign investment negative list reflects the full foreign ownership liberalization in the areas of telecommunications, domestic shipping, railways and subways, and air transport as provided under the amendments to the PSA.
It may be recalled that the amendments to the PSA limited the sectors considered as public utility to distribution of electricity, transmission of electricity, petroleum and petroleum products pipeline transmission systems; water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; seaports; and public utility vehicles. These public utilities are subject to 40 percent foreign equity restriction under the Philippine Constitution. With the amendment, full foreign ownership on other entities traditionally considered as public utility, such as subways, airports, airlines, railways, expressways, tollways, tollways, and even transport network vehicles services, is now allowed.
Second, the revised negative list also incorporates the amendments to the RTLA that provides for a uniform minimum paid-up capital from $2.5 million to only P25 million (or about $500,000). The amendments to the RTLA liberalized restrictions on foreign direct investments by significantly lowering the minimum capitalization requirement of $2.5 billion under the old retail trade law.
Third, the list also takes into account the amendments to the FIA that allow for a lower minimum paid-up capital of $100,000 for non-Philippine nationals if (a) the enterprise involves advanced technology as determined by the Department of Science and Technology, (b) endorsed as a start-up by the lead host agencies pursuant to the Innovative Startup Act, or (c) employs no fewer than 15 Filipino employees. The amendments to the FIA lowered the mandatory Filipino direct hires from 50 to just a majority of the enterprise’s employees, provided that the number of Filipinos shall not be less than 15.
Another notable feature of the 12th foreign investment negative list is that it no longer includes the manufacture and distribution of products requiring clearance from the Department of National Defense as compared to the 11th foreign investment negative list, where these products, including guns and ammunition for warfare, military ordnance, guided missiles, tactical aircraft, space vehicles and military communication equipment, were limited to 40 percent foreign equity. Upon effectivity of EO 175, full foreign participation is allowed for activities and products requiring DND clearance.
Meanwhile, the 12th foreign investment negative list retains the foreign equity restrictions under the 11th foreign investment negative list.
(To be continued)
The Daily Tribune
