Know your SME Law: Retail Trade Liberalization Act

Liberalization-pic

Did you know that foreigners used to be barred from the retail trade business?

The Retail Trade Act of 1954 (Republic Act 1180) reserved the business of direct selling to the consumer to businesses that are 100 per cent Filipino owned.

However, the Retail Trade Liberalization Act of 2000 or Republic Act No. 8762 opened the doors for other nationalities to enter in the retail trade market.

Today, companies with up to 100% foreign equity participation  are allowed to engage in retail trade on condition that they have paid-up capital of at least US$2.5 million.

Salient features of the Law include the following:

 

  1. Foreign investors should meet the following qualifications to engage in retail trading in the Philippines:(a) A minimum of US $ 50 M to 250 M in its parent corporation, depending on category; (b) five retailing branches of franchises in operation anywhere around the world (c) five year-track record in retailing.

  2.  Foreign investors may buy shares or fully acquire existing retail stores in the country.   This was at first limited to 60 per cent of equity of the local store but beginning 2012 (or two years into the passage of the law) could extend up to 100 percent or full ownership.
  3. Companies whose  foreign ownership exceeds 80 percent of equity are required to put up at least 30 per cent of their equity for sale to the public through any Philippine stock exchange within eight years of their retail operations in the country.
  4.  For 10 year after the effectivity of the Act, a certain percentage – 10 to 30 percent, depending on category, of stock inventory of foreign retailers are required to be made in the Philippines.
  5.  Foreign retailers are not allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities.

 

 Pros and cons

The shift from the protectionist to the liberalist mode was considered a drastic policy change at the time the Retail Trade Liberalization Act was being deliberated. 

The proponents of liberalization challenged the soundness of protectionism.  They argued that the policy was outmoded, not in tune with global capitalist development, and had resulted in an inefficient industry sector.  

On the other hand the law was criticized for making way for alien control of the retail trade.  There were  fears that big foreign retailers would crush Filipino retailers, including small sari-sari store owners.  Oppositors of  the bill said liberalization would curb self-employment and promote more unemployment.  They also painted scenarios of monopolies and consolidations that would put local enterprises at a disadvantage.

Photo: from www.nccr.trade.org

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