Philippine President Rodrigo Duterte issued the country's 11th Foreign Investment Negative List on 29 October 2018, effective on 16 November 2018. The 11th Negative List updates the 10th Negative List by clarifying the scope and limitation of the restrictions to foreign ownership of certain industries in the Philippines.
Implications for Foreign Companies
The 11th Negative List incorporates recent changes in various laws that liberalized restrictions on foreign ownership across various industries. The 11th Negative List also provides a greater degree of certainty with regard to the applicability of the foreign equity restrictions in certain industries, and is intended to improve the Philippines' attractiveness to foreign direct investments.
What the 11th Negative List Says
Activities Without Restrictions on Foreign Ownership
The 11th Negative List clarifies that 100% foreign participation will be allowed in the following industries:
- Internet businesses;
- Teaching in higher education levels, excluding professional subjects;
- Training centers engaged in short term high-level skills development that do not form part of the formal education system;
- Adjustment companies, lending companies, financing companies, and investment houses; and
- Wellness centers.
The express inclusion of the internet business as a separate industry from mass media may be intended to clarify that not all internet business is mass media. Mass media remains completely restricted to foreign ownership and participation. The amendment was based on an opinion issued by the Department of Justice (DOJ) in 1998, in which the DOJ distinguished internet businesses, which is limited to “offering to the owner of a computer the services of inter-connecting to a network of computers, thereby giving him access to said services offered by Internet”, from mass media, which involves the transmittal and creation / publication, gathering and distribution of news, information and other forms of communication to the general public. However, it is not clear whether the 11th Negative List overturns the SEC's opinions recognizing the internet and mobile technology as platforms for mass media, and therefore restricted to Philippine nationals, as the DOJ opinion and SEC opinions may be viewed as referring to different aspects of the Internet business.1
The Annex to the 11th Negative List also provides additional details on professions that are not restricted to Filipino citizens and their basis under law. It clarifies that pharmacy and forestry may now be practiced by foreigners, provided that their home countries allow Filipinos the same privilege. These are in addition to the other professions that are open for reciprocity found in Part A of the Annex on Professions. However, the practice of radiology and x-ray technology, criminology, and law remain restricted to Filipinos, with marine deck officers and marine engine officers as new additions to the list.
The list also clarifies that "wellness centers" are not subject to foreign equity restrictions by explicitly indicating it as an exception to the 40% foreign equity requirement.
Power generation and the supply of electricity to the contestable market, as well as similar businesses or services not covered by the definition of public utilities, have now been expressly recognized as exceptions to the operations of public utilities, and not subject to the 40% foreign equity limitation.
Increased Foreign Participation
Under the 11th Negative List, foreigners may now have a higher equity interest in the following industries:
- Private radio communications network, which was increased to 40% foreign equity ownership from 20%, and
- Subject to applicable regulatory frameworks, contracts for the construction and repair of locally-funded public works, which was increased to 40% foreign equity ownership from 25%. Infrastructure/development projects under Republic Act 7718 and foreign funded/assisted projects that undergo international competitive bidding are expressly indicated as not covered by the foreign equity restrictions.
Increased Foreign Equity Restrictions
On the other hand, the 11th Negative List now provides an absolute foreign ownership restriction on businesses engaged in the organization and operation of private detective, watchmen, or security agencies.
Other restrictions found in the 10th Foreign Investment Negative List remain the same.
Actions to Consider
In light of the changes brought about by the 11th Negative List, interested foreign investors may now consider investment opportunities in areas where foreign equity restrictions have been clarified, relaxed, or decreased pursuant to relevant laws. The changes to the 11th Negative List are intended to promote investment in the Philippines by providing a clearer and more concise point of reference for the list of industries and professions that are subject to foreign equity restrictions under existing laws, and those that are not so covered.
While the 11th Negative List falls short of the expected economic liberalization advocated by various business sectors, there is optimism that Congress will institute amendments to the existing legal framework for a more open and competitive Philippine economy. The business community continues to monitor developments in proposed amendments to the Public Services Act, the Retail Trade Liberalization Act, the Government Procurement Act, the Investment Restrictions in Commonwealth Act No. 541, and the Contractors’ License Law, among others.