CARBONELL, Zhanika Marie O.

11-136

International Labor Law Atty. Joy Casis

Negative Listing in the Foreign Investments Act: Valid or Void? I. The Foreign Investments Act and The Foreign Investments Negative List The Foreign Investments Act of 1991 or Republic Act No. 7042 was enacted to promote foreign investments and to prescribe the procedures for registering enterprises who wish to do business in the Philippines. In its Declaration of Policy, it is said that it is the policy of the State to attract, promote and welcome productive investments from foreign individuals, partnerships, corporations, and governments, including their political subdivisions, in activities which significantly contribute to national industrialization and socioeconomic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. 1 The law seeks to use foreign investment as a tool for economic growth in our country. However, the amount of foreign investment is also limited to only those activities, which are sanctioned by the Constitution, and other laws related to such. It is also mentioned in the Declaration of Policy that generally, there are no restrictions to the extent of foreign investment. They can choose to invest, as much as one hundred percent equity if they wish to, however, this is subject to rule that these areas invested in should not be included in the negative list. The Foreign Investments Negative List is a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprise engaged therein.2

An Act To Promote Foreign Investments, Prescribe The Procedures For Registering Enterprises Doing Business In The Philippines, And For Other Purposes [Foreign Investments Act of 1991], Republic Act No. 7042, 2 (1991). 2 Id. 3(g)
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Section 8 of the Foreign Investments Act contains the list of investment areas, which are reserved to Philippine nationals, otherwise known as the Foreign Investment Negative List. It has three components: Lists A, B and C. List A enumerates the areas of activities reserved to Filipinos by mandate of the Constitution and specific laws. Negative List B contains areas where foreign ownership is limited by reason of security, defense, risk to health and morals and protection of small-and-medium scale enterprises. List C shall contain the areas of investment in which existing enterprises already serve adequately the needs of the economy and the consumer and do not require further foreign investments, as determined by NEDA applying the criteria provided in Section 9 of the FIA, approved by the President and promulgated in a Presidential Proclamation.3 Investment, according to the Implementing Rules and Regulations of RA 7042, means any equity investment made by a non-Philippine national. It further defined such saying that for purposes of Section 8 of the FIA, which pertains to the Negative List, Existing Foreign Investments shall mean any equity investments made by a non-Philippine national duly registered with the SEC or the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the form of foreign exchange and/or other assets transferred to the Philippines.4 In its basic guidelines, it was further clarified that the act covers restrictions pertaining to foreign equity participation only. With regard to the formulation of the Negative List, it is the NEDA or the National Economic Development Authority who shall be responsible for such. The process includes that the NEDA shall first submit the proposed FINLs to the President for approval and promulgation. Each Regular FINL shall apply only to new foreign investments and shall not affect existing foreign investments at the time of Id. 8 The National Economic and Development Authority, Rules and Regulations Implementing the Foreign Investments Act of 1991, Republic Act. No. 7042, I(1) (1991).
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its publication.5 Amendments to list A may be made by NEDA anytime to reflect changes made by law regarding the extent of foreign equity participation in any specific area.6 The guidelines for List B and how it may be amended is different. The activities under this list shall be determined upon recommendation of the Secretary of National Defense, Chief of the PNP, Secretaries of Health or Education, Culture and Sports and endorsed by NEDA or upon recommendation of NEDA itself. All of these should be approved and promulgated by the President.7 The amendments to List B can only be made after two years. Since the enactment of RA 7042, we are already on our 9th Negative List. II. The Ninth Regular Foreign Investment Negative List Executive Order No. 98 was passed promulgating the 9th Regular Foreign Investment Negative List last October 29, 2012 by the Office of the President. It was passed to reflect changes to List A pursuant to existing laws and upon recommendation of concerned agencies. Under List A, no amount of foreign equity may be had when it comes to the practice of all professions pursuant to Article XII, Section 14 of the Constitution and Sec. 1 of RA 5181. Added to this list are the practice of the professions of Real Estate Service, Respiratory Therapy and Psychology. The foreign equity ownership when it comes to lending companies has also been limited to 49%.8 Article XII, Section 14 of the 1987 Constitution provides: Section 14. The sustained development of a reservoir of national talents consisting of Filipino scientists, entrepreneurs, professionals, managers, high-level technical manpower and skilled workers and craftsmen in all fields shall be promoted by the State. Id. 8(2)(3) Id. 9(2) 7 Id. 10(1) 8 Office of the President, Promulgating The Ninth Regular Foreign Investment Negative List, Executive Order No. 98 [EO No. 98] (October 29, 2012).
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The State shall encourage appropriate technology and regulate its transfer for the national benefit. The practice of all professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed by law. On the other hand, Section 1 of Republic Act No. 5181, which is an act prescribing permanent residence and reciprocity as qualifications for any examination or registration for the practice of any profession in the Philippines, provides that aliens who wish to practice their respective professions in our country can only do so if their country permits Filipinos to practice their professions within their territories.9 However, these professions should not be limited by law to citizens of the Philippines. In justifying the addition of four more professions in FINL A, In a statement, Executive Secretary Paquito Ochoa Jr. said that the addition of real estate, psychology and respiratory therapy is based on foreign ownership and foreign practice limitations imposed under the following newly legislated laws: Real Estate Service Act of the Philippines (RA 9646), Philippine Respiratory Act (RA 10024), Philippine Psychology Act (RA 10029), and Lending Company Regulation Act of 2007 (RA 9474). According to Ochoa, except for RA 9474, which allows foreign ownership of up to 49% in lending companies, the 3 others limit the practice of non-Filipinos in

An Act Prescribing Permanent Residence And Reciprocity As Qualifications For Any Examination Or Registration For The Practice Of Any Profession In The Philippines, Republic Act No. 5181, 1, (1967).
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the areas of real estate and health care such as respiratory therapy and psychology, unless there is a reciprocity arrangement prescribed by a law.10 III. Questions as to the Validity of including Professions in the FINL The problem herein is that the FINL generally bans the practice of professions of foreigners in the Philippines. This is provided by the Constitution with the qualification that some professions may be allowed provided that these are prescribed by law. This necessitates a look at our special laws and an examination as to which of them explicitly reserves the practice of their professions to Filipino citizens. RA 5181 states that aliens who which to practice their professions in the Philippines must show first that there is a reciprocity practice in their country. This means that only those professions, which are allowed to be practiced by Filipinos abroad, can be practiced by the residents of those countries, which allow such in our country. In sum, as long as the profession is not reserved to Filipinos by our Constitution or by our special laws, any foreigner may practice in the Philippines, provided that the country of which he is a national allows our citizens to practice the same profession there. Thus, in my opinion, the list and the recent additions are not necessarily void for they are explicitly limited to Filipino citizens by express mandate of special laws. For example, the Real Estate Service Act of the Philippines provides that Philippine citizenship is a necessary requirement before an individual can take their licensure examination and practice the service of real estate in the Philippines. This shows that this profession is reserved for Filipinos only. This special law takes the real estate profession out of those, which can be practiced by foreigners in the Philippines even if their country has a reciprocity clause.

Rappler, More industries now off limits to foreigners, available at http://www.rappler.com/business/15337-longer-negative-list-will-not-discourageinvestors-palace (last accessed on March 8, 2014).
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To put it more simply, it does not mean that, even if a certain profession is allowed by the laws of a foreign country to be practiced by a Filipino, automatically their residents may practice the same profession in the Philippines. For as long as this profession is exclusively reserved by law or by the Constitution to Filipinos, foreigners here cannot practice it. The reciprocity clause only comes into the picture when there is no law expressly prohibiting foreigners to practice a certain profession in the Philippines. The argument that globalization is a reality which we must succumb to does not necessarily make the FINL void. It is a matter of policy and does not make the Foreign Investments Act, more particularly its provisions on Foreign Investments Negative Listing, unconstitutional. Neither is the argument that we, as part of the ASEAN Community, should make the negative listing less negative because our neighboring countries are more open to having foreigners practice their professions in their country. Our economic, political and social atmosphere differs from theirs and we should not make it a habit to pattern our laws and legislation to others in order to make our legal system seem more sophisticated. Besides, if some individuals want to make more foreigners practice their profession here, what we need are the amendments of the various special laws pertaining to their respective professions and not the holding of the FIA as unconstitutional. These special laws should be amended one by one allowing the practice of foreigners with regard to their appropriate professions. As to the argument that the Foreign Investments Act pertain only to investments in the form of equity and not to professions, taking into account the tenor of the whole law, it can be seen that this pertains not only to professions but also to foreign corporations who would employ foreigners to practice such professions. If this were limited only to foreign corporations then the special laws prohibiting foreigners to practice certain professions in the Philippines can easily be

avoided by working as individuals and not as employs of foreign corporations. This is clearly not the intention of the law. Thus, it is of my belief that the FINL is valid.