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Economy

Philippines pushes to ease Asia's toughest foreign investment rules

Duterte-backed overhaul faces opposition from entrenched conglomerates

Filipinos work at the assembly line of Taiwan-based Kinpo Electronics' factory in Malvar, Philippines.    © Reuters

MANILA -- The Philippines is closer to loosening its strict rules on foreign direct investment, long seen as hindering global companies looking to crack a large Southeast Asian market dominated by local conglomerates.

The Philippine Senate is poised to take up legislation amending three laws -- the Foreign Investments Act, the Retail Trade Liberalization Act and the Public Services Act -- that were approved by the country's House of Representatives last year.

These changes would start to unwind what a 2019 Organization for Economic Cooperation and Development index shows to be Asia's most restrictive FDI rules.

"We remain committed to supporting liberalization to enhance our country's competitiveness," Ramon M. Lopez, secretary of trade and industry, said in a speech on competition in late February. This means amending the Foreign Investments Act and other laws, he said.

With little over a year left in office, President Rodrigo Duterte, who has clashed with big conglomerates during his term, appears to be making a final push for greater openness to foreign investment. But he wields more influence in the House of Representatives than in the Senate, where the legislation's fate remains unclear.

House Speaker Lord Allan Velasco, an ally of Duterte, also has proposed amending the country's constitutional restrictions on foreign investment, adding a clause for exemptions under special laws to provide more flexibility to ease rules. Velasco expects to win approval by the end of May.

The Philippines protects domestic industry, in part by capping foreign ownership at 40% in many fields under its constitution and related laws. Full foreign ownership is permitted in retail, but heavy restrictions are imposed on paid-in capital and investment per store, discouraging entries. Local conglomerates, many family-owned, have grown to span industries including real estate, retail, and telecommunications.

On Wednesday, the Philippine central bank reported that net foreign direct investment in the country dropped 24.6% to $6.5 billion in 2020, marking the third consecutive year of decline.

Foreign businesses usually enter the Philippine market through joint ventures with local partners or franchise chains. But some express frustration over their lack of management control and the protection that local rivals enjoy. Japanese restaurant operator Yoshinoya Holdings recently switched to a joint venture with local fast-food leader Jollibee Foods after a franchise network under a different partner did not grow as expected.

Previous administrations sought reforms to encourage foreign direct investment, but momentum faded after fierce opposition from industry. Achieving where past governments failed would go down as an achievement for Duterte.

"The government has never been more serious about this issue than it is now," said Nobuo Fujii, a director of the Japanese Chamber of Commerce and Industry of the Philippines.

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