PHL to wield competition commission so business gains may reach more poor
By David Cagahastian, Cai U. Ordinario & Catherine N. Pillas
For many decades, Filipino consumers complained of cartels and monopolies in certain industries that seem to be legal on paper, but are actually oppressive and against the natural law of the market: competition.
A classic case is the telecommunications industry that, in 1992, was lorded over by the Philippine Long Distance Telephone Co. (PLDT). PLDT’s monopoly may have inspired by then Singapore Senior Minister Lee Kuan Yew to describe the Philippines as “a country where 98 percent of the residents are waiting for a telephone and the other 2 percent are waiting for a dial tone.”
It seemed that Filipino consumers would have no choice but to submit to profiteering schemes of cartels and monopolies simply because the goods and services offered by them are basic necessities of modern life.
These cartels and monopolies cannot be merely subjected to the regular market forces that govern a free market, since the sheer size of their businesses and connections among these so-called old boys’ club can easily manipulate the market to make extraordinary profit at the expense of small consumers and drive outsiders to the club out of business. Both forms of business control—cartels and monopolies—restrict competition and make price determination as over and above the law of supply and demand.
An economist who requested anonymity said there are many industries in the Philippine economy wherein there is an “obvious” cartel composed of only two or three corporations, which can set the prices of basic commodities among themselves.
This control over the prices can be achieved by these cartels despite the requirement that the prices can only be effected with the approval of the pertinent regulatory authority from the government.
The approval of the regulatory authority, in this kind of situation, would operate to legitimize the increase in prices of the goods or services, even though such increase in prices would hardly have a basis in prevailing market prices.
Predatory pricing
PREDATORY pricing, however, is not monopolized by big corporations.
Predators can also be found even in small communities where an unscrupulous few seek to take advantage of their dominant position over their disadvantaged neighbors.
One such instance is the common knowledge in the Philippines regarding the predatory pricing that middlemen of farm products use in quoting very low prices when buying the harvest of Filipino farmers who have no choice but to sell at such a low price because all the other middlemen have agreed to offer the same price, or worse are actually working for the same opportunist, possibly a big retailer cornering all the suppliers for such agricultural products.
In the face of such a scheme, a small farmer would feel that he might have found the “pearl of the world,” only to find out that in trying to sell, market forces can be manipulated such that all of the prospective buyers will collude to appraise the pearl at such a low price for being a “monstrosity.”
But the bigger a corporation becomes, the more tempting it is for that corporation to corner its market and those of others, even at the expense of the consumers themselves and through the use of unscrupulous business practices that might have been legal in the past until now.
New law
WITH the new law providing for a national competition policy and prohibiting abuse of dominant positions and anticompetitive practices, economists are hopeful that healthy competition can be promoted in the Philippines to ultimately benefit Filipino consumers who are forced to patronize the goods and services of monopolies and cartels despite the poor quality of products and delivery of services.
In an ideal situation, the role of the government in the economy should be merely to make sure that everybody in the private sector are playing on a level playing field, with predictable rules that apply to all players, so that the ensuing competition among all the players in the market will redound to innovation, efficiency and, thus, cheaper goods and services for consumers.
Under the new Republic Act (RA) 10667 establishing the Philippine Competition Commission (PCC), the anticompetitive practices of monopolies and cartels operating in the Philippine economy were enumerated, aside from providing regulations for mergers and acquisitions that might be used by the big corporations as a means to control the prices of goods and services.
This control over prices can be achieved by big businesses, even though an increase in prices can only be effected upon approval by a regulatory authority, if the few corporations controlling an industry will agree among themselves at what price they shall offer their goods and services.
University of the Philippines School of Economics Associate Professor Agustin L. Arcenas said the new law is necessary to make the Philippine companies more efficient amid expected stiffer competition as the economic integration of the economies of the Asean continues to be implemented.
Arcenas said it was high time that the Philippines had a law against anticompetitive practices. Before the enactment of RA 10667, it is only the Philippines that did not have a law against anticompetitive practices in the Asean, according to him.
“We need to promote competitiveness among the Philippine private sector,” Arcenas said. “Competition promotes efficiency, and if a corporation is not efficient, then another corporation which is more efficient can come and take over its business.”
Inclusive growth
FILIPINOS are dependent on the companies that employ them and allow them to exercise their professions and be of service to their fellowmen.
The National Economic and Development Authority (Neda) estimates that the private sector—both formal and informal—accounts for as much as 70 percent to 75 percent of the country’s GDP.
This market, however, not only allows for the growth of cartels and monopolies, but also the demand for greater corporate transparency and accountability. This is the reason the passage of the RA 10667 (Competition Law) last July was a landmark legislation that held the promise of a level playing field and equal distribution of wealth.
This is also the reason newly-appointed PCC Chairman Arsenio M. Balisacan believes the creation of the PCC is a means for the country to achieve inclusive growth.
Balisacan considers his appointment to the PCC a big challenge because it strikes at the heart of the equitable distribution of economic prosperity. There are a lot issues in our economy, Balisacan told the BusinessMirror.
“Maraming sectors, maraming industries, areas of the country na big challenge ang competition. We don’t want to have a situation where the economy is growing, but the benefits of growth are just accruing to a small class. Competition is an important force to ensure that the benefits of growth are properly shared.”
Wider scope
BALISACAN explained to the BusinessMirror that the PCC has a wider scope than the antitrust commission of countries like the US.
He added the PCC has quasijudicial powers that allow it to build cases and impose penalties on erring companies. The PCC also has the power to oppose certain mergers and acquisitions. Among the prohibited acts under the new law is the abuse of dominant position in certain industries by big corporations.
Some of these abuses of dominant position may be: selling goods or services below cost with the object of driving competition out of the relevant market and imposing barriers to entry or committing acts that prevent competitors from growing within the market. Included prohibited actions are direct or indirect imposition of unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers; fishermen; micro, small and medium-scale enterprises; and other marginalized service providers and producers.
Other prohibited practices that the PCC is mandated to prevent are agreements between corporations that will result in virtual monopolies, and mergers and acquisitions that will result in substantially preventing, restricting or lessening competition in the relevant market where the merging corporations are engaged in.
The PCC has review powers in the sense that it can reexamine existing government policies that encourage uncompetitive behavior among firms. In statement on his seven-year term as PCC chairman, Balisacan said he wants to address the problem arising from the Philippines’s growing economy that the benefits of growth are felt only by a small portion of the society because of anticompetitive practices.
“We would want to address the problem of having a growing economy but with the benefits of such growth only for a small sector. Promoting fair and healthy competition among firms is a major factor in ensuring that the benefits of growth are properly shared,” he said on January 27.
Balisacan told the BusinessMirror that the key to succeeding in implementing the Competition Law is an empirical-based PCC. He said this is the reason he thinks his training in evidence-based policies and development economics will come in handy at the PCC.
“I see it as quite a good challenge because it will really muster your capacity to establish this causality, the nature of causality, how certain actions lead to anticompetitive outcomes, anticompetition outcomes and establish where those are coming from,” Balisacan said. “This agency will have to have a good understanding and establish bases for competitive behavior.”
Anticorruption
THE crucial and sensitive job of the PCC also requires strict qualifications for its commissioners, Balisacan said.
For one, he explained, all commissioners of the PCC will not be allowed to practice their profession for the duration of their appointment and a year after their term expires. Balisacan said, however, that commissioners who are faculty members of universities in the country, will still be allowed to continue teaching.
But, if appointed commissioners are lawyers, for example, they will barred from practicing from the time they are appointed until two years after they leave the commission, he said.
The Competition Law also provides that PCC commissioners and the executive director cannot hire their spouses and relatives within the fourth civil degree or allow them to conduct any business with the commission during their term. Two of the commissioners would have a seven-year term while the other two would have a five-year term.
“They shall not, during their tenure, directly or indirectly practice any profession, except in a teaching capacity, participate in any business, or be financially interested in any contract with, or any franchise, or special privileges granted by the government or any subdivision, agency, or instrumentality thereof, including government-owned and -controlled corporations or their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their office,” the law stated.
According to Balisacan, the PCC would have a funding of P300 million this year. Its budget for next year would be included in the 2017 national budget.
Welcome, vigilance
FOREIGN and local business groups welcomed the appointment of Balisacan as PCC chairman, citing confidence that his leadership can be “corruption-free.”
Peter V. Perfecto, speaking as the executive director of Makati Business Club (MBC), lauded the economist’s installation as PCC chief on January 27, citing confidence in the official’s character and experience.
“We welcome Balisacan’s appointment to the PCC as we recognize that he is a public servant of utmost integrity and professionalism,” Perfecto said. “This, together with his expertise in development and international economics, make him a suitable leader for the commission,” he said in a text message.
The MBC is similarly pushing for more progress on the creation of the PCC as its implementing rules and regulations (IRR) has yet to be released. “We believe the government should be able to provide an enabling environment for businesses, incentivizing when necessary and penalizing unfair and unjust behavior and practices.”
The European Chamber of Commerce of the Philippines (ECCP) President Gunter Taus also welcomed the move for the economist to head the commission “as his track record shows his advocacy for a level playing field.”
“Secretary Balisacan has always promoted the level playing field that the Philippine Competition Law is going to create,” Taus said in a text message. “This means that the implementation of the law and its IRR are expected to reflect this kind of objective.” John Forbes, senior adviser to the American Chamber of Commerce of the Philippines, praised the choice of Balisacan, saying: “We believe Balisacan is an excellent and possibly historic choice to establish and be the first [chairman] of the PCC.”
“He deeply understands market dynamics and the political economy of the country,” Forbes added. Meanwhile, the Philippine Chamber of Commerce and Industry (PCCI) is taking a measured stance on Balisacan’s appointment. PCCI President George T. Barcelon said in a phone interview they must first see the IRR and the initial performance of Balisacan before they can express their expectations.
When asked on the impact of the PCC on the GDP, Balisacan told the BusinessMirror he expects the law would ultimately hasten the trickle-down effect of a good economy and the gains of business. We expect the law would ultimately lead to quality delivery of service and sustain the inclusive-growth tack of the Philippine government, he told the BusinessMirror.
Source: www.businessmirror.com.ph
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