You are on page 1of 5

III.

THE 1991 FOREIGN INVESTMENTS ACT


A. The Development of the Foreign Investments Act
Junita N. Dayao, in her thesis entitled, Foreign Investments Act of 1991: A Deregulation of
Investments outlines the historical background of the Foreign Investments Act by first pointing
out the fact that the Philippines used to be one of the most prosperous countries in Asia during
the 1960s. However, from the 1970s to the 1990s, Dayao asserts that the country fell well
beyond its neighbouring countries particularly in the field of economic growth.1 Therefore,
recognizing that investments are needed in order for the economy to progress, the Congressional
Committees on Trade, Economic Affairs and Labor was quoted by Dayao as stating the
following:
Over the past decades, we have relied heavily on foreign borrowings for investments capital. We
cannot, however, do this any longer. Our huge external debt overhangs of around $29 Billion
prevent us from doing so. We cannot continue to go, cup in hand, to the rest of the world begging
for money; neither can we rely solely on domestic capital for as long as majority of Filipinos live
in poverty, we cannot expect them to have enough savings. But then, it is a fact that foreign
borrowings and domestic capital are not the exclusive source of foreign capital. An alternative to
foreign borrowings can be provided in the form of foreign investments. 2

Dayao points out that despite this recognition of a need for foreign investments, the
Philippines was still not the priority of foreign investors during the years immediately preceding
the early 90s. For instance, out of the $44 Billion invested in the ASEAN region during the
period of 1986-1990, only 6% was pumped into the countrya vast difference as compared to
approximately 30% invested in Malaysia and 46% invested in Indonesia.3 As such, Dayao
asserts that with the realization that the policy as contained in previous laws such as the Omnibus
Investments Code of 1987 was not enough to attract foreign investment to the country, the
Philippine Congress enacted the Foreign Investments Act on June 30, 1991.4
As the FIA expressly states, its passage subsequently declared it the States policy to attract
foreign investments in activities which are of significant contribution to economic development
and industrialization.5 It is worth noting, however, that the FIAs declaration of the same comes
with the sole condition that the foregoing investments comply with the Constitution and other
relevant laws.6

Junita N. Dayao, Foreign Investments Act: A Deregulation of Investments? (1991) (J.D. Thesis, Ateneo de Manila
University) (on file with the Ateneo Professional Schools Library)
2
Id., citing Senate Hearings on Senate Bill 1678, (opening speech of Sen. Vicente Paterno), (November 27, 1990)
3
Id.
4
Id.
5
Foreign Investments Act of 1991, Section 2.
6
Id.

B. The Investment Policies Under the Foreign Investments Act


The Foreign Investments Act allows for the influx of foreign investmentany investment in
equity, either in foreign exchange or other assets which are actually transferred to the country
and registered with the Central Bank, from a person or entity who/ which is a non-nationalby
allowing up to 100% ownership of an enterprise by the said non-Philippine national, with the
exception of those classified under the foreign investments negative list which shall be discussed
later on.7 In addition to this, the Foreign Investments Act made the shift from having the Board
of Investments as the granting authority for foreign investments towards making the Securities
and Exchange Commission the approving authority.8
C. Executive Order 98 of 2012: The New Foreign Investments Negative List
The Foreign Investments Negative List is the official enumeration of a) the investment areas
which may be ventured into by foreigners and b) the limits or threshold in the various types of
economic activities over which these groups may participate in. The list is updated intermittently
and is a source of authority for foreign firms desiring to conduct business or simply invest in the
country.9
The latest edition of the Foreign Investments Negative List came out last October of 2012
through Executive Oder 98, wherein President Noynoy Aquino expanded the said list. In brief,
the changes begin with the so-called List A, which outlines the areas of the economy which are
prohibited or delimited as against foreign investments in favour of Filipinos.10 Examples of
delimitations included in List A are a) the practice of any profession, b) small-scale mining, c)
advertising, d) ownership of lands, e) lending companies, f) companies for financing and
investment houses, and g) mass media itself. The revised Foreign Investments Negative List
includes the following delimitations:11
FIELD
Mass Media (Exception: Recording Industry)
Practice of all professions
Retail Trade Enterprises with capital less than
$2, 500, 000
Private Security Agencies
7

DELIMITATION
No Foreign Equity is Allowed
No Foreign Equity is Allowed
No Foreign Equity is Allowed
No Foreign Equity is Allowed

Id.
DAYAO, supra note xxx at 24.
9
FERNANDEZ, supra note xxx at xxx.
10
PHILIPPINE NEWS AGENCY, Aquino Expands List of Foreign Investment Limitations, available at
http://www.interaksyon.com/article/47090/aquino-expands-list-of-foreign-investment-limitations (last accessed
June 6, 2014).
11
Office of the President, Promulgating the Ninth Annual Foreign Investments Negative List, Executive Order 98
(October 29, 2012)
8

Small Scale Mining


Using Marine Resoures
Manufacture/ Repair of Nuclear Weapons
Manufacture of firecrackers/ pyrotechnic
equipment
Ownership and management of cockpits
Private radio communications network
Local or overseas private recruitment
Local public-works contracts (construction
and/ or repair)
Contracts for defense-related structures
Advertising
Exploration, development and utilization of
natural resources
Ownership of private lands
Operation of public utilities
Ownership and administration of Educational
institutions
Rice and corn milling/ processing/ trading
Ownership of condominium units
Contracts to GOCCs or municipal corporations
Lending companies
Financing companies which are regulated by
the SEC
Investment houses which are regulated by the
SEC

No Foreign Equity is Allowed


No Foreign Equity is Allowed
No Foreign Equity is Allowed
No Foreign Equity is Allowed
No Foreign Equity is Allowed
20% Foreign Equity is Allowed
25% Foreign Equity is Allowed
25% Foreign Equity is Allowed
25% Foreign Equity is Allowed
30% Foreign Equity is Allowed
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed
49% Foreign Equity is Allowed
60% Foreign Equity is Allowed
60% Foreign Equity is Allowed
60% Foreign Equity is Allowed

List A may be edited and amended at any time in order to make it conform to current laws
and become in-line with government direction.12
On the other hand, List B, which may only be amended every after 2 years and upon
recommendation by the National Economic Development Authority, provides limitations for
investments involving small or medium scale domestic enterprises, industries involving public
health and morals, as well as investments which are defence-related.13 The revised list retains
that of the former List B, to wit:14
FIELD
PNP-related products
DND-related products
12

PHILIPPINE NEWS AGENCY, supra note 10.


Id.
14
E.O. 98, Appendix B.
13

DELIMITATION
40% Foreign Equity is Allowed
40% Foreign Equity is Allowed

Gambling houses, bath houses, saunas and the 40% Foreign Equity is Allowed
like
Manufacture/ distribution of dangerous drugs
40% Foreign Equity is Allowed
Small and medium scale enterprises
40% Foreign Equity is Allowed
Under the Foreign Investments Act, those which are not included in the foregoing Foreign
Investments Negative List may therefore invest freely and completely in a Philippine
enterprise.15
D. The FIA Provision Relating to Employee and Benefit Trust Funds
While the use of mass media can be found in List A of the Foreign Investments Negative
List, which means that zero foreign equity is allowed, the use of the PLDT Beneficial Trust Fund
by the foreign group of Salim seemingly found a loophole in the following provision of the
Foreign Investments Act:
"Section 3. Definitions. By "Philippine national" is meant a Filipino citizen or an association or
domestic partnership which is wholly owned by Filipino citizens; or a corporation duly organized
under Philippine laws, of which at least 60% of the outstanding capital stock and entitled to vote is
held and owned by Filipino citizens; or a trustee of funds for pension or other employee retirement
or separation benefits, where the trustee is a Philippine national and at least sixty (60%) of the fund
will accrue to the benefit of the Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of both corporations must be citizens of the Philippines, in
order that the corporations shall be considered a Philippine national. " 16(emphasis supplied).

Given the foregoing provision, it can be gleaned that while the Constitution and the Foreign
Investments Act itself provided for safeguards regarding foreigners owning shares in the mass
media industry, there is still an effective way by which these provisions might be skirted.
Specifically, if a corporation has a trust fund for its employees, or if there is a trust fund
established as a separate juridical entity, and this particular trust fund allots 60% of its funding to
Filipinos, that particular entity as a whole becomes, in the eyes of the law, a 100% Filipino
national. As such, this provision, when read with the foregoing chapter regarding the intent of
the framers of the 1987 Constitution becomes a problematic or contentious provision of law.
When applied to the field of mass media, it is potentially anathema to the goal of the 1987
Constitution, if not contradictory to the Foreign Investments Negative List itself.
E. Issues of Constitutionality Involving the FIA
15
16

Foreign Investments Act of 1991, Section 2.


Foreign Investments Act of 1991, Section 3.

Dayao, in here thesis was quick to point a caveat with regard to the enactment of the Foreign
Investments Act:
The Legislative and Executive Department are one in saying that the Foreign Investments Act is consistent with
the 1987 Constitution. However, other people would adopt an entirely different view of the Act. The Act is said to be
unconstitutional for it completely deregulates foreign investments in the Philippines. Barely a month after the Acts
effectivity, a petition was filed in the Supreme Court primarily questioning the constitutionality of the Act.

In the particular case stated by Dayao, the contentions


F. Synthesis

You might also like