The Foreign Investment Negative List Introduction Legal basis.

The policy of the State is to attract productive investments to the Philippines, as a supplement to Filipino capital and technology (Section 2, Foreign Investment Act of 1991 ! There are ho"ever, restrictions to foreign o"nership in enterprises due #onstitutional limitations, such as Article $%I, Section 11 of the #onstitution, "hich prohi&its foreign o"nership of mass media enterprises, Article $II, Section 1' of the #onstitution, "hich limits practice of all professions to Filipinos e(cept if other"ise provided &y la", and Article $%I, Section 11 of the #onstitution, "hich limits foreign o"nership in an advertising entity up to a ma(imum only of )* percent! %arious statutory limitations are also imposed on foreign o"nership! +ecause of these multiple sources of legal limitations, the foreign investment negative listing approach "as introduced as a regulatory tool for attracting foreign investment "ithin the limits of #onstitutional and statutory provisions! The Foreign Investments Act of 1991 or ,epu&lic Act (,!A! -o! .*'2, thus, mandated the formulation of the Foreign Investment -egative /ist (FI-/ , "hich "ill contain information on economic activities of "hich foreign o"nership shall &e limited to a ma(imum of forty percent ('*0 of the e1uity capital of the enterprises! Section ) of ,!A! .*'2 thus reads2 Section )! 3efinitions! As used in this Act2 $(( g The term 4Foreign Investments -egative /ist5 or 4-egative /ist5 shall mean a list of areas of economic activity "hose foreign o"nership is limited to a ma(imum of forty percent ('*0 of the e1uity capital of the enterprises engaged therein! Structure. The FI-/ has t"o component6lists2 /ist A and /ist +! /ist A shall enumerate the areas of activities reserved to Philippine nationals &y mandate of the #onstitution and specific la"s! /ist + shall contain the areas of activities and enterprises regulated pursuant to la"2 1 4"hich are defense6related activities, re1uiring prior clearance 1

and authori7ation from 3epartment of -ational 3efense (3-3 to engage in such activity, such as the manufacture, repair, storage and8or distri&ution of firearms, ammunition, lethal "eapons, military ordinance, e(plosives, pyrotechnics and similar materials9 unless such manufacturing or repair activity is specifically authori7ed, "ith a su&stantial e(port component, to a non6Philippine national &y the Secretary of -ational 3efense9 or 2 "hich have implications on pu&lic health and morals, such as the manufacture and distri&ution of dangerous drugs9 all forms of gam&ling9 nightclu&s, &ars, &eerhouses, dance halls9 sauna and steam &athhouses and massage clinics!5 Amendments to /ist + may &e made upon recommendation of the Secretary of -ational 3efense, or the Secretary of :ealth, or the Secretary of ;ducation, #ulture and Sports, endorsed &y the -;3A, approved &y the President, and promulgated &y a Presidential Proclamation! (Section <, Foreign Investments Act of 1991 Exceptions. The restriction against foreign o"nership is rela(ed in economic activities not limited &y #onstitution to Filipinos and in areas not included in the FI-/! Full foreign o"nership (1**0 foreign e1uity is allo"ed in areas of economic activity not appearing in the FI-/, as follo"s2 1! Export enterprises. Section ) of the Foreign Investment Act states that, as 4a general rule, there are no restrictions on e(tent of foreign o"nership of e(port enterprises! In domestic mar=et enterprises, foreigners can invest as much as one hundred percent (1**0 e1uity e(cept in areas included in the negative list! $(( Section > also provides that 4foreign investment in e(port enterprises "hose products and services do not fall "ithin /ists A and + of the Foreign Investment -egative /ist provided under Section < hereof is allo"ed up to one hundred percent (1**0 o"nership! 2! Foreign investment in domestic market enterprises not limited by the Constitution, la or the FINL. Section . of the Foreign Investments Act of 1991, as amended &y ,!A! <1.9, states that 4non6Philippine nationals may o"n up to one hundred percent (1**0 of domestic mar=et enterprises unless foreign o"nership therein is prohi&ited or limited &y the #onstitution, e(isting la" or the Foreign Investment -egative /ist under Section < hereof!5 2

Amendment. Amendment to /ist A may &e made anytime to reflect changes instituted in specific la"s "hile amendment to /ist + shall not &e made more often that once every t"o years, pursuant to Section < of ,!A! .*'2, as amended and its revised Implementing ,ules and ,egulations! (;(ecutive ?rder no! <@< Promulgating the Eight Regular Foreign Investment Negative List !reas o" Economic !ctivity hose Foreign # nership is Limited

The FI-/ identifies the follo"ing areas of economic activity of "hich foreign o"nership is limited to ma(imum '* percent of the e1uity capital of the enterprises engaged therein! (Ta&les 1 and 2 Table $. !reas o" Economic !ctivity %hose Foreign # nership is Limited by &andate o" the Constitution and 'peci"ic La s (List !, Foreign Investment Negative List)
&aximum Foreign # nership No "oreign e*uity allo ed Area of Economic Activity Legal Basis

1. Mass Media except recording

Article (Art.) XVI, Section (Sec.) 11 of the Constitution; residential Me!orandu! dated "# Ma$ 1%%#

&.

ractice of all professions '1

Art. XII, Sec.1# of the Constitution, Sec. 1 of (epu)lic Act ((A) *1+1

a) ,ngineering

i.

Aeronautical engineering

residential -ecree ( -) 1*." (A +**% (A %&%. (A 1*+& (A .%&"

ii.

Agricultural engineering

iii. Che!ical engineering i/. Ci/il engineering /. ,lectrical engineering

&aximum Foreign # nership

Area of Economic Activity

Legal Basis

/i. ,lectronics and Co!!unication engineering /ii. 0eodetic engineering /iii. Mechanical engineering ix. Metallurgical engineering x. Mining engineering

(A %&%& (A +*1" (A +#%* - 1*21 (A #&.# (A #*1* (A 121#

xi. 3a/al Architecture and Marine engineering xii. Sanitar$ engineering )) Medicine and Allied rofessions i. ii. Medicine Medical 4echnolog$

(A &2+& as a!ended )$ (A #&&# (A **&. as a!ended )$ (A 121+, - 112+, - #%+ and - 1*2# (A %#+# (A .2%& (A %1.2 - 1&+1 (A +"*" (A *%&1 (A *1+" (A .#21 (A %&1+ (A %&%+ (A %&11

iii. -entistr$ i/. Mid5ifer$ /. 3ursing

/i. 3utrition and -ietetics /ii. 6pto!etr$ /iii. har!ac$

ix. h$sical and 6ccupational 4herap$ x. (adiologic and X7ra$ 4echnolog$ xi. Veterinar$ Medicine c) Accountanc$ d) Architecture

'

&aximum Foreign # nership

Area of Economic Activity

Legal Basis

e) Cri!inolog$ f) Che!istr$

(A 1*"1 (A .*# (A %&+" - 12"+ (A 1&2% (A #&"% (A +*2# (A %"*2 Art. VIII, Sec. * of the Constitution; (ule 12+, Sec. & of the (ules of Court of the hilippines (A %&#1 (A +*## (A +*## (A 12.+ (A *1%. (A #2.2 (A .+21 (A +#2* (A +**" (A %&*+ Sec. * of (A +.1& Chapter (Ch.) III, Art. &1 of (A 1%2+

g) Custo!s 8ro9erage h) ,n/iron!ental lanning i) ;) :orestr$ 0eolog$

9) Interior -esign l) <andscape Architecture

!) <a5

n) <i)rarianship o) Marine -ec9 6fficers p) Marine ,ngine 6fficers =) Master lu!)ing r) Sugar 4echnolog$

s) Social >or9 t) 4eaching

u) Agriculture /) :isheries 5) 0uidance counseling 2. (etail trade enterprises 5ith paid7up capital of less than ?S@&,*"",""" '& #. Cooperati/es

&aximum Foreign # nership *.

Area of Economic Activity

Legal Basis

ri/ate Securit$ Agencies

Sec. # of (A *#+. Sec. 2 of (A .".1

1. S!all7scale Mining

.. ?tiliAation of Marine (esources in Art. XII, Sec. & of the archipelagic 5aters, territorial sea, and Constitution exclusi/e econo!ic Aone as 5ell as s!all scale utiliAation of natural resources in ri/ers, la9es, )a$s, and lagoons +. +. 65nership, operation and !anage!ent of coc9pits Sec. * of - ##%

%. Manufacture, repair, stoc9piling andBor Art. II, Sec. + of the distri)ution of nuclear 5eapons) '2 Constitution 1". Manufacture, repair, stoc9piling andBor distri)ution of )iological, che!ical and radiological 5eapons and anti7 personnel !ines (Various treaties to 5hich the hilippines is a signator$ and con/entions supported )$ the hilippines) '2 11. Manufacture of firecrac9ers and other p$rotechnic de/ices +p to T enty ,ercent (-./) Foreign E*uity 1&. Sec. * of (A .1+2

ri/ate radio co!!unications net5or9 (A 2+#1

+p to T enty0 Five ,ercent (-1/) Foreign E*uity

12.

ri/ate recruit!ent, 5hether for local or Art. &. of - ##& o/erseas e!plo$!ent

1#. Contracts for the construction and repair of locall$7funded pu)lic 5or9s exceptC

Sec. 1 of CA *#1, <etter of Instruction (<6I) 12"

a). InfrastructureB de/elop!ent pro;ects co/ered in (A ..1+; and

>

&aximum Foreign # nership ))

Area of Economic Activity

Legal Basis

ro;ects 5hich are foreign funded or assisted and re=uired to undergo international co!petiti/e )idding

Sec. &a of (A ..1+

1*. Contracts for the construction of defense related structures

Sec. 1 of CA *#1

+p to Thirty ,ercent (2./) Foreign E*uity

11. Ad/ertising

Art. XVI, Sec. 11 of the Constitution

+p to Forty ,ercent (3./) Foreign E*uity

1.. ,xploration, de/elop!ent and utiliAation of natural resources '#

Art. XII, Sec. & of the Constitution

1+. 65nership of pri/ate lands

Art. XII, Sec. . of the Constitution; Ch. *, Sec. && of CA 1#1; Sec. # of (A %1+& Art. XII, Sec. 11 of the Constitution; Sec. 11 of CA 1#1 Art. XIV, Sec. # of the Constitution

1%. 6peration and !anage!ent of pu)lic utilities &". 65nershipBesta)lish!ent and ad!inistration of educational institutions

&1. Culture, production, !illing, processing, Sec. * of - 1%# trading excepting retailing, of rice and corn and ac=uiring, )$ )arter, purchase or other5ise, rice and corn and the )$7 products thereof '* &&. Contracts for the suppl$ of !aterials, Sec. 1 of (A *1+2 goods and co!!odities to go/ern!ent7 o5ned or controlled corporation, co!pan$, agenc$ or !unicipal corporation

&aximum Foreign # nership &2.

Area of Economic Activity

Legal Basis

ro;ect roponent and :acilit$ 6perator Art. XII, Sec. 11 of the of a 864 pro;ect re=uiring a pu)lic Constitution; Sec. &a of (A utilities franchise ..1+ Sec. &. of (A +**" Sec. 2&2 of - 11& as a!ended )$ - 1+1#

&#. 6peration of deep sea co!!ercial fishing /essels &*. Ad;ust!ent Co!panies

&1. 65nership of condo!iniu! units 5here Sec. * of (A #.&1 the co!!on areas in the condo!iniu! pro;ect are co7o5ned )$ the o5ners of the separate units or o5ned )$ a corporation +p to 'ixty ,ercent (4./) Foreign E*uity &.. :inancing co!panies regulated )$ the Sec. 1 of (A *%+" as Securities and ,xchange Co!!ission a!ended )$ (A +**1 (S,C) '* &+. In/est!ent houses regulated )$ the S,C '* Sec. * of - 1&% as a!ended )$ (A +211

Source: Executive Order No. 858, Promulgating the Eight Foreign Investments Negative List, 05 Februar !0"! Notes: *1 - This is limited to Filipino citizens save in cases prescribed by law *2 - Full foreign participation is allowed for retail trade enterprises: (a with paid-up capital of !"#2$%&&$&&& or more provided that investments for establishing a store is not less than !"#'(&$&&&) or (b specializing in high end or lu*ury products$ provided that the paidup capital per store is not less than !"#2%&$&&& ("ec+ % of ,- './2 *( - 0omestic investments are also prohibited (-rt+ 11$ "ec+ ' of the 2onstitution) 2onventions3Treaties to which the 4hilippines is a signatory *5 - Full foreign participation is allowed through financial or technical assistance agreement with the 4resident (-rt+ 611$ "ec+ 2 of the 2onstitution *% - Full foreign participation is allowed provided that within the (&-year period from start of operation$ the foreign investor shall divest a minimum of /& percent of their e7uity to Filipino citizens ("ec+ % of 40 185) 9F- 2ouncil ,esolution 9o+ 18( s+ 188'

Table $. !reas o" Economic !ctivity %hose Foreign # nership is Limited "or 5easons o" 'ecurity, 6e"ense, 5isk to 7ealth and &orals and ,rotection o" 'mall and &edium 'cale Enterprises (List 8, Foreign Investment Negative List) <

&aximum Foreign # nership +p to Forty ,ercent (3. /) Foreign E*uity

!rea o" Economic !ctivity

Legal 8asis

1! Aanufacture, repair, storage, ,A .*'2 as amended &y and8or distri&ution of products ,A <1.9 and8or ingredients re1uiring Philippine -ational Police (P-P clearance2

Firearms (handguns to shotguns , parts of firearms and ammunition therefor, instruments or implements used or intended to &e used in the manufacture of firearms Bunpo"der 3ynamite +lasting supplies Ingredients used in ma=ing e(plosives2 1!i! #hlorates of potassium and sodium 1!ii! -itrates of ammonium, potassium, sodium, &arium, copper (11 , lead (11 , calcium and cuprite 1!iii! -itric acid 1!iv! -itrocellulose 1!v! Perchlorates of ammonium,potassium and sodium 1!vi! 3initrocellulose 1!vii! Blycerol

& c d e

1!viii! Amorphous phosphorus 1!i(! :ydrogen pero(ide 1!(! Strontium nitrate po"der

1!(i! Toluene

&aximum Foreign # nership +p to Forty ,ercent (3. /) Foreign E*uity

!rea o" Economic !ctivity

Legal 8asis

2! Aanufacture, repair, storage ,A .*'2 as amended &y and8or distri&ution of products ,A <1.9 re1uiring 3epartment of -ational 3efense (3-3 clearance2

a Buns and ammunition for "arfare & Ailitary ordnance and parts thereof (e!g!, torpedoes, depth charges, &om&s, grenades, missiles c Bunnery, &om&ing and fire control systems and components d Buided missiles8missile systems and components e Tactical aircraft (fi(ed and rotary "inged , parts and components thereof f Space vehicles and component systems g #om&at vessels (air, land and naval and au(iliaries h Ceapons repair and maintenance e1uipment i Ailitary communications e1uipment D -ight vision e1uipment = Stimulated coherent radiation devices, components and accessories l Armament training devices m ?ther as may &e determined &y the Secretary of the 3-3

1*

&aximum Foreign # nership

!rea o" Economic !ctivity

Legal 8asis

)! Aanufacture and distri&ution ,A .*'2 as amended &y of dangerous drugs ,A <.19

'! Sauna and steam ,A .*'2 as amended &y &athhouses, massage clinics ,A <1.9 and other li=e activities regulated &y la" &ecause of ris=s posed to pu&lic health and morals @! All forms of gam&ling ,A .*'2 as amended &y ,A <1.9, e(cept those covered &y investment agreements "ith PAB#?, (,A 9'<. operating "ithin special economic 7ones administered &y the Philippine ;conomic Eone Authority (,A .91>

>! 3omestic mar=et enterprises ,A .*'2 as amended &y "ith paid6in e1uity capital of ,A <1.9 less than the e1uivalent of FSG2**,***

.! 3omestic mar=et enterprises ,A .*'2 as amended &y "hich involve advanced ,A <1.9 technology or employ at least fifty (@* direct employees "ith paid6in e1uity capital of less than the e1uivalent of FSG1**,***

Source: Executive Order No. 858, Promulgating the Eight Foreign Investments Negative List, 05 Februar !0"!

11