Special Commercial Law

Nationalization v
Liberalization
Retail Trade Laws of the Philippines
RA 1180: Retail Trade Nationalization Law
RA 8762: Retail Trade Liberalization Law

RETAIL TRADE, definition

"RETAIL TRADE"shall mean any act, occupation or calling
of habitually selling direct to the general public
merchandise, commodities or goods for consumption, but
the restriction of this law shall not apply to the following:
a. Sales by a manufacturer, processor, laborer, or worker,
to the general public the products manufactured, processed
or produced by him if his capital does not exceed
P100,000.00;
b. Sales by a farmer or agriculturist selling the products of
his farm;
c. Sales in restaurant operations by a hotel owner or innkeeper irrespective of the amount of capital:Provided, that
the restaurant is incidental to the hotel business; and
d. Sales which are limited only to products manufactured,
processed or assembled by a manufacturer through a single
outlet, irrespective of capitalization. [Art 3(1), RA 8762]

Retail Trade laws in the

Philippines
1954
RA 1180
Retail Trade
Nationalization Law

2000
RA 8762
Retail Trade
Liberalization Law

THEN and NOW

THEN
100% Filipino

NOW
Allowed foreign equity
participation [4
categories]

Retail Trade Nationalization Law

FILIPINIZATION IN 1954

According to Agpalo (1962), the primary

instigating factor that contributed directly to the
move to nationalize the retail trade was the
irritating factor in society at the time: Chinese
control of the retail trade industry, which was
undesirable per se, as the Chinese were the most
numerous among the aliens engaged in the retail
trade business in the country (Agoncillo 1990).
-Brillo

History: 1954
Retail Trade Nationalization Law was one of the
strictest pieces of legislation engendered by
economic nationalism in Southeast Asia and went
considerably further than earlier legislation which
provided for nationalization of public utilities,
banks, shipping, civil aviation, and mining and
usually required an indigenous ownership of 60%
[Frans Husken Huskin, Dick van der Meij].
It is the Retail Trade Nationalization law which hit
the Chinese the hardest, since retail trade was
their classical domain in Southeast Asia.

History: How the Chinese survived

It is the Retail Trade Nationalization law which hit
the Chinese the hardest, since retail trade was
their classical domain in Southeast Asia.
Some families companies survived by naturalizing
members of family or transferring shares to their
naturalized members.
Some corporation had no option but to dissolve in
1964.

History: The man and principle behind

the law
Carlos P. Garcia
1957-1961
Filipino First Policy
Garcia wanted an industrial
economy for the Philippines
Foreign capital is meant to
complement and supplement but
not entirely to supplant local
capital
Philippines agreed to numerous
conditions set by US as a
requirement for the Philippines to
receive war reconstruction
assistance.
The Philippines was heavily
dependent on import goods.
Philippine Economy was dominated
by American businesses.

Retail Trade Liberalization Law

POLICY CHANGE IN 2000

after four decades of implementing R.A. 1180, the

Philippine retail sector could grow to only 10.9
percent of the gross domestic product (GDP)
compared with the around 18 percent standard
among Southeast Asian countries that had fully
opened up their retail trade sector (Patalinhug
1996).

Current: policy rationalization of RA

8764
The oligopoly created brought about the decline in
the comparative and competitive advantage of
the industry. Consequently, consumers were made
to pay for the inefficiency of Filipino retailers, and
this inefficiency translated into high prices and
low-quality goods.
As there were not enough big local capitalists who
were willing to invest and challenge the
dominance of the few controlling players in the
retail industry, it became necessary to invite
foreign retailers.
Domestic savings are too low to be the source of
capitalization.

Current: Expected Results

1. Net effect of the entry of foreign retailers could
be an increase in economic activity and
employment
2. Lower prices, more savings
3. Force local retailers to be efficient, innovative,
and flexible
4. Expose the retail sector to newer management
systems and technology transfer [McDo v
Jollibee]
5. Deficiency in local capital investment would be
resolved by the influx of foreign capital
6. Reciprocity: other countries to also open their
market to Filipino products
. [Brillo]

Retail trade categories

Categ
ory

Paid up capital

Foreign Equity
Participation

Less than US 2.5M Reserved exclusively for

Filipinos

US 2.5M

May be 100% foreign owned

US 7.5M

May be 100% foreign owned

Provided: no case shall

investments for establishing a
store in CB and CC be less than
the equivalent of US830,000

If 80% foreign owned, must offer

a minimum of 30% of equity to
public through any StockEx [Sec
7]

Enterprise
May be 100% foreign owned
specializing in
high-end or luxury

Qualifications
a. Minimum net worth of parent corporation
a. CB and CC: US$200M
b. CD: US$50M

b. 5 retailing branches or franchises in operation

anywhere around the world
a. Unless, has at least 1 store capitalized at a
minimum of US25M

c. 5-year track record in retailing

d. Only nationals from, or judicial entities formed or
incorporated in, countries which allow the
entry of Filipino retailers, shall be allowed to
engage in retail trade in the Philippines.

Statistics:

Analysis
In the literature, there are three main channels
through which trade liberalization affects a
countrys economic performance.
First, there are static gains arising from trade
liberalization as resource allocation improves within
and across industries.
Second, there are dynamic gains through technical
change, learning, and growth that leads to improved
productivity growth.
Third, there are competitive effects arising from
domestic competition.

Despite the breadth and depth of market-oriented

reforms, the impact on the growth, employment,
investment, and productivity has been limited.

FDI

FDI
The Philippines has lagged behind its neighbors in
terms of FDI performance. FDI data show huge
differences in FDI inflows to the ASEAN countries
with the Philippines receiving the lowest level of
FDI inflows particularly in the 1990s and the
2000s.

SMEs

SMEs
The industrial structure has remained hollow or
missing in the middle and medium enterprises
have never seriously challenged the large
entrenched incumbents.
The linkages between SMEs and large enterprises
have also remained weak. SMEs have continued
to face competitiveness problems along with
difficulties in finance and market access.

 Trade liberalization does not automatically lead to

a competitive domestic market economy.
Imports are effective in disciplining domestic
manufacturing firms and to sustain the
competitive gains derived from the presence of
imports, the government has an important role to
play particularly in creating and maintaining a
competitive environment.

 It is important to point out that the strength of

competition is a function not only of the
regulatory policies, behavior of firms, and
structural barriers but also of the external
environment within which firms compete.