25. Part 4 General Business Environment Legislation

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Joint Foreign Chambers Advocacy Paper

ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

DECEMBER 2010 315

Legislation

The Philippines has been praised among developing countries as having good laws, ones that

others have copied. A good example is the Philippine Mining Act of 1995 (RA 7942), consideredby international authorities as among the best anywhere. But there also are some laws that have

changed little over many decades, such as the Flag Law regarding government procurement, the

Public Service Act (CA 146 signed in 1936) concerning public utilities and franchises, and the

Philippine Immigration Act of 1940.

There is continual need to update old laws through amendments and periodic omnibus

revisions, as well as to legislate for new issues not covered by existing laws. Examples would be

the Rationalization of Fiscal Incentives, a comprehensive reform of 92 incentives scattered through

many old laws, and information technology bills dealing with issues that hardly existed a decade

ago.

The pace of legislation is usually measured, deliberate, and slow. See Table 70 for examples.A bicameral legislative body is not designed to legislate rapidly. Bills must be passed separately

by both House and Senate, their differences reconciled in bicameral committee, and approved in

plenary before enactment. Speeding up legislation is cited by proponents of constitutional change

as one of the main reasons to return to a unicameral parliament.225

Only in the absence of a legislative body are laws passed quickly. Under martial law (1972-

1980) and the post-EDSA people power revolutionary government (1986-1987) presidential decrees

and revolutionary executive orders, respectively, could be drafted, signed, and promulgated much

faster than under the post-1987 process. The Filipino people restored a bicameral Congress when

they approved the current constitution in a referendum in April 1987.

225 When former president Marcos lifted martial law in 1980 he restored a legislative body, which he had suspended in 1972, but made

it unicameral (the Batasan Pambansa).


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DECEMBER 2010316

Occasionally bills can move through the

Congress in surprisingly short periods. Sometimes

these are bills introduced in successive Congresses

over many years without advancing, such asthe Civil Aviation Authority Act (RA 9497),

neglected for 15 years and enacted only after a

foreign government downgraded Philippine pilot

training under the old Air Transportation Ofce

(ATO). More recently, after the Organisation

for Economic Co-operation and Development

(OECD) in April 2009 put the Philippines on a

blacklist of countries uncooperative in providing

foreign tax authorities access to bank accounts of

their nationals, the Tax Information Exchange Act

(RA 10021) was introduced and passed in only a

year.

Table 70: The pace of legislation, 12 bills in the 14th Congress

Bill/Act Year Date enacted/ Years to enactment/ Introduced legislative status years pending

Bataan Freeport Zone Act 2006 October 23, 2009 3 (to pass)BSP Charter Amendments 1997 H-1st R, S-2nd R226 13 (pending)Civil Aviation Authority of the Philippines (CAAP) 1993 March 4, 2008 15 (to pass)227

Department of Information and Communications 2001 H-3rd R, S-2nd R 9 (pending)Technology (DICT)Eidul Adha Holiday 1998 December 11, 2009 enacted w/o consultationFinancial Rehabilitation and Insolvency Act 2000 July 18, 2010 10 (to pass)Freedom to Access of Information 1992 H-failed to approve bicam report 18 (pending)

OECD Tax Information Exchange 2009 March 5, 2010 1 (to pass w/ externalpressure)228

Rationalization of Fiscal Incentives 1995 H-3rd R, S-2nd R 15 (pending)Renewable Energy 1995 December 16, 2008 13 (to pass)Reproductive Health 1995 H-1st R 5 (pending)Red Tape Act 1988 June 2, 2007 19 (to pass)

Source: House and Senate Bills and Index ofces

Investment Climate Legislation 2001-2010

Table 71 identies signicant business and economic reform laws enacted during the last three

Congresses from 2001 to 2010. The 12th Congress enacted 14 laws, the 13th Congress 6 laws, and

226 R = reading; all bills must pass three readings in committee and plenary in both House and Senate before they can be sent to the

president for signature.

227 After the US Federal Aviation Administration (FAA) downgraded the RP ATO, the CAAP passed the Congress rapidly, reportedly

following advocacy activity by Philippine airline companies.

228 In April 2009 the Philippines was included on a small list of countries that the OECD did not consider had adequate laws requiring

compliance with investigations by international tax authorities. The Secretary of Finance assured the OECD that remedial legislation

would be quickly passed, met with the House and Senate leaders, introduced DOF draft bills, which completed full congressional

hearings and readings and were enacted in less than one year.

Figure 189: Editorial cartoon showingCongressional failure to pass a

long-standing reform bill

Source: Philippine Star, May 26, 2010


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DECEMBER 2010 317

the 14th Congress 22 laws, for a total of 42 new business and economic reform measures. Figure

190 illustrates this data.

Table 71: Business and economic reforms laws, by Congress, 2001-2010

Law Law No. Date Enacted

12th Congress (2001-04)

1 Alternative Dispute Resolution RA 9285 April 2, 2004

2 Anti-Money Laundering Act of 2001 (AMLA) RA 9160 Sept 29, 2001

3 AMLA amendments RA 9194 Mar 7, 2003

4 Clean Water Act RA 9275 Mar 22, 2004

5 Documentary Stamp Tax Rationalization RA 9243 Feb 17, 2004

6 Domestic Shipping Development Act RA 9295 May 3, 2004

7 Dual-Citizenship Act RA 9225 Aug 29, 2003

8 Electric Power Industry Reform Act RA 9136 June 8, 2001

9 Government Procurement Reform Act RA 9184 Jan 10, 2003

10 Judiciary Compensation Rationalization Act RA 9227 Oct 23, 2003

11 Optical Media Act RA 9239 Feb 10, 2004

12 Restructuring Excise Tax on Automobiles RA 9224 Aug 28, 200313 Securitization Act RA 9267 Mar 19, 2004

14 Special Purpose Vehicle Act RA 9182 Dec 23, 2002


15 Anti-Red Tape Act RA 9337 June 2, 2007

16a Bases Conversion and Development Authority (BCDA) Amendments RA 9400 Mar 20, 2007

16b Amnesty for Businesses in Special Economic Zones and Freeports RA 9399 Mar 20, 2007

17 Biofuels Act RA 9367 Jan 12, 2007

18 Expanded Value Added Tax RA 9337 May 24, 2005

19 Lateral Attrition Act RA 9335 Jan 25, 2005

20 Special Purpose Vehicle Act extension RA 9343 July 25, 2005


21 Anti-Camcording Act RA 10088 May 13, 2010

22 Bureau of Food and Drugs Act Amendments RA 9711 Aug 18, 2009

23 Civil Aviation Authority RA 9497 Mar 4, 2008

24 Cooperatives Code RA 9520 Feb 17, 2009

26 Credit Information System Act RA 9510 Oct 31, 200827 Customs Brokers Act Amendments RA 9853 Dec 15, 2009

28 Documentary Stamp Tax Exemption (PSE) RA 9648 June 30, 2009

25 Financial Rehabilitation and Insolvency Act RA 10124 July 18, 2010

29 Individual Income Taxes Rate Exemption RA 9504 June 17, 2008

30 JPEPA Ratifcation Oct 8, 2008

31 Magna Carta for MSMEs Act Amendments229 RA 9501 May 23, 2008

32 National Grid Corporation Franchise RA 9511 Dec 1, 2008

33 National Tourism Policy Act RA 9593 May 12, 2009

34 Personal Equity Retirement Account (PERA) Act RA 9505 Aug 22, 2008

35 Philippine Deposit Insurance Corp. Amendments RA 9576 Apr 29, 2009

36 Pre-need Code RA 9829 Dec 3, 2009

37 Real Estate Investment Trust (REIT) Act RA 9856 Dec 17, 2009

38 Renewable Energy Act RA 9513 Dec 16, 2008

39 Residential Free Patent Act RA 10023 Mar 9, 2010

40 Revised Kyoto Convention (RKC)Ratifcation February 1, 2010

41 Tax Information Exchange Act RA 10021 Mar 8, 2010

42 Tax on Life Insurance Premiums RA 10001 Feb 23, 2010


229 The bill allows foreign banks the same ve year period as domestic banks to obtain optimal value in foreclosure proceedings

involving real estate, while respecting the constitutional provision on land ownership. Other provisions of the bill requiring mandatory

lending are disadvantageous to foreign banks.


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DECEMBER 2010 319

Table 73: Proposed legislation for the 15th Congress230

Legislative Priority Description231 Proponent

Agribusiness1 Agri-Agra and MSME Magna Carta Makes 25% mandatory lending optional. FGD, BAP Amendments Relieves foreign banks, (which are not located

in rural areas) of mandated Agri-agra/MSMEloans. (nyd)

2 Comprehensive Agrarian Reform Allows aggregation of land for corporate FGD, PCCI Program (CARP) reform farming. (nyd)

3 Farm Land as Collateral Act CARP beneciaries may borrow, using their FGD, CSPW,

land as collateral (HB 32, 2707, 3368) Philexport

4 Land Administration Reform Act Rationalizes agencies dealing with land titling. MBC, JFC/PBG, (LARA) CSPW

5 Rice and Corn Trade Amendment Removes divestiture requirement. (PD194) Draft available

Business Process Outsourcing

6 Cybercrime Act (H passed HB 6794;SB 3553 2nd R) FGD, CICT, BPAP7 Data Privacy Act (HB 2682; SB 3129) FGD, DTI, JFC, BPAP, CSPW

8 Department of Information and Strengthens CICT and raises public sector FGD, CICT, BPAP, Communications Technology (DICT) focus on e-governance. CSPW, UPOU (H passed HB 4300; SB 2546)

9 Holiday Rationalization Limits total number of non-working holidays. FGD, BPAP, Philexport(nyd)

10 Labor Code Amendment (Art 130) Removes prohibition on nightwork by women. FGD, JFC, BPAP, (HB 2071) ECOP, PCCI

Creative Industries

11 Creative Industries Development (SB 2131) FGD, DTI Council

12 Foreign Professional Omnibus Simplies 45 laws regulating 46 professions to JFC

Amendments relax restrictions on foreign professionals andredene reciprocity. (nyd)

13 WIPO Copyright Treaty Act Amends IPR Code to conform with the WorldIntellectual Property Organization (WIPO)Copyright Treaty and the Performances andPhonograms Treaty (HB 3471; SB 880)

Infrastructure

14 BOT Law Amendments (HB 3763) FGD, JFC/PBG, MBC,DTI, CSPW

15 Convergence Act Amends RA 7925 Telecom Policy.(HB 7151; SB 608, 2145)

16 Energy Efciency and Conservation Institutes initiatives as well as application of DOE, FGD, JFC

Act technology on efcient energy use. (nyd)

17 EPIRA Amendments (HB 3124; S passed SB 2121) DOE

18 Natural Gas Bill Promotes natural gas as an efcient and DOE

economical source of energy and facilitatesprivate sector participation. (HB 4754)

230 Not all proposed bills cited in the list have been fully reviewed and may not be completely supported in the cited versions of the

proposed laws. Nyd means not yet drafted.

231 When not clear from common title. Bills cited were introduced in the 14th Congress. When no bills are cited, authors are unaware

of any draft legislation.


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DECEMBER 2010320

19 Maritime Law (cabotage) (HB 87, 76, 6828; SB 1378, 844) DTI, Philexport

20 Public Utilities Act Amendments Amends denition of public utilities to exclude JFC, two presidential certain activities currently subject to foreign commissions232

equity restrictions. (nyd)

21 Water Reform Act (Water Code PD Creates Department of Water. Rationalizes DTI, FGD, CSPW 1067 - 1976) numerous water institutions. Ensures efcient

management of water resources. (nyd)

Manufacturing

22 Clean Air Act (RA 8749) Amendment Allows high tech incineration (revise standards) JFC, PCCI,FPI(nyd)

23 EVAT on Fuel and Power Exemption Increases competitiveness of local FGD, Philexport Eternal taxes rebate manufacturers for export and other purposes.

(nyd)

Mining

24 Mining Act Amendments Disallows LGUs from banning mining; reduce FGD US$ 50 million threshold for large/small-scale

mining. (RA 7076) (nyd)

25 LGU, Automatic Retention of LGU (HB 3993; SB 3381) FGD, PCCI Shares in Mining, Taxes, Fees, and

Royalties bill

Tourism

26 CIQ Amendment (Immigration Act Customs, Immigration and Quarantine (CIQ) FGD, PCCI and Customs Code) overtime charges should be no cost to private

sector. (nyd)

27 Common Carriers Tax Amendment Amends Internal Revenue Act of 1997 to FGD, PCCI(Section 118) remove tax on foreign, but not domestic airlines.

(nyd)

28 Gross Philippine Billings Amendment Amends Internal Revenue Act of 1997 to FGD, PCCI (RA 9294/9337) remove 2.5% tax on international ights (nyd)

29 Senior Citizens Act Amendment Allows foreign residents to avail of same FGDdiscounts as Filipinos. (nyd)

General Business Environment

30 Anti-Trust Act (competition policy) (S passed SB 3197) DTI, CSPW, UPOU

31 Bank foreclosure law (RA 133), Allows foreign banks to bid and take possession CMDC Foreign bank entry liberalization law of land (w/o transfer of title). Removes limit on

(RA 7721), Rural Act of 1992 (RA number of branches of foreign banks. Allows 7353) amendments foreign banks to own rural banks. Partial draft

available.

32 BSP Charter Amendments (HB 5958, 6334; SB 871) JFC/PBG, CSPW

33 Customs and Tariffs Modernization Replaces Anti-Smuggling Act. (HB 5342) FGD, DOF, DTI Act

34 Fiscal Responsibility Act Species principles of responsible nancial DOF, JFC, UPOU,

management in public sector revenue, CSPW, Philexport, OP-spending, and borrowing. PPLO

35 Foreign Investment Act Amendments Removes several rules placed only on foreignequity. Lowers minimum paid-in capital. (nyd)

36 Labor Code Amendment (Art 106 to Revises contracting/ subcontracting policy. ECOP 109) (nyd)

232 December 1999, Report of the Preparatory Commission on Constitutional Reforms and December 2005, The Proposed

Revision of the 1987 Constitution by the Consultative Commission, with Highlights and Primers on the Major Proposals and Background

Information on the Consultative Commission.


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DECEMBER 2010 321

37 Labor Code Amendment (Art 278 to Facilitates termination of employees w/o FGD, PCCI 286) showing cause on payment of a severance

benet based on legislated formula. (nyd)

38 Procurement Law Amendments Improves procedures for transparent public MAP, OP-PLLO

sector procurement of goods and services.Reduces discrimination against foreignsuppliers.

39 Rationalization of Fiscal Incentives233 Rationalizes incentives granted by 92 different FGD, DOF. DTI, JFC, laws; establishes rules for future scal PBG, UPOU, CSPW,

incentives. (HB 5241; SCR 784) OP-PLLO

40 Retail Trade Act Amendment Allows foreign retail trade investment whenmeeting conditions in Foreign Investment Act(RA 7042). (nyd)

41 Tax Sector Neutrality Act Rationalizes numerous small fees and taxes on JFC/PBG, CSPW nancial transactions. draft available

Sources of cited measures include past positions of the JFC and Philippine business groups; JFC Seven Big Winner focus group discussions

conducted in late 2009 and early 2010; Focus Group Discussion: Philippine Investment Climate (PCCI, May 20, 2009); Barriers to Foreign

Participation in the Philippine Economy: Formal and Informal Discrimination Against Foreign Investment, Professionals and Trade, (unpublished

study, 2008); Gearing Up the Nation for Growth and Competitiveness (Congress Secretariat Planning Workshop, House of Representatives,

July 2007); Sustaining the Growth, Spreading the Benets (Ofce of the Speaker, House of Representatives, March 2008), Legislative

Measures and Their Status, 14th Congress (Department of Finance, February 2010); Economic Reforms for Philippine Competitiveness

(University of the Philippines Open University, 2010); and presentations at three Legislative Workshops held at AmCham in February, March,

and April, 2010 by experts from the House, Senate, Ofce of the President, DOF, DTI and the University of the Philippines.

Use of a presidential executive order or a department administrative order can hasten the

introduction and implementation of a reform. Often within months of the executive branch decision,

a new policy can be implemented by the bureaucracy. For important issues enactment of a law

should eventually follow.

Congress also sometimes legislates market-unfriendly laws. These have been enacted by the

president in most instances, often allowing the measure to lapse into law by not signing. Presidential

vetoes are rare, as objections by the executive branch to a bill moving through the Congress are

usually accommodated during the legislative process. Table 74 lists market-inimical laws enactedin recent congresses.

Table 74: Market-inimical business and economic reforms laws, by Congress, 2001-2010

Law Law No. Date Enacted

12th Congress (2001-04)1 Legislated Wage Hike HB 2605


2 Strengthening Workers Right to Self-Organization RA 9481 May 25, 2007


3 Agri-Agra Law Amendments RA 10000 Feb 23, 2010

4 Aurora Pacic Economic Zone Act RA 10083 Apr 22, 20105 Bataan Freeport Area Act RA 9728 Oct 23, 20096 Cheaper Medicines Act RA 9502 June 6, 20087 Eidul Adha Holiday223 RA 9849 Dec 11, 2009

233 Common name for Investment and Incentives Code of the Philippines Act


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8 EPIRA Amendments SB 21219 Expanded Senior Citizens Act RA 9994 Feb 15, 200910 Income Tax Exemption and Condonation of RA 10026 Mar 11, 2010 Unpaid Taxes of Local Water Districts

11 Milk Code Amendments HB 702212 Reducing Malampaya Gas Royalty SB 328213 Security of Tenure HB 653214 Uniform Franchise Tax on Utilities SB 3147


LEDAC

The Legislative Executive Development Advisory Council (LEDAC) was initiated during

the Ramos Administration. The president and cabinet secretaries usually met with congressional

leaders every two weeks both to establish legislative priorities and to discuss the status of the

priority legislation in the House and Senate.

During the two subsequent administrations the LEDAC met less regularly. The Executive

Secretarys ofce nevertheless maintained a list of LEDAC priority legislation, and the president

continued to designate bills as urgent in order to speed their passage. However, for the last 12

years, the LEDAC has been less active than during the Ramos Administration (see Figure 191). Its

revival should be considered as an effective means of advancing the legislative priorities of the new

administration during the 15th Congress (2010-2013) and the 16th Congress (2013-2016).

Figure 191: Number of LEDAC meetings per administration, 1992-2010

81

3

25

0 10 20 30 40 50 60 70 80 90

Ramos (1992-1998)

Estrada (1999-2000)

Arroyo (2001-2010)

Source: LEDAC Secretariat

Figure 192: Editorial cartoon showing need for Congress to address the countrys woes

Source: Philippine Star, July 28, 2010


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Headline Recommendations

The president should hold regular LEDAC meetings of executive andcongressional leaders. LEDAC should prioritize the administrations legislativeagenda and monitor its progress throughout the legislative process.

1.

Prioritize bills that improve competitiveness, increase investment and revenue,

and create jobs, in order to accelerate economic growth.Use executive ordersand revision of IRRs to start reforms, following up with legislation as needed.Deter market-inimical bills.

2.

Pass legislation much more rapidly, especially for business and economic

reforms. Prioritize key legislation that was close to nal passage in the 14thCongress or that reached 2nd/3rd reading in either the House or the Senate.

3.

Recommendations: (13)

A. The president should hold regular LEDAC meetingsof executive and congressional leaders.

LEDAC should prioritize the administrations legislative agenda and monitor its progress

throughout the legislative process. (Immediate action OP and Congress)

B. Prioritize bills that improve competitiveness, increase investment and revenue, and create

jobs, in order to accelerate economic growth. The chairs of the committees to which such bills

are referred can be asked to conduct hearings and complete their committee reports in the early

months of the 15th Congress. Deter market-inimical bills.(Immediate action LEDAC and

Congress)

C. Pass legislation much more rapidly, especially for business and economic reforms.Prioritize low-hanging fruit legislation that was close to nal passage in the 14th Congress or

that reached 2nd or 3rdreading in either the House or the Senate. (See Table 72) (Medium-term

action Congress)

D. Set a target to pass many more investment climate reform bills in the 15th and 16th

Congress. (See Table 73 for potential bills) (Medium-term action Congress)

E. Use executive orders to introduce reforms quickly. Follow-up as needed with laws to make

the reforms more permanent. (Immediate action OP and executive branch departments)

F. Revising Implementing Rules and Regulations (IRRs)of laws and executive orders is another

way to achieve reform. For example, removing the 60-40 equity provision of the RenewableEnergy Act and completing the amendments of the BOT Act can encourage more investment

in renewable energy projects and public-private partnerships. (Immediate action NEDA, DOE,

DOF)

G. The Executive Secretary should assess how a bill passed by Congress affects competitiveness

and job creation. The assessment should be made public. (Immediate action OP)


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H. Seek to make the Foreign Investment Negative List (FINL) more positive, thereby leveling

the playing eld for foreign investors. Review all restrictions in the FINL to determine which

continue in the national interest and recommend changes in those considered to be out of

date. Implement the recommended changes. (Medium-term action OP, NEDA, DTI and otheragencies, Congress, and private sector)

I. Simplify the present 45 laws regulating 46 professions to relax restrictions on foreign

professionals and redene reciprocity. Draft and seek passage of an omnibus law amending

the present restrictions and establishing a uniform policy consistent with the current role of

Philippine professionals in the global workplace. (Immediate action PRC and Congress)

J. Clarify that foreign investors can own rms providing servicesof PRC-certied professionals

as long as the requirements of the Foreign Investments Act of 1991 (RA 7042) are met (US$

100,000 paid-in capital and 50 employees). (Immediate action DTI and PRC)

K. Seek to reduce and remove discrimination against foreign rms in Philippine governmentprocurementlaws, regulations, and practices, bringing them into conformity with international

best practice.234 Encourage the GRP to adhere to the WTO Agreement on Procurement.

(Immediate action NEDA, DTI and Congress)

L. Encourage new investment in selected regulated public utility activities by using language

similar to Section 6 of the EPIRA(RA 9136), which clearly states that power generation

shall be competitive, not be considered a public utility, and not require a franchise. (Immediate

action NEDA, DOJ, and relevant departments)

M. Develop a comprehensive Philippine Legal Code and Code of Regulations to create an

inventory of laws and regulations. Make the inventory accessible on the internet. The Civil

Code (RA 386) was signed in 1949. (Medium-term action by DOJ, Congress, and privatesector)

234 The Government Procurement Reform Act of 2003 (RA 9184) covers procurement by all government ofces and corporations. RA

9184 designates competitive bidding as the method of procurement. While goods may be obtained from either local or foreign suppliers,

preference may be given to domestically-produced and manufactured goods that meet the specied standards (Article XII, Section 43).GOCCs can be awarded government contracts without going through the bidding process. The IRRs for RA 9184, revised in 2009,

contain provisions regarding procurement which favor local goods and service providers.

For infrastructure projects contracted to the private sector, the BOT Law of 1990 (RA 6957) provides for the employment of

Filipino labor in different phases of the construction phase (Section 2-a) which is re-afrmed in the Amended BOT Law of 1994 (RA

7718). Moreover, for infrastructure projects that require a public utility franchise, the facility operator must be at least 60% Filipino-

owned (Section 2-a).

CA 138 (also known as the Flag Law of 1936), wherein the procurement of supplies, materials or public works for public use shall

be purchased from domestic suppliers. In the case of public bidding, the award shall be given to the domestic entity making the lowest

bid (Sections 3 & 4).

25. Part 4 General Business Environment Legislation

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