Philippines - Private sector assessment (PSA) (Vol. 3 of 3) : Annexes

Report No. 11853-PH Philippines Private Sector Assessment (PSA) (in Three Volumes) Volume Hil: Annexes July 12, 1994 Industry and Energy Operations Division, Country Department I East Asia and Pacific Regional Office Private Sector Strategies Division, Corporate Planning Department International Finance Corporation FOR OFFICIAL USE ONLY Document of the World Bank Thi&docu;ent has a restricted distribution and rnay be used by .ecipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization  FOR OFFICIAL USE ONLY PRIVATE SECTOR A WI lAt d A_i 1. Tables on the Trade Regime ......................................... 1 2. Summary of Repealed Provisions of the Omnibus Investments Code ................ 3 3. Investment Areas Closed to More than 40 Percent Foreign Equity Participation .... ..... 5 4. Table of Nationalized Activities -rd Their Requirements ....................... 7 5. Citizenship Requirements ........................................... 12 6. Rights Provided to Foreign Investors Under the Existing Laws ................... 14 7. Board of Investment (BOI) Incentives ................................... 15 8. Investments Priority Plan (IPP) ....................................... 17 9. List of Preferred Economic Activities, 1986, 1989, 1992 ....................... 18 10. Tables on Fiscal Incentives ......................................... 22 11. Privatization ................................................... 33 12. Telecommunications Sector Performance ................................. 44 13. Government's Role in the Telecommunications Sector ......................... 48 14. Regulation of Utilities . ............................................ 49 15. Regulation and Competition in Philippine Infrastructure .......... ............. 56 16. Regulations and Competition in Infrastructural Natural Monopolies ................. 59 17. Causes of Current Regulatory Failure ................................... 62 18. Current Practice of Competition Policies ................................. 64 19. Commodities Covered by Regulations According to Purpose of Regulation .... ........ 70 20. Entry Barriers in some sectors ....................................... 73 21. Recommended Competition Policies .................................... 76 22. Recent Proposals for Competition Laws ................................. 87 23. Status of Securities Markets . ........................................ 95 24. Possible Impact of Decentralization on Private Sector Development ................ 97 This document has a rcsrcted distnbuon and may be usd by xapierts onl in the p mn oftder Iomcial duties. Its contents may not otherwise be disclosed without World Banlc uithodton.  ANNEX I Page I of 2 TABLES ON THE TRADE REGIME AVERAGE EFFECTIVE PROTECTION RATES BY SELECTED PRODUCT GROUPS I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (In Percuiag u) I__ __(in_ Sector 1985 1988 1990 1992 /a Food Processing 34.5 30.3 33.7 28.3 Exportables -9.8 -5.1 -5.1 -5.1 Importables 50.9 43.4 43.7 40.3 Textiles and footwear 70.2 22.4 11.1 7.9 Exportables 0 0 0 0 Importables 262.3 83.7 116.4 87.0 Paper, rubber, leather, plastic 240.4 107.9" 132.0 105.0 Exportables -7.0 -10.9 -10.9 -10.9 Importables 289.6 131.5 132.0 134.6 Chemicals, cheinical products 152.7 119.8 108.8 104.5 Exportables Irnportables 152.7 119.8 108.8 104.5 Source: AID (1992). /a Projected, based on EO 470.  -2 - ANNEX 1 Page 2 of 2 Table 2 DI'TRIBUTION OF TARIFF LINES BY RATE LEVEL EO 470 abeginning August 1991) Rate Level Current Year 1 Year 2 Year 3 Year 4 Year 5 In Nunber of Tariff Lines 0 33 45 431 43 43 43 3 0 277 277 304 304 285 5 42 11 11 16 16 16 10 1,635 I 1,589 1,971 1,948 1,957 1,957 15 0 3 3 6 32 26 20 1,273 970 743 8b5 912 1,036 25 0 30 30 102 132 19 30 1,226 978 850 1,042 1,013 1,971 35 7 0 102 47 622 0 40 544 485 376 667 32 0 45 2 0 624 0 0 0 50 1,431 1,173 531 501 498 208 In Percent of Tariff Lines l 0 0.53 0.81 0.77 0.77 0.77 0.77 3 0.00 4.98 4.98 5.47 5.47 5.12 5 0.68 0.20 0.20 0.29 0.29 0.29 10 26.40 28.57 35.44 35.03 35.19 35.19 15 0.00 0.05 0.05 0.11 0.58 n.47 20 20.56 17.44 13.36 15.91 16.40 18.63 25 0.00 0.54 0.54 1.83 2.37 0.34 30 19.80 17.59 15.29 18.74 18.22 35.44 35 0.11 0.00 1.83 0.85 11.19 0.00 40 8.78 8.72 6.76 11.99 0.58 0.00 45 0.03 0.00 11.22 0.00 0.00 0.00 50 23.11 21.09 9.55 0.01 8.96 3.74 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Tariff Conmnission.  -3 - ANN12 Page 1 of 2 SUMMARY OF REPEALED PROVISIONS OF THE OMNIBUS INVESTMENS CODE 1. Republic Act No. 7042 (1991), or the Foreign Investments Act of 1991 ("FIA"), repealed Articles 44 to 56 of Book n of Executive Order No. 226 (1987), or the Omnibus Investments Code of 1987 (the "Investments Code"). Set forth below is a summary of the repealed provisions of the Investments Code. (a) Article 44 defined the terms "investment" and "doing business". These terms were given the sane definitions in Section 3(c) and 3(d) of the FIA, respectively, except that the latter expressly provides that "doing business shall not be deemed to include mere investmnent as a shareholder by a foreign entity in domestic corporations ..., and/or the exercise of rights such as investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. ' (b' Article 45 declares that Book II of the Investments Code shall not apply to banking institutions. Section 4 of the FIA makes a similar declaration. (c) Article 46 regulates permitted investments. Permitted investments are foreign investments (1) in an enterprise registered under Book I of the Investments Code that would not affect its status as a registered enterprise; or (2) in an enterprise not registered under Book I of the Investment Code that would not cause foreign investment in the enterprise to exceed 40 percent of its outstanding capital or such other small percentage as may be required by law. Under Article 46, an enterprise may accept permitted investments without prior authority from the Board of Investments ("BOI"). The enterprise has to register only the pernitted investments with the BOI for record purposes. (d) Article 47 regulates permissible investments. Permissible investments are foreign investments in an enterprise not registered under Book I of the Investments Code that would cause foreign investment in the enterprise to exceed 40 percent of its outstanding capital. Under Article 47, the enterprise may accept a permissible investment only upon prior authority from the BOI. (e) Article 48 requires (1) an alien; or (2) a firm, association, partnership, corporation, or other business organization (a) formed, organized or existing under any law other than Philippine law, or (b) more than 40 percent of the outstanding capital of which is owned or controlled by aliens, to secure a written certificate from the BOI (the "BOI Certificate of Authority") before it may do business in the Philippines. (f) Article 49 enumerates the requirements to be imposed by the BOI when it issues a BOI Certificate of Authority. (g) Article 50 provides for cancellation of the BOI Certificate of Authority, or the payment of a fine, in case of violations of the conditions imposed by the law or the BOI.  4 - ANNEX 2 Page 2 of 2 (h) Article 51 provides for the applicability of Book 11 of the Investinents Code to X iergers and acquisitions. (i) Article 52 prohibits any agency, instrumentality, or political subdivision to take any action that conflicts with Book II of the Investments Code or the BOI Certificate of Authority. Section 12 of the FIA provides for a similar prohibition. (j) Article 53 provides for the automatic approval of applications under Book 11 of the Investments Code should the BOI fail to act within 10 days from official acceptance of applications. (k) Article 54 provides for the publication requirement for applications given due course by the BOI. (1) Article 55 grants the BOI the power to issue a limited authority to do business. (m) Article 56 requires the BOI to submit periodic reports to the President. 2. The only provision in Book 11 of the Investments Code that was not repealed by the FIA is Article 57. This article provides for the criminal penalties for violations of any provision of Books I and II of the Investments Code, or the terms and conditions of registration, or the BOI rules and regulations. 3. Repubiic Act 7716, known as the expanded VAT law, repealed paragraphs (c), (d) and (e) of Article 39 of Executive Order No. 226, otherwise known as the Omnibus Code of 1987. The following summarizes the repealed provisions of the Investments Code: (a) Article 39 (c) - grants tax and duty exemptions on imported capital equipment. The tax portion was repealed. (b) Article 39 (d) - grants tax credit on domestic capital equipment equivalent to 100 percent of the value of the national internal revenue taxes and customs duties had the equipment been imported. The tax portion was repealed. (c) Article 39 (e) - grants exemption on contractor's tax (value added tax). The entire paragraph was repealed.  5- ANNEX 3 Page 1 of 2 INVESTSME AREAS CLOSED TO MORE THAN 40 ERCE:NT FOREIGN EQUITY PARTICIPATION A. MANUFACTURING 1. Wood and wood products except toys 2. Wearing apparel and articles made up of textiles including embroidery services. 3. Rubber footwear 4. Handicrafts 5. G.I. sheets 6. Reinforcing bars/structural steel 7. Toothpaste/soap and detergents 8. Automotive tires 9. PVC pipes and tubings 10. Woven plastic sacks l1. Film bags 12. Plastic-molded products such as plastic housewares, appliance, housing, industrial parts, crates 13. Calendered plastic products such as shower curtains, tablecloth, leatherette 14. Ropes and twines 15. Plastic packaging materials such as flexible packaging materials 16. Industrial rubber rollers, rubber hose, industrial rubber belts such as conveyor belts 17. Pharmnaceutical products (formulation) 18. Compound resins 19. Charcoal 20. Natural latex 21. Carton box 22. Manufacture and distriboution of dangerous drugs 23. Manufacture/repair/storage/distribution of firearms, anmnunition, lethal weapons, ordinance, explosives, etc. 24. Small and medium scale enterprises with paid-in equity of less than US$500,000 B. SERVICES 25. Repair of household appliances, motor vehicles, footwear and other leather goods, watch, clock. and jewelry 26. Storage and warehousing (bonded warehouse, grain warehouse and cold storage) 27. Travel agency 28. Insurance agency/brokering 29. Insurance business 30. Restaurant business/night club 31. Shipbroker/agent 32. Freight forwarder/customs brokerage 33. Business and management consultancy 34. General building and general engineering except in highly specialized field 35. Engineering, architecture and construction consultancy except in highly specialized fields 36. Leasing of equipment except sophisticated heavy equipment 37. Data encoding  -6 - ANNEX 3 Page 2 of 2 38. Real estate business 39. Physical fitness centers such as reducing and slinuming salons, massage and sauna parlors 40. Mortuary service 41. Printing 42. Car rental 43. Operation of a moviehouse 44. Booking of locally-made pictures, importing of foreign films movie materials and production of stage shows 45. Gasoline station 46. Photography studios 47. Diessmaking/tailoring shops 48. Operation of beauty parlor/barber shop 49. Repacking 50. Public relations, public affairs, media relations, production and evaluation 51. Janitoiial/maintenance service C. TRADE 52. Import activities 53. Indenting 54. Distribution 55. Wholesale of general merchandise  ANNEX 4 Page 1 of 5 TABLIZ OF NATIONALE= ACtIWTffIS AND THEIR REQUrEMEN OWneU"iP Stamtut - ', - I__ ,.____ ___ A. Banking Insuitutions 70% Republic Act No. 337 as amended by Presidential Decree No. 71, Batas Pambansa Blg. 61. Private development banks 70% (60% with the approval of Republic Act No. 4093 as amended by the President of the Philippines) Presidential Decree No. 119, Batas Parnbansa Blg.63. Rural banks 100% Republic Act No. 726 as amended by Ptesidential Decree No. 122, Presidential Decree No. 1794 and Batas Pambansa B1g.65. Savings and loan 70% Republic Act No. 3779 as amended by associations Republic Act No. 4378, Presidential Decree No. 113, Presidential Decree No. 1796 and Batas Pambansa Blg.62. Pawnshops 70% Presidential Decree No. 114. B. Public Utilities 2 Franchise, ce,tificate or 60% Philippine Constitution Article XRl, Section any other authorization for 11. the operation and management of a public utility Build-operate-transfer 60% Philippine Constitution Article XII, Section scheme for public utilities II and Republic Act No. 6957. Permit to engage in 60% Philippine Constitution Article XII, Section domestic air cofmmerce 11 and Republic Act No. 776. and/or air transportation Under Republic Act No. 7721 - 100% foreign-owned banks may now engage in business in the Philippines under certain conditroirs 2 IJnder Republic Act No. 7718 - 100% foreign-owned corporations/contractors may participate ji* the Build-Operate- Transfer projects of the Government subject to the following conditions (1) that the infrastructure and/or development project will not require public utility franchise; and (2) that domestic labor will be employed or hired in the different phases of the construction where domestic skills are available.  - 8 - ANNEX 4 Page 2 of 5 F1lapina Ownershp Statute 8ubjea Maer Requiement D. Government Contracts Public works projects by 60% Republic Act No. 5279. private entities payable with, or in consideration of certificates of indebtedness Contracts for the 75% Commonwealth Act No. 541 as amended by construction and repair of Presidential Decree No. 1594 and Letter of locally-funded public works Instruction No. 630. Contracts for the 100% Commonweal,h Act No. 541. construction of defense- related buildings and structures (e.g., land, air, sea anl coastal defenses, arsenals, barracks, depots, hangars, landing fields, quarters, hospitals) Contracts for the supply of 60% Republic Act No. 5193. mitterials, goods and commodities to government-owned or controlled corporations, companies, agencies or municipal corporations Supplier to government 75% Commonwealth Act No. 138 as amended by agencies Republic Act No. 76, Availment and use of 100% Republic Act No. 1789 as amended by reparation benefits from Presidential Decree No. 332 and Japan. Presidential Decree No. 934.  -9 - ANNEX 4 Page 3 of 5 Subject Matter Requireme E. Lands and other Natural Resources Ownership of private land 60% Philippine Constitution Act Xin, Section 7 in relation to Section 3. Acquisition of alienable lands of Filipino citizens Philippine Constitution Act XII, Section 3. the public domain Lease of alienable lands of the 60% Philippine Constitution Act XII, Section 4. public domain State co-production joint-venture 60% Philippine Constitution Act XII. Section 2. or production sharing agreement in the exploration, development and utilization of all lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, l orests or timber, wildlife, flora and fauna, and other natural resources Small-scale utilization of natural resources and cooperative fish farming Filipino citizens Philippine Constitution Act XII, Section 2. paragraph 3. Lease of coalbearing lands Acquisition of lands within 60% Act P n 2719. military reservations 60% Commonwealth Act No. 141 in relation to Acquisition of marshy lands and Republic Act No. 274. lands under water bordering shores or banks of navigable 60% Commonwealth Act No. 141 In relation to lakes or rivers covered by leases Republic Act No. 293. Small-scale mmrnirig 100% Republic Act No. 7076. F. Fishing and Other Aquatic Rights l Use and enjoyment of marine wealth in archipelagic waters, Filipino citizens Philippine Constitution Art. Xn, Section 2. terrm r~al sea and exclusive ec(inorni< zones.  -10- ANNEX 4 Page 4 of S G. Shipping Registration of vessels of 60% Presidential Decree No. 761 amending domestic ownership for Section 806 of the Tariff and Customs coastwide trade. Code. Issuance of bay and river license. 75% Tariff and Customs Code, Section 911 in relation to Section 3702. Overseas shipping or construc- 60% Republic Act No. 1407 as amended by tion of modem boats for over- Presidential Decree Nos. 664, 744 and seas service. 764. H. Construction Overseas constructioni (Filipino 60% Presidential Decree No. 1167. contractor) Recruitment and placement of 75% Presidential Decree No. 442 as amended. workers, locally or overseas. l I. Retail Trade Retail Trade 100% Republic Act No. 1180. J. Cooperatives Cooperatives 100% Republic Act No. 6930. K. Geothermal Energ/ Lease for exploitation tapping 60% Republic Act No. 5092 as amended by and utilizadon of geothermal Presidential Decree No. 910. energy, natural gas and methane I _ _ _ _ _ g a s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __,  11I- ANNEX4 Page 5 of 5 Owxrehl Staute SubJet Matter Rqufreu L. Others Mass media 100% Philippine Constitution An. XVI, Section 11(1). Advertising industry 70% Philippine Constitution Art. XVI, Section 11 (2) and Art. XVm. Section 23. Educational institutions 60% Philippine Constitution Art. XIV, Section 4. Practice of profession (e.g. law, Filipino citizens Philippine Constitution Art. XII, Section accounting, architecture, etc.) (except as prescribed 14. by law) Operation of atomic energy 60% Republic Act No. 5207 as amended by facilities Presidential Decree Nos. 606 and 1484. Travel agencies 60% Travel Agency Code of 1988. Insurance business (e.g. joint 60% Republic Act No. 7042, List C, Transitory venture insurance companies, life Negative List; Department of Finance, and non-life insurance, agencies Department Order No. 27-92 (effective including professional March 17, 1992). reinsurance services and insurance brokerage) Rice and corn industry 60% Presidential Decree No. 194. (to be transferred to Filipinos by foreign owners over a period to be established by the National Grains Authority) Private security agencies 100% Republic Act No. 5487.  -12 - ANNEX 5 Page 1 of 2 CITIZENSHE? RFlQUIREMEN1 of Natural Ra_ouca 1. According to Art. XII, Sec. 2, all lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all potential energy sources, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, developmert, and utilization of nat -al resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 percent of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limnit of the grant. 2. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishernen and fish-workers in rivers, lakes bays, and lagoons. 3. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real c(intributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into, in accordance with this provision, within 30 days from its execution. Ownerhip of Land 4. According to Art. XII, Sec. 3, lands of the public domain are classified into agricultural, forest or timber mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding 25 years, renewable for not more than 25 years, and not to exceed one 1,000 hectares in area. Citizens of the Philippines may lease not more than 500 hectares, or acquire not more than 12 hectares thereof by purchase, homestead, or grant. Frawchise 5. According to Art. XII, Sec. 11, no franchise, certificate, or arny other form of authorization for the operation of public utility shall be granted except to citizens of the Philippines or to corporatiorLs or associations organized under the laws of the Philippines at least 60 percent of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than 50 years. Neither shall any such franchise or right be granted except under the  -13- ANNEX5 Page 2 of 2 condition that it shall be subject to amendment, or repeal by the Congress when the common good so requires. The State shall encourge equity participation in public utilities by the general public. The participation of foreign investors in the governing hody of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association rnust be citizens of the Philippines. 6. Filipino Control of Economy. According to Art. 11, Sec. 19, the State shall develop a self- reliant and independent national economy effectively controlled by Filipinos. 7. Preferential Use of Filipino Labor and Material. According to Art. XII, Sec. 12, the State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.  -14 - ANNEX 6 Page 1 of I RIGETS PlROVED TO FOREIGN ENVESTORS UNDER THE EXISTING LAWS 1. All investors and registered enterprises in the Philippines are entitled to basic rights and guarantees under the Philippine Constitution. These basic rights are the following: (a) Remittance of Earnings. Earnings from investments may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance. (b) Foreign Loans and Contracts. Foreign exchange necessary to meet the payment of interest and principal on foreign loans and foreign obligations arising from technological assistance contracts may be remitted at the prevailing exchange rate. (c) Repatriation of Investments. The entire proceeds of the liquidation of the investment may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation. (d) Reguisition of Investment. The government will not take, by its authority, any property acquired by a registered enterprise or foreign investment. But in case of war or national emergency, the government has the right to requisition such property but only for the duration of the emergency. Just compensation shall be determined and paid either at the time of requisition or immediately after the war or natural emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance. (e) Freedom from ExDropriation. There will be no expropriation by the government of the property represented by foreign investors or enterprises, except for public use or in the interest of national welfare and defense. In which case investors will be given just compensation. Foreign investors or enterprises shall have the right to remit the amount received as compensation for expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.  S ~~~~ANNEX 7 -15- Page I of 2 BOARD OF INVESIMNT (DO3) INCENTIVES 1. Under Article 39 of the Investments Code, an enterprise registered for incentives under the Investment Priority Plan (IPP) is entitled to the following pertinent incentives: (a) Income Tax Holidav. This consists of exemptions from income taxes levied by the national governrent. The period during which the exemption may be enjoyed is six years for pioneer firms and four years for non-pioneer firms, the period being counted from the commencement of commercial operations. The period may be extended on a year-to-year basis, but not to exceed eight years. (b) Additional Deductions for Labor Ex2ense. For the first five years after registration, a registered enterprise is allowed an additional deduction from taxable income of 50 percent of the wages of additional skilled and unskilled workers hired if the project meets the prescribed ratio of capital equipment to workers set by the Board of Investments (BOI). The additional deduction may be doubled if the activity is located in less developed areas as defined in Article 40 of the Investments Code. (c) Tax and Duty Exemptions on Imported Capital EguiRment. This consists of exemptions from customs and duties on certain equipment to the full extent of the tax payable. Originally, this incentive could be availed of only during the first five years after the Investments Code became effective. This period has recently been extended to December 31, 1994. (The tax portion was repealed by the expanded VAT law.) (d) Tax Credit on Domestic Capital Eguipment. A tax credit equivalent to 100 percent of the value of the national domestic revenue taxes and customs duties that would have been paid on machinery and equipment had these items been imported will be given to a new or expanding registered enterprise that purchases machinery and equipment from a domestic manufacturer; provided that (1) the machinery and equipment are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the BOI is secured for the part-time use of the equipment in a nonregistered activity to maximize its use; (2) the equipment would have qualified for tax and duty exemptions; (3) the approval of the BOI was obtained by the registered enterprise; and (4) the purchase is made within five years of the effective date of the Investments Code. (The tax portion was repealed by the expanded VAT law.) (e) Simplification of Customs Procedure. Customs procedures for the importation of equipment, spare parts, raw materials, and supplies, and exports of processed products by registered enterprises will be simplified by the Bureau of Customs. (f) Unrestricted Use of Consigned Eguipment. Machinery, equipment, and spare parts consigned to any registered enterprise will not be subject to restrictions as to period of use; provided that the appropriate re-export bond is posted and th2t the consigned equipment is for the exclusive use of the registered enterprise. Outward remittance of foreign exchange covering the proceeds of such sale, transfer, or disposition will be allowed only upon prior Central Bank approval.  16 ~~~~ANNEX-7 -16- Pg2f Page 2 of 2 (g) EmvloXMent of Foreign Nationals. A registered enterprise may employ foreign nationals in supervisory, technical, or advisory positions for a period not exceeding five years from its registration, extendible for limited periods at the discretion of the BOI. If the majority of the capital stock of a registered enterprise is owned by foreign investors, the positions of president, treasurer, and general manager or their equivalents may be retained by foreign nationals beyond the aforesaid period. Foreign nationals under employment contract within the purview of this incentive, their spouses and unmarried children under 21 years of age, who are not excluded by Section 29 of the Immigration Act, Conmn. Act No. 613 (1940), are permitted to enter and reside in the Philippines during the period of employment of such foreign national. A registered enterprise is required to train Filipinos as understudies in administrative, supervisory, and technical skills and to submnit annual reports on such training to the BOI. (h) Tax Credit for Taxes and Duties on Raw Materials. A registered enterprise may enjoy a tax credit equivalent to the national internal revenue taxes and customs duties paid on the supplies, raw materials, and semi-manufactured products used in the manufacture, processing, or production of its export products and forming part thereof, exported directly or indirectly by the registered enterprise. However, the taxes on the supplies, raw materials, and semi-manufactured products domestically purchased must be indicated as a separate item in the sales invoice. The BOI may set a fixed percentage of export sales as the approximate tax credit for taxes and duties on raw materials based on an average or standard usage for such materials in the industry. (i) Access to Bonded Manufacturing/Training Warehouse System. Registered export-oriented enterprises have access to the use of the bonded warehousing system in all areas required by the registered project, subject to guidelines that may be issued by the BOI upon prior consultation with the Bureau of Customs. (j) Exemption from Wharfage Dues and any ExDort Tax. Duty. and Fee. Exports by a registered enterprise of its nontraditional export products are exempted from any wharfage dues, export tax, and fee.  - 17 - ANNEX8 Page 1 of I INVEENS PRIORITY PLAN P 1. Pursuant to the Foreign Investments Act of 1991 (FIA), export enterprises that are non- Philippine nationals or enterprises seeking to avail themselves of the incentives under the Omnibus Invesuments Code of 1987 (Investments Code) must register with the Board of Investinents (BOI) (FIA, sec. 5 and 6). Only Philippine citizens and corporations organized under Philippine law may be granted incentives. 2. The BOI prepares an annual investments priority plan (IPP) containing the categories of economic activity in which investments are encouraged. Areas of economic activity are classified as either "pioneer" or "non-pioneer." 3. To be entitled to register for incentives, an applicant must fulfill the following conditions: (a) In the case of a corporation, it nmust be organized under Philippine law, at least 60 percent of its capital stock outstanding and entitled to vote must be owned and controlled by Philippine nationals, and at least 60 percent of the mermbers of its board of directors must be citizens of the Philippines. If an enterprise does not have the required degree of ownership by Philippine nationals, the following conditions are applicable: (i) It proposes to engage in a pioneer project that involves capital requirements, processes, technical skills, and relative business risks that, in the opinion of the BOI, cannot be adequately met by Philippine nationals; or the applicant exports at least 70 percent of its total production; (ii) It obligates itself to attain the status of a Philippine national within 30 years from the date of registration; and (iii) The pioneer area in which it will engage is not among the activities reserved by the constitution or other laws of the Philippines to Philippine citizens or corporations owned and controlled by Philippine citizens. (b) The applicant proposes to engage in a preferred project listed or authorized in the current IPP within a reasonable time to be fixed by the BOI; or, if proposing to engage in an activity not so listed, at least half of its total production is for export or it is an existing producer that will export part of its production under such conditions; and (c) The applicant is capable of operating on a sound and efficient basis and of contributing to the development of a preferred area, and of the domestic economy in general.  ANNEX 9 - 18 - Page 1 of 4 LIST OF PRZFZRRZD ECONOMIC ACTIVITXIS, 1l86, 1989, & 1992 ACTIVITY 1986 1989 1992 I. Agriculture 1. Production of food crops X X 2. Production of feed grain. X X X 3. Production of feed ingredients % and feeds 4. Production of plantation C other crops X X S. Development & prdn of planting matls X X X 6. Production of ornamental plants X 7. Production/processing of agri- X X X cultural inputs 8. Production of livestock & poultry X X X 9. Production of breeders X X X 10. Production of beverage crop. x 11. Production of fiber crops x 12. Agricultural services x x I1. Forestry X X X III. Fishery l. Marine fishing X X X 2. Aquaculture X X X IV. Mining 1. Exploration & mines development X X X 2. Mining & quarrying of metallic/ X X X non-metallic minerals 3. Processing of minerals such as X X X benoficiation S other metallur- gical methods V. Manufacturing 1. Processed food X X 2. Wood products X 3. Pulp and paper x x 4. Textile & texti.le products X X X S. Footwear K 6. Leather products X X 7. Chemical products X X X 8. Pharmaceuticals X X X 9. Rubber products X X 10. Plastic products X 11. Non-metallic mineral products X X 12. Structural materials/construction/ X housing components 13. Machinery & equipment X X 14. Electronic products, machinery/ X X X equipment, their related spare parts, accessories & supplies 15. Electrical machinery/equipment, X X their reLated spare parts, accesdor_.es & supplies 16. Shipbuilding & shiprepair X X  -19 - ANNEX 9 - 19- Page 2 of 4 ACT:V:'Y 1986 1989 1992 17. Aerospace engineering x 18. Miscellaneous manufactured products for the following industries: a. Apparel x b. Footwear/leathergoods X c. Processed food X d. Giftwares, handicrafts & x accessories e. Furniture X f. Health care X g. Sportinq goods X h. Metalworking X i. Scientific instruments X j. Custom-built vintage cars X 19. Rationalization/rehabilitation/ modernization of industrial plants a. Plywood plants x x b. Veneer plants X X c. Pulp and paper mills X X d. Powdered milk plants X a. Textile mills X X f. Cement plants X X g. M-talworking shops X X X h. Product test laboratories X X i. Nickel smelting/refining X j. Shipbuilding & shiprepair X X X k. Basic chemical plants X X X 1. Conversion of detergent mfg X facilities to coconut fatty feedstock m. Components for the Progressive X X car & truck mfg prgs n. Components for the Progressive X motorcycle mfg prg o. Program for coconut industry X p. Glass container plants X q. Semiconductor plants X r. Furniture industry s. Other .ndustrial plants as X X determined by 801 after thorough study 20. DFA-based toilet soap mfg 21. Pre-cast & prefabricated walls L components using nontraditional indigeneous materials 22. Automotive parts & components X X 23. Packaging Materials X 24. Metal products & support services X X 25. Rehabilitation & modernization of existing raw sugar factories & sugar ref ineries 26. Refined petroleum products X 27. Cement X 28. Primary & secondary processing of X ferrous metals  AN-NEX 9 -20 - Page 3 of 4 ACTIVITY 1986 1989 1992 VI. Energy-related Pro:ects 1. Alcohol production for fuel with or X X without integration with agricultural prodn of raw mat'ls therefor 2. Production of fuel or energy through X X the conversion or transformation of biomas materials coal 6 charcoal into more usable forms of fuel 3. Establishment of mfg plant substan- X X tially uning coal as fuel, geothermal & other non-conventional fuels; or conversion of existing mfg plants/eqpt for the us- of coal & non-conventional fuels 4. Manufacture of *qpt necessary for the X X prodn and/or utilization of solar energy, power, alcohol, biogas, geothermal steam or geothermal hot water, wind, coal-derived fuels & other fuels certified by the Ministry of Energy to be of non-conventional natur- 5. Manufacture of mini hydro-electric X systems 6. Any manufacturing plant essentially X using non-conventional energy device, process or system 7. Energy co-gonerating plants X X S. Power-gonerating plants % X X VII. Projects promoting the conservation A more *ffici.ent use of energy 1. installation of new eqpt or moderni- x zation of existing eqpt leading to improvements in tho efficiency w/ w/c *nergy is used 2. installatLon of new eqpt or conversLon X of existing e*pt to enable the replacement of one form of enorgy w/ another 3. Installation of new mfg plant or X process, or modernization of existing manufacturing plant or process* resulting in more efficient utilization of energy than currently achieved 4. Installation of wasto energy recovery X X system S. nstallation of e*pt & materials to X improve energy utilization in buildings 6. Manufacture of eqpt for specific use X X in the energy conservatLon projectS 7. installation of instruments & X control devices leading to improvement in the efficiency of energy use  ANNEX 9 -21 - Page 4 of 4 ACTIVITY 1986 1989 1992 VIII. Public Utilities 1. Interisland shipping L directly related X x x facilities essential to the efficient operation of ships 2. District cooling systems X 3. Overseas shippinq X X x 4. All-cargo airlines X X 5. Telephone & telegraph services in X X x less developed areas 6. Mass transport oporations X X 7. Land transport cargo handling operations 8. Port cargo handlinq services x 9. Electric distribution system in less less developed areas rX. Export traders x X X. Service exporters X X XI. Tourism-oriented servLces X XII. infrastructure/Industrial service facilitLes 1. Industrial estates, including Science and X X Technology Parks, Technology Incubation Centers and Science and Technology Centers 2. Common service facilities X 3. Industrial & hazardous waste mgt X services 4. Industries supporting exporters X 5. revelopment of retirement villajes, incldg X health & medical facilities XIII. Research & development activities which are X X science- and technology-oriented Source: Investment Priority Plan 1986, 1989, & 1592.  Td 4 FACTOR BOAS OF 80 -tICENTIVES: CAPrrAL-LASA RATIO Of a0 REGISTERED F6UM. lM - sos2 (Rod Tama) Code WdKtI 66 1087 196 66 190 Mt low 31 PIOc6Sl d foods 119.72 0554 20516 12S25 56004 20568 ms3 32 TMWI. W_o ApWE LMlu bukOS" I384 68078 754U 298 09 22721 0800 4620 33 Wood A Wood PVoduc- 4023 3122 12906 5618 804 006 3021F 34 Pap. A PFtq Pioduc.t Pai A PWhlwn !48.75 34306 836 63 38130 154122 06806 35 CtmnUcls & Cht. Paods. PabolunkimO. Asbwlmft ProduCts 26009 15591 722.00 70329 73830 3771= 12223 30 tNn-Ai." LAwal Product.sE, hodUCO Pof .umA Cod 134807 6II53 44995 91357 2520.16 1703,4 51052 0 37 Baic 1M RoduL 6oe0 07 -7490 40a00 1540.20 62643 053566 38FabdcoFd&MWP 8a129 80.06 15659 22504 3az30 14046 3673 30 lirsenlmum UwrnPled fodsfa 42*16 21.64 5907 51.24 2412 2533 5s)6 hMffAqnmNia 67.95 0709 179079 287.79 341633 514 50 66543011 AQRCULTURE 19627 17762 12370 28270 16820 107.64 50120 EKT.. GS A WATER 47s53 7630 334100 119609 12274000 654160 _ 6 MIHH A OAMAVINQ 231-79 264.70 68477 663.75 462.17 10121 RJSUC unufl 134662 32054 454.11 25864 1430 9 tIUR OEDW POJJSEREE OR - 333a30 1070867 1062.40 7000 20022 IIUTRI C1UNUSTIL SRICES 247517 5I80A 62J7140a AMEARCH A OeJB01.OPMENT PWKTSM 6366938 75043 TOTAL 0091 105 17 189.00 30848 50400 6633 117315 ScKsca ol Sofcow S t_olmd S%sita an Prajuda Appcovd widnd E0220. by $6COW. 1060- A12 Dowd of wIetmiWidhi pAd Tur n oDIqIuOd by dung Flojad Cos by C4pli Formutan IPIN for w yow tm 1905) Sewdi C6mdo.ds ufdo mm.halg is bsd on NSO daslcon wich bMOW PhlWino Stwndwd hduSud te ,Icdof (PS1) *1062 toIn* Jemuin te Odh oly.- FNINAff4 JL_ 22n I  Table&. DISTRIBUTION OF PROJECT COST OF BOI-REGISTEREDFIRMS.1906-1992. BY INDUSTRY (In percerwt .de Industy 1908 1987 1908 1989 1990 1091 1992^ 31 Proceased Foods 5.91 3.39 2.27 1.61 1.51 3.63 0.69 32 Tutile, Wearing Apparel & Leatht lndustries 21.77 52.53 10.35 31.69 8.27 2.62 0.94 33 Wood & Wood Products 1.89 2.68 2.04 0.77 0.24 0.55 0.10 34 Paper & Paper Products. PrintIng & Publishing 3.71 1.64 1.61 0.97 2.16 0.40 35 Chmicals & Cham. Prods. Petrolsum.Coal. Rubber/PlasUc Products 4.88 6862 25.14 8.37 4.70 36.30 0.70 36fNon-MetalicMlneral Products. ExceplProdudsofPetroleum&Coal 1.65 0.27 10.29 11.49 11.61 9.15 10.03 37 BasIc Metal Products 1.30- 0.02 0.38 1.93 2.14 59.76 38 Fabrcated Metal ProductlMachNnery Equlpernt 3917 10.10 20.38 14.60 11.35 4.05 5.23 39 Mlacelafnwou Manufactured Producft 1.52 1 99 4 14 2.44 0.82 0.45 0.60 MANUFACTUSING 76.59 8264 76Q26 73.23 41.41 61.14 70603 AGRICULTURE 20.33 13.83 11.15 6.43 1.20 1.97 3.46 ELECT, GAS & WATER 3.07 1.35 7.21 0.47 23.44 27.15 15.93 MINING & OJARRYING 2.17 1.90 8.68 1022 285 0.45 PUBLIC UTIUllES 293 1.19 3.59 1-30 0.73 TOURISM ORIENTED PROJSERVICE EXPORIERS 055 10.00 12.86 4.14 0.09 EXPORT TRADERS 0.01 INFRASTRUCTURE/INDUSTRIAL SERVICES 7.27 1.02 0.59 RESEARCH & DEVELOPMENT PROJECTS 0.43 0 00 TOTAL 100.00 100 00 100.00 100.00 100 00 100Q00 100 00 Souce*ofBasic Dta: S*ctd dStatIticsonProjectsApprovedunderEO22bySector. 1986-1992- BoardolInvestments(BOI). '1092 is kom January to October only. iFN: REBART5 Jan. 22. 1993 Sfl  Tableb . SCALE BIAS OF 601 INCENTIVES: AVERAGE NUMBER OF WORKERS PER FIRM OF BOI-REGISTEREDFIRMS. 19il6-192 Code Indu!str 1986 1907 1958 1989 1910 -- 1911 low 31 Processed Foods 60.46 127.63 96.68 145.26 6600 159.26 40.1S 32 Textile. Wearing Apparel & Leather IndustfIes 233.94 238.28 207.84 214.10 164.50 1