Will the new government continue a resurgence of the Philippines as an Asian tiger? And what are the legal hurdles that challenge its rise? James Kelly reports
THE BUNNY BAKERY in Ortigas is not just another sugary sweet shop serving up kitsch cakes. Its baristas deftly etch, on request, the face of the new president of the Philippines, Rodrigo Duterte, in the foam of a cappuccino. Such artistry has earned the café’s owner, Zack Yongzon, the title of Vincent van Froth.
This entrepreneurial spirit captures a flavour of the optimism and creativity now percolating throughout the country following the election of the often foul-mouthed mayor of Davao as the republic’s new president. An app depicting a gun-toting Duterte slaying criminals has almost one million downloads.
On his inauguration, on June 30, Duterte inherited the reins of a country that has shaken off its former moniker as the basket case of Asia. Years of uninterrupted growth of 6%-plus, a young and well-educated English-speaking workforce that has helped the country become the call centre capital of the world, and the billions of dollars in remittances from its army of citizens working around the world is fuelling consumption and the emergence of a prosperous middle class.
Yet traffic in Metro Manila remains recalcitrant. Internet connectivity and mobile phone coverage is temperamental, and doing business is still plagued by a bureaucracy in love with red tape. And the precarious law and order situation, the issue that attracted many voters to Duterte’s hardline position, remains a significant deterrent to tourists and investors.
Outgoing president Benigno Aquino III attracts both bouquets and brickbats for his achievements, or lack of them, in his six years in Malacanang Palace. But there is consensus that his crackdown on corruption was effective, and that his steady stewardship of the country contributed to sustained growth.
Early indications are that Duterte intends to carry on many of these policies but with renewed vigour, something cited as lacking in the final years of the Aquino administration.
In an interview with Asia Business Law Journal, the new head of the National Economic Development Authority (NEDA), Ernesto Pernia, says the administration will hit the ground running with its progressive reform agenda. “Cutting red tape could be done within three months. Easing constitutional restrictions on foreign investment can also be done because it has been initiated already, and it just needs further pushing. Maybe that can be done within three to six months,” says Pernia.
“Infrastructure will of course take longer. Better traffic management in Metro Manila can be done quickly, but it may not have that much of an impact in terms of easing traffic congestion, but there will be better traffic management for sure.”
President of the Australia-New Zealand Chamber of Commerce Philippines, Tom Grealy, says the business community is eagerly awaiting indications that the new president’s actions will match the election rhetoric. “We are optimistic for the outlook of the Philippines. We expect the 6% growth rate and low inflation environment to continue. The Duterte administration is pro-business. Everything suggests that it will be positive for foreign investment.”
The slogan of the Invest Philippines campaign is “Your Business Our People”, but exactly how open the country is willing to become for foreign investment remains the 64-billion-peso question.
BILATERAL TRADE AND INVESTMENT
Despite ongoing sabre rattling between the Philippines and China over disputed islands off the Philippine coast, the country has recently signed a raft of bilateral trade agreements with other countries. The Philippines, on its own and as a member of ASEAN, is actively pursuing free trade agreements. It recently signed a free trade agreement with the European Free Trade Association covering trade in goods, services, investment, competition, the protection of intellectual property rights, government procurement, and sustainable development.
As host of the most recent APEC Summit in November 2015, the Philippines entered into an economic cooperation with New Zealand for expansion of infrastructure, business process management, engineering services and Public-Private Partnerships (PPP). Various other trade and investment agreements were signed with Japan, Australia, Canada, Taiwan, Vietnam, Russia, Chile and Papua New Guinea.
Documentation, due diligence and compliance with the standards of the Organization for Economic Cooperation and Development (OECD) for transfer pricing is one of the main practice areas of law firm Salvador Llanillo & Bernardo, in line with the adoption of these rules into local laws with several distinctions as to thresholds by various ASEAN countries such as Singapore, Malaysia, Indonesia and the Philippines.
Japan is the Philippines’ largest trading partner and has invested heavily into the liberalized banking and financial service space. “There’s been a lot of Japanese interest here, maybe because of the infrastructure projects, and that should continue because we need those projects,” says Gabriel Dee, a partner at Picazo Buyco Tan Fider & Santos.
The keenly awaited implementing rules of the Philippine Competition Act are now out for consultation. The Philippines is one of the last countries in the region to introduce anti-competition laws, which some see as a challenge to the status quo in a country dominated by a handful of local dynastic conglomerates. The act defines, prohibits and penalizes anti-competitive agreements, abuse of dominant position, and anti-competitive mergers and acquisitions (M&A). The Philippine Competition Commission (PCC) was set up in January this year.
One of the country’s leading law firms, Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), was active in the drafting of the law. “It’s eagerly awaited by the business community as well as the major law firms,” says ACCRALAW of counsel Victor Lazatin. “We already know it will have an impact on several clients, such as telecommunications, power, and mall operators. In most industries in the Philippines there are just a few dominant players – in the telecoms industry there are just two, mall operators five, gas three, beer one big one, cigarettes one big, one small. The big ones are our clients, so that’s why we expect a lot of work.”
One of the controversial aspects of the new law is that all M&As with a transaction value of 1 billion pesos (US$21.7 million) will need the approval of the PCC to ensure a deal isn’t anti-competitive. “1 billion pesos is a hurdle for almost every deal. The threshold is way too low,” says ACCRALAW senior partner Eusebio Tan.
Respected economist and former head of the NEDA, Arsenio Balisacan, has been appointed as chairman of the PCC. However, there are concerns about its powers. “The problem is that it could become a centre for corruption in the wrong hands, because you are not going to get your acquisition approved unless …” says Agustin Montilla, a partner at Romulo Mabanta Buenaventura Sayoc & de los Angeles (Romulo Law Firm).
With improved infrastructure and the possibility of a peace settlement in Mindanao, the tourism sector is also expected to see an influx of new operators. “We see significant interest in the tourism sector, especially in the southern provinces renowned for their beaches,” says PJS Law (Puyat Jacinto & Santos) managing partner Regina Jacinto-Barrientos. “There are certain airports in the country that are being expanded or further developed or improved. Together, with the implementation of that infrastructure plan, comes the growth in tourism. Now we’ve got the [resort] brands coming in, not just Western brands but a lot of the Asian brands. It’s a lot to do with the ASEAN roll-out when travel will be freer within the ASEAN region.”
“The English proficiency of the young workforce and the service orientation of the Filipinos may be the top reasons for investors to decide to invest in the Philippines,” says Pearl Liu, a partner and head of corporate and commercial practice group at Quisumbing Torres. Foreign investment restrictions, high tax rates, poor infrastructure, excessive red tape, and security concerns are the most cited headaches, and each one is highlighted as a matter of priority by the new administration. The challenges are not new and reformist agendas have seen other contenders elected as president in the past. This time, though, there is a sense that things are different.
To return to the baking analogy, the final word belongs to one of the respected elders of the Philippines legal scene, SyCip’s Rocky Reyes. “We’ve been baking a cake with the same ingredients for a long time, now we are adding some chilli. People want something different.”