STATE OF PLAY OF COMPETITION POLICY
IN THE PHILIPPINES
By: Atty. Edgardo B. Abon*
While the country
may have
introduced procompetitive policy
reforms,…
For much of the 1970s and 1980s, Philippine economic
policies were largely directed towards an inward-looking
protectionist trade regime and an industrial structure
characterized by high levels of market concentration. The
results were the capture of economic rents by the few,
economic growth characterized by low multifactor
productivity, and a very unequal distribution of wealth.
With the introduction of significant policy reforms, i.e., trade
liberalization,
deregulation,
demonopolization,
and
privatization, the country’s economic growth performance
and its resilience to external shocks improved. The
structural reforms proved their significance when the
country was able to weather the impact of the Asian crisis,
escaping relatively well the severe declines in output
experienced in the region.
…such as the
Tariff Reform and
Import
Liberalization
Programs, and
Investment
Liberalization,
among other
structural
reforms,…
Future prospects for competition policy in the Philippines
are good. Under the Tariff Reform Program, the average
overall nominal tariff has dropped sharply from 42% in
1981 to 6.49% at present. Effective protection rates have
declined from 49.3% in 1985 to 14.38%. On the other
hand, the Import Liberalization Program has reduced the
number of items with import restrictions from 1,829 to 106.
Under the investment-enhancing program, retail trade has
been opened up to 100% foreign ownership under certain
conditions and foreign equity participation in financing
companies has been increased from 40% to 60%.
…the country’s
global
competitiveness
can still be
enhanced.
However, while the country may have introduced policy
reforms fostering competition, its declining international
competitiveness, especially when compared with other
major economies in the region, highlights that the
achievements so far have still not been sufficient to lock in
long term sustainable economic growth, stability and
*
The author is the current Chairman of the Philippine Tariff Commission.
international competitiveness.
The momentum
must be sustained
by putting in place
a comprehensive
competition policy.
The challenge confronting the country is to sustain
the momentum, by extending the various pro-competitive
reforms in a well-defined and transparent process. In line
with policy developments in many countries, the direction
for the Philippines to take is the formulation and
implementation not only of a competition policy but, more
importantly, a comprehensive competition policy.
WHERE THE PHILIPPINES IS
A.
Survey of Existing Laws
1. The 1987 Philippine Constitution
The Constitution
provides the basis
for regulating and
prohibiting anticompetitive
behavior in the
market.
Article XII, Section 19 of the Constitution
provides that:
“The State shall regulate or prohibit monopolies
when the public interest so requires.
No
combinations in restraint of trade or unfair
competition shall be allowed.”
The Constitution does not prohibit monopolies
by themselves. There is no legal presumption on the
illegality of monopolies. However, the government
can prohibit or regulate monopolies on the ground of
public interest.
Combinations in restraint of trade as well as
unfair competition are illegal per se. They are to be
prohibited without exception.
It must be noted, however, that there are no
constitutional definitions of what would constitute
monopolies, or combinations in restraint of trade or
unfair competition, or a constitutional provision for
the imposable sanctions for any violations. Hence,
separate legislation and/or judicial interpretation of
the constitutional provision were needed for these
purposes.
2. Statutes
Competition law,
particularly
antitrust, is not
new to the
Philippines. Eight
separate Acts
address elements
of competition
policy in some
way.
The basic, and probably the oldest, law
addressing anti-competitive behavior is penal or
criminal in nature. Article 186 of the Revised
Penal Code (R.A. 3815) defines and penalizes
monopolies and combinations in restraint of trade
and provides penalties such as imprisonment
(prision mayor) of six years and one day to twelve
years or fine ranging from Two Hundred Pesos
(P200.00) to Six Thousand Pesos (P6,000.00) or
both.
The Civil Code of the Philippines (R.A.
386), which came into effect in August 1950, also
allows the collection of damages arising from unfair
competition in agricultural, commercial, or industrial
enterprises. The law does not define what unfair
competition is and merely proceeds to enumerate
methods by which unfair competition can be
committed: force, intimidation, deceit, machination,
or any other unjust, oppressive or highhanded
method.
The Revised Penal Code also penalizes other
frauds in commerce and industry such as falsely
marking gold and silver articles and altering
trademarks. These provisions were based on the
Sherman Act of the United States of America.
Recovery of treble damages for civil liability
arising from anti-competitive behavior is allowed
under Republic Act No. 165, otherwise known as
An Act to Prohibit Monopolies and Combinations
in Restraint of Trade.
Special laws or statutes have also been
enacted to specifically address some unfair trade
practices. The Intellectual Property Code of the
Philippines (R.A. 8293) provides for the protection
of patents, trademarks, and copyrights.
The Corporation Code of the Philippines
(Batas Pambansa Blg. 68) provides for the rules
regarding mergers and consolidations, and the
acquisition of all or substantially all the assets or
shares of stock of corporations. The Revised
Securities Act, as amended by the Securities
Regulation Code (R.A. 8799), complements the
Corporation Code.
The Act proscribes the
manipulation of security prices and insider trading.
The corporation and securities laws are particularly
relevant for evaluating vertical or horizontal cartels or
arrangements.
Consumer welfare and protection is also an
important field for laws on anti-competitive behavior.
The most important laws, in this regard, are the
Price Act (R.A. 7581) which defines and identifies
illegal acts of price manipulation (such as hoarding,
profiteering and cartels) and the Consumer Act of
the Philippines (R.A. 7394) which, among other
things, provides for consumer product quality and
safety standards.
B.
No central agency
exists to oversee
the implementation
of competition
policy and law and
no administrative
mechanisms are in
place to
comprehensively
enforce
competition
provisions.
Enforcement Agencies
Enforcement and regulation or monitoring of unfair
trade practices and anti-competitive behavior are vested in
numerous agencies. To cite a few:
•
Tariff Commission - an agency attached to the
National Economic and Development Authority
(NEDA) mandated to assist the Cabinet
Committee on Tariff and Related Matters in the
formulation of national tariff policy, to administer
the implementation of the Tariff and Customs
Code and, as a quasi-judicial body, to conduct
formal investigation of dumping, subsidization
and safeguards cases
•
Bureau of Import Services - a staff agency of
the Department of Trade and Industry (DTI)
mandated to monitor import quantities and prices
of selected sensitive items (particularly
liberalized ones), to anticipate surges of imports,
and to assist domestic industries against unfair
trade practices. The agency also undertakes the
preliminary investigations
safeguards cases.
of
dumping
and
•
Bureau of Trade Regulation and Consumer
Protection – another staff agency of the DTI
mandated to formulate and monitor the
registration of business names and licensing and
accreditation
of
establishments,
evaluate
consumer complaints and product utility failures
and protect and safeguard the interest of
consumers and the public with regards to health
and safety implications of intrinsic product
failures.
•
Securities and Exchange Commission (SEC) an attached agency of the Department of
Finance mandated to administer corporate
governance laws such as the approval and
registration of corporate consolidations, mergers
and combinations.
The Commission also
implements the Securities Act of 1982 which
penalizes fraudulent acts in connection with the
sale of securities (e.g. price manipulation, inside
trading, short selling, failure to disclose, delayed
disclosures).
Other agencies likewise enforce laws on anticompetitive behavior such as:
•
•
DTI and its attached agencies including the
Bureau of Food and Drugs, Intellectual Property
Office, and the Bureau of Product Standards - for
consumer welfare and protection.
Philippine Economic Zone Authority - for
ecozone developers and ecozone-registered
enterprises
Certain enforcement agencies are also industry-specific
like:
•
•
•
Bangko Sentral ng Pilipinas - for banks and
financial institutions
Insurance
Commission
for
insurance
companies
National Food Authority - for rice, corn, wheat
and other grains and food stuff
•
•
•
•
•
•
•
•
•
•
C.
The lack of
enforcement of
competition laws
has been due to:
ineffective and
inadequate
laws,…
… the lack of a
central
enforcement
agency,…
Sugar Regulatory Administration - for the sugar
industry
Philippine Coconut Authority - for the coconut
industry
Garments and Textile Export Board - for garment
manufacturers and exporters
Board of Investments - for pioneer/non-pioneer
industries and those listed in the Investments
Priorities Plan, availing of the incentives under
the Omnibus Investments Code
National Telecommunications Commission - for
telecommunications companies
Land Transportation Franchising and Regulatory
Board - for common carriers for land
Civil Aeronautics Board - for companies engaged
in air commerce
Maritime Industry Authority - for the shipping
industry
Philippine Ports Authority - for port operators and
arrastre services
Department of Energy, Energy Regulatory Board,
and the National Power Corporation - for power
generation companies and oil companies
Problems In Enforcement
There is a lack of enforcement of competition laws.
Several reasons have been identified:
•
Present laws have proven inadequate or
ineffective to prevent anti-competitive structures
and behavior in the market. Despite the number
of laws and their diverse nature, competition has
neither been fully established in all sectors of the
economy nor has existing competition been
enhanced in other sectors. Since each law is
meant to address specific situations, there runs
the risk of one law negating the positive effects of
another.
•
There is no central enforcement agency.
Enforcement is spread through several agencies
which do not operate in a coordinated manner
and sometimes produce conflicting policy.
Moreover, responsibility is too diffused and
accountability for implementation of the laws is
difficult to locate or fix. There is also a lack of
expertise in the appreciation and implementation
of competition laws.
…minimal fines,
substantial
evidence
requirements,…
…inadequate
judicial
experience,…
…SEC’s limited
mandate,…
…and most
important, the lack
of a
comprehensive
competition policy.
•
Fines imposable for breaches of the laws are
minimal. Most punishments are penal in nature
and hence, evidence requirements are
substantial and guilt must be proven beyond
reasonable doubt.
•
There is a lack of jurisprudence and judicial
experience in hearing competition cases.
•
The SEC regards “efficiency gains” as more
important than competition considerations in
mergers and does not have a mandate to
challenge mergers unless it can demonstrate
they are against the public interest.
To these reasons may be added the overarching
reason: there is no comprehensive competition policy
in place.
WHAT THE PHILIPPINES WANTS
A.
Competition policy
is a cornerstone of
microeconomic
policy…
The Need for A Comprehensive Competition Policy
Increasingly, competition policy is regarded as a
very effective arm of economic policy to assist countries to
maximize economic efficiencies in the use of limited
resources.
Around the world, almost 80 countries have some
form of competition policy in place and many economies in
the Asia-Pacific region have in place or have begun to
implement competition policy.
Although each nation has its own model of
competition policy to fit its socio-economic development,
there are broadly similar patterns. Three countries with
very comprehensive competition policies/laws are Australia
(Australian Competition and Consumer Commission),
Japan (Japan Fair Trade Commission), and Korea (Korea
Fair Trade Commission).
… and there are
other compelling
reasons why a
well-developed,
comprehensive
and workable
Philippine
competition policy
is needed.
In the Philippines, a well-developed, comprehensive
and workable competition policy needs to be immediately
put in place for the following reasons:
•
Existing competition
ineffective.
•
The economy continues to be dominated by groups of
businesses with substantial market power and political
influence. Many industries in the Philippines are highly
concentrated. Ownership of assets is also highly
concentrated. Based on data from SEC, the top ten
corporations accounted for 21% - 26% of revenue, 44%
– 47% of profit and 25% - 43% of assets of the top
1,000 corporations from 1998 to 2000.
•
Competition in the domestic market is not fully
promoted in such key sectors as telecommunications,
air transport, and petroleum products, amongst others.
•
Continuing trade reforms to meet the challenges of
international competition require the support of a
broader policy framework to improve productivity
laws
are
inadequate
and
through greater competition in domestic markets.
•
Competition policy can likely achieve higher economic
growth through enhanced economic efficiency and
consumer welfare.
•
Economic reform measures put in place must not be
negated by anti-competitive practices and behaviors.
B.
As an APEC
member economy,
the Philippines
committed to the
establishment of a
Fair Trade
Commission.
Individual Action Plan of the Philippines on
Competition Policy
In APEC, the Philippines’ commitments in its
Individual Action Plan include:
•
Review of existing laws on competition with the end in
view of improving the competition environment
•
Enactment of an anti-trust, anti-monopoly law including
the establishment of a Fair Trade Commission (FTC) to
enforce competition laws
•
Active participation in dialogues and exchanges of
information among APEC economies to ensure
transparency and enhance mutual understanding of
national competition laws and policies.
HOW THE PHILIPPINES GETS THERE
A.
Although obstacles
exist,…
Obstacles
A number of underlying issues exist which may
hinder the development of a workable competition policy.
These issues include:
•
Cultural Issues - Traditional Philippine social morals
incorporate a strong belief in the necessity of
reciprocity.
As such, there is generally an
expectation that people will distribute favors when in
a position to do so, and that businesses will seek to
operate in harmony, rather than fierce competition.
This may hinder the implementation of competition
policy.
•
Corruption and Cronyism - Cultural issues can lead
to corruption and cronyism, as those in power use
this power to reward friends and associates who
assisted them in reaching their positions. In 2000,
Transparency International rated the Philippines
69th out of 90 countries in its Corruption Perceptions
Index, which measures the degree of transparency
in the business environment of a country. The
introduction of competition policy may adversely
affect people who have amassed concentrations of
wealth and who may seek to use their connections
to hinder its progress.
B.
Immediate Implementation Tasks
• Sustain advocacy and public information campaign
to raise public awareness on the need and benefits
of a pro-competitive environment
…the task is
doable.
• Pass a comprehensive competition policy/law and
create a Fair Trade Commission with utmost fiscal
independence to shield it from political pressures
• Ensure implementing staff are adequately trained
and consider staff exchanges to bring in
experienced foreign staff early in the process for
training purposes
• Create an enforcement agency, give the agency
appropriate powers, responsibilities and reporting
arrangements/structure and adequate funding
• Create and appoint members to the specialized
court, and establish its jurisdiction
• Train judges/justices in other courts who may be
hearing appeals cases
THE WAY FORWARD
As enunciated by
the President, a
framework for
competition policy
Leaders of the political branches of government,
labor organizations, business sector, and civil society are
committed to accelerate the implementation of the MediumTerm Philippine Development Plan (MTPDP): 2001 – 2004.
In the immediate term, efforts will be focused on, among
including the
creation of FTC is
an urgent action
agenda of the
MTPDP.
other action agenda, the strengthening of enforcement of
competition and anti-trust policy.
Legislative measures shall be enacted to provide the
framework for a national and comprehensive competition
policy and the creation of a Fair Trade Commission. The
Philippine Tariff Commission, among other agencies, is
most active in the advocacy of the passage of the bill on
competition policy.
The means to reach this end can either be:
•
Act of Congress
A number of competition bills have been introduced in
Congress. The educated stakeholders need to lobby
with the members of Congress against the strong
intervention of Big Business.
•
Competition Authority As A Constitutional Body
The clamor for the amendment of the 1987 Constitution
can pave the way for a constitutional provision on the
creation of a supra independent competition authority.