Philippines - The 11th Foreign Investment Negative List And Its Possible Impact On Online Businesses.
Legal News & Analysis - Asia Pacific - Philippines - FDI
4 December, 2018
Odds are that in the past week, you liked a friend’s post on Facebook, bought food from Food Panda, and booked a ride with Grab. I, myself, have done those things in the past couple of hours. This is indeed the age of E-Commerce and online businesses. You look at the Forbes list and at the top you’ll find Mark Zuckerberg, Jack Ma, and Jeff Bezos, who, by means of the internet, created billion-dollar internet-based businesses. These pervasive online businesses also affect more traditional business models. For instance, a giant retailer like Toys “R” Us has announced plans to close because of online stores like Amazon. Travel sites like Expedia have rendered travel agents unnecessary. Traditional cable and satellite TV services are fast becoming obsolete as people now choose to stream similar contents using sites like Netflix.
The Philippines is likewise cashing in on the trend with emerging websites like Lazada, Zalora, and OLX. However, at present, there are restrictions in place when it comes to online based businesses registered in this country and I believe the proposed 11th Foreign Investment Negative List (FINL) will play a big role in the future of Internet businesses.
By way of background, last Oct. 2, 2018, the Business Inquirer published an article saying that the 11th FINL is now up for President Rodrigo Duterte’s signature. Socioeconomic Planning Secretary and NEDA chief Ernesto Pernia said the Philippines will now allow up to 100 percent foreign ownership for internet-based businesses. He further stated that the proposed 11th FINL, which contains a draft executive order, will no longer consider internet businesses as mass media.
As it stands, the 1987 Constitution under Article XVI Section 11(1) restricts foreign ownership over mass media saying that it should be 100% Filipino owned. Moreover, Republic Act (R.A.) No. 7042, otherwise known as the Foreign Investments Act of 1991, and the Tenth Regular Foreign Investment Negative List provide that except for recording, no foreign equity is allowed in mass media. When the 1987 Constitution was passed, the Internet was not yet in existence and traditional mass media was limited to print and broadcasting. However, subsequent legislations and opinions of the Securities and Exchange Commission (SEC) now consider the internet and mobile technology as platforms for mass media.
R.A. No. 7934, otherwise known as The Consumer Act of the Philippines, defines “mass media” as any means or methods used to convey advertising messages to the public such as television, radio, magazines, cinema, billboards, posters, streamers, hand bills, leaflets, mails and the like. Likewise, under R.A. No. 9211, otherwise known as the Tobacco Regulation Act of 2003, mass media is defined as any medium of communication designed to reach a mass of people. For this purpose, mass media includes print media such as newspapers and magazines, broadcast media such as radio and television, and electronic media such as the internet. These descriptions of mass media covering Internet platforms were reiterated by the Department of Justice in a 1986 opinion.
Several SEC opinions have now considered the internet and mobile technology as platforms for mass media and held that Internet-based platforms used for selling products are forms of mass media since the internet is used as a digital platform to broadcast information to the public. Relaxing this theory to allow foreign participation may change the internet-based business landscape in the Philippines.
Online based businesses would be ideal in the Philippines as nearly 60 million netizens have access to the internet. Many Filipinos spend a lot of their time on social media and online shopping. There are also more than 50 million Facebook users in the country. If the 11th FINL is passed, e-commerce giants like Amazon, Alibaba, or eBay can expand their business in the Philippines and bring in more investments. Conversely, Filipinos will also have more options on what website or online businesses to avail of to suit their needs.
Whether this is good or bad through nationalistic eyes is a whole other topic and as I ponder on this question, I will order a burger from Food Panda.
For further information, please contact:
Agustin P. Geraldez, Angara Abello Concepcion Regala & Cruz (ACCRALAW)