The Philippines is improving its regulatory framework to improve the country’s business climate. Many activities conducted by the National Competitive Council have focused on reducing administrative burden and cutting red tape for businesses. Government agencies across the country are also making meaningful steps to improve databases and information systems to provide practical and timely information to its citizens. For example, the government has automised a number of its services through the use of one‑stop shops or “negosyo” (business) centres to simplify the business registration process. The government also offers programmes to increase small and medium-sized enterprises’ (SMEs) capacity to adhere to design and labelling requirements, including information and mentoring sessions organised specifically for SMEs.
Good Regulatory Practices to Support Small and Medium Enterprises in Southeast Asia
Chapter 8. Philippines
Abstract
Regulatory context
In 2007, the government passed Republic Act No. 9485 or the Anti-Red-Tape Act (ARTA), which focused on improving the efficiency of public delivery by reducing red tape and preventing graft and corruption in the country. The law called for the need to re‑engineer the different systems and procedures within offices and agencies that offer frontline services (Government of the Philippines, 2007[1]). The Senate Bill 1311/House Bill 6579 passed in 2017 proposes amendments to the ARTA to further promote transparency in the government, notably in relation to business registrations by mandating cities and municipalities to follow a set of standards in processing business permits and licences. The amendment requires government agencies and local governments to, among others, undertake regulatory impact assessment (RIA) to ensure that regulations do not add undue regulatory burden and costs. The amendments also include the creation of an Anti-Red Tape Authority as the policy-making body on business registration and regulatory management.
In 2014, Republic Act (RA) 10644 or the Go Negosyo Act was enacted into law by former President Benigno Simeon C. Aquino III. The act was aimed at improving the ease of doing business in the country and at facilitating the access of micro, small, and medium enterprises (MSMEs) to the different government services through the establishment of Go Negosyo centres or one-stop shops. Through this act, recent regulatory policies for MSMEs have resulted in the push for the computerisation of registration for certain government agencies through the Philippine Business Registry (PBR).
The aforementioned laws help guide the Department of Trade and Industry in developing five-year MSME Development Plans. These Development Plans include various initiatives and programmes to be implemented by various stakeholders and are often focused on: 1) promoting an enabling business environment; 2) enhancing access to finance; 3) enhancing access to markets; and 4) improving productivity and efficiency.
The most recent MSME Development Plan 2017-22 builds on the objectives and achievements of previous plans and focuses on improving the business environment, increasing access to finance and markets, and raising productivity and efficiency (MSMED Council, 2016[2]). However, it also aims to tackle new issues such as security and border protection in light of increasing integration and mobility concerns, as well as disaster risk reduction and effective management in light of precarious financial markets. In addition, it integrates the Philippines long-term vision, also known as AmBisyon Natin 2040, which reflects the aspirations that Filipinos want to realise for the country and themselves by 2040.
The MSME Development Plan includes a number of key performance indicators to be achieved by 2022 in terms of employment, registered SMEs and value-added contribution of MSMEs to the economy (Table 8.1).
Table 8.1. Overall key performance indicators for the MSME Development Plan 2017-21
* Following the targets of ASEAN-6, particularly Malaysia and Singapore.
Source: MSMED Council (2016), Micro, Small and Medium Enterprise Development Plan 2017-2022, p. 45.
Ease of Doing Business
On 31 October 2017, President Rodrigo Duterte reaffirmed the government’s commitment to improving the ease of doing business in the country. To do this, the government seeks to undertake new projects, including new legislation or amendments to improve existing legislation.
Box 8.1. Improving the ease of doing business in the Philippines
The Government of the Philippines plans to undertake a series of reforms and improvements as a way to improve the ease of doing business in the country (Department of Trade and Industry, 2018[3]; National Competitiveness Council, 2017[4]). These include:
Jumpstarting a business
More specifically:
1. Full operationalisation of the company registration system in November 2017, an online registration for companies operated by the Securities Commission.
2. Setting up of an enhanced one-stop shop from January 2018 in Quezon City, Metro Manila, which co-locates all concerned units or offices in one facility, including the Business Permits and Licensing Office, the Zoning Office, the Treasurer’s Office, and the Bureau of Fire Protection.
3. Institutionalising a single window transaction project through the Bureau of Internal Revenue, where applicants can submit documents and be issued the Certificate of Registration and Authority to Print.
These measures are expected to reduce procedures for starting a business from 16 to 10 days and the processing time from 28 days to 16 days.
Streamlining licences and permits
The government aims to streamline the issuance of business permits and licensing through amendments to the Anti-Red Tape Act (ARTA) and improvements in the issuance of construction permits. In relation to construction permits, some measures taken include: 1) an establishment of a one-stop shop for construction-related permits in the Quezon City, Metro Manila; and 2) making business clearance a post-requirement. These measures are expected to reduce the procedures related to this transaction from 8 to 23 days and the processing time from 122 to 36 days.
Improving systems and databases
Improvements include: 1) the Philippine Business Registry, an online registration system; 2) the Philippines Data Bank, a business database to validate identities and licences; 3) the Credit Information system, an online database for lenders; 4) the Collateral Registry, a database for movable properties and other assets; 5) the eCourts system, an online appeals system and information database on judicial processes; and 6) the National Single Window (NSW), as part of the efforts within the ASEAN region to automate and harmonise import and export application processes.
Sources: Department of Trade and Industry (2018), Press Statement on Ease of Doing Business Reforms by CEODBG Undersecretary Rowel S. Barba, https://dti.gov.ph/media/speeches#press-statement-on-ease-of-doing-business-reforms-by-undersecretary-rowel-s-barba-may-2018; National Competitiveness Council (2017), The Duterte Administration Strengthens its Efforts on Improving Ease of Doing Business in the Philippines, http://www.competitive.org.ph/stories/1389 (accessed on 22 February 2018).
Several efforts to improve the regulatory process have been carried out by the government to support the growth and development of MSMEs in the country. Good Regulatory Practices were first introduced in the Philippines in 2007 when the ASEAN Consultative Committee for Standards and Quality (ACCSQ) had certified the ASEAN Good Regulatory Practice (ASEAN GRP). Since then, the government has endeavoured to adopt various frameworks and tools to improve the development of regulations, such as the introduction of the quality regulatory management system (QRMS) that includes the use of regulatory impact assessments (RIA).
Regulatory governance
Institutional and regulatory setup
Table 8.2. Institutional and regulatory setup
Sources: OECD compilation; Republic of the Philippines (2017), The Executive Branch, www.officialgazette.gov.ph/about/gov/exec (accessed on 5 December 2017); Republic of the Philippines (2017), The Judicial Branch, http://www.officialgazette.gov.ph/about/gov/judiciary/ (accessed on 6 December 2017).
Regulatory process
There is no central body in the Philippines that oversees the implementation and review of regulatory policies or, more specifically, SME regulatory policies. Laws and regulations that affect businesses can be passed at different levels of government, from the barangay to the central or national level.
In most cases, the formulation of new regulations related to SMEs and its implementation is contingent on the mandates of concerned line agencies. The executive body can produce the following forms of policies or regulations:
Table 8.3. Types of policies and regulations passed at the executive level
The involvement of the legislative bodies in SME policy is focused on the creation of appropriate laws with line agencies under the executive branch and local government units (LGUs) formulating and implementing their respective business-related regulations. These legislations come in the form of ordinances or resolutions.
An ordinance refers to a local law that regulates specific people or property following prescribed, uniform and permanent rules of conduct.
A resolution refers to a position or policy of a local administrative unit.
When drafting laws, both the Senate and Congress produce two main documents: 1) resolutions, which are principles or sentiments conveyed by either the Senate or the House of Representatives and are further classified into joint resolutions, concurrent resolutions and simple resolutions; and 2) bills, which are “laws in the making” that would also need to be approved by both houses and Office of the President.
The legislative process in the country starts with a bill that is filed with the secretary of either the lower (House of Representatives) or upper (Senators) house. The bill then undergoes three readings. The first reading involves the identification and description of the bill and its referral to the appropriate committee for consideration. The second reading includes a full reading of the bill and any proposed amendments, which is then followed by a debate among the members of the house. If approved, the bill will proceed to the third reading where it will be submitted for the final vote and conveyed to the other house for approval. The other house will then undergo a similar process.
Figure 8.1. Legislative process in the Philippines
In any case that the other house introduces new amendments which are not in accordance with the house from where it has originated, the amendments would need to be agreed within a Conference of Committees that convenes both houses.
Once the bill has been approved by both houses, it is transmitted to the President for approval. If approved, the bill officially becomes a law. If otherwise, the President can exercise his or her veto power and the Congress may re-pass the bill. The bill would need two-thirds of both houses, voting separately, to approve its enactment of the law.
Business laws and regulations in the Philippines
In general, business regulations are uniformly implemented across all enterprise sizes; however, incentives are often provided to certain MSMEs to encourage, among other objectives, entry into the formal economy or compliance to international standards, as stipulated in the aforementioned laws (World Bank, 2017[7]).
Table 8.4. Business-related laws and regulations in the Philippines
Source: World Bank (2017), Law Library, http://www.doingbusiness.org/law‑library/ (accessed on 8 March 2018).
Micro, small, and medium enterprise (MSME) regulatory policy is enshrined in the Magna Carta for MSMEs, which was first passed by the Philippine Congress as Republic Act (R.A.) 6977 in 1991. The Magna Carta serves as the national policy aimed at promoting, supporting and strengthening the growth and development of MSMEs in the Philippines (Department of Trade and Industry, 2017[8]).
Given the rapidly changing business environment, the Magna Carta was amended in 1997 (R.A. 8289) and followed by the Barangay Micro Business Enterprise (BMBE) Act (R.A. 9178), which was passed by the government in 2002. The BMBE Act aimed to encourage the growth of micro-businesses at the barangay level - the smallest administrative unit in the country, comparable to a village or neighbourhood - by providing incentives such as exemptions from tax or minimum wage requirements. Six years later in 2008, the Magna Carta was amended again (R.A. 9501) to modify the definition of SMEs and revise the rules and regulations governing the allocation of credit resources for MSMEs – notably to increase transparency on financial instruments and institutions and to enhance access to credit for MSMEs by mandating financial institutions to allocate a portion of their credit portfolio to MSMEs (Department of Trade and Industry, 2017[8]).
The present definition of MSMEs is based on Section 3 of the Magna Carta and is as follows:
“Engaged in any business activity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro‑processing, trading and services whether single proprietorship, co‑operative, partnership or corporation”.
These MSMEs are then further sorted into specific categories based on total assets of the enterprise, more particularly:
Table 8.5. MSME categories in the Philippines
Source: Information provided by the Department of Trade and Industry Philippines, 2017.
As of 2016, there are 915 726 registered MSMEs in the country. Micro-enterprises make up the bulk with 89.63% of the total enterprises, followed by small enterprises with 9.50% and medium enterprises with 0.43% (Figure 8.2). In addition, MSMEs share a substantial portion of total employment, with around 63% of workers in sectors run by MSMEs. Most MSMEs in the Philippines are concentrated in wholesale and retail trade and repair of motor vehicles and motorcycles (46.93%) followed by accommodation and food services activities (13.07%) and manufacturing (12.64%). MSMEs also contribute to around 25% of the total exports revenue and around 60% of the total exporters are categorised as MSMEs, mainly due to subcontracting arrangements with larger firms or as suppliers for exporting companies (Department of Trade and Industry, 2016[9]).
While large enterprises account for less than 0.43% of total enterprises, they employ the greatest share of workers at 37%. These large enterprises are primarily concentrated in the manufacturing (63%) and the services sector (49%) (Philippine Statistics Authority, 2015[10]).
Figure 8.2. Distribution of enterprises by size (left) and by employment (right)
Source: Department of Trade and Industry (2016), 2016 MSME Statistics, http://www.dti.gov.ph/dti/index.php/2014-04-02-03-40-26/news-room/179-workshop-on-market-access-for-smes-set.
Depending on the type of business, business registration is handled by various government agencies. For sole proprietorships, the most important step is to register the business through the Department of Trade and Industry (DTI). This is done by filling up a form with the unique business name. Business names can be cross-checked via the DTI website. Following this procedure, the enterprise will receive a DTI Certificate of Registration, which must be used to register with the local government units (LGUs) within their respective jurisdiction, e.g. mayor’s office and barangay. Once this has been completed, a certificate of business registration (from the barangay) and a business permit and licence (from the mayor’s office) is provided to the proprietor.
Following this step, the business would need to proceed to the closest regional district office (RDO) of the Bureau of Internal Revenue (BIR) for tax purposes. If there are employees working within the enterprise, other additional procedures also include the need to register with the social security service (SSS) and the Philippine Health Insurance Company (PHIC). Recently, the government has made efforts to improve the business registration procedure through the Philippine Business Registry that aims to connect all the different government agencies in one platform (Philippine Business Registry, 2018[11]).
On the other hand, instead of the DTI, the Securities and Exchange Commission (SEC) is responsible for registering partnerships and companies or corporations. The requirements are the same, with the exception of the articles of partnership or incorporation and by‑laws. The registration procedure for all types of business can range from a few days to a few months.
Table 8.6. Registration requirements in the Philippines
* The definition of partnership under the New Civil Code of the Philippines, Article 1767 is as follows: “By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves”.
** The definition of a corporation under the Corporation Code of the Philippines, Section 2 is as follows: “A corporation is an artificial being created by operation of law, having the right of succession and powers, attribute and properties expressly authorised by law or incident of its existence”.
*** Information on registration fees can be found here: www.bnrs.dti.gov.ph/web/guest/faqsfees.
Source: Philippine Business Registry (2018), Philippine Business Registry, https://www.business.gov.ph/web/guest/bn-search (accessed on 21 February 2018).
Highlights of regulatory opportunities and challenges to support SMEs
Administrative simplification
The Anti-Red Tape and Competitiveness Bureau of the Department of Trade and Industry (DTI) and the private sector through the National Competitiveness Council (NCC) have been developing a number of tools and mechanisms to improve business-related regulatory reforms, notably those that affect SMEs, by focusing on cutting red tape in the country as mandated in R.A. 9485 or the Anti-Red Tape Act (ARTA) of 2007. A number of its activities have been carried out through Project Repeal (Box 8.2) (National Competitiveness Council Philippines, 2017[12]).
Through Project Repeal, the government also runs a series of workshops on standard cost models, as a way to measure the business compliance cost and to support the development of a tool for regulators to assess administrative burden.
The National Competitiveness Council (NCC) regularly provides capacity building for officers of Business Process Licensing Offices at the subnational level in order to update them with the latest licensing procedures.
Box 8.2. Reducing the burden on businesses in the Philippines
The National Competitiveness Council (NCC), a joint public-private body, leads the regulatory reduction initiatives in the Philippines. Among these initiatives is Project Repeal, a whole-of-government approach to regulatory reform launched in 2016 and is aimed at cutting red tape that affects the ease of doing business and the delivery of social services in the country.
Project Repeal intends to rationalise the current pool of department issuances by weeding out outdated, redundant and burdensome regulations. In doing so, administrative processes are simplified and regulatory burdens to business and the public are reduced.
This long-term strategic policy reform initiative is implemented using a holistic, developmental and phased approach to improve the country’s Global Competitiveness Index, especially in the World Bank Doing Business criteria. This government-wide regulatory reform initiative is expected to directly benefit the business sector as cutting the costs of doing business will facilitate the entry and growth of trade and investments, create new businesses, and promote education and innovation in the country.
From an initial 8 agencies, the initiative has expanded to over 86 line and attached agencies. Since its inception, over 4 837 policy issuances have been reviewed.
Source: National Competitiveness Council Philippines (2017), Project Repeal: The Philippine Anti-Red Tape Challenge, http://www.competitive.org.ph/node/1361 (accessed on 7 December 2017).
In 2015, the Development Academy of the Philippines (DAP) and the National Economic and Development Authority (NEDA) initiated the Modernising Government Regulations (MGR) Programme which seeks to reduce regulatory burden in the country by 25% by 2020 (Development Academy of the Philippines, 2016[13]) (Box 8.3). Several workshops and training sessions on RIA for government agencies have been rolled out with the view to institutionalise Regulatory Management System (RMS) at the industry level and expand the use of regulatory impact assessments across government agencies and strengthening the national regulatory architecture in the country (Development Academy of the Philippines, 2017[14]).
Box 8.3. Modernising Government Regulations (MGR) programme
The MGR programme is a five-year programme led by the Development Academy of the Philippines (DAP) and the National Economic and Development Authority (NEDA). The programme aims to accelerate the improvements in regulatory quality in the country as a way to promote growth and employment and attract foreign and local investment. Since its implementation in 2014, the Modernising Government Regulations (MGR) programme has organised over five workshops and training sessions on regulatory policy tools and mechanisms with government officials. The programme is gradually expanding its outreach to the different key industries. A number of events have focused on mapping regulatory issues faced across different industries.
Since 2014, six industry dialogues have been organised to gather inputs from business owners on the perceived issues and best practices. Specific activities include: 1) interviewing businesses to gather information on business processes; 2) cross‑checking processes with citizens charters of agencies; 3) collecting details on regulations from government agencies; and 4) drawing regulatory maps for the specific industry.
As of 2017, there were 47 agencies that benefited from the RIA training sessions conducted with various government agencies. In 2018, the MGR programme will focus on infrastructure, healthcare and consumer goods. DAP has scheduled four basic regulatory impact assessment (RIA) training sessions this year. In addition, two RIA conventions will be held to gather past RIA training participants. This will be a venue to share agency experiences, best practices and challenges in RIA implementation.
In addition, the government also plans to adopt a single business ID, implement a harmonised Business Regulation Information System (BRIS) and improve the business and licensing process.
Sources: Abad Santos, C. (2017), Capacity Building on RIA: The Philippines Experience, Phnom Penh; Development Academy of the Philippines (2016), Modernizing Government Regulations: Renewed APEC Agenda for Structural Reform (RAASR) 2016-2020; Development Academy of the Philippines (2017), Accomplishment Report First Quarter: Modernizing Government Regulations Program.
One-stop business centres
As a way to further facilitate the business process, the Go Negosyo Act was passed into law in 2014. The act mandated the creation of negosyo centres to serve as one-stop business assistance centres and to house both government and private sector enablers working together to facilitate business processes in the country (Box 8.4).
The establishment of negosyo centres initiated the review of various processes and regulations of different public services offered through these centres. For example, to expedite the process of issuing licences and permits through negosyo centres, the Department of Trade and Industry (DTI), Department of the Interior and Local Government (DILG) and Department of Information and Communications Technology (DICT) have issued a Joint Memorandum Circular that aims to revise the standards in processing business permits and licences in all local government units (LGUs).1 These include using a unified form and adopting a standard process and processing time.
Box 8.4. Go Negosyo Centres: A one-stop shop for businesses in the Philippines
In 2014, the Go Negosyo Act or Republic Act No. 10644 was signed into law by former President Benigno S. Aquino. The act was aimed at strengthening micro, small and medium enterprises (MSMEs) and promoting inclusive growth in the country. The law called for the establishment of negosyo centres to facilitate the delivery of services to MSMEs in each local government unit (LGU). These negosyo centres provided services such as business registration, business advisory services, business information and advocacy, and monitoring and evaluation of improvement in business processes.
In addition to these advisory and processing services, entrepreneurs are also able to access a start-up fund from these negosyo centres. The start-up fund, also introduced in the Magna Carta for MSMEs, aims to provide financing to MSMEs that are engaged in priority sectors identified in the MSME Development Plan.
As of February 2018, there are currently 789 negosyo centres in the Philippines. Of the total, 48% are located in the island of Luzon, 23% in Visayas, and 28% in Mindanao (Department of Trade and Industry, 2014[15]).
Source: Department of Trade and Industry (2014), Go Negosyo Act, http://www.dti.gov.ph/programs-projects/negosyo-center/go-negosyo-act.
E-government
In 2012, the government conducted a study to assess the state of e-government in the Philippines. The assessment led to the development of the e-government section in the Philippine Digital Strategy 2011-16 and also informed the development of a digital blueprint for the whole-of-government or the E-Government Master Plan (EGMP). A number of improvements have already been made in relation to the master plan to support the facilitation of certain services, both for the private and public sector.
For example, the Philippine Business Registry system (https://bnrs.dti.gov.ph) allows sole proprietorships to register their businesses with the Department of Trade and Industry on line. Services include name registration, validation of existing tax identification numbers and employment registrations, online payment for application, renewal of application and trademark application. All these are done through web-based DTI tellers.
Regulatory delivery
Enforcement and inspections
Implementation of MSME regulations depends on the mandate and jurisdiction of the line agencies concerned. Some agencies that operate at the national level have provincial or regional counterparts that are also responsible for ensuring the implementation of regulations passed at the national level.
Other than line agencies, local government units are also responsible for ensuring compliance with regulations, including enforcement and inspection activities.
Compliance
Compliance with standards
MSMEs in the Philippines face low compliance with national and international standards, such as quality and environmental standards that hinder their possibility to participate in the global value chains. Oftentimes, this is attributed to the limited technical knowledge and training among potential MSMEs and start-ups.
Marketing and labelling requirements in the Philippines are guided by the Consumer Act of the Philippines (R.A. 7394) and the Philippine National Standards (PNS). The Bureau of Philippine Standards (BPS), under the Department of Trade and Industry (DTI), serves as the national standards body and is responsible for implementing and enforcing PNS and related issues. All products sold in the Philippine market, either local or imported, would need to include the following information in their product labels:
Registered trademark or brand.
Registered business information: name and address of manufacturer, importer, re‑packer, and others.
General and active ingredients.
Content and quality, including weight.
Country of manufacture.
The Department of Trade and Industry is also responsible for ensuring consumer protection needs are met through activities such as price monitoring, assistance, and effective product certification.
The Bureau of Product Standards updates the list of products under mandatory certification through their website (www.bps.dti.gov.ph) on a bi-annual basis (Box 8.5). In addition, businesses can also access an online portal has been developed to offer information on the various national and international standards, regulations and assessment requirements.
Box 8.5. Standards and Conformance (S&C) Portal in the Philippines
The S&C Portal (www.bps.dti.gov.ph) is a one-stop information centre that provides users with an easy access to a wide range of trade-related technical regulations, standards, and barriers to trade notifications within the Philippines and with major trading partners.
The portal includes a complete catalogue of Philippine National Standards and provides users with the possibility to cross-search multiple databases on line (both foreign and local).
The portal also provides the possibility for users and stakeholders to share comments on proposed technical regulations or standards issued by World Trade Organization (WTO) members (Department of Trade and Industry, 2017[16]).
Source: Department of Trade and Industry (2017), The S&C Portal, http://www.bps.dti.gov.ph/index.php?option=com_content&view=article&id=50:the-sac-portal&catid=39:rokstories-samples.
Box 8.6. Supporting product development in the Philippines
Product Development and Design Centre of the Philippines (PDDCP)
The PDDCP offers businesses with resources to help improve product and packaging design and processes. The centre offers seminars and information on the latest development and trends on packaging technologies and related topics.
Brand Equity Development Programme (BrEDP)
Launched in 2017, the BrED programme is aimed at developing and promoting local brands, notably MSMEs from at least one province, in the domestic and international market. The programme is steered by the central DTI office but participants are chosen through the Department of Trade and Industry field offices. The evaluation and selection of beneficiaries are done through the provincial offices. Beneficiaries of the programme will undertake a needs analysis and review of competencies in order to determine the most appropriate intervention. Interventions and activities include brand awareness sessions, capacity building sessions, coaching or mentoring sessions, trademark registration and other promotional activities.
Capacity building under the programme includes training, trips or sessions related to strategic marketing, brand positioning and other brand management activities. In addition, the government supports beneficiaries in facilitating registration of certificates such as the Halal, Food and Drugs Administration, and Hazard Analysis and Critical Control Points (HACCP).
One Town, One Product (OTOP) programme
Launched in 2002, OTOP serves as a stimulus programme for micro, small, and medium enterprises (MSMEs) in the Philippines. The programme encourages communities to identify, develop and grow products and services from their locality. In the recent years, the Department of Trade and Industry had launched OTOP Next Gen, which aims to upgrade the production of MSMEs with “minimum viable products”. Beneficiaries of the programme are provided with other assistance packages offered by the DTI.
KAPATID Mentor Micro Entrepreneurs (KMME) programme
KMME is an initiative between the DTI and the Philippine Centre for Entrepreneurship. It is a programme that links MSMEs with other micro, small, and medium entrepreneurs as well as large enterprises and their practitioners from the different negosyo centres nationwide. The programme provides MSMEs with the opportunity to scale up their businesses through regular mentoring sessions that focus on the needs of the mentee, e.g. production and marketing strategies and administrative and finance issues. The programme has three components and is focused on: 1) a coaching and mentoring approach between large corporations and MSMEs; 2) providing MSMEs access to Shared Service Facilities (SSF); and 3) an inclusive business model that links MSMEs to large companies’ value chains.
SME Roving Academy (SMERA)
SMERA is a progressive learning programme that supports SME development and growth. The project is aimed at integrating business development services of SMEs into the national and local level and creating strong SME networks to ensure a more inclusive promotion programme. SMEs taking part in the programme are guided by an SME counsellor throughout the production process.
Source: Department of Trade and Industry (2017), Programs and Projects, www.dti.gov.ph/programs-projects (accessed 14 December 2017).
Regulatory quality management
Regulatory impact assessments
Since 2008, initiatives have been in place to establish regulatory impact assessments in the Philippines. The National Economic and Development Authority (NEDA) has started to work with key development partners through provisions of technical assistance for the RIA pilot programme. Upon the request of NEDA and the Department of Trade and Industry (DTI), the Asian Development Bank (ADB) assessed the institutional framework and possibility of creating the Office of Best Regulatory Practice (OBRP). Following a thorough assessment of the institutions and systems with the support of the ADB, the government identified a number of challenges linked to co-ordination and interface as well as skills and capacity, which made the proposal unviable during this period.
Nonetheless, in 2012, the government decided to carry out pilot tests for regulatory impact assessments through the Department of Tourism (DOT) and the Department of Labour and Employment (DOLE). Some impact statements that have been conducted have focused on business-related issues.
Box 8.7. Regulatory impact assessment (RIA) pilot tests in the Philippines
The Philippines’ government has developed a set of regulatory impact assessment (RIA) guidelines to support implementation by line agencies. The guidelines include key steps, assessment issues, and stakeholder consultations. It also provides implementing agencies with several templates to develop preliminary impact assessments (PIA), regulatory impact statements (RIS), and regulatory assessment summaries (RAS).
The Department of Tourism (DOT) and the Department of Labour and Employment (DOLE) are two line agencies that have conducted pilot tests to introduce regulatory impact assessments (RIA) to policy-making processes. Both Departments have developed annual RIA work plans and created dedicated support teams responsible for overseeing its implementation. The agencies have also conducted a number of training and technical learning sessions for local government units.
Since the beginning of the pilots in 2012, DOT has completed four RIS focused on: 1) Rules and Regulations Governing the Conduct of Sports Scuba Diving in the Philippines; 2) Cost Recovery of Hotel Accreditation Fees; 3) Simplification of Hotel Accreditation Fees; 4) Guidelines on Marine Wildlife Tourism. DOT has also begun to introduce RIA to local government units since the fourth quarter of 2017 (Department of Tourism, 2012[17]; Abad Santos, 2017[18]).
Between 2012 and 2016, DOLE has completed eight RIS related to: 1) security of tenure; 2) employment insurance; 3) labour market tests; 4) Magna Carta of seafarers; 5) apprenticeships; 6) private recruitment and placement agencies; 7) public employment service office; and 8) a special programme for the employment of students.
Sources: Department of Tourism (2012), Philippine RIA Pilot Program, http://www.tourism.gov.ph/ria_pilot.aspx (accessed on 7 December 2017); Abad Santos, C.B.O. (2017), Capacity Building on RIA: The Philippines Experience, Phnom Penh.
Ex post evaluation
Ex post reviews of regulations are conducted on a demand-driven basis. There is currently no existing evaluation framework for MSME regulations to be regularly evaluated for their efficiency in meeting specific goals and objectives set out. Nonetheless, the government reviews existing business or SME regulations based on specific priority areas or issues affecting these enterprises.
Stakeholder engagement
Consultations are required for all legislation, department administrative orders and any issuances that directly affect the public. The framework in which consultations take place is defined by the agency. It is the prerogative of the agency formulating the regulations to make their issuance as accessible to the public as possible.
These consultations often take place after the business regulation has been drafted and prior to the approval of the appropriate authorities. Regional or provincial MSME development councils also take part in ensuring that priorities outlined by the National MSME development councils are considered at the local level. MSMEs are consulted when specific regulations are perceived to affect them.
Standard ways of informing the public of a new regulation include letters or notices to affected parties,2 publications available on the web3 and in print, and press releases. Some agencies that publish draft legislation or administrative issuances on line also provide stakeholders with the opportunity to share their comments and suggestions. For primary laws, after the comments have been considered and the draft finalised, stakeholders are provided with feedback in the form of legislative hearings or consultations.
In 2011, the Department of Trade and Industry (DTI) introduced One Country, One Voice (OCOV), which is an initiative that aims to engage stakeholders in the process of formulating trade policies. Since its introduction, OCOV has been conducted nationwide for consultations on trade agreements such as the Philippine-European Union (PH-EU) free trade agreement (FTA) and the Regional Comprehensive Economic Partnership (RCEP) (Department of Trade and Industry, n.d.[19]).
There is currently no prescribed timeline for stakeholders to respond to new or amended legislation, whether for general or MSME-specific regulations. In some cases, proposed regulations posted online are open for comments for a few days or a week.
Appeals
The government has made significant efforts to modernise the judicial system in the country, in line with Philippine Development Plan 2017-22 (Chapter 6: Pursuing swift and fair administration of justice) (National Economic and Development Authority, 2017[20]). The eCourt system was launched in 2013 and currently serves as an online case management platform that allows users to file complaints, monitor cases and receive court notices. In cases where appeals do not require legal remedy, MSMEs are encouraged to engage with their local SME Development Council located in their closest MSME assistance centres (Box 8.8).
Box 8.8. Facilitating court appeals in the Philippines
The eCourt system aims to reduce the administrative burden for judicial processes in the country, both at the local and national level. Launched in 2013, the platform provides users with the possibility to track case progress on line. The system puts into a single loop all the case management systems that exist in various court levels and allows for a seamless, electronic transmission of essential case data from lower level courts to the Supreme Council. It also involves the electronic capture, storage, management and retrieval of essential case data and aid judges and court case processors in efficiently handling the volume of cases that flood the jury. Since 2013, the government has continued to improve and expand the system. The government aims to have 297 eCourts across 10 cities by the end of 2017.
The public can access eCourts through a computer or kiosk mounted in a booth inside a court. Through this kiosk, the user can access the database and information on a specific case, including progress and scheduled hearings.
In addition to these basic features, eCourt also has a raffle system, which electronically assigns cases to branches once it has been filed. Parties are automatically informed once this has been done. The system also offers ready templates for court issuances that can be printed on the spot. Overall, the system helps support de-congestion in different courts and helps support employees in ensuring that appeals are addressed in a timely manner (Supreme Court Philippines, 2015[21]; Cabato, 2017[22]).
Sources: Supreme Court Philippines (2015), Speech delivered by Chief Justice Maria Lourdes P.A. Sereno during Social Good Summit 2015, http://sc.judiciary.gov.ph/aboutsc/justices/cj‑sereno/2015/CJ%20Sereno,%20September%2026,%202015,%20Social%20Good%20Summit%202015,%20Resorts%20World%20Manila,%20Pasay%20City.pdf; Cabato, R. (2017), Government Rolls Out over 200 eCourts to Promote Transparency, http://cnnphilippines.com/news/2017/03/30/200-ecourts-transparency.html.
SME linkages
Clusters
In 2012, the Philippine government embarked on a three-year journey to develop industry clusters to boost industrial development as well as promote micro, small, and medium enterprises (MSMEs) that are operating within specific industries. The National Industry Cluster Capacity Enhancement Project (NICCEP) aimed to increase the opportunities for enterprises within the same clusters to share knowledge, solutions, technology and resources. The NICCEP also provided the opportunity for the private sector to be actively engaged in the strategic development of the industries in the country, including systematic interaction or dialogues with the local and national government.
The Department of Trade and Industry (DTI) has launched an Industry Cluster Enhancement Programme (ICE) as a way to expand the progress achieved through NICCEP and further upgrade MSME capacities for global competition and integration into global value chains (GVCs). The programme identifies a number of priority industry clusters as targets for specific interventions such as the Shared Service Facilities programme. The Shared Service Facilities programme provides MSMEs with tools, systems and machinery under a shared system.
Box 8.9. Improving MSME productivity through shared facilities in the Philippines
The Shared Service Facilities (SSF) programme aims to improve the competitiveness and productivity of MSMEs nationwide. The SSF provides MSMEs with machinery, equipment and tools under a shared system as a way to address the challenges and reduce the burden that MSMEs face when acquiring or purchasing their own materials (Department of Trade and Industry, 2017[23]).
Target beneficiaries of the SSF project are actual and potential users of SSF, including individuals, co-operatives, associations and other groups of MSMEs. For a facility to be sponsored by the government, the SSF project must meet the following requirements:
Address processing and manufacturing gaps or bottlenecks of the industry cluster due to the: 1) absence of the needed facility; 2) lack of capacity of an existing facility; 3) high cost of services in an existing facility; and 4) limited technical and administrative services offered to facilitate the growth of MSMEs within the priority industry clusters.
Increase the productivity of the industry cluster in terms of: 1) product improvement or marketability; 2) price competitiveness; and 3) conformity to standards.
Support micro-enterprises within the priority industry clusters.
Improve products that are part of the One Town, One Product (OTOP) project.
There are currently 1 885 SSF across the country, which are well distributed to cater to help in the processing of various products across different regions. A study conducted in 2016 shows around a 20% increase in revenue or sales of SME beneficiaries within selected regions with SSF projects (Medalla et al., 2016[24]).
Sources: Department of Trade and Industry (2017), Shared Service Facilities (SSF) Projects, www.dti.gov.ph/programs-projects/shared-service-facilities; Medalla, E. et al. (2016), Preliminary Assessment of the Shared Service Facilities, https://dirp3.pids.gov.ph/websitecms/CDN/PUBLICATIONS/pidsdps1618.pdf.
In addition to NICCEP and ICE, the Comprehensive National Industrial Strategy (CNIS) aims to maximise trade and investment by strengthening specific local industries to become globally competitive.4 The CNIS aims to link and integrate the three industries (agriculture, manufacturing, and services) through innovation and research and development activities, infrastructure investments to enhance and streamline logistics and automation, SME development and other strategic development that facilitate the growth of MSMEs in the global value chains.
Table 8.7. Industry clusters in the Philippines
Source: Information provided by the Department of Trade and Industry Bureau of MSMEs, 2017.
Special economic zones (SEZs)
As of November 2017, there are 379 special economic zones in the Philippines, of which 74 manufacturing economic zone are classified as manufacturing economic zones, 262 as information and technology parks or centres, 22 agro-industrial economic zones, 19 tourism economic zones and 2 medical tourism parks (Philippine Economic Zone Authority, 2017[25]).
Special economic zones are guided by Republic Act No. 7916 or the Special Economic Zone Act. A number of activities are permitted within the economic zones and various incentives, both fiscal and non-fiscal, are offered to Philippine Economic Zone Authority (PEZA)-registered enterprises (Annex 8.A).
Non-fiscal incentives in the country include simplified import and export procedures such as the electronic import permit system and automated export documentation system. In addition, foreign nationals also enjoy incentives with regard to labour mobility (Philippine Economic Zone Authority, 2017[26]).
Labour mobility
Labour policy in the country is guided by both in the 1987 Philippine Constitution and the Labour Code of the Philippines. The Philippines continues to align its standards to promote social justice within the workplace. At present, the country has adhered to 37 conventions from the International Labour Organization (ILO), of which 30 are currently in force (International Labour Organization, 2017[27]).
Non-resident foreign nationals may be employed in supervisory, technical or advisory roles in PEZA-registered enterprises. In addition, special non-immigrant visas are also offered for foreign nationals operating in this zone, including dependents such as spouses and unmarried children under 21 years old.
Customs facilitation
In 2014, the Department of Trade and Industry (DTI) re-launched Tradeline Philippines (www.tradelinephilippines.dti.gov.ph), a business intelligence platform dedicated to providing real-time information on trade-related information to current and potential exporters (Tradeline Philippines, 2017[28]). A number of programmes and assistance schemes offered by the DTI to exporters are highlighted in the website.
Box 8.10. Export-assistance schemes and programmes in the Philippines
Start-up Ecosystem Development Programme (SEDP)
SEDP aims to nurture industry and inter-enterprise collaboration among MSMEs. To achieve this, the programme focuses on five strategic areas of development: 1) increasing culture and collaboration; 2) addressing legal and regulatory barriers; 3) offering support through government services, capital and resources; 4) creating a national start-up business council; and 5) establishing a Philippine start-up economic zone.
Regional Interactive Platform for Philippine Exporters (RIPPLES)
As a way to expand the supply base of competitive Philippine exports, RIPPLES supports products and services with high export-potential through strategic interventions such as capacity building, product development and other support mechanisms focused on production, quality, packaging and entry market requirements. Once deemed ready, products and services that are part of this programme are marketed abroad and matched with international partners or buyers.
Philippine Export Competitiveness Programme (PCEP)
PCEP aims to boost the competitiveness of local manufacturers and exporters through seminars and various activities focused on productivity, innovation and specific updates on export.
Doing Business in Free Trade Areas (DBFTA)
Information sessions are organised on a regular basis to inform exporters of the current FTA engagements. These include a handbook as well as a set of flyers to provide users with information on rules of origin, customs procedures, as well as tariff reductions and other incentives in a partner country.
Philippine Halal Export Development and Promotion Programme (PHEDP)
PHDEPT supports the development and promotion of the local Halal industry. The programme aims to establish the regulatory framework and structure to support the export of Philippine Halal products, including ensuring the compliance and quality of the products to national and international standards.
Source: Tradeline Philippines (2017), Major Programs, www.tradelinephilippines.dti.gov.ph/web/tradeline-portal/major-programs.
Accreditation is required from all importers and customs brokers for all goods and services, except for importers in special economic zones, partners of Philippine government agencies, and recognised international organisations with diplomatic status. Accredited importers and customs brokers may input import entries online through the Bureau of Customs (BOC) electronic-to-mobile (E2M) system to expedite the process.
The Government of the Philippines is expected to launch an online platform, called TradeNet, to facilitate import and export permits. TradeNet will serve as the Philippines’ national single window (NSW) for customs procedures and will be integrated with other ASEAN single windows that are currently in place. TradeNet connects 66 government agencies and 10 economic zones responsible for trade in the country. The system is expected to be integrated into the ASEAN National Single Window in 2018.
Box 8.11. Improving customs procedures in the Philippines
The electronic-to-mobile (E2M) customs system of the Bureau of Customs of the Philippines aims to modernise and improve the revenue collection capacity of the government and reduce the time required to release a cargo or import from three days to thirty minutes.
The E2M customs system aims to automate a number of transactions, including accreditation of importers or customs brokers and other clients, an update of import values, and input of lodgement entries, payment, and cargo release. To support this, the government has aimed to provide suitable IT support facilities and equipment as well as build capacity for the technical staff responsible.
For stakeholders, the project wishes to achieve greater accountability through more transparent and efficient systems, reduce the processing time especially for low-risk transactions, and, overall, help lower the cost of doing business.
Source: Bureau of Customs (2009), The Basics on the Bureau of Customs e2m-Customs Project.
Recommendations
Consider a regular or systematic review of existing regulations to ensure that proposed regulations continue to meet their intended goals. The absence of a systematic review process (e.g. sunset clauses) can risk increasing the stock of regulations overtime without lessening the burden imposed on businesses and citizens.
Update the business registration toolkit to ensure that best practices are adapted to the current context and available mediums and technologies.
Facilitate the improvements in the Philippine Business Registry to help speed up and reduce the cost of business registration. Ensure strong and efficient co‑ordination across participating agencies with regard to information shared and also promote its use among aspiring and current entrepreneurs.
Ensure coherence on the information provided by the different ministries. It is recommended that websites are regularly updated to ensure that it is in line with any regulatory changes and aligned to avoid overlaps or contradictions in information presented.
Establish or assign and oversight body or agency to oversee the mainstreaming of RIA in all regulatory or line agencies and to ensure that RIA is properly implemented. RIA introduction and implementation could focus on a cross-cutting sectoral issue such as new regulations on SMEs or business registration processes. This can likewise be linked to efforts that reduce regulatory burden in the country, by improving both the stock (quantity) and flow (quality) of regulations.
Create a “culture of engagement” that stimulates both the agency and the stakeholders in the consultation process. For example, by espousing transparency and participation in the regulation-making process, introducing user-friendly web portals, establishing notice-and-comment procedures, and providing plain, clear, and concise draft position papers for public use with adequate time for review and engagement.
Consider promoting and informing the public of possible ways to appeal on certain issues or regulations that affect them. For example, by pursuing regulatory changes in relation to the enforcement of contracts, improving the quality of commercial dispute resolutions systems; or promoting the use of alternative dispute resolutions and arbitration procedures.
Consider broadening the options used when improving inspection and enforcement to effectively deliver the objectives of a regulation. Testing is essential in ensuring that the various interventions are cost-efficient and effective in the long run.
Consider aligning national standards and labelling requirements with international or regional (ASEAN) standards, if it exists, to eliminate duplication and costs related to inspection and encourage more exports.
Test and measure if various labelling and standard requirements imposed on businesses are necessary to ensure the quality of products or if compatible for export, as a measure for value-added for SMEs. Regulatory impact assessments will be useful in helping identify the cost and benefits.
Improve backbone services such as financial services and enhance financial literacy to help SMEs understand and assess financial products and link them to domestic and global markets.
Use special economic zones (SEZs) and clusters as an opportunity and platform to effectively introduce more targeted and specific regulations for industries involved, including initiatives that help improve the quality and scalability of their products and services.
Promote and implement technological advancements in cross-border trade to further streamline customs procedures and reduce cost. Ensure that information and tools are readily available and accessible for SMEs that are interested in exporting their products to specific partner countries or specific destinations.
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Annex 8.A.
Annex Table 8.A.1. Activities and fiscal incentives for registered enterprises in Philippine Economic Zones
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Notes
← 1. Refer to the Joint Memorandum Circular No. 1, 2016: http://blgf.gov.ph/wp-content/uploads/2016/10/dilg_jmcno.1-2016.pdf.
← 2. For example, the Department of Trade and Industry’s (DTI’s) Board of Investments (BOI) issued a Memorandum Circular on the Investments Priorities Plan: http://www.boi.gov.ph/files/2017%20IPP%20GP%20&%20SG%20-%20CTC.pdf.
← 3. The Department of Trade and Industry publishes relevant legislations and department issuances via: http://dti.gov.ph/resources/laws-and-policies.
← 4. Department of Trade and Industry and Board of Investments (2018), Comprehensive National Industrial Strategy, http://industry.gov.ph/comprehensive-national-industrial-strategy/ (accessed on 21 August 2018).