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SALES

REVIEWER (2013-2014)

CHAPTER XVI: RETAIL TRADE


LIBERALIZATION ACT OF 2000 AND
RELATED PROVISIONS OF THE ANTI-
DUMMY LAW

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

Republic Act No. 8762, entitled as the Retail Trade Libe-


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repealed, Republic Act No. 1180, more popularly known as The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

The Supreme Court has previously declared constitutional the


Retail Trade Nationalization Law as being a valid exercise of
police power.1 There is therefore every reason to consider RTLA
2000 valid and constitutional.


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

The control and regulation of trade in the interest of the public


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

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

ATTY. RAY PAOLO SANTIAGO

cannot be said that the law amounts to a denial of the Filipinos


right to property and to due process of law. Espina v. Zamora,
631 SCRA 17 (2010).

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

King v. Hernaez

Facts: Macario King, a naturalized Filipino, owned the grocery store
Import Meat & Produce. He employed 3 Chinamen, one as purchaser
and 2 others as salesmen. He sought the permission of the President to
retain the services of the 3, but was denied based on the Retail Trade
Law and the Anti-Dummy Law, which prohibit aliens from interfering in
the management and operation of retail establishments. King contends
that the 3 aliens are employed in non-control positions and do not
participate in the management, thus, they are not covered by the Anti-
Dummy Law.

Issue: Whether or not the employment of the 3 Chinamen is covered
under the Anti-Dummy Law

Held: YES. The prohibition covers the entire range of employment,
regardless of whether they are control or non-control positions. Thus,
employment of aliens for evening clerical positions is prohibited. The
reason is obvious: to plug any loopholes that unscrupulous aliens may
exploit for the purpose of circumventing the law.

Doctrine:


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

SALES REVIEWER (2013-2014)


same does not constitute the act of habitually selling direct to


the general public merchandise, commodities or goods for
consumption. SEC Opinion No. 11, series of 2002, 13
November 2002.

and commodities needed for daily life are placed within the
easy reach of consumers. Retail dealers perform the functions
of capillaries in the human body, thru which all the needed food
and supplies are ministered to members of the communities
comprising the nation. ... The retailer, therefore, from the lowly
peddler, the owner of a small sari-sari store, to the operator of a
department store or a supermarket is so much a part of day-to-


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


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

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

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

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


Balmaceda v. Union Carbide Philippines, Inc.

Facts: Union Carbide was a manufacturer having 2 divisions: the
Consumer Products Division and the Industrial Products Division.

Issue: Whether or not the Industrial Products Division is engaged in the
retail business

Held: NO. Retail pertains to the direct selling to the general public of
merchandise of goods for consumption. They pertain to goods for
personal, family and household consumption. The products sold under
this division are clearly not covered by the term consumption goods.

ATTY. RAY PAOLO SANTIAGO

Under modern conditions and standards of living, in which


mans needs have multiplied and diversified to unlimited
extents and proportions, the retailer comes as essential as the
producer, because thru him the infinite variety of articles, goods

day existence. 1

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


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

SALES REVIEWER (2013-2014)


They are sold to manufacturers and industries as raw materials. They


are intermediate goods, not consumption goods.

Doctrine: (CLV Book) The term retail trade should be associated with,
and limited to, goods for personal, family or household use,
consumption and utilization. It construed the old Retail Trade
Nationalization Law to refer to consumption goods or consumer
goods which directly satisfy human wants and desires and are needed
for home and daily life. Accordingly, it excluded from the coverage of
retail trade goods which are considered generally raw materials used in
the manufacture of other goods, or if not, as one of the component raw
material, or at least as elements utilized in the process of production
and manufacturing.1

E. Meaning of General Public (DOJ Opinion No. 253, series of 1954).

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

Balmaceda in effect rejected the Department of Justice Opinion No. 253,


series of 1954, where it was held that the Retail Trade Nationalization Law was
not limited in its coverage to house-owner or members of his family who
purchase goods for their personal consumption and should include public utility
operators who need large quantities for their services; as well as the DOJ
Opinion, dated 12 September 1963 which rejected that a sale made to a
manufacturer or producer would not in itself be determinative of the issue of
whether the transaction is covered by the then Retail Trade Nationalization
Law: For . . . it is not the character of the business conducted by either seller
or buyer that matters; it is, rather, whether the purchaser uses or consumes
the goods or whether he resells the same or passes them on to the ultimate
consumer.

ATTY. RAY PAOLO SANTIAGO

determined by the nature of the goods sold on whether they


would be acceptable or usable only by a sector of society.

Even when the same of consumer goods is limited only to the


officers of the company, the same would still constitute retail
trade covered by the Law. Goodyear Tire v. Reyes, Sr., 123 SCRA
273 (1983).


Goodyear Tire v. Reyes, Sr.

Facts: Goodyear, a corporation not wholly owned by Filipinos, was
engaged in the manufacturing and sale of rubber products such as tires,
batteries, conveyor belts, soles of shoes, etc.

Issue: Whether or not Goodyear is covered by the Retail Trade Law
insofar as the prohibition against aliens from engaging in retail trade is
concerned.

Held: NO. Retail pertains to the direct selling to the general public of
merchandise of goods for consumption. They pertain to goods for
personal, family and household consumption. A manufacturer who sells
his products to industrial and commercial users so that the latter may
use the same to render some general service to the public is clearly not
covered by the prohibition. The enterprise of Goodyear clearly falls
within this category. The sale to proprietary planters and persons
engaged in the exploration of natural resources is also included in the
said classification and cannot be considered retail as to come within
the ambit of the prohibition. But insofar as sale to employees and
officers is concerned, this may be considered retail and comes under
the prohibition.


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

SALES REVIEWER (2013-2014)


ATTY. RAY PAOLO SANTIAGO


Doctrine: (CLV Book) This ruling that even limited sales to the
companys own officers and employees would fall under the prohibition
of the Law, effectively debunk the stance taken whereby sale to a
limited class and number is considered as non-retail since they
consider them not sales to the general public or sales confined only
to a few and not to the general public. However, the ruling

reason of fraud.

Pioneer Glass: denied liability to Yu on the ground that by virtue of the
dacion en pago in favor of DBP, the bank assumed liability to its
creditors including Yu under a payment scheme, which is under pending
implementation

demonstrates that the term consumer goods does not depend


entirely on the nature of the goods themselves, but also require as an
element the purpose or use for which the goods are bought.

DBP: denied liability to Yu on the ground that there being no proof that
the unpaid merchandise purchased by Pioneer Glass were among those
transferred to it Union Glass: denied liability to Yu on the ground that
there was no privity of contract between them, or assuming applicability
of the Bulk Sales Law, no liability attached to Union Glass.

MTC denied the motions to dismiss filed by Union Glass and DBP and

Where the glass company manufactures glass products only on


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


DBP v. Honorable Judge of the RTC of Manila

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

In 1983, Yu instituted an action against Pioneer Glass, DBP, and Union
Glass, asserting that the transfer of the assets to DBP was void by

ruled in favor of Yu. RTC affirmed MTC's decision.



Issue: Whether or not the Pioneer Glass is a merchandiser, covered
under the Retail Trade Act

Held: NO. There was an undisputed evidence that Pioneer Glass
manufactures glass only on specific orders and does not sell directly to
consumers but manufactures its products only for particular clients. As
such, it cannot be said the Pioneer Glass is a merchandiser within the
meaning of the Retail Trade

Doctrine:

III. Categories of Retail Trade Enterprises
A. Category A Exclusive to Filipino citizens and 100% Filipino entities


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

SALES REVIEWER (2013-2014)


Enterprises with paid-up capital,1 of the peso equivalent of less


than US$2.5 Million;


B. Category B

Enterprises with a minimum paid-up capital of the peso


equivalent of US$2.5 Million, but less than US$7.5 Million,
provided that in no case shall the investments for establishing a
store be less than the peso equivalent of US$30,000.00;


E. Exempted Areas: Although all three (3) elements of retail trade may
be present, the following transactions, or series of transactions, are
expressly exempted from the coverage of retail trade under RTLA
2000, thus:
1. Sales by a manufacturer,3 processor,4 laborer, or worker, to the
general public of the products manufactured, processed or
produced by him if his capital does not exceed 5100,000.00;
2. Sales by a farmer or agriculturist,5 of the products of his farm,
regardless of capital;6
3. Sales in restaurant operations by a hotel owner or inn-keeper
irrespective of the amount of capital, provided that the

Enterprises with a paid-up capital of the peso equivalent of


US$7.5 Million or more, provided that in no case shall the
investments for establishing a store be less than the peso
equivalent of US$830,000.00; and

restaurant is incidental to the hotel business;


D. Category D Luxury Items

Enterprises specializing in high-end or luxury products with a


paid-up capital of the peso equivalent of US$250,000.00 per
store.
o High-end or luxury goods refers to goods which are
not necessary for life maintenance and whose demand
is generated in large part by the higher income groups,
which shall include, but are not limited to, products
such as: jewelry, branded or designer clothing and

ATTY. RAY PAOLO SANTIAGO

footwear, wearing apparel, leisure and sporting goods,


electronics and other personal effects.2


C. Category C

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

Sec. 3(2), R.A. No. 8762.


Manufacturer refers to a person who alters raw material or manufactured
or partially manufactured products, or combines the same in order to produce
finished products for the purpose of being sold or distributed to others. (Sec.
1[i], Rule I, IRR).
4
Processor refers to a person who converts raw materials into marketable
form by special treatment or a series of action that changes the nature or state
of the product, like slaughtering, milling, pasteurization, drying, or dessicating,
quick freezing and the like. Mere packing, packaging, sorting or classifying does
not make a person a processor. (Sec. 1[m], Rule I, IRR).
5
Farmer or Agriculturist refers to an individuals who is personally engaged in
the production of primary products such as agricultural crops, poultry,
livestock, dairy products and fish, by using inputs of land and natural resources,
labor and capital. (Sec. 1[c], Rule I, IRR).
6
The phrase regardless of capital is added under Sec. 2(b), Rule I, IRR.
3


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

SALES REVIEWER (2013-2014)


4. Sales to the general public, through a single outlet owned by a


manufacturer of products manufactured, processed or
assembled in the Philippines, irrespective of capitalization;1
5. Sales to industrial and commercial users or consumers who use
the products bought by them to render service to the general
public and/or produce or manufacture of goods which are in
turn sold by them;2 and
6. Sales to the government and/or its agencies and government-
owned and controlled corporations.3

F. Rights Granted to Former Natural-Born Filipinos


IV. Foreign Investment or Engage in Retail Trade in the Philippines
A. Requirements for Foreign Investors

B. Grandfather Rule on 100% Filipino Ownership of Corporate Entity:
SEC Opinions, dated 20 March 1972 and 22 April 1983; DTI Opinion to
Tanada, Teehankee & Carreon Law Office, dated 3 August 1959.

A natural-born citizen of the Philippines who has lost his

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

Natural-born Filipino citizens are those who are citizens of the


Philippines from birth without having to perform any act to
acquire or perfect their citizenship. Those who elect Philippine
citizenship in accordance with Article IV, paragraph 3 of the

Shares belonging to corporations or partnerships at least 60% of


the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than
60% only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or

The qualification of sale to the general public and assembled in the


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

ATTY. RAY PAOLO SANTIAGO

1987 Constitution shall be deemed natural-born citizens. 5 A


former natural born Filipino citizen is deemed residing in the
Philippines if he physically stays in the country for at least 180
days within a given year.6

Philippine citizenship but who resides in the Philippines shall be


granted the same rights as Filipino citizens for purposes of retail
trade under RTLA 2000.4

partnership at least 60% of the capital stock or capital


respectively, of which belong to Filipino citizens, all of the said
shares shall be recorded as owned by Filipinos. But if less than
60% or, say, only 50% of the capital stock or capital of the
5
6

Sec. 1(j), Rule I, IRR.


Sec. 1(o), Rule I, IRR.


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

SALES REVIEWER (2013-2014)


corporation or partnership, respectively belongs to Filipino


citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shares shall be recorded as
belonging to aliens.1

with 60% Filipino and 40% Foreign equity ownership is


considered a Philippine national (i.e., as 100% Filipino equity)
for purposes of investment, it is not qualified to invest in or
enter into a joint venture agreement with corporations or
partnerships, the capital or ownership of which under the
Constitution or other special laws are limited to Filipino citizens

C. Public Offerings of Shares of Stock

3. Five (5)-year track record in retailing; and


4. They must be nationals from, or juridical entities formed or
incorporated in, countries which allow the entry of Filipino
retailers.

B. Rules on Branches/Stores
1. Direct Opening of Branches/Stores

All retail trade enterprises under Categories B and C, in which

foreign ownership exceeds eighty percent (80%) of equity, shall


offer a minimum of thirty percent (30%) of their equity to the
public through any stock exchange in the Philippines within
eight (8) years from their start of operations.3

V. Foreign Retailers in the Philippines
A. Pre-qualification requirements
1. A minimum Net Worth of:

A registered foreign retailer may open branches and/or stores in


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


2. Acquiring/Investing in Existing Retail Stores

XXIV SEC Quarterly Bulletin 56 (No. 1, March 1990).


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

ATTY. RAY PAOLO SANTIAGO

a. US$200 Million of the registrant corporation in


Categories B and C; and
b. US$50 Million of the registrant corporation in Category
D.
2. Five (5) retailing branches or franchises, in operation anywhere
around the world unless such retailer has at least one (1) store,
capitalized at a minimum of US$25 Million;

However, the SEC Opinion clarified that while a corporation

only.2

Whenever a foreign investor is also engaged in retail trade (i.e.,


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

Sec. 3, Rule IV, IRR.


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

SALES REVIEWER (2013-2014)


by the Corporate Secretary in the corporate books thereof,


unless a Certificate of Compliance with Prequalification is
presented.1

For ten (10) years after the effectivity of RTLA 2000, at least

Qualified foreign retailers shall not be allowed to engage in


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


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

If the Filipino offender is a public officer or employee, he shall,


in addition to the penalty prescribed herein, suffer dismissal and
permanent disqualification from public office.


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

A.

When a license to engage in cocktail lounge and restaurant is


issued to a Filipino citizen, it is conclusive evidence of the
latter's ownership of the retail business as far as private parties
are concerned. xDando v. Fraser, 227 SCRA 126 (1993).


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

In the case of associations, partnerships or corporations, the


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

thirty percent (30%) of the aggregate cost of the stock inventory


of foreign retailers falling under Categories B and C and ten
percent (10%) for Category D shall be made in the Philippines.2

D. Prohibited Activities of Foreign Retailers

ATTY. RAY PAOLO SANTIAGO

1. Imprisonment of not less than six (6) years and one (1) day but
not more than eight (8) years; and
2. Fine of not less than 51.0 Million, but not more than 520.0
Million.


C. Promotion of Locally-Manufactured Products

Law penalizes Filipinos who permit aliens to use them as


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


B.

Sec. 2, Rule IV, IRR.


Sec. 9, R.A. No. 8762.
3
Sec. 10, R.A. No. 8762.
2


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

Section 2-A of the Law prohibits aliens from intervening in the


management, operation, administration or control of
nationalized business, whether as officers, employees or
laborers, with or without remuneration. Aliens may not take

SALES REVIEWER (2013-2014)


part in technical aspects, provided no Filipino can do such


technical work, and with express authority from the President of
the Philippines.

Later, Pres. Decree 715 was enacted amending the law by the

The Inter-Agency Committee on Tariff and Related Matters of

addition of a proviso expressly allowing the election of aliens as


members of the boards of directors or the governing bodies of
corporations or associations engaged in partially nationalized
activities in proportion to their allowable participation or share
in the capital of such entities.

The amendment was meant to settle the uncertainty created in


the obiter opinion in Luzon Stevedoring Corp. v. Anti-Dummy
Board, 46 SCRA 474 (1972), which rejected the argument of a
public utility corporation that had no-American aliens in its

The monitoring and regulation of foreign sole proprietorships,


partnerships, associations, or corporations allowed to engage in
retail trade, including the resolution of conflicts, shall be the
responsibility of the DTI.

employ, that the Anti-Dummy Law covered only employment in


wholly nationalized businesses and not in those that are only
partly nationalized.

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

the National Economic Development Authority (NEDA) Board


shall formulate and regularly update a list of foreign retailers of
high-end or luxury goods and render and annual report on the
same to Congress.

The Filipino common-law wife of a Chinese national is not


barred from engaging in the retail business provided she uses
capital exclusively derived from her paraphernal properties;
allowing her common-law Chinese husband to take part in
management of the retail business would be a violation of the
law. xTalan v. People, 169 SCRA 586 (1989).


B. Role of DOJ and SEC

The DTI is agency authorized to pre-qualify all foreign retailers


before they are allowed to conduct business in the Philippines,


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

Although RTLA 2000 provides that it is the DTI that is the


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


VIII. IMPLEMENTING AGENCY
A. DTI as Implementing Agency

ATTY. RAY PAOLO SANTIAGO

and to issue the implementing rules and regulations. The DTI


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


C.

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

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expected to issue its own rulings pertaining to RTLA 2000 as it


affects juridical entities.


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

ATTY. RAY PAOLO SANTIAGO