THE 5 TH APEC TRAINING PROGRAM ON COMPETITION POLICY FOR APEC MEMBER ECONOMIES

THE 5 TH APEC TRAINING PROGRAM ON COMPETITION POLICY FOR APEC MEMBER ECONOMIES Presentation Paper on SUPPORT FOR COMPETITION REGIME: THE CHALLENGE OF THE PHILIPPINES FOR THE ESTABLISHMENT OF COMPETITION AGENCIES/ INTRODUCTION OF COMPETITION POLICY AND LAWS Submitted by: ESPERANZA JESUSA B. PALOMATA Philippines For Small Group Meeting December 6-8, 2004 Melia Purosani Hotel Yogyakarta, Indonesia

SUPPORT FOR COMPETITION REGIME: The challenge of the Philippines for the establishment of competition agencies/ introduction of competition policy and laws I. INTRODUCTION Competition law is increasingly being accorded a central place in a nation s economic policy framework. Such a law has a critical role to play in the restructuring of developing and transition market economies. By preventing artificial barriers to entry, it facilitates market access and complements and buttresses other policies that promote competition and investment. Competition fosters both static and dynamic efficiencies and the international competitiveness of firms. In an increasingly integrated global economy, domestic firms and industries cannot be completely insulated from external pressures. Through implementing effective competition law, governments condition the business environment in which these firms operate, encourage flexibility and adaptability and efficient mobilization of resources. While the Philippines 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 international competitiveness. II. THE EXPERIENCE IN THE PHILIPPINES A. Current Legislation: Several Acts and other pieces of legislation exist to regulate anti-competitive behavior: provisions in the 1987 Philippine Constitution that prohibits anti-competitive behavior; Republic Act 3815 (Revised Penal Code) punishes anti-competitive behavior that is criminal in nature. Republic Act 386 (1949) which sets out guidelines for compensating market players who have suffered from unfair competition; Republic Act 3427 (1961) which prohibits monopolies; Republic Act 8293 (Intellectual Property Code, 1997) provides for the protection of patents, trademarks, and copyrights, and the corresponding penalties for infringement; Batas Pambansa Blg. 68 (Corporation Code, 1980) provides for the rules regarding mergers and consolidations, and the acquisition of all or substantially all the assets or shares of stock of corporations; Batas Pambansa Blg. 178 (1982) as amended, otherwise known as the Revised Securities Act; 2

Republic Act 7581(Price Act, 1991) defines and identifies illegal acts of price manipulation. Republic Act 7394 (Consumer Act of the Philippines, 1932) provides for consumer product quality and safety standards. These laws, however, are insufficient to meet the competitive challenges of the future. The country still lacks a set of anti-trust laws and its diffuse legal system makes implementing and enforcing the existing set of laws very difficult. It faces several challenges including: A constrained public sector; A diffuse legal system; Popular discontent with liberalization and deregulation; A lack of understanding among the general population as to the benefits of competition policy; and Resistance from some members of the business community. B. Enforcement Agencies: Despite a considerable number of competition laws, the Philippines has no explicit competition policy framework. Its competition laws have never been used or implemented as may be seen in the lack of cases litigated in court. A major reason is the penal nature of the laws, which require a quantum of evidence for a case to prosper. In addition, the witnesses and/or aggrieved parties, because of the long tedious legal processes involved, are not themselves interested in putting the perpetrators behind bars; rather they are more interested in obtaining an injunction or cease and desist orders. Moreover, fines are inadequate to deter would-be criminals. Enforcement and regulation or monitoring of unfair trade practices and anticompetitive behavior are vested in numerous agencie s. 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 safeguard 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 of dumping and safeguard cases. 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 3

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 anti-competitive 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 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 Communications 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 C. Problems in Enforcement: Competition policy and more particularly antitrust is not new to the Philippines. Despite a plethora of laws which address elements of competition policy, enforcement of competition policy is weak almost to the point of non-existence. A number of factors contribute towards this: 4

There is no central enfocement agency, but rather enforcement is spread through a number of enforcement agencies. Responsibility is too diffused and accountability for implementation of the laws is difficult to locate or fix. The enforcement agencies rarely operate in a coordinated manner and sometimes produce conflicting policy. Absence of a comprehensive competition law. Inasmuch as each law is meant to address specific situations, there runs the risk of one law negating the positive effects of another. Lack of jurisprudence and judicial experience in hearing competition cases. The silence or ambiguities in various laws on competition have remained. The lack of guidance has discouraged full implementation. Kind of enforcement mechanisms provided. Since some of these laws are penal in nature, the quantum of evidence required so that the case may prosper proof beyond reasonable doubt is difficult to obtain. Level of efficiency and competence of enforcement agencies. Some regulators are unable to relate existing complementary laws. There is a lack of expertise in the appreciation and implementation of competition laws. III. PROMOTING THE DEVELOPMENT OF A NATIONAL COMPETITION POLICY IN THE PHILIPPINES The Tariff Commission has played a prominent role in the efforts to develop a national competition policy framework for the Philippines. It believes that if the Philippines is to enhance its position in the international economic scene, the government should formulate and implement a comprehensive and effective competition policy. Presently, the Philippines has already taken the initial steps towards the formulation of a national trade and competition policy framework. Furthermore, the Philippine government has recognized that the following measures should be adopted: A. Refinement of Competition Policy Bills A number of bills were bills were filed in the House of Representatives and the Senate and they need some improvements in order to achieve a fully competitive environment. B. Repeal of Existing Legislations Section 19, Article Xll of the 1987 Constitution expressly provides for the regulation of monopolies and the prohibition of anti-competitive behavior. Consequently, a variety of statutes have been enacted to give effect to Section 19 of Article Xll. The number of enforcement agencies is a direct result of the many laws which established them. The objectives behind each of these laws are unquestionably noble. However, inasmuch as each law is meant to address specific situations, there runs the risk of one law negating the positive effect of another. 5

C. Continuing Advocacy Education and information campaign on competition policy and laws should be an integral part of the process in order to facilitate GOP legislation on competition law by Congress; to heighten awareness of competition policy among stakeholders; and to increase skill and technical capacity of GOP personnel on competition policy and law..d. Institutional Arrangements Given the formidable tasks implied by the comprehensive nature of the elements of a rational competition policy, a central body is indeed necessary. The institutional framework is as important as the detail of the policy itself. Key tasks associated with competition policy implementation involve both policy analysis and advice, and administration. The competition authority should have a very competent and knowledgeable power to define markets, identify anti-competitive actions, and judiciously construct and administer competition tests and issues of concentration, agreements, mergers and acquisitions. E. The Need for Training The critical issue which remains is that of the current lack of experience and knowledge in competition policy matters in the Philippines, particularly in the judiciary. If this is not addressed, then the new law will remain unenforced (as existing legislation is) or worse, enforcement will be inappropriate, creating potential economic inefficiencies. V. CONCLUSION Existing competition laws in the Philippines are fragmented, inadequate and ineffective. The economy continues to be dominated by groups of business with substantial market power and political influence. There is no defined competition policy framework nor specific legislations on competition, anti-trust, anti-monopoly, fair trading or the like. The concept of competition is not new in the country but the present laws for promoting competition in the Philippines have been proven inadequate or ineffective to stave off the ill effects of anti-competitive structures and behavior in the market. Despite the considerable number of laws and their varied nature, competition has not been fully established in all sectors of the economy, nor has existing competition in other sectors of the market been enhanced. These laws have been hardly used or implemented as may been seen in the lack of cases litigated in court. The establishment and fostering of an eff ective competition policy is an important agenda in the Philippines but it requires effective legislation to assess pre-merger notification, regulate natural monopolies, determine misuse of market power by large firms and monitor restrictive and anti-competitive practices. 6