Rethinking retail

rethinking retail - Rethinking retail

The Senate Committee on Banks and Financial Intermediaries approved on Monday the bill that will let banks sell their bad loans to asset companies, to keep their balance sheets clean. At the same time, the Senate Committee on Trade, Commerce and Entrepreneurship approved the bill that will allow more foreign retailers to start doing business locally.

Offhand, based on what I have read so far, I am supportive of the first bill, but I have mixed feelings about the second one. The first bill, on banks selling soured loans, comes along with a strategy on how to keep the financial system strong. Anyway, asset companies buying bad loans eventually turn around things. Thus, a win-win for all concerned.

As for the second bill, on reducing the required capital or investment for foreign retailers to set up shop here, I am ambivalent not because I prefer to keep retailing purely local. In fact, retailing has long been opened to foreign investors. My concern is more for the smaller, local retailers and producers that have been wiped out by lockdowns related to the COVID-19 pandemic.

Under Philippine law, “retail trade” is defined as “any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption.” But not considered “retail trade” are businesses capitalized at below P100,000 and are selling their own manufactured or assembled products; farmers selling their own products; sales in restaurants in hotels and inns; and, sales of products manufactured, processed or assembled and sold only through a single outlet.

In my opinion, perhaps we can let in more foreign retailing stores if the Department of Trade and Industry (DTI) has undisputable research and data that can prove that further liberalizing the retail industry by 2021 will surely generate more investments, more jobs, and more taxes. And that this will boost the economy but not at the expense of small local retailers and producers.

Senate Bill No. 1840 will amend Republic Act No. 8762 or the Retail Trade Liberalization Act of 2000. Under it, the minimum paid-up capital for foreign retail investors will be lowered to $300,000 from $2.5 million. It will also make retailers with more than one physical store invest at least $150,000 for each store, down from $830,000 previously. In the House version of the bill, congressmen had wanted the capital requirement cut down to only $200,000.

But the Senate bill also reportedly provides that the proposed retailing requirements can apply only to foreign retailers whose country of origin also allows the entry of Filipino retailers. While this may sound fair, and appealing, to me it makes no real difference which country the foreign retailers will come from if they will still end up wiping out small local businesses.

For the Philippine Retailers Association, the minimum investment can perhaps be cut from $2.5 million to possibly $1 million, but not $300,000 (or about P15 million). The group is concerned that smaller local businesses might be exposed to “unfair competition” if we give more foreigners greater access to our “market base.”

But the European Chamber of Commerce of the Philippines, which is reportedly among the 14 business groups pushing for the further opening of retail trade, said the House proposal of $200,000 minimum capital for foreign retailers was more in line with the requirements of the Foreign Investments Act for small- and medium-sized foreign enterprises that intend to sell to the domestic market.

And here lies the debate, really. It is only but right that we strive for consistency in our laws. And therefore, if foreign enterprises capitalized at $200,000 can actually be allowed to operate in certain industries other than retail, why then should we keep retail sacred by maintaining a higher threshold for it? Pursuing this logic, anything above the $200,000-floor or minimum capital should be unacceptable, right?

The thing with “retail” though is that it is a complex thing, and that allowing greater foreign ownership in the trade of “selling direct to the general public merchandise, commodities or goods for consumption” has direct and indirect implications. For one, it is more difficult to monitor, regulate, or control the retail distribution of goods than their manufacture or assembly.

Also, foreign retailers are more likely to bring in their own foreign products or products from other countries. They are less likely to purchase more locally manufactured goods. So, instead of widening our local goods’ access to more markets through exports, we instead lose market locally to foreign-made or imported goods. Unless foreign retailers to be let in will also be required to sell Philippine goods in their stores abroad, which is not likely.

Republic Act 8762 or the retail trade liberalization law states, “It is the policy of the State to promote consumer welfare in attracting, promoting, and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.”

It adds: “Pursuant to this policy, the Philippine retail industry is hereby liberalized to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering the Filipino consumer through lower prices, higher quality of goods, better services, and wider choices.”

By amending this law through a bill that will lower the capital requirements for foreign retailers and remove other restrictions to their operations here, are we still certain of achieving RA 8762’s declared objectives? While we can make more choices available to consumers, through the entry of more foreign retailers and perhaps more foreign goods, and perhaps bring down prices, are we still serving the overall interest of the Philippine economy?

Retailers and service industries, tourism, and public transportation have been most affected by the lockdowns associated with the COVID-19 pandemic. Retail store closures also helped drive customers towards online sellers. Only those who have managed to invest in infrastructure for online selling continue to survive. Many others have closed. If we let in more foreign retailers by 2021, will this actually help revive the local retailing industry and the economy?


Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council

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