Interview: Ramon M Lopez
What will be the impact of amendments to the key laws regulating foreign investment, and how can they be further improved?
RAMON M LOPEZ: The amendments to the Public Service Act, Foreign Investment Act and Retail Trade Liberalisation Act aim to create a more enabling policy environment for investment inflows into the country. The amendments were implemented with the goal of fostering an open economy by removing barriers to investment in key areas that will lead to improved technology transfer, higher-quality job creation and greater tax revenue. The amendments to the Public Service Act seek to clarify and refine the definition of public utility, limiting it to activities of public consequence. This leads to a classification of the distribution and transmission of electricity and water, and the distribution of sewerage and pipeline systems, as public utilities.
The amendments to the Foreign Investment Act include a reduction of the employment threshold requirement from 50 to 15 direct employees for foreign-owned small and medium-sized enterprises; changes in the foreign investment negative list; and the creation of an investment promotion council to facilitate applications and establish a one-stop shop mechanism. The amendments also mandate that foreign entities conducting business online be considered involved in domestic market enterprises and are thus subject to the laws related to their respective activities. In terms of the Retail Trade Liberalisation Act, the amendments lower the minimum paid-up capital requirement to $200,000 for foreign-owned businesses. We would recommend a higher threshold of $300,000 so that enterprises with a paid-up capital below this amount remain exclusive to Filipinos.
In what ways have US-China trade tensions affected the economy in the Philippines?
LOPEZ: The conflict between the US and China does not seem to have negatively impacted the Philippines. In fact, GDP growth remains robust, and in 2019 unemployment dropped to a 40-year low.
According to the National Economic and Development Authority (NEDA), even the highest escalation of these tensions would have marginal effects on the economy; NEDA calculates that it would result in a slowdown in GDP growth by 0.1 percentage point, a 0.3% drop in exports, and less than a 0.1% fall in employment and government revenue.
Free trade agreements will be crucial to allowing the Philippines to leverage opportunities that may arise from these trade tensions. Furthermore, amid international protectionist trends, free trade agreements are gaining global importance. The Philippines is implementing the Last Touch trade strategy to enable integration into the regional and international value chain, including trade with the US and the EU. Specifically, we have been negotiating a free trade agreement with South Korea since June 2019, and there have been discussions regarding a possible free trade agreement with the US.
How does the Ease of Doing Business Act (EODBA) address the concerns of investors?
LOPEZ: The EODBA is designed to increase the efficiency of the business permit approval process and encourage faster approval, whether the licences are for those starting, growing, operating or closing businesses. This is one of the key factors that can impact investors’ decision-making processes.
In addition, the EODBA gives potential investors a wider range of choices in terms of where to locate their businesses and allows them to establish these locations at a lower cost. It also works to limit government agencies to a maximum period of three days for simple procedures and continues to promote greater automation. Therefore, the regulation goes a long way towards making it easier for potential investors to successfully do business in the Philippines.
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