chapter 16. retail trade liberalization act of 2000 and related provisions of the anti-dummy law

SALES REVIEWER (2013-‐2014) ATTY. RAY PAOLO SANTIAGO

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED: MAY 21, 2014)

CHAPTER XVI: RETAIL TRADE LIBERALIZATION ACT OF 2000 AND RELATED PROVISIONS OF THE ANTI-‐

DUMMY LAW I. General Information On “Retail Trade Liberalization Act of 2000” A. History of Republic Act No. 8762

• Republic Act No. 8762, entitled as the “Retail Trade Libe-‐ ralization Act of 2000” (“RTLA 2000”), was enacted into law on 07 March 2000, which specifically took the place of, and thereby repealed, Republic Act No. 1180, more popularly known as “The Retail Trade Nationalization Law.”

• The Supreme Court has previously declared constitutional the Retail Trade Nationalization Law as being a valid exercise of police power.1 There is therefore every reason to consider RTLA 2000 valid and constitutional.

B. Public Policy under RTLA 2000: A reversal of paradigm; focus from the protecting the retailers to promoting the interests of consumers.

• The control and regulation of trade in the interest of the public welfare is of course an exercise of the police power of the State. To the extent that Republic Act No. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners’ right to property or to engage in an ordinarily lawful business, it

1 Inchong v. Hernandez, 101 Phil. 1155 (1957).

cannot be said that the law amounts to a denial of the Filipinos’ right to property and to due process of law. Espina v. Zamora, 631 SCRA 17 (2010).

II. Scope and Definition of “Retail Trade” A. Importance of Retail Trade (King v. Hernaez, 4 SCRA 792 [1960])

King v. Hernaez Facts: Macario King, a naturalized Filipino, owned the grocery store Import Meat & Produce. He employed 3 Chinamen, one as purchaser and 2 others as salesmen. He sought the permission of the President to retain the services of the 3, but was denied based on the Retail Trade Law and the Anti-‐Dummy Law, which prohibit aliens from interfering in the management and operation of retail establishments. King contends that the 3 aliens are employed in non-‐control positions and do not participate in the management, thus, they are not covered by the Anti-‐Dummy Law. Issue: Whether or not the employment of the 3 Chinamen is covered under the Anti-‐Dummy Law Held: YES. The prohibition covers the entire range of employment, regardless of whether they are control or non-‐control positions. Thus, employment of aliens for evening clerical positions is prohibited. The reason is obvious: to plug any loopholes that unscrupulous aliens may exploit for the purpose of circumventing the law. Doctrine:



• “Under modern conditions and standards of living, in which man’s needs have multiplied and diversified to unlimited extents and proportions, the retailer comes as essential as the producer, because thru him the infinite variety of articles, goods and commodities needed for daily life are placed within the easy reach of consumers. Retail dealers perform the functions of capillaries in the human body, thru which all the needed food and supplies are ministered to members of the communities comprising the nation. ... The retailer, therefore, from the lowly peddler, the owner of a small sari-‐sari store, to the operator of a department store or a supermarket is so much a part of day-‐to-‐day existence.” 1

B. Elements:

1. Seller habitually engaged in selling; 2. Selling direct to the general public; and 3. Object of the sale is limited to merchandise, commodities or

goods for consumption. C. Meaning of “Habitually Selling”

• Engaging in the sale of merchandise as an incident to the primary purpose of a corporation [e.g., operation of a pharmacy by a hospital; sale of cellphones by a telecommunication company] does not constitute “retail trade” within the purview of the Retail Trade Nationalization Law, as this is taken from the provision thereof excluding form the term “retail business” the operation of a restaurant by a hotel-‐owner or -‐keeper since the

1 Inchong v. Hernandez, 101 Phil. 1155 (1957).

same does not constitute the act of habitually selling direct to the general public merchandise, commodities or goods for consumption. √SEC Opinion No. 11, series of 2002, 13 November 2002.

D. Meaning of “Consumption” (DOJ Opinion No. 325, series of 1945; IRR of Law).

• The Law limits its application to the sale of items sold for domestic or household, or properly called consumer goods; whereas, when the same items are sold to commercial users, they would constitute non-‐consumer goods and not covered by the Law. Balmaceda v. Union Carbide Philippines, Inc. 124 SCRA 893 (1983).2

Balmaceda v. Union Carbide Philippines, Inc.

Facts: Union Carbide was a manufacturer having 2 divisions: the Consumer Products Division and the Industrial Products Division. Issue: Whether or not the Industrial Products Division is engaged in the retail business Held: NO. “Retail” pertains to the direct selling to the general public of merchandise of goods for consumption. They pertain to goods for personal, family and household consumption. The products sold under this division are clearly not covered by the term “consumption goods.”

2 Marsman & Co., Inc. v. First Coconut Central Co., Inc., 162 SCRA 206 (1988); B.F. Goodrich Philippines, Inc. v. Reyes, Sr., 121 SCRA 363 (1983).



They are sold to manufacturers and industries as raw materials. They are intermediate goods, not consumption goods. Doctrine: (CLV Book) The term “retail trade” should be associated with, and limited to, goods for personal, family or household use, consumption and utilization. It construed the old Retail Trade Nationalization Law to refer to “consumption goods” or “consumer goods” which directly satisfy human wants and desires and are needed for home and daily life. Accordingly, it excluded from the coverage of retail trade goods which are considered generally raw materials used in the manufacture of other goods, or if not, as one of the component raw material, or at least as elements utilized in the process of production and manufacturing.1 E. Meaning of “General Public” (DOJ Opinion No. 253, series of 1954).

• Sale to the “general public” must mean that the activities of the seller must be such that the target clientele or customers must not only be a particular person or group of persons. This is not

1 Balmaceda in effect rejected the Department of Justice Opinion No. 253, series of 1954, where it was held that the Retail Trade Nationalization Law was not limited in its coverage to house-‐owner or members of his family who purchase goods for their personal consumption and should include public utility operators who need large quantities for their services; as well as the DOJ Opinion, dated 12 September 1963 which rejected that a sale made to a manufacturer or producer would not in itself be determinative of the issue of whether the transaction is covered by the then Retail Trade Nationalization Law: “For . . . it is not the character of the business conducted by either seller or buyer that matters; it is, rather, whether the purchaser uses or consumes the goods or whether he resells the same or passes them on to the ultimate consumer.”

determined by the nature of the goods sold on whether they would be acceptable or usable only by a sector of society.

• Even when the same of consumer goods is limited only to the officers of the company, the same would still constitute retail trade covered by the Law. Goodyear Tire v. Reyes, Sr., 123 SCRA 273 (1983).

Goodyear Tire v. Reyes, Sr.

Facts: Goodyear, a corporation not wholly owned by Filipinos, was engaged in the manufacturing and sale of rubber products such as tires, batteries, conveyor belts, soles of shoes, etc. Issue: Whether or not Goodyear is covered by the Retail Trade Law insofar as the prohibition against aliens from engaging in retail trade is concerned. Held: NO. “Retail” pertains to the direct selling to the general public of merchandise of goods for consumption. They pertain to goods for personal, family and household consumption. A manufacturer who sells his products to industrial and commercial users so that the latter may use the same to render some general service to the public is clearly not covered by the prohibition. The enterprise of Goodyear clearly falls within this category. The sale to proprietary planters and persons engaged in the exploration of natural resources is also included in the said classification and cannot be considered “retail” as to come within the ambit of the prohibition. But insofar as sale to employees and officers is concerned, this may be considered “retail” and comes under the prohibition.



Doctrine: (CLV Book) This ruling that even limited sales to the company’s own officers and employees would fall under the prohibition of the Law, effectively debunk the stance taken whereby sale to a “limited class and number” is considered as non-‐retail since they consider them not sales to the “general public” or sales “confined only to a few and not to the general public.” However, the ruling demonstrates that the term “consumer goods” does not depend entirely on the nature of the goods themselves, but also require as an element the purpose or use for which the goods are bought.

• Where the glass company manufactures glass products only on specific orders, it does not sell directly to consumers but manufacturers its products only for the particular clients, it cannot be said that it is a merchandiser. DBP v. Honorable Judge of the RTC of Manila, 86 O.G. No. 6 1137 (05 February 1990).

DBP v. Honorable Judge of the RTC of Manila

Facts: In 1978, Pioneer Glass Manufacturing Corp.purchased from Yu (under Ancar Equipment Parts and Tonicar) equipment parts worth P7,000. However, Pioneer failed or refused to pay upon demand. Without informing Yu, Pioneer Glass transferred all its assets to DBP in a "deed of cession of property in payment of obligation" or dacion en pago. In turn, DBP sold these assets to Union Glass that same year. In 1983, Yu instituted an action against Pioneer Glass, DBP, and Union Glass, asserting that the transfer of the assets to DBP was void by

reason of fraud. Pioneer Glass: denied liability to Yu on the ground that by virtue of the dacion en pago in favor of DBP, the bank assumed liability to its creditors including Yu under a payment scheme, which is under pending implementation DBP: denied liability to Yu on the ground that there being no proof that the unpaid merchandise purchased by Pioneer Glass were among those transferred to it Union Glass: denied liability to Yu on the ground that there was no privity of contract between them, or assuming applicability of the Bulk Sales Law, no liability attached to Union Glass. MTC denied the motions to dismiss filed by Union Glass and DBP and ruled in favor of Yu. RTC affirmed MTC's decision. Issue: Whether or not the Pioneer Glass is a merchandiser, covered under the Retail Trade Act Held: NO. There was an undisputed evidence that Pioneer Glass manufactures glass only on specific orders and does not sell directly to consumers but manufactures its products only for particular clients. As such, it cannot be said the Pioneer Glass is a merchandiser within the meaning of the Retail Trade Doctrine: III. Categories of Retail Trade Enterprises A. Category A – Exclusive to Filipino citizens and 100% Filipino entities



• Enterprises with paid-‐up capital,1 of the peso equivalent of less than US$2.5 Million;

B. Category B

• Enterprises with a minimum paid-‐up capital of the peso equivalent of US$2.5 Million, but less than US$7.5 Million, provided that in no case shall the investments for establishing a store be less than the peso equivalent of US$30,000.00;

C. Category C

• Enterprises with a paid-‐up capital of the peso equivalent of US$7.5 Million or more, provided that in no case shall the investments for establishing a store be less than the peso equivalent of US$830,000.00; and

D. Category D – Luxury Items

• Enterprises specializing in “high-‐end or luxury products” with a paid-‐up capital of the peso equivalent of US$250,000.00 per store.

o “High-‐end or luxury goods” refers to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups, which shall include, but are not limited to, products such as: jewelry, branded or designer clothing and

1 “Paid-‐up Capital” means the total investment in a business that has been paid-‐up in a corporation or partnership or invested in a single proprietorship, which may be in cash or in property. It shall also refer to assigned capital in the case of foreign corporations. Sec. 1(l), Rule I, IRR.

footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects.2

E. Exempted Areas: Although all three (3) elements of retail trade may be present, the following transactions, or series of transactions, are expressly exempted from the coverage of “retail trade” under RTLA 2000, thus:

1. Sales by a manufacturer,3 processor,4 laborer, or worker, to the general public of the products manufactured, processed or produced by him if his capital does not exceed 5100,000.00;

2. Sales by a farmer or agriculturist,5 of the products of his farm, regardless of capital;6

3. Sales in restaurant operations by a hotel owner or inn-‐keeper irrespective of the amount of capital, provided that the restaurant is incidental to the hotel business;

2 Sec. 3(2), R.A. No. 8762. 3 “Manufacturer” refers to a person who alters raw material or manufactured or partially manufactured products, or combines the same in order to produce finished products for the purpose of being sold or distributed to others. (Sec. 1[i], Rule I, IRR). 4 “Processor” refers to a person who converts raw materials into marketable form by special treatment or a series of action that changes the nature or state of the product, like slaughtering, milling, pasteurization, drying, or dessicating, quick freezing and the like. Mere packing, packaging, sorting or classifying does not make a person a processor. (Sec. 1[m], Rule I, IRR). 5 “Farmer or Agriculturist” refers to an individuals who is personally engaged in the production of primary products such as agricultural crops, poultry, livestock, dairy products and fish, by using inputs of land and natural resources, labor and capital. (Sec. 1[c], Rule I, IRR). 6 The phrase “regardless of capital” is added under Sec. 2(b), Rule I, IRR.



4. Sales to the general public, through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalization;1

5. Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture of goods which are in turn sold by them;2 and

6. Sales to the government and/or its agencies and government-‐owned and controlled corporations.3

F. Rights Granted to Former Natural-‐Born Filipinos

• A natural-‐born citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of retail trade under RTLA 2000.4

• “Natural-‐born Filipino citizens” are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their citizenship. Those who elect Philippine citizenship in accordance with Article IV, paragraph 3 of the

1 The qualification of “sale to the general public” and “assembled in the Philippines” are added by Section 2(d), Rule I, IRR. 2 This was found under the amended version of the old Retail Trade Nationalization Law, and not found in the text of the current Act, but which has been included under Sec. 2(e), Rule I, IRR, and is consistent with the rulings of the Supreme Court that “retail trade” definition covers only consumption goods. 3 This has been added under Sec. 2(f), Rule I, IRR and similar to the addition introduced into the Retail Trade Nationalization Law under its implementing rules. 4 Sec. 4, R.A. No. 8762.

1987 Constitution shall be deemed natural-‐born citizens.5 A former natural born Filipino citizen is deemed “residing in the Philippines” if he physically stays in the country for at least 180 days within a given year.6

IV. Foreign Investment or Engage in Retail Trade in the Philippines A. Requirements for Foreign Investors B. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC Opinions, dated 20 March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office, dated 3 August 1959.

• Both the SEC and the DTI have applied the so-‐called “grandfather rule” which is a process of characterizing the citizenship of shares in one corporation held by another corporation by attributing the controlling interest of individual stockholders in the second layer of corporate ownership.

• Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60% only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But if less than 60% or, say, only 50% of the capital stock or capital of the

5 Sec. 1(j), Rule I, IRR. 6 Sec. 1(o), Rule I, IRR.



corporation or partnership, respectively belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens.1

• However, the SEC Opinion clarified that “while a corporation with 60% Filipino and 40% Foreign equity ownership is considered a Philippine national (i.e., as 100% Filipino equity) for purposes of investment, it is not qualified to invest in or enter into a joint venture agreement with corporations or partnerships, the capital or ownership of which under the Constitution or other special laws are limited to Filipino citizens only.2

C. Public Offerings of Shares of Stock

• All retail trade enterprises under Categories B and C, in which foreign ownership exceeds eighty percent (80%) of equity, shall offer a minimum of thirty percent (30%) of their equity to the public through any stock exchange in the Philippines within eight (8) years from their start of operations.3

V. Foreign Retailers in the Philippines A. Pre-‐qualification requirements

1. A minimum Net Worth of:

1 XXIV SEC Quarterly Bulletin 56 (No. 1, March 1990). 2 SEC Opinion, dated 14 December 1989, XXIV SEC Quarterly Bulletin 7 (No. 2, June 1990); SEC Opinion, dated 21 November 1972, SEC FOLIO 1960-‐1976, p. 581, published by Media Systems, Inc.; SEC Opinion, dated 22 February 1973, ibid, p. 598. 3 Sec. 7, R.A. No. 8762. “Start of operations” shall mean the date when the particular enterprise actually starts selling its inventory. (Sec. 1[r], Rule I, IRR).

a. US$200 Million of the registrant corporation in Categories B and C; and

b. US$50 Million of the registrant corporation in Category D.

2. Five (5) retailing branches or franchises, in operation anywhere around the world unless such retailer has at least one (1) store, capitalized at a minimum of US$25 Million;

3. Five (5)-‐year track record in retailing; and 4. They must be nationals from, or juridical entities formed or

incorporated in, countries which allow the entry of Filipino retailers.

B. Rules on Branches/Stores

1. Direct Opening of Branches/Stores • A registered foreign retailer may open branches and/or stores in

the Philippines falling under Categories B and C, pro-‐ vided that the investments for each branch/store must be no less than the peso equivalent of US$830,000.00.61 Such requirement shall be complied with also, when at least 51% of the outstanding capital stock of any existing retail store is acquired by a single foreign retailer.4

2. Acquiring/Investing in Existing Retail Stores • Whenever a foreign investor is also engaged in retail trade (i.e.,

foreign retailer) and such foreign investor acquires 51% or more of the outstanding capital stock of an existing retail store, no transfer of shares to any such foreign investor shall be recorded

4 Sec. 3, Rule IV, IRR.



by the Corporate Secretary in the corporate books thereof, unless a Certificate of Compliance with Prequalification is presented.1

C. Promotion of Locally-‐Manufactured Products

• For ten (10) years after the effectivity of RTLA 2000, at least thirty percent (30%) of the aggregate cost of the stock inventory of foreign retailers falling under Categories B and C and ten percent (10%) for Category D shall be made in the Philippines.2

D. Prohibited Activities of Foreign Retailers • Qualified foreign retailers shall not be allowed to engage in

certain retailing activities outside their accredited stored through the use of mobile or rolling stores or carts, the use of sales representatives, door-‐to-‐door selling, restaurants and sari-‐sari stores and such other similar retailing activities.3

E. Binding Effect of License to Engage in Retail on Private Parties

• When a license to engage in cocktail lounge and restaurant is issued to a Filipino citizen, it is conclusive evidence of the latter's ownership of the retail business as far as private parties are concerned. xDando v. Fraser, 227 SCRA 126 (1993).

VI. Penalty Provisions: Any person who shall be found guilty of violation of any provision of RTLA 2000 shall be punished by:

1 Sec. 2, Rule IV, IRR. 2 Sec. 9, R.A. No. 8762. 3 Sec. 10, R.A. No. 8762.

1. Imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years; and

2. Fine of not less than 51.0 Million, but not more than 520.0 Million.

• In the case of associations, partnerships or corporations, the penalty shall be imposed upon its partners, president, directors, manager and other officers responsible for the violation. If the offender is not a citizen of the Philippine, he shall be deported immediately after service of sentence.

• If the Filipino offender is a public officer or employee, he shall, in addition to the penalty prescribed herein, suffer dismissal and permanent disqualification from public office.

VII. Applicability of the Anti-‐Dummy Act (Comm. Act. 108, as amended by P.D. 715) A.

• Law penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions are imposed on the president, manager, board member or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.

B.

• Section 2-‐A of the Law prohibits aliens from intervening in the management, operation, administration or control of nationalized business, whether as officers, employees or laborers, with or without remuneration. Aliens may not take



part in technical aspects, provided no Filipino can do such technical work, and with express authority from the President of the Philippines.

C.

• Later, Pres. Decree 715 was enacted amending the law by the addition of a proviso expressly allowing the election of aliens as members of the boards of directors or the governing bodies of corporations or associations engaged in partially nationalized activities in proportion to their allowable participation or share in the capital of such entities.

• The amendment was meant to settle the uncertainty created in the obiter opinion in Luzon Stevedoring Corp. v. Anti-‐Dummy Board, 46 SCRA 474 (1972), which rejected the argument of a public utility corporation that had no-‐American aliens in its employ, that the Anti-‐Dummy Law covered only employment in wholly nationalized businesses and not in those that are only partly nationalized.

• The Filipino common-‐law wife of a Chinese national is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; allowing her common-‐law Chinese husband to take part in management of the retail business would be a violation of the law. xTalan v. People, 169 SCRA 586 (1989).

VIII. IMPLEMENTING AGENCY A. DTI as Implementing Agency

• The DTI is agency authorized to pre-‐qualify all foreign retailers before they are allowed to conduct business in the Philippines,

and to issue the implementing rules and regulations. The DTI shall keep a record of qualified foreign retailers who may, upon compliance with law, establish retail stores in the Philippines. It shall ensure that the parent retail trading company of the foreign investor complies with the qualifications on capitalization and track record prescribed in this section.

• The Inter-‐Agency Committee on Tariff and Related Matters of the National Economic Development Authority (NEDA) Board shall formulate and regularly update a list of foreign retailers of high-‐end or luxury goods and render and annual report on the same to Congress.

• The monitoring and regulation of foreign sole proprietorships, partnerships, associations, or corporations allowed to engage in retail trade, including the resolution of conflicts, shall be the responsibility of the DTI.

• The DTI, in coordination with the SEC, the NEDA and the BOI shall formulate and issue the implementing rules and regulations necessary to implement RTLA 2000 within ninety (90) days after its approval.

B. Role of DOJ and SEC

• Although RTLA 2000 provides that it is the DTI that is the implementing agency thereof with full authority to resolve conflicts, it should be expected that as in the case of the old Retail Trade Nationalization Law, the Secretary of Justice, as the Government’s counsel, shall issue rulings and opinions pertaining to RTLA 2000.

• Also, the SEC, as the agency charged with the supervision and control of partnerships, associations and corporations should be



expected to issue its own rulings pertaining to RTLA 2000 as it affects juridical entities.

chapter 16. retail trade liberalization act of 2000 and related provisions of the anti-dummy law

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