Transparency of the Regulatory System
Proposed Philippine laws must undergo public comment and review. Government agencies are required to craft implementing rules and regulations (IRRs) through public consultation meetings within the government and with private sector representatives after laws are passed. New regulations must be published in newspapers or in the government’s official gazette, available online, before taking effect. The Freedom of Information Law (FOI), enacted in July 2016, mandates full public disclosure and transparency of government operations. The public may request copies of official records through the FOI online.
In general, stakeholders report regulatory enforcement in the Philippines is weak, inconsistent, and unpredictable. Many U.S. investors describe business registration, customs, immigration, and visa procedures as burdensome and frustrating. Regulatory agencies are generally not statutorily independent, but are attached to cabinet departments or the Office of the President and, therefore, subject to political pressure.
International Regulatory Considerations
The Philippines continues to work on implementing its regulatory reforms under the ASEAN Economic Community (AEC). An anti-trust act and the Customs Modernization and Tariff Act (CMTA) became law in 2015 and 2016, respectively. The Philippines has not yet fulfilled other regulatory reforms under AEC, particularly failing to implement a National Single Window for customs.
The Philippines is a member of the World Trade Organization (WTO).
Legal System and Judicial Independence
The Philippines has a mixed legal system of civil, common, Islamic, and customary laws, along with commercial and contractual laws.
The Philippine judicial system is a separate and largely independent branch of the government, made up of the Supreme Court and lower courts. The Supreme Court is the highest court and the sole constitutional body, with more information available on the court’s website. The lower courts consist of (a) trial courts with limited jurisdictions (i.e. Municipal Trial Courts, Metropolitan Trial Courts, etc.); (b) Regional Trial Courts (RTCs); (c) Shari’ah District Courts (Muslim courts); and (d) Court of Appeals (appellate courts). Special courts include the “Sandiganbayan” (anti-graft court for public officials) and the Court of Tax Appeals. Several RTCs have been designated as Special Commercial Courts (SCC) to hear intellectual property (IP) cases, with four SCCs authorized to issue writs of search and seizure on IP violations, enforceable nationwide.
Foreign investors describe the inefficiency and uncertainty of the judicial system as a significant disincentive to investment. Many investors decline to file dispute cases in court because of slow and complex litigation processes and corruption among some personnel. The courts are not considered impartial or fair. Stakeholders also report an inexperienced judiciary when confronted with complex issues such as technology, science, and intellectual property cases. The Philippines ranked 136 out of 190 economies and 11 among 25 economies from East Asia and the Pacific in the World Bank’s 2017 Ease of Doing Business report in terms of enforcing contracts.
Laws and Regulations on Foreign Direct Investment
The Board of Investments (BOI) regulates and promotes investment into the Philippines. The Investment Priorities Plan (IPP), administered by the BOI, identifies preferred economic activities approved by the President. Government agencies are encouraged to adopt policies and implement programs consistent with the IPP.
The 1991 Philippine Foreign Investment Act (FIA) requires the publishing of the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted. The FINL consists of two parts: Part A details sectors in which foreign equity participation is restricted by the Philippine Constitution or laws, and Part B lists areas in which foreign ownership is limited for reasons of national security, defense, public health, morals, and/or the protection of small and medium enterprises (SMEs). The FINL is due to be updated in 2017.
The 1995 Special Economic Zone Act allows PEZA to regulate and promote investments in export-oriented manufacturing and service facilities inside special economic zones, including grants of fiscal and non-fiscal incentives.
Further information about investing in the Philippines is available at the “Invest Philippines” website and at the BOI website.
Competition and Anti-Trust Laws
The Philippine competition law enacted in July 2015 established the Philippine Competition Commission (PCC), an independent body mandated to resolve complaints on issues such as price fixing and bid rigging, and stop mergers that would restrict competition. More information is available on the PCC website. The Department of Justice (http://www.doj.gov.ph/) prosecutes criminal offenses involving violations of competition laws.
Expropriation and Compensation
Philippine law allows expropriation of private property for public use or in the interest of national welfare or defense in return for fair market value compensation. In the event of expropriation, foreign investors have the right to receive compensation in the currency in which the investment was originally made and to remit it at the equivalent exchange rate. However, the process of agreeing on a mutually acceptable price can be protracted in Philippine courts. There are no recent cases of expropriation involving U.S. companies in the Philippines.
The Philippines passed a law that facilitates the acquisition of right-of-way sites for national government infrastructure projects in March 2016. The law outlines procedures in providing “just compensation” to owners of expropriated real properties to expedite implementation of government infrastructure programs.
ICSID Convention and New York Convention
The Philippines is a member of the International Center for the Settlement of Investment Disputes (ICSID) and has adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the “New York Convention.”
Investor-State Dispute Settlement
The Philippines is signatory to various bilateral investment treaties that recognize international arbitration of investment disputes. Since 2002, the Philippine government has been a respondent to five investment dispute cases filed before ICSID. Details of cases involving the Philippines are available on the ICSID website.
International Commercial Arbitration and Foreign Courts
Investment disputes can take years to resolve due to systemic problems in the Philippine courts. Lack of resources, understaffing, and corruption make the already complex court processes protracted and expensive. Several laws on alternative dispute resolution (ADR) mechanisms (i.e., arbitration, mediation, negotiation, and conciliation) have been approved to decongest the court’s clogged dockets. Public-Private Partnership (PPP) infrastructure contracts are required to include ADR provisions to make resolving disputes less expensive and time-consuming.
A separate action must be filed for foreign judgments to be recognized or enforced under Philippine law. Philippine law does not recognize or enforce foreign judgments that run counter to existing laws, particularly those relating to public order, public policy, and goods customs. Foreign arbitral awards are enforceable upon application in writing to the regional trial court with jurisdiction. The petition may be filed any time after receipt of the award.
The 2010 Philippine bankruptcy and insolvency law provides a predictable framework for the rehabilitation and liquidation of distressed companies. Rehabilitation may be initiated by debtors or creditors under court-supervised, pre-negotiated, or out-of-court proceedings. The law sets the conditions for voluntary (debtor-initiated) and involuntary (creditor-initiated) liquidation. It also recognizes cross-border insolvency proceedings in accordance with the United Nations Conference on Trade and Development (UNCTAD) Model Law on Cross-Border Insolvency, allowing courts to recognize proceedings in a foreign jurisdiction involving a foreign entity with assets in the Philippines. Regional trial courts designated by the Supreme Court have jurisdiction over insolvency and bankruptcy cases. The Philippines ranked 56 out of 190 economies and 7 among 25 economies from East Asia and the Pacific in the World Bank’s 2017 Ease of Doing Business report in terms of resolving insolvency and bankruptcy cases.