Copyright O 1992 Pacifc Rim Law& Po

Copyright O 1992 Pacifc Rim Law& Policy Associaion
PHILIPPINE FOREIGN INVESTMENT EFFORTS:
THE FOREIGN INVESTMENTS ACT
AND THE LOCAL GOVERNMENTS CODE
John F. Pierce
Abstract: The Philippine Government's efforts to attract foreign direct investments
have been ineffectual, especially when compared with the efforts of its Southeast Asian
neighbors. Foreign investment incentive legislation has been relatively ineffectual in
attracting the investment the Philippines sought due to the ambiguous and arbitrary
execution of its investment laws and policies. The Philippine Judiciary's unsettled
attitude toward foreign investment further enhanced the overall impression that the
Philippines was not a safe or stable investment host country. The Philippines' most
recent legislative attempt to lure foreign investment is the Foreign Investments Act of
1991. The Foreign Investments Act goes much further than its predecessors in
liberalizing access to the Philippine economy by promoting more transparent and
efficient investment laws and regulations. However, the Foreign Investments Act is
potentially marginalized by the Local Governments Code, which diffuses much of the
central government's powers to lure and to control foreign investment to local
government units, most of whom have diverse development and investment priorities.
Thus, the Foreign Investments Act alone is not likely to attract and keep the desired
investment. To lure foreign investment, the Philippines should provide some form of
efficient investor services that will account for the central and local governments'
priorities, differences and needs. This would promote productive and equitable foreign
investment by building on the strengths of the Foreign Investments Act while preserving
the integrity of local decisions mandated by the Local Governments Code.
INTRODUCTION
The Philippines actively seeks direct foreign investment through a
myriad of investment incentives.1 Currently, however, the Philippines has
difficulty attracting and keeping foreign investment. Investors perceive the
Philippines to be a risky investment host due to the capricious administration
of its investment laws and policies.2 Recognizing that investment
disincentives exist, and that the Philippines needs to improve its investment
I Investment incentives are generally statutory devises that encourage investors to invest in a
particular country, region or industry by reducing the investor's operating costs. These incentives
generally take the form of lower tax obligations, guarantees against specific state actions, and specific
market protections. The Philippines latest investment promotion effort, the Foreign Investments Act of
1991 (Investments Act), Republic Act No. 7042, is discussed at length below and in Appendix A.
2 Joel McCormick. Instability Hampers Philippines' Growth... , 17:11 Electronic Business 3, 49
(June 1991): citing unpredictable policy administration as an investment deterrent. See also Leo P.
Gonzaga, Foreign Investment: Regulatory Developments, 11: 8 East Asian Executive Reports 13 (Aug.
15, 1989).