The Nationalization and Liberalization of the Retail Trade Industry in the Philippines

Bing Baltazar C. Brillo


2011  Danyag: Journal of Humanities and Social Sciences, vol. 15, no. 1, pp. 55-67.

Abstract

The Philippine policy experience in the retail trade sector is distinct. Two radical policy shifts have occurred in the industry and the policy change took a circular path. In 1954, the Third Congress passed Republic Act (R.A.) 1180, the Retail Trade Nationalization Act, and in 2000, the Eleventh Congress enacted R.A. 8762, the Retail Trade Liberalization Act. The former was a change from an open to a protectionist policy, while the latter was a change from a protectionist to an open policy. Typically, any move to change an existing policy is always contentious and difficult. Those benefiting from the status quo would naturally take action to preserve their advantage; thus, policy change entails winners and losers. In examining the politics of policy change in the retail trade, this paper will utilize four factors— the context, the stakeholders and the cost benefit equation, policy rationalization, and presidential intervention and concessions— to systematically outline and explain the policy shifts that occurred.


Introduction

Broadly, policy change can be defined as a government activity where policy actors formally decide to repeal an existing policy to address public issues or concerns. The process of policy change involves engagement of political actors— institutional actors (such as the President, bureaucrats, senators, and congressmen), societal actors (such as business organizations, consumers groups, and civic groups), and international entities (such as international organizations and foreign governments). The interaction among them as well as the surrounding conditions determines the success or failure of policy change. Policy change can take two forms: policy modification and policy shift (Howlett and Ramesh 1995). Policy modification refers to an incremental change in the existing policy, usually through minor tinkering or adjustments. This form is evolutionary and typical, as the resulting policy is regarded as a continuation or expansion of past policies. On the other hand, policy shift refers to a substantial change that fundamentally alters the prevailing policy. This form is less frequent, but when it happens, it usually corresponds to a policy reversal or a complete break from the present policy. Policy shifts, as they are drastic in nature, are associated by some scholars to a major change in scientific thought in society or a paradigm shift (Kuhn 1962, Hall 1990).

In the Philippines, a sector of the economy that experienced radical policy shift is the retail trade. The retail trade is a significant industry, as it provides employment to thousands of Filipinos, substantial income to businessmen, taxes for the government, and services to consumers. Thus, it connects the other sectors of the economy to the public. Over the years, this industry has undergone policy changes. Policies were repealed in response to the demands of the times, as well as to the quest of societal forces pursuing their interests. The story of policy change in the retail trade in the Philippines is unique in that policy development in the industry has taken a circular path. Two drastic policy changes have occurred in the industry. Republic Act (R.A.) 1180 was enacted in 1954 by the Third Congress to regulate the retail trade industry, and a protectionist policy was established. R.A. 8762 was passed in 2000 by the Eleventh Congress to open the retail trade sector, and a liberalized policy was installed. The move to change the policy on both occasions was a lengthy process, as the attempt to alter the status quo encountered opposition. This paper is about understanding the politics of policy change, specifically the policy shift that occurred in R.A. 1180 and R.A. 8762.


Framework of Analysis

Policy change is contentious and difficult, as it is always easier to continue an existing policy than to replace or reform the policy (Howlett and Ramesh 1995). As the policy change process involves modifying an existing policy, those benefiting from the status quo would naturally take action to preserve their advantage. People affected by policy change are wary, as the move could mean drastic adjustments on their part, whether it is in their lifestyle, work or business. Policy change also exposes them to risk, as there is no guarantee that the shift in policy would be better for them and would not have detrimental effects or unintended consequences. There is also distrust in policy change as there are fears that politicians and powerful groups in society might use the occasion to advance their private interests at the expense of public interest. Thus, in any move to change policy there would always be challenges and opposition.

As policy change entails winners and losers, use of political skills, and management of policymaking, the process is driven by politics (Reich 2002). To methodically understand the politics behind the policy change process, several factors involved are delineated and examined.

The first factor is the context, which refers to the surrounding conditions behind the move for policy change. In particular, this pertains to the external political, economic, and social environment where the policymaking process takes place (Birkland 2001). The environment can obstruct or facilitate the mobilization of demand for the policy, as the varying conditions can create incentives for the policy actors to take action. Policy advocates must have the ability to recognize windows of opportunity presented by changing conditions. The historical context puts a premium on timing, as its correct reading can provide the ideal circumstance for setting the agenda of policy change as well as its success.

The second factor is the stakeholders and the costs and benefits equation, which refers to the delineation of stakeholders involved in the policymaking process. Stakeholders are political actors who try to influence the policy change process. They are defined as an individual or groups of individuals who have vested interest in the policy being promoted (Schmeer 1999). They can be classified as proponents and opponents of the move for policy change. Assessment of their interests, declared or conceivable, is critical, as they can affect the dynamics of the policy process. “Political analysis should identify whose toes will be stepped on, who expects their toes to be stepped on, and how different groups are likely to react when their toes are stepped on, or when they think their toes will be stepped on” (Reich 2002: 139). The stakeholders’ involvement in the pursuit of their interests sets the backdrop of the battleground of the policy change process.

The costs and benefits equation refers to the actual and perceived gains and losses among the stakeholders. Ascertaining the allocation of costs and benefits is essential, as the equation can reveal the potential source of conflicts as well as the feasibility of the move for policy change. One typical problem encountered by policy change advocates is what Mancur Olsen (1965) called a collective action dilemma. The dilemma happens when the costs are immediately felt and concentrated on a small group while the benefits have long-term impact and spread to a much larger group. This scenario creates strong incentives for the former and disincentives for the latter to mobilize for collective action. Moreover, the situation intensifies when the small group is highly organized, economically powerful, and politically well connected, while the larger group is not organized, is economically weak, and is politically less influential (Reich 2002).

The third factor, policy rationalization, refers to the arguments and counterarguments offered by policy actors to justify or dispute the change in policy, fortify their position, and persuade reluctant stakeholders. Arguments must be logical, supported by empirical evidence, and comprehensible to ordinary individuals to be credible and compelling. The rationale must also show that the policy is the correct and plausible solution to the problem, issue, or concern. In particular, it must demonstrate that the advantages far outweigh the disadvantages of the policy change. The key is to create an image that the policy serves the public well-being. Policy advocates not only must be cautious in presenting the issue and alternatives; they must also use language suitable for the public audience.

The fourth factor is presidential intervention and concessions. Presidential intervention refers to the capacity of the executive branch to use power, authority, and money to influence the policymaking process. The office of the President is able to use government machinery and funds to reward allies, pressure opponents, and entice uncommitted policy actors. In the Philippine context, the presidency is critical in policymaking. Since the birth of the first republic, the country has a tradition of strong chief executives (e.g., Aguinaldo, Quezon, and Marcos), and despite the changes of constitutions (1935, 1973, and 1987 Constitutions), the presidency has continued to be the most powerful office in politics (Agpalo 1962, Brillantes and Amarles-Ilago 1994, Gutierrez 1994, Caoili 2006, Velasco 2006).

Presidential resources can be employed in many ways. They can take a benign form, such as informational support to enhance expertise, particularly the capacity to articulate and defend the policy position, or an audacious form, such as “side payments” (e.g., assurance of budget allocation and release of public funds, appointment to lucrative government positions, or outright cash in the form of bonuses) to create incentives to directly influence the behavior of policy actors. Here, the policymaking process is considered a transaction, where bargains and exchanges take place among policy actors (Stein et al 2005). Each transaction entered into bears costs, and these costs are paid off through side payments (Haggard and McCubbins 2001). The use of side payments in a political environment where patronage politics persists and elections are expensive can entice actors to climb the bandwagon for or against the policy.

Concessions in policymaking refer to bargains and exchanges where the policy actors negotiate among themselves the content and the final form of the policy. The bargains and exchanges among policy actors are a give-and-take process that usually results in compromises, as policy proponents try to accommodate the demands of the opposition (Howlett and Ramesh 1995). Concessions are needed to persuade doubting lawmakers, to appease opposing lawmakers, and to erase fears on the side of the public. Concessions over the policy are made by either inserting stipulations, removing provisions, or attaching exemptions. The effect of the practice is twofold: one, it dilutes the policy, and two, it ensures the passage of the policy.

In democratic political systems, the move to change an existing policy goes through an institutionalized policymaking process. The process is an “open” political proceeding that is susceptible to the changing conditions, and domestic and external pressures. It is also the arena where the formal policy actors’ engagement takes place, as well as the place where the stakeholders try to influence policy decisions. Considering the elements comprising the process and conceding that in reality the politics of policy change is not a neat process, this paper will use the four factors to systematically outline and explain the two policy changes that occurred— the nationalization of the retail trade industry in the Philippines in 1954, and its liberalization in 2000. Moreover, the paper will utilize documentary and archival sources. The data will heavily rely on official legislative transcripts, including committee hearings, session proceedings, and bicameral conference committee deliberations. This mode of data collections will be supplemented by secondary documentary sources to fill in gaps and amplify reliability. As a limitation, the study purposely did not interview any of the politicians involved in the policy process. This decision was an offshoot of my previous attempts to interview politicians, where most of them indicated problems in recalling the events as well as counseled me that it is best to rely on the official records.


The Politics of Policy Change

Republic Act 1180

1. The Context

The Philippines after World War II was characterized by the rise of the nationalist movement. The era was associated with the public declaration for self-determination and nation-building. In the political-economic arena, the movement was equated with demands for economic protectionism; as there were calls in Government to assert its political independence by enacting “nationalistic” policies. The aftereffect was a deluge of nationalization bills filed in Congress. One of these bills that were perceived as contentious was the nationalization of the retail trade sector.

The initial significant move to nationalize the retail sector happened in 1934, when the Association for the Nationalization of the Retail Trade and the National Economic Protectionism Association were established. The former was a group whose sole purpose was to secure the passage of the law, and the latter was an organization designed to promote economic protectionism. Efforts of both associations to entice the government to pass a retail trade nationalization law, however, did not succeed, as President Manuel Quezon advised them to wait until the country gains independence. As the country was still under the United States’ control, he pointed out that foreign business elements in the country could easily block the move to pass any retail trade law (Agpalo 1962).

During the Constitutional Convention in 1934-1935, the Committee on Commerce headed by Salvador Araneta recommended the inclusion of a provision that only citizens of the Philippines and the United States would be allowed to engage in the retail business in the proposed Philippine Constitution (Agpalo 1962). Although considered popular among the delegates, there were differences of opinion as to how the recommendation should be carried out (Aruego 1949). As a consequence, a compromise was reached, where the nationalization of the retail trade would be coursed through the soon-to-be-created Philippine Congress. When Congress was convened, several bills proposing to nationalize the retail trade were introduced; however, not one of the bills was passed into law. The reasons, as pointed out by Agpalo (1962), were first, President Quezon counseled against the passage of such laws and second, the legislators feared international repercussions, particularly from the United States, China, and Japan (which at the time was poised to be a regional power).

Immediately after the end of the Japanese occupation in 1945, House Bill (H.B.) no. 355, a consolidated bill proposing to nationalize the retail trade in the Philippines, was proposed in Congress. Although the bill was passed by both the House of Representatives and the Senate, it did not become a law only because of the veto exercised by then President Sergio Osmena. He cited international implications, as other countries and the United Nations might see the Bill as discriminatory against their citizens living in the Philippines.

Another significant nationalization of the retail trade bill was H.B. no. 1241. The bill, which after 3 years (May 1950 to May 1953) of deliberations in Congress almost made it as a law, failed only because the House of Representatives ran out of time to tackle the amendments made by the Senate, as then President Quirino did not heed the request for a special session to salvage the bill. In justifying his inaction, the President said that the bill might bring about international implications for the country and might violate the constitution. These experiences led Agpalo (1962) to conclude that prior to 1953, except for the executive branch, which still was unreceptive to the proposal to nationalize the retail trade, there was already consensus among the legislators.

According to Agpalo (1962), the primary instigating factor that contributed directly to the move to nationalize the retail trade was the “irritating” factor in society at the time: Chinese control of the retail trade industry, which was undesirable per se, as the Chinese were the most numerous among the aliens engaged in the retail trade business in the country (Agoncillo 1990). For instance, the Bureau of the Census and Statistics (1953) in 1948 reported that of the total 12,274 alien retail trade establishments in the Philippines, 12,087 were run by Chinese, and the remaining 187 were operated by non-Chinese. This factor was intertwined with other ecological factors, such as the growth of the Filipino business elites who were interested in venturing to the retail trade and the rise of protectionist or nationalization legislation in the Philippines, where protectionism was deemed necessary to promote public interest.

After the presidential and congressional elections in 1953 where the Nationalista Party won overwhelmingly, the political dynamics changed direction vis-à-vis the nationalization of the retail trade. The elections resulted in the Third Congress and the Presidency being controlled by a single party. President Ramon Magsaysay, unlike his predecessors— President Quezon, Osmena, Manuel Roxas, and Elpidio Quirino— was more open to the nationalization of the retail trade; while both the Speaker of the House of Representatives Jose Laurel Jr. and Senate President Eulogio Rodriguez Sr. were in favor of economic protectionism. In addition, the opposition in Congress, particularly the members of the Liberal Party, was also sympathetic to the policy change. The similarity of position was typical as the two rival political parties were ideologically indistinguishable and members routinely practiced party-switching or “turncoatism” (Lande 1965, Liang 1971, Abinales and Amoroso 2005). Moreover, the attitude of most politicians was also molded by the public apprehension that a large portion of the total assets of the country was in the hands of aliens, giving them the power and wealth to effectively influence government decisions (Agoncillo 1990). For instance, in1948 the Bureau of the Census and Statistics (1953) revealed that Filipinos owned only 51.9 percent of the total assets of the country, and the rest was owned by foreigners. The commitment to economic nationalism was shown in the legislative-executive and bipartisan conference, where many lawmakers agreed to support the bill to nationalize the retail trade industry (Agpalo 1962).

On 17 May 1954 H.B. no. 2523— an Act to Regulate the Retail Trade— was formally introduced in the Third Congress. The Bill was referred to the Committee on Commerce and Industry in the House of Representatives, and afterwards to the Committee on Commerce and Industry in the Senate. The bill was finally approved by Congress on 20 May 1954. On 19 June 1954, President Magsaysay signed the bill into law, which became R.A. 1180— the Retail Trade Nationalization Act.

2. The Stakeholders

In the process of promoting policy change in the retail trade, the stakeholders took one of two positions: those who wanted the industry exclusively for Filipinos and those in favor of maintaining the status quo. The first group comprised those proposing a protectionist policy in the nationalization of the retail trade, while the second group opposed the change, and were for the continuation of an “open” retail trade industry.

The move to nationalize the retail trade was spearheaded by the groups within the sector, namely the Filipino Retail Merchants’ Association (FRMA), the Filipino Retail Business Movement (FRBM), the United Filipino Retailers and Cooperative Association (UFRCA), the Central Market Retailers’ Association (CMRA), Filipino Economic Emancipation Organization (FEEO), and the National Vendors’ Association (NVA). These groups were supported by two business umbrella organizations, the Philippine Chamber of Commerce (PCC) and the Philippine Chamber of Industries (PCI). The Bureau of Commerce was the main government agency in favor of policy change. On the other side, the principal groups opposed to policy change were the Chinese retailers’ organization, namely the Chinese General Chamber of Commerce (CGCC), and its umbrella association, the Federation of Chinese Chambers of Commerce (FCCC). The groups were supported externally by the Chinese government in Taiwan, and the American Chamber of Commerce (ACC) (Agpalo 1962).

As to the costs and benefits equation, the perceived gainers from the repeal of the policy were the Filipino retailers and investors, particularly moneyed Filipinos interested in breaking into the lucrative retail trade business. In contrast, the perceived losers from the policy change were the aliens engaged in the retail trade business, particularly the Chinese since they dominated the industry. The costs would be mainly endured by the aliens, as the proposal would completely prohibit them from continuing their existing businesses.

Both parties had the financial capacity to mount a sustained engagement. The Filipino retailers and investors’ advantage was that, being citizens, they could use their votes to influence the lawmakers. On the other side, the Chinese recourse was to seek help from their home country, as bringing their country into play could generate pressure on the Philippine Government.

3. Policy Rationalization

Arguments. The proponents of policy change argued that it was necessary to regulate the retail trade business. The fundamental premise for nationalizing the retail trade was that Chinese domination resulted in an industry controlled by aliens. This sentiment was reflected in the explanatory note of H.B. no. 2523:

Its purpose is to prevent persons who are not citizens of the Philippines from having a stranglehold upon our economic life. If the persons who control this vital artery of our economic life are those who owe no allegiance to this Republic, who have no profound devotion to our free institutions and who have no permanent stake in our people’s welfare, we are not really masters of our own destiny.

The retail trade sector was considered a critical sector in the economy as it links the producers with the consumers. As the consumers ultimately comprise the whole population, alien control of the industry was deemed unacceptable. This feeling led to the growing opinion among Filipinos that foreign control of the retail trade was economically unsound (Porter 1940). This situation brought about the call for the emancipation of the industry so that Filipinos could retrieve what was rightfully theirs, so to speak. The prevailing thinking, however, was that it would be difficult for Filipinos retailers alone to free the retail trade industry from Chinese control, as they would have no chance against alien competition. Thus, it was necessary for the government to come in and legislate a law.

Another idea that was used to promote policy change was the belief that aliens, rather than Filipinos, were enjoying the huge revenues from the retail trade industry. This reality was aggravated by the suspicion that the profits made by aliens were repatriated abroad to their home countries in violation of a Central Bank prohibition. In a sense, the practice was construed as benefiting aliens and foreign countries at the expense of Filipinos.

The theoretical justification was anchored on the concepts of self-determination and self-sufficiency, as both were taken as the guiding principle in the quest for development. The former requires the Government to make decisions based on its interest and free from foreign influence and dictates; while the latter stresses that the Government must make decisions that would promote autonomy in the country. The two are interconnected, as the perception at the time was that the only way for a country to acquire the capacity to make political decisions independently was for it to be economically self-reliant. The rationale implied that with the achievement of economic self-reliance, the Government would have the capacity to make critical decisions to ensure that the welfare of Filipinos was prioritized and served. The dictum in policymaking is that lawmakers must enact protectionist policies to safeguard the interest of the citizens. This translates into the call for nationalism in the economic realm, as protectionist policies were equated with pro-Filipino policies. The argument was captured in the rhetoric of Congressman Numeriano Babao during the committee hearings: “I ask that we [must] approve the bill on nationalization. This is good for everybody, and this is good for our people. This will improve them economically and will assure them progress and prosperity” (House of Representatives Committee on Commerce and Industry Hearings on the Nationalization of the Retail Trade held on February 9, 1954).

The “Filipinization” of the retail trade was popularly viewed as an expression of Philippine nationalism at the time. This prevailing opinion created pressure on lawmakers, as the perception was that anybody who would vote against the nationalization bill had to reckon with being branded pro-alien and anti-Filipino. In addition, the nationalization of the industry was also associated with national security. The logic was that a country could not be secure if its vital industries were controlled by aliens. This stance has prevailed since the 1940s. For instance, in arguing for the regulation of the retail trade industry, the Director of Commerce commented: “We respect the right of aliens [to] engaged in business here under our laws. But our sense of national security demands that we have in the hands of our nationals the essential instruments of our own economic well-being” (Porter 1940: 22).

Counterarguments. Resident aliens who opposed the policy reform argued that nationalization of the retail trade would violate the constitution, specifically the provision on equal protection and due process. They claimed that the policy proposal would lead to prejudice and result in the unlawful deprivation of properties of those affected. As resident aliens, they reminded the lawmakers that they had lived in and also contributed to progress in this country; hence, they were entitled to protection under Philippine laws. They also reminded the lawmakers that democracy implies open and free competition among citizens as well as aliens. The retail trade sector must adhere to this principle and regulating it would be discriminatory.

The opposition also warned that the policy change could create international problems and might send a wrong signal to the international business community. They cautioned that H.B. 2523 might scare away foreign investors and, worse, invite retaliation from other countries whose citizens would be affected. They also said that international agreements such as the Treaty of Amity between the Philippines and China might be violated. As the nationalization of the retail trade might not be consistent with the agreement, they argued that there could be serious repercussion to the economy, as China might attempt to get even. The contention was buttressed when the Chinese government in Taiwan made a strong diplomatic protest against the bill. The intent of the protest was to convince the Philippine government to halt its legislative proceedings or, if the bill was passed, to persuade President Magsaysay to veto it.

Moreover, the CGCC and FCCC also opposed the retail trade bill. For instance, during the final committee hearing on the bill, Peter Lim, representing the alien retailers, contended that “the disenfranchisement of alien retailers may leave a vacuum that may not be adequately supplied by efficient and qualified Filipino retailers” (House of Representatives Committee on Commerce and Industry Hearings on the Nationalization of the Retail Trade held on February 23, 1954). They believed that Filipinos alone could not fill the gap that would result from the prohibition. Thus, ultimately the consumers would bear the brunt of policy change. This warning was accompanied by the threat that the prohibition might result in indignation that could fuel violent anti-government activities among the Chinese.

4. Presidential Intervention and Concessions

Early on, President Magsaysay had manifested his support for the move to legislate the nationalization of the retail trade. His position was made clear when he endorsed the passage of the retail trade nationalization bill in the legislative-executive conference, and when he readily certified the bill as urgent in Congress, when requested by Speaker Laurel Jr. Going along with the President, the lawmakers took action to consolidate support for the bill by calling a bipartisan conference. The leaders of both majority and minority parties attended the conference to firm up the endorsement of H.B. 2523. In effect, the President provided the necessary endorsement for Congress to continue pushing for the bill.

The influence of the President over policymaking was evident in the outcome of the legislative-executive conference held on 7 May 1954. The conference was called amid the diplomatic protest made by the Chinese embassy to the Department of Foreign Affairs (DFA) over the nationalization of the retail trade. To relieve the pressures, President Magsaysay agreed to continue his support for the policy reform, provided the legislators push for a “weak” version of the bill, and leave out all other nationalization measures pending in Congress (Agpalo 1962). As a consequence, the leadership of both the Nationalista Party (such as Speaker J. Laurel, Speaker Pro-Tempore Daniel Romualdez, and Majority Floor Leader Arturo Tolentino) and Liberal Party (such as Gregorio Abogado, Floro Crisologo, and Ferdinand Marcos) in the House of Representatives readily acceded to the “request” of the President, as they agreed to push for a watered-down version of the bill and discard the 47 other nationalization bills introduced in the legislature.

Presidential influence again manifested itself when a small group of idealist legislators in the House of Representatives tried to replace H.B. no. 2523 with H.B. no.2518, an extreme version of the nationalization of the retail trade. H.B. no. 2518 was introduced to profoundly broaden the coverage of the nationalization bill to include wholesale trade in rice, flour, corn, sugar, copra, tobacco, abaca, and lumber in addition to retail trade (Agpalo 1962). As the substituted bill was unacceptable to President Magsaysay, the Speaker of the House of Representatives, Laurel Jr. called for a bi-partisan caucus among the legislators to resolve the matter and revert to the originally agreed-upon bill, H.B. no. 2523.

Pressures against the nationalization bills came internally from alien retailers, particularly the moneyed Chinese retailers, and externally from foreign governments, particularly the governments of China and the United States. Considering the seriousness of the situation, the policymakers made concessions. As the leadership of both Nationalista Party and Liberal Party are resolved in passing the nationalization of the retail trade, the majority and minority parties in Congress aligned themselves in urging that the law be accomplished with a minimum of discomfort possible to the affected aliens (Agpalo 1962). As a consequence, two provisions were incorporated into the bill:

1. A person who is not a citizen of the Philippines, or an association, partnership, or corporation not wholly owned by citizens of the Philippines, which is actually engaged in the said business on May, fifteen, nineteen hundred and fifty-four, shall be entitled to continue to engage therein, unless its license is forfeited in accordance herewith, until his death or voluntary retirement from said business, in the case of a natural person, and for a period of ten years from the date of the approval of this Act or until the expiration of the term of the association or partnership or of the corporate existence of the corporation, whichever event comes first, in the case of juridical persons.
2. Nothing contained in this Act shall in any way impair or abridge whatever rights may be granted to citizens and juridical entities of the United States of America under the Executive Agreement signed on July fourth, nineteen hundred and forty-six, between that country and the Republic of the Philippines (R.A. 1180, section 1, paragraph 1 and 2).

The first was a major concession made to directly appease all alien retailers, particularly the Chinese retailers, in the country by giving them a legitimate prospect to continue their business operation and ample time (as the law was to take effect ten years after its passage) to make adjustments (e.g., applying for Filipino citizenship) (Martinez-Santos 2000). The second was reached to make the law consistent with the Bell Trade Act of 1946, which provided for free-trade relations between the United States and the Philippines until 1954 (Agoncillo 1990), and its planned “renewal” (as the Act was subsequently replaced by Laurel-Langley Agreement in 1955). As the Bell Trade Act gave “parity” rights to the Americans investors and businesses in the Philippines, strong American pressure was exerted to incorporate the exempting provision in R.A. 1180 (Schirmer and Shalom 1987, Agoncillo 1990). As a consequence, the compromise was effective in ensuring the enactment of R.A. 1180; however, it significantly diluted the law.


Republic Act 8762

1. The Context

With the advent of the 1990s, the effectiveness as well as soundness of R.A. 1180 was questioned. First, the critics argued that the policy had outlived its usefulness. The law was designed to protect Filipino retailers from the dominance of Chinese immigrant retailers, who at the time controlled around 60 percent of the industry (Agpalo 1962). But with mass naturalization, in particular with Chinese marrying Filipinos, alien retailers became citizens. Hence, absorption of the Chinese ironically made the protectionist policy ineffectual against them. An unintended consequence of the assimilation process was that R.A. 1180 protected the Filipino Chinese that it originally intended to exclude, and shielded them against foreign competition.

Second, the critics argued that the policy did not translate into growth in the retail trade industry. The law was in tune with economic protectionism, where development was achieved through government intervention and regulations. In this strategy, the government needed to ensure that the retail trade industry was firmly under Filipino control. However, after four decades of implementing R.A. 1180, the Philippine retail sector could grow to only 10.9 percent of the gross domestic product (GDP) compared with the around 18 percent standard among Southeast Asian countries that had fully opened up their retail trade sector (Patalinhug 1996). The data showed that the Philippine retail trade industry was lagging behind and that there was more room for growth.

Both insights on R.A. 1180 were underpinned by the global paradigm shift in economic thinking. From the 1980s onward, neoliberalism had become the dominant economic philosophy, as most countries adopted liberal policies in their pursuit of development. Following the core liberal economic principles of deregulation, privatization, foreign investment, and free trade, the post-EDSA Philippine governments have steadily embraced policies such as lowering of tariff, loosening of foreign exchange controls, and opening the banking sector to foreign investments. Thus, it is logical to expect the retail trade industry to accept liberalization and thus follow the liberalization of the other sectors of the economy. Moreover, affiliation with the World Trade Organization (WTO) and the ASEAN Free Trade Area (AFTA) has strengthened the commitment of the Philippine government to liberalize the economy.
The Ramos administration, under the banner of “Philippines 2000,” pushed for liberalist policies to dismantle monopolies in telecommunications industry, airline and shipping industry, insurance industry, as well as measures liberalizing foreign-exchange (De Dios and Hutchcroft 2003, Almonte 2007). As in the other industries, the liberalization of the retail trade was also identified as a priority by the government and was communicated to Congress, as the retail sector was considered one of the last remaining economic protectionist mechanisms in the country. As a consequence, the formal move to repeal R.A. 1180 began in 1995, when the retail trade liberalization bill was first introduced in the legislature. The Committee on Trade and Commerce of both chambers held several hearings on the retail trade bill in 1995 and 1996. Since then, the bill has been successfully blocked every year in Congress. The outcome was attributed primarily to the stiff resistance from vested interests. As explained by Senator Sergio Osmena, the main proponent of the bill, that “a few retailing oligopolists have been waging a powerful lobby against the passage of the bill” (Transcript of the Senate Session Proceedings on Retail Trade Liberalization Act of 1998 held on September 21, 1999).
In 1998, the Estrada administration followed suit and continued the push for the repeal of R.A. 1180, as the economic managers (e.g., Jose Pardo, Felipe Medalla, and Mario Lamberte) of President Joseph Estrada called for the scrapping of the policy. They argued that reforming the retail trade law was long overdue, and the protectionist policy was no longer in tune with the times. For instance, the advent of internet retailing made it very difficult for countries to prevent foreign businesses from selling directly to their people. The economists from the National Economic Development Authority (NEDA) stressed that the timing for making drastic policy change was right. Opening up the remaining protectionist industry, the country would be sending a strong signal to the world that it was serious in embracing free trade and that the liberalist economic policies of the government had continuity and consistency— with the Estrada administration continuing the liberalization program of the previous regimes.

Taking the cue from the executive branch, the Eleventh Congress opened the committee hearings on 18 August 1998 in the Senate and 10 November 1998 in the House of Representatives. Senate Bill no.153 was heard by the Committee on Trade and Commerce, and House Bills no. 23, 172, 788, and 879 were heard jointly by the Committee on Trade and Industry, Committee on Economic Affairs, and Special Committee on Employment Generation. The Senate and House bills were reconciled and approved by the Bicameral Conference Committee on 9 February 2000 and passed by both Houses on 15 February 2000. The new law was formally signed by President Estrada on 7 March 2000, thus, becoming R.A. 8762— The Retail Trade Liberalization Act.

2. The Stakeholders

In the process of repealing the Retail Trade Nationalization Act, the stakeholders took one of two positions: those in favor of allowing foreign investors in the retail business and those who wanted to keep the retail trade sector exclusively to Filipinos. The first group comprised those proposing policy change and liberalization or opening of the retail trade, while the second group opposed the change, and advocated the continuation of the protectionist policy in the retail trade.

The executive agencies were at the forefront of the effort to promote policy change. Because the bill was sponsored by the administration, executive agencies such as the Department of Trade and Industry (DTI), the Department of Finance (DOF), NEDA, the Board of Investments (BOI), and the Philippine Institute for Development Studies (PIDS) actively participated in crafting and deliberating on the bill. The bill was supported by the main consumer group in the country, the Consumer Union of the Philippines (CUP); international business groups, such as the American Chamber of Commerce, the European Chamber of Commerce, and the Australian and New Zealand Chambers of Commerce; and local business groups, such as the Philippine Chamber of Commerce and Industry, and the Federation of Filipino-Chinese Chambers of Commerce and Industry. On the other side, the key opposing groups that actively participated in the policy deliberations were mostly retail business organizations and their affiliates, such as the Kilusan Tungo sa Pambansang Tangkilikan (KATAPAT), NEPA, Philippine Retailers Association (PRA), the Chamber of Filipino Retailers (CFR), the Philippine Association of Supermarkets, Inc. (PASI), the Philippine Franchise Association (PFA), and the National Market Vendors Cooperatives (NAMVESCO).

In the distribution of costs and benefits among the stakeholders, the perceived principal gainers from the repeal of the policy were the Filipino consumers, manufacturers, farmers, and small retailers, particularly the operators of “sari-sari stores” (small, neighborhood convenience stores). On the other hand, the perceived biggest losers with the entry of foreign retailers were the local medium-sized and big retailers. The costs would be borne solely by these groups, which would lose their monopoly of the local market and the government protection against direct foreign competition that they had been enjoying since 1954.

The perceived costs and benefits also created a dilemma. On one side, the losses would be immediately felt and concentrated on the medium-sized and large retail businesses; on the other side, the gains would take a longer period to be felt and would spread to a very broad mass of people. In effect, it was believed that the costs would be shouldered by a relatively small sector of the economy, while the benefits would be felt by the whole society itself, as anyone can be identified as a consumer. On the part of the Filipino retailers, the dynamics generated a strong motivation to mobilize collective action against the bill. Their collective action was deemed influential as the sector was known to be well-organized, financially well-off, and politically connected. This strength was exemplified by their capacity to block the bill a number of times since 1995 and by their passionate and well-orchestrated appeal during the legislative deliberations.

3. Policy Rationalization

Arguments. The proponents for policy change argued that the fundamental premise for repealing R.A. 1180 was that the protectionist policy resulted in an industry controlled by few players. The oligopoly created brought about the decline in the comparative and competitive advantage of the industry. Consequently, consumers were made to pay for the inefficiency of Filipino retailers, and this inefficiency translated into high prices and low-quality goods. To deal with the problem as well as to break the stranglehold of the cartel, the industry needed to be subjected to healthy competition. As there were not enough big local capitalists who were willing to invest and challenge the dominance of the few controlling players in the retail industry, it became necessary to invite foreign retailers. Thus, the retail trade business must be exposed to the full force of foreign competition— the more players, the better for the industry.

As the central justification for policy change, the promotion of competition in the retail trade industry was theoretically rationalized by the concept of a contestable market. In describing the concept, Lamberte of the PIDS stated: “It doesn’t matter whether you have two producers or one thousand producers or one producer. What is important is that one will behave like a competitor. And the only way we can force him to behave like a perfect competitor is to threaten him.” The theory implies that what is important is the presence of countervailing forces to guarantee competition and ensure efficiency among the players in the industry. NEDA Director General Medalla affirmed that an efficient operator forces other operators to be efficient as well. Here in the Philippines, liberalization in banking, telecommunications, shipping, and insurance showed beneficial impacts. For instance, in the telecommunication industry, the Philippine Long Distance Company (PLDT) that held a virtual monopoly in the past had become more efficient in the face of competition. Thus, the “transformation” of PLDT benefited the consumers as well as the company.

The liberalization of the retail trade sector was expected to help address the major economic problems facing the country. The net effect of the entry of foreign retailers could be an increase in economic activity and employment. For instance, the competition and the quest to gain market share would help bring down the prices of commodities. Lower prices of goods, if attained, could translate into less pressure from the demand for an increase in salaries and into more savings to the consumers. In addition, the pressure from competition would force local retailers to be efficient, innovative, and flexible. The presence of foreign players also could expose the retail sector to newer management systems and technology transfer. The archetype of this development is Jollibee, the local fast-food company that adopted and utilized the technology and expertise of McDonalds, its main competitor, to edge out the latter in the fast-food business. Another, the deficiency in local capital investment would be resolved by the influx of foreign capital. Domestic savings are too low to be the source of capitalization. Lastly, there would be reciprocity in opening the retail trade sector. It would follow that opening the economy would lead other countries to also open their market to Filipino products. Moreover, the entry of global retailers would enable them to identify locally produced products that could be sold in their other retail establishments around the world.

The small retailers, who comprised 96 percent, were the largest segment of the retail industry, and were projected to be minimally affected by the policy change. The sari-sari stores have distinct advantages over huge local retailers that the former could exploit when confronted by the influx of foreign retailers. Sari-sari stores are location-specific and occupy a special market niche based on convenience and unique services. For instance, sari-sari stores sell goods piecemeal (e.g., one can buy a stick of cigarette), and offer exceptional credit terms (e.g., payment is made after the buyer receives his salary). In addition, small retailers would also have more alternatives to source their goods. Sari-sari stores are clients of big retailers because their sourcing volume is too small to be serviced directly by manufacturers. The experience of Makro illustrates this case. Makro’s entry significantly improved the sourcing of cheaper supplies for sari-sari stores.

On the issue of constitutionality of the policy change, specifically the mandate that the economy should be effectively controlled by Filipinos, DOJ opinion no.155, dated December 24, 1998, signed by Secretary Serafin Cuevas, declared that the bill at hand had no constitutional infirmity. The DOJ found no legal or constitutional obstacle to the opening of the retail trade sector to foreign investors. Moreover, the DOJ also acknowledged that the policy change was within the powers of Congress to make, as the legislature has the authority and discretion, subject to those expressly reserved by the Constitution for Filipinos (public utilities, natural resources, mass media, and educational institutions), to determine the type or manner of investments open to foreigners.

Counterarguments. The opponents of the policy change argued that R.A. 1180 was still valid in the 1990s. They said that the retail trade industry, as a critical sector of the economy, must be protected against foreign competition and must be controlled by Filipinos who have a permanent stake in the well-being of the country. They also were skeptical of the outcome of competition, as they foresaw a one-sided contest. The entry of foreign retailers with their capital, and technological and other advantages could easily translate into uneven competition. For instance, they could use their financial muscle to resort to predatory pricing to eliminate competition. In addition, some in the opposition strongly believed that local retailers were still unprepared and needed some more time to get ready for competition. They suggested that Filipino retailers be given time to allow them to adjust.

For the opposition, pressing on with policy change would put many local retailers out of business. They predicted that massive displacements and closures would ensue, resulting in net job losses in the retail trade sector. The increase in unemployment would eclipse any gains in the reduction of prices of goods brought about by competition. To rationalize their position, they cited studies, such as “When Corporations Rule the World” by David Korten in support of the so-called “walmartization,” where the entry of mega global retailers in a particular locality causes sales of local stores to go down and local retail businesses to perish. They warned that the entry of foreign retailers would not automatically reduce prices, given the multitude of components that determine the price of goods (e.g., transportation cost, utilities, raw materials). If foreign retailers deemed the cost of operation high, then prices would not go down.

Others tried to block the liberalization of the retail trade industry on constitutional grounds. The main argument, as expressed by Congressman Enrico Aumentado, was that repealing the law would violate the Constitution, specifically Article 2, section 19, which says: “the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos;” Article 12, section 1, which says that “the State shall protect Filipino enterprises against unfair foreign competition and trade practices;” and section 10, which says “the congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly-owned by Filipinos.”

4. Presidential Intervention and Concessions

In the move to repeal R.A. 1180, President Estrada certified the bill as urgent in Congress. The position of the administration was formally conveyed to the lawmakers through a letter sent by Secretary Pardo, informing them that the President expected the bill to be prioritized by Congress. In line with the directive, the Government agencies, particularly DTI and NEDA, provided the information and materials needed in support of the passage of the bill. The materials were fed to the sponsoring lawmakers to enhance their knowledge and arguments during deliberations in Congress. The executive agencies also provided the working draft of the bill and served as “consultants” in the final drafting of the law. For instance, the BOI was in constant touch with the lawmakers from the committee hearings up to the Bicameral Conference Committee.

The influence of President Estrada was critical over the lawmakers. Despite the limitations imposed by the 1987 Constitution, the President continues to hold sway over Congress. In Philippine politics, traditionally the Presidency (a.k.a. the Chief Legislator) exercises strong influence over the legislature (Brillantes and Amarles-Ilago 1994, Gutierrez 1994, Velasco 2006). An example of this is the continuing influence of the President on the selection of leaders in both chambers of Congress. The person elected as the Speaker of the House or the Senate President usually has the blessings of the sitting President. Another is the legislators’ perennial practice of climbing on the President’s bandwagon by affiliating themselves or their parties. The influence of the President over Congress emanates from the power over the purse, in particular, the power to control the release of budgetary funds. In an arena where patronage politics is prevalent, the “pork barrel,” which is used to fund the projects of lawmakers, is perceived to be crucial to their political survival (Huchcroft and Rocamora 2003, Coronel et al. 2004, Caoili 2006, Hutchroft 2008). In the case of President Estrada, his charisma and extreme popularity to the masses were also a huge factor that reinforced his grip on Congress. The President’s influence over the repeal of R.A. 1180 could be inferred from the retort of Senator S. Osmena in the Senate committee hearings against the continuous and vehement objection of the retailers group to the bill— that if they want to block the bill they should go and talk to Malacanang. Moreover, adding pressure to the legislators to hasten the passing of the bill was the personal pledge made by President Estrada to the members of the Association of Southeast Asian Nations (ASEAN) in the November 1998 Summit held in Hanoi that the Philippines would immediately liberalize its retail trade sector.

The main issue in the repealing bill that needed concession was the safety net concern. The objectors argued for a guarantee that would provide security to Filipino retailers. To address the apprehension, particularly the fear on the psychological level among the Filipino retailers, the proponents agreed to incorporate in the bill the following safeguard proposals:

1. Retail trade enterprises with a paid-up capital of less than $2,500,000.00 are reserved exclusively for Filipino citizens and corporations.
2. Foreign investors interested in acquiring shares of existing local retailers may purchase only up to a maximum of 60 percent of the equity within the first two years from the effectivity of the repealing law.
3. Retail trade enterprises where foreign ownership exceeds 80 percent must offer a minimum of 30 percent of their equity to Filipinos through any stock exchange in the Philippines within eight years from their start of operations.
4. The DTI must prequalify all foreign retailers before they are allowed to conduct business in the Philippines. For instance, to preclude fly-by-night retailers, the DTI requires foreign retailers to have at least five retailing branches in operation anywhere around the world as well as a five-year track record in retailing.
5. Only foreign retailers coming from countries that allow the entry of Filipino retailers would be permitted to engage in business.
6. At least 30 percent of the stock inventory of foreign retailers, after 10 years from the effectivity of the law, must be Philippine made.
7. Qualified foreign retailers are not allowed to use rolling stores or sales representatives, or engage in door-to-door selling or the restaurant business, or run sari-sari stores.

The majority of the legislators (except five Senators, namely, Anna Dominique Coseteng, Teofisto Guingona, Loren Legarda-Leviste, Ramon Magsaysay and Nene Pimentel, and 26 Congressmen e.g., Nereus Acosta, Michael Defensor, Raul Gonzales, Renato Magtubo and Clavel Martinez) accepted the concessions to alleviate deep-seated suspicion and distrust among the oppositions. The cross-party consensus among the lawmakers was that, without the stipulations, passing the bill in both Houses would be much more difficult. To mitigate the complications, the proponents decided to be practical and accommodated the demands. The importance of concessions is summed up in the statement of Senator S. Osmena: “I just did it to appease some of the objectors to the bill” (Senate Session Proceedings on Retail Trade Liberalization Act of 1998 held on September 14, 1999). Thus, the compromise assured the enactment of R.A. 8762 and the repeal of R.A. 1180.


Summary and Conclusion

In 1954, the Third Congress passed R.A. 1180, the Retail Trade Nationalization Act, and in 2000, the Eleventh Congress enacted R.A. 8762, the Retail Trade Liberalization Act. Although separated by 45 years, the two laws are related. Both laws deal with the same industry, and the latter effectively repealed the former. Both laws were considered a radical policy change carried out by the Government. The nationalization of the retail trade was a change from an open to a protectionist policy, while the liberalization of the retail trade was a change from a protectionist to an open policy. The nationalization and eventual liberalization of the retail trade industry exemplified the intricacy of policy shift, as the experience revealed the nuances of policy change in the Philippines.

The context showed the conditions behind the agenda setting of the policy. R.A. 1180 was driven externally by the rise of the nationalist movement, which instigated economic protectionism; and internally by the Chinese domination of the retail trade. On the other hand, R.A. 8762 was instigated externally by the ascension of neoliberalism, which led to economic liberalism; and internally by the need to promote growth within the industry and the economy. Thus, both laws were set off under the backdrop of external developments and internal irritants. Moreover, the enactment of R.A. 1180 took some time, as President Quezon, Osmena, Roxas, and Quirino were not sympathetic to the nationalization of the retail trade. The passage of R.A. 8762 likewise took a while because, since its initial introduction in 1995, the liberalization bill had been opposed by powerful business oligarchs and successfully blocked in Congress. Thus, both laws took a protracted route toward their eventual passage.

The stakeholders formed two positions vis-a-vis policy change. In R.A. 1180, the proponents wanted the industry exclusively for Filipinos and the opponents were in favor of maintaining the status quo. In R.A. 8762, the proponents were in favor of allowing foreigners to engage in the retail trade business and the opposition wanted to keep the retail trade sector exclusively for Filipinos. As regards the costs and benefits equation among the stakeholders, in R.A. 1180, the perceived gainers were the Filipino retailers and investors, and the perceived losers were the aliens engaged in the retail trade business, particularly the Chinese. In R.A. 8762 the perceived principal gainers were the Filipino consumers, manufacturers, farmers, and small retailers, and the perceived biggest losers were the local medium-sized and big retailers. Moreover, Filipino retailers and investors used their shared nationality to influence the lawmakers, while the Chinese aliens sought the help of their home country to put pressure on the Philippine government to pass R.A. 1180. With R.A. 8762, in contrast, the perceived costs and benefits resulted in a dilemma, as the losses would be immediately felt and concentrated on a relatively small sector of the economy, and the gains would take a longer period to be felt and would spread to the whole society itself. Thus, the engagements among stakeholders in the two laws evolved into distinct costs and benefits dynamics.

Both laws rationalized policy change effectively. The proponents of R.A. 1180 argued using the nationalist sentiment as the principal theme. Policy regulation was needed, as the retail trade was a critical industry that must be in the hands of and controlled by Filipinos. The rationale was underscored by the prevailing development thinking anchored on the concept of self-determination and self-sufficiency. The debates in Congress portrayed policy change as pro-Filipino. On the other hand, the proponents of R.A. 8762 argued using economic necessity as the central thesis. Policy change was necessary to break the oligopoly in the retail trade sector, as only a few players controlled the industry. The argument was reinforced by the recent concept of a contestable market premised on the existence of competition. The policy deliberation in the legislature was depicted as an action to promote efficiency in the industry and to advance consumer welfare. Furthermore, the necessity for government intervention was stressed in both laws. In R.A. 1180, the proponents contended that, by themselves alone, Filipinos would find it difficult to emancipate the industry from Chinese control, and in R.A. 8762, the proponents acknowledged that there were not enough local capitalists that can bring genuine competition and challenge the existing oligopoly in the industry. Thus, both cases highlight the need for government intervention through legislation.

Finally, presidential involvement and concessions were necessary for the passage of both laws. In R.A. 1180, President Magsaysay’s endorsement played the decisive role, as the lawmakers acceded to his request to make the law acceptable to opposing stakeholders. Similarly, in R.A. 8762, President Estrada’s support was instrumental, as it ensured the backing of the majority of the lawmakers and caused the opponents to concede the inevitability of policy change. Thus, the sitting Presidents played a crucial role in the success of both policy changes

Concessions are considered a normal part of the democratic policymaking process, as opposing interests and demands necessitate compromises. In both laws, concessions were made mainly to counteract pressures and dissent. Both R.A. 1180 and R.A. 8762 were weakened by the insertions of compromise provisions; nevertheless, those provisions guaranteed the success of policy change. Thus, concessions are end-game tactics that policy actors use to ensure the enactment of contentious policies.



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