Further retail trade liberalization will not bring FDIs

Further liberalization of the domestic retail trade to foreign retailers will not bring in the much needed foreign direct investments (FDI), but instead usher in small and non-reputable foreign players, reduce the quality of the already worldclass local industry, kill the local micro and small retailers, and pave the way for an underground economy, domestic retailers and exporters warned.

Philippine Retailers Association Vice Chairman Roberto Claudio and Philippine Exporters Confederation President Sergio Ortiz-Luis Jr. said further liberalization of the domestic retail trade is not the solution to shore up FDIs into the country.

Socio-Economic Planning Secretary Ernesto Pernia, backed by Trade and Industry Secretary Ramon M. Lopez, would like to lower the minimum investment requirement from $2.5 million to $200,000 to allow 100 percent foreign ownership in the retail industry. The government is looking into the domestic retail sector as having the potential to attract FDIs and may be included in the further opening up of the Foreign Investment Negative List.

In the Retail Trade Liberalization Act of 2000, foreign players are allowed to enter if their capital exceeded $2.5 million. Such threshold was meant to provide an exclusive space for Filipino MSME retailers to grow in.

Stressing the enormity of the implications once this plan is implemented, Claudio said that PRA already submitted to the National Economic and Development Authority (NEDA) the organization’s official position. PRA officials were also seeking an audience with Pernia in the first week of November.

“We would like to meet with Secretary Pernia because what they are proposing is conflicting, they are sending mixed signals,” he said.

Local retailers said further opening of the retail trade sector to small foreign investors cannot shore up the dwindling foreign direct investments inflow into the country.

Claudio noted that other

than the minimum investment per store of $830,000 or the minimum paid up capital of $2,500,000, the domestic retail segment is already wide open to foreign investors.

Instead of encouraging big foreign retailers to tie up or forge joint venture with the locals, Claudio said the NEDA and DTI plan is doing the reverse.

Sergio Ortiz-Luis Jr., president of PhilExport, said the plan to allow a minimum of $200-million entry point for foreign retailers cannot bring in additional FDIs and technology into the country.

“You liberalize for two reasons – you want capital and technology to come in. What capital and technology can come in with only $200,000? These small foreign retailers might even source their capital here and crowd out our small retailers. I don’t know why they are liberalizing to that extent,” said Ortiz-Luis.

“You bring in 1,000 foreign retailers at $200,000 each investment, but you are going to kill our small retailers. They said these foreign retailers are going to bring in cheap goods and more choices for consumers, but we know better, we even have bigger, nicer malls than what they have abroad,” he added.

He said that PhilExport was the responsible group that crafted the study for the Retail Trade Liberalization Act of 2000 and even then they knew that the $2.5-million minimum requirement was already worrisome.

Claudio also noted that once the small foreign retailers enter the country, they will never source local products but import all of their cheap products. Another worry, he said, is the possibility of smuggling by these non-reputable small retailers. “These small foreign retailers are those that are retailing imported Chinese-made products in Divisoria and do not pay the right taxes,” he said. “What will happen to us, just a mere supplier of labor?”

Worse, he said, is the impact on the MSMEs. “To us big retailers, reducing this investment threshold does not bother us because we can already compete, but what about the small retailers,” said Claudio, who owns the Toby’s Sports franchise.

Claudio explained that the $2.5-million investment requirement is primarily meant to reserve this vulnerable industry segment to small domestic retailers because retailing is the easiest business.

“A retailer can start with his products in a drawer then grow it to a sari-sari store and then to a mini-grocery outlet,” he stressed.

Further liberalizing the entry level will only bring in small foreign retailers, who will not only bring in cheap imports but also set up restaurants, massage parlors, beauty salons, and bars, among other form of services.

On the criticism that the Retail Trade Liberalization Act of 2000 did not bring in the big foreign retailers and it is time to amend the law, Claudio said “this only speaks well of the state of the Philippines as having a world class retail industry.” In fact, big foreign retailers admit they shy away from the Philippines because of the very competitive retailing landscape.

But there have been also successful joint ventures between the SM Group for Uniqlo, Forever 21 and Watsons. The Rustan’s Group has also formed a joint venture with the Dairy Farm of Hong Kong.

There are also big retailers who come in on their own as solo brands like H&M, 7-Eleven, and Adidas, among others.

“But bringing in small foreign retailers will only downgrade the quality of the domestic retail industry because at $200,000 minimum investment, who will you invite, but the small ones, the fly-bynight who maybe engaged in smuggling and underground economy. That is a natural attraction because there is no more quality,” he added.