Opinion No. 17-14 Re: International Freight Forwarding Applicability of Anti-Dummy Law.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

17 November 2017

SEC-OGC Opinion No.17-14 RE:International Freight Forwarding; Applicability of Anti- Dummy Law

VALDECANTOS&VALENCIALAW OFFICE Untis 16-IJ1 and 16-IJ2, 16th Floor Burgundy Corporate Tower

Makati City 1200 252 Sen. Gil J. Puyat Ave.

Attention:Atty.Jose B.Valencia

Dear Atty. Valencia,

This refers to your letter dated 03 August 2016 requesting for confirmation of the legality of the proposed increase of the foreign equity participation in MOL Logistics (Phils.), Inc., (MOL Logistics) and the applicability of Commonwealth Act No.108,as amended (Anti-Dummy Law).

primary purpose as follows: engaged in the business of international freight forwarding with the As stated in your letter, MOL Logistics is a domestic corporation

machinery, household goods and personal effects; to act as cargo consolidator, representative, contractor, or consultant of companies related to any or all the above businesses; and/or operate as an international non-vessel operating common carrier "to engage in and carry on the business of international ocean and air freight forwarding and logistics including distribution warehousing, packaging, crating, labeling, inventory management and control of general cargo, merchandise, plant and heavy or individuals directly or indirectly, wholly or partially engaged or

SEC-OGC Opinion No. 17- 14 RE: International Freight Forwarding Applicability of Anti-Dummy Law

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buyout of shares of stock belonging to Filipino shareholders. that it seeks to increase its foreign equity to about 80%, effected through 40% owned by shareholders of foreign nationality. Moreover,you disclosed Currently, MOL Logistics is 60% owned by Filipino shareholders and

Based on the foregoing, you now pose the following queries:

1. Whether a corporation doing business as an international freight forwarder can increase its foreign equity to more than 40% without violating the Constitution and other laws.

2. Whether said corporation can elect a foreign citizen as its

President.

operator of a public utility,which is defined as a"business or service engaged With respect to the first issue, a freight forwarder is considered as an

in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service." 1

ownership is restricted in corporations or associations operating a public Under Article XII of the 1987 Philippine Constitution, foreign

utility, to wit

"Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations least sixty per centum of whose capital is owned by such citizens nor shall such franchise, certificate, or authorization be encourage equity participation in public utilities by the general of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of or associations organized under the laws of the Philippines, at exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration,or repeal by the Congress when the common good so requires. The State shall public. The participation of foreign investors in the governing body

September 1997;JG Summit Holdings, Inc., v. Court of Appeals et.al., G.R. No.124293,24 September 1 Albano v.Reyes,G.R. No.83551,11 July 1989;NAPOCOR v.Court of Appeals,G.R.No.112702,26 2003

RE: International Freight Forwarding SEC-OGC Opinion No.17- 14 Applicability of Anti-Dummy Law

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(Emphasis and underscoring supplied). such corporation or association must be citizens of the Philippines"2

In SEC-OGC Opinion No. 08-21, it was opined that air freight forwarding is tantamount to engaging in domestic air commerce and/or air transportation.3 However, this foreign ownership restriction finds no application in cases where the public utility is engaged exclusively in international commerce.

Commission opined that utility firms such as international freight forwarders prohibition limiting foreign ownership to 40% of the capital of a corporation. engaged exclusively in international commerce are beyond the Constitutional In a recent related 0pinion, SEC-0GC Opinion No. 16-08,4 the

SEC-OGC Opinion 16-08 provided a summary of the related DOJ and SEC opinions regarding the inapplicability of the foreign equity restrictions to international freight forwarding, to wit:

"In the Department of Justice (DOJ) Opinion No. 98 dated 09 November 2004,5 the D0J clarified several opinions in relation to international freight forwarding vis-a-vis foreign participation in the applies only to domestic air transport and not to international air freight forwarders. said business endeavor, stating that the nationality requirement

limiting operation of public utilities to citizens of the Philippines or In another DOJ Opinion involving Maritime Shipping,it was held that public utilities which are engaged exclusively in international commerce are beyond the purview of the constitutional provision to corporations or entities at least 60% of the capital of which is owned by citizens of the Philippines.6

2008 and 2010 respectively, wherein, this Commission interpreted is beyond the purview of the nationality requirement for the This was reiterated in SEC-OGC Opinions 08-21 and 10-30 issued in that a corporation engaging in international (air) freight forwarding

operation of public utilities and may be 100% foreign." 7

3 SEC-OGC Opinion No. 08-21, dated 29 October 2008, addressed to Atty. Agerico T. Paras. 7 SEC-OGC Opinion No. 16-08 dated 20 April 2016 addressed to Mr. Takuma Yamaguchi. 2 1987 Philippine Constitution, Article XII, Section 11. 4SEC-OGC Opinion No.16-08 dated 20 April 2016 addressed to Mr.Takuma Yamaguchi 5 Letter to Mr. Domingo I. Bagaporo,Director,Board of Investments. 08 October 2014 D0J Opinion No.191,s.1982,31 August 1982 addressed to Maritime Industry Authority

RE: International Freight Forwarding. SEC-OGC Opinion No.17- 14 Applicability of Anti-Dummy Law

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forwarding are considered beyond the purview of the nationality requirement for the operation of public utilities and therefore, may be owned up to 100% by foreigners. Thus, corporations engaged exclusively in international freight

Specifically as to electing a foreign citizen as its President, does not apply to considered to be engaged in any nationalized or partly nationalized activity.8 corporations engaged in international freight forwarding as they are not Consequently, the prohibition under the Anti-Dummy Law,

rendered based solely on the facts and circumstances disclosed and relevant It shall be understood, however, that the foregoing opinion is

courts whether of similar or dissimilar circumstances.9 If, upon further solely to the particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the inquiry or investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void.

Please be guided accordingly.

CAMI'S. CORREA General Counsel

/jelc/akcg/vibg/

8 SEC Opinion dated 28 May 1985 addressed to Mr. Esteban N. Eugenio. Jr. 9 SEC Memorandum Circular 2003-15, No.7