Philippines: Competition Commission

The Philippine economy has registered a strong performance in recent years, with growth averaging at 6.3 per cent annually from 2010 to 2016 – the country’s highest seven-year average in nearly four decades. Despite the heightened risks that threaten global growth, the Philippine economy is projected to grow further at a rate of over 6 per cent in the near-to-medium term.¹ However, while this strong economic performance has situated the Philippines among the fastest growing countries in the world, there remains a continuing challenge of making the growth widely inclusive so as to speed up poverty reduction and reduce the highly inequitable distribution of opportunities across population groups.

Development experts have long noted the lack of a vibrant competitive environment in key sectors of the Philippine economy, identifying it as a crucial constraint hindering private investment and growth.² In recent years, the Philippine government has taken serious steps to promote competition in the domestic economy, making it a key component of the overall strategy to sustain growth and bring the benefits of growth to all Filipinos.³ This strategy recognises market competition as a way of levelling the playing field for businesses, promoting efficiency in the economy and improving consumers’ welfare through lower prices, better-quality products and a wider variety of goods and services. The enactment of the Philippine Competition Act (PCA) in 2015 and the subsequent establishment of the Philippine Competition Commission (PCC) are both a testament to the Philippine government’s commitment to provide a conducive environment for all businesses and, at the same time, ensure that growth is effectively inclusive.

Pre-PCA regime: fragmented policies on competition

Prior to 2015, competition-related laws and policies in the Philippines were widely fragmented.⁴ The Philippine Constitution and numerous legislations (eg, the Corporation Code, the Price Act, the Electric Power Industry Reform Act) deal with the prohibition and regulation of monopolies, combinations in restraint of trade, and various forms of anticompetitive behaviour and practices. Enforcement of these competition-related laws and policies was consigned to over 60 government agencies and sector regulators (eg, the Energy Regulatory Commission, the Maritime Industry Authority, the National Telecommunications Commission).⁵

Further, certain government policies and regulations directly impact the competition landscape in the country. For instance, there are regulations implemented by state-owned enterprises (SOEs), with both regulatory and proprietary functions (eg, the Sugar Regulatory Administration, the National Food Authority), that may have anticompetitive elements.⁶ Until recently, there was no formal competitive neutrality framework in place to assess the potential impact on competition of commercial activities of SOEs and there was no central government office to monitor and supervise the government corporate sector.

Despite the considerable number and varied nature of competition-related laws in the country, there is general agreement that these have been ineffective in addressing anticompetitive business behaviour as well as policies and regulations substantially impeding market competition. Where there are no agencies overseeing competition, sectors are not regulated for anticompetitive conduct and abuses of dominant position, while in sectors that have regulators in place, the degree of successful enforcement varies widely.

In an effort to strengthen the enforcement of existing antitrust laws and policies while a comprehensive competition bill was under deliberation in Congress,⁷ the government created in 2011 the Office for Competition (OFC) under the Department of Justice (DOJ). The DOJ was designated as a competition authority and the OFC was mandated to investigate all cases violating competition laws and prosecute violators; enforce competition policy and competition law; and supervise competition in markets. The OFC took a sectoral approach as well in implementing competition policy, identifying energy, telecommunications, transportation and commodities as key focus sectors.⁸

When the PCA was passed into law in July 2015, the PCC was created to enforce and implement competition law and policy. Meanwhile, the OFC continues its operations within the DOJ to undertake prosecution of all criminal offences under the PCA.

Enactment of the PCA and creation of the PCC

A comprehensive competition bill was first proposed in the eighth Philippine Congress (1987–1992). The bill was not passed then, and was repeatedly filed in subsequent Congresses. Strong opposition from big businesses and interest groups prevented the passage of the bill for two decades, until it became one of the priority economic bills of former President Benigno Aquino III. It was finally enacted by the 16th Congress in 2015 – just in time to meet the ASEAN member states’ commitment to introduce national competition policy and law by 2015. The Philippines, however, was one of the last countries in the region to do so.

The urgency of passing a competition law was highlighted, at least in part, by a growing consensus that the supposed benefits from the Philippine economy’s strong performance take too long to redound to the ordinary Filipino, and even more so to the poorest of the population. The strong push for inclusivity highlighted the need to address the country’s high level of economic concentration, with duopolistic and oligopolistic structures greatly influencing the business environment in many sectors, including utilities and manufacturing, and geographic areas.

In its final form, the PCA espouses, as a matter of policy, a social development goal:

pursuant to the constitutional goals for the national economy to attain a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged and the constitutional mandate that the State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed.

As such, the implementation of the PCA is guided by a broader concern of improving the quality of life of Filipinos. For the ordinary citizen, greater competition in markets should lead to lower prices, better-quality products and an expanded range of goods and services to choose from. For entrepreneurs and small and medium-sized industries, it would provide opportunities for them to compete with big businesses on fair terms, where they can grow and thrive on the basis of the prices and quality of their goods or services.

The PCC: pro-competition, pro-business

Building the Commission

The PCA mandated the creation of the PCC, assigning it primary and original jurisdiction over all matters related to competition. It is a quasi-judicial body tasked with both enforcing the law and implementing a broader national competition policy through research and advocacy, among others.

The law provides for a number of safeguards to protect the PCC’s independence. It is a dedicated agency, separate from any other executive agency. It is attached to the Office of the President solely for budgetary purposes. Decisions made by the PCC are binding and can only be appealed to and overturned by the Court of Appeals or the Supreme Court. Its decisions cannot be challenged in the lower courts.

The PCC’s leadership, composed of a chairman and four commissioners, is appointed by the president. The law specifies that appointees come from the fields of economics, law, finance, commerce or engineering,⁹ and with a proven track record in their respective fields. The chairperson and the commissioners have a term of office of seven years without reappointment. Commissioners report to the agency full-time and are prohibited from engaging in other areas of work, except for teaching.

The PCC began building its human resources with an initial allotment of 200 positions, spread across the key offices: mergers and acquisitions; competition enforcement; economics; communication and knowledge management; planning and finance; and administration and legal. The operational offices are led by an executive director, who reports directly to the chairman and chief executive officer. Over half of initial positions had been filled a year after the PCC was established, and the agency is expected to be fully staffed by the third quarter of 2017.

Taking the lead in creating a conducive policy and regulatory landscape for the business sector, the PCC actively works with sector regulators, government economic and finance agencies, as well as other government offices with specific competition concerns (eg, the OFC). It intends to make an impact by being a strong and effective agency, utilising the broad powers granted by the PCA.

Transitioning to the PCC

From a fragmented approach to competition regulation, the PCA’s enactment and the transfer of primary jurisdiction over competition matters to the PCC will effectively unify and coordinate the efforts of the government in promoting competition in Philippine markets.

The PCA gives wide powers to the PCC, namely:

• powers to initiate investigations and reviews, motu proprio, of anticompetitive business practices or of government policies and administrative issuances that unduly constrain market competition;
• upon findings of breaches of the law, powers to stop or redress by applying remedies such as issuance of injunctions, requirement of divestment and disgorgement of excess profits;
• powers to conduct post-merger reviews and the authority to impose remedies if the review reveals substantial lessening of competition in the relevant market;
• in the course of an investigation, powers to issue subpoenas, inspect business premises and other offices, and inspect books, tax records and other documents;
• powers to issue advisory opinions and recommendations to agencies in relation to existing or new government policies and laws that may have resulted in detrimental effects on the competition landscape;
• powers to determine and impose substantive administrative fines and sanctions for breaches of the PCA; and
• powers to monitor and undertake consultation with stakeholders and affected agencies to understand market behaviour.

The PCC takes seriously its mandate to not just enforce the law and litigate cases of anticompetitive mergers and acquisitions, anticompetitive agreements, and abuses of market dominance, but also to engage in competition-enhancing activities such as advocacy and economic research.

The agency is cementing its credibility and public stature through the initiation of high-impact enforcement cases while efficiently managing reviews and investigations of potentially anticompetitive mergers and business practices. As of March 2017, the PCC has received 86 merger notifications, all of which have been acted upon within the prescribed period under its mandatory merger notification regime. Prior to this, the PCC was able to complete the PCA’s Implementing Rules and Regulations, after numerous public consultations nationwide, in a record time of four months – attesting to the PCC’s commitment to advance consumer welfare through the active promotion of competition in the country. In competition enforcement, the PCC has been assessing 12 referrals for possible anticompetitive conduct in various industries.

Prospects and challenges

Moving forward, the agency sees many avenues and opportunities by which it can gain a stronger footing as the country’s competition authority. It is also deepening its relations with key sector regulators in government through memoranda of agreement, to ensure cooperation, information-sharing and policy coherence. At the same time, it is actively building partnerships with colleagues in counterpart competition agencies abroad, to gain insights from their experiences and keep the Commission abreast with the latest developments in competition law and economics.

The PCC, in coordination with the National Economic and Development Authority, the government’s socio-economic planning arm, is also conducting a comprehensive review of the national competition landscape. The review seeks to identify anticompetitive practices across major sectors of the economy, including those rooted in various government rules, policies and measures. The outcome of this review will serve as the PCC’s compass in priority setting and advocacy in relation to work with other government agencies. Early results of the review have helped inform the crafting of the seminal chapter on the National Competition Policy Framework of the Philippine Development Plan 2017–2022.

Since competition law is new in the country, the main challenges for the PCC are to educate businesses about the law, raise awareness on the importance of competition, and introduce the agency to the public. Barely four months after the institution was established, its powers to review large mergers and acquisitions had already been challenged before the Court of Appeals by parties to an acquisition in the telecommunications sector. The two main players in the market filed a case and secured a temporary restraining order against the PCC’s review of their acquisition of a large band of spectrum assets. As of this date, the court has not made a final determination on the case. Meanwhile, the PCC continues its review of all other merger notifications without delays.

It is crucial to make businesses aware that the promotion of competition in the market is to their benefit. Small and medium-sized businesses, often the source of market innovations and disruptive technologies, can better thrive and grow under competitive conditions. Big businesses that seek to expand overseas will quickly realise that in order to operate in many other countries, especially developed ones with strong antitrust regimes, they will have to learn how to operate in a manner consistent with the PCA. Through effective and unhampered enforcement, the PCC can positively impact the way businesses operate.

The Philippines’ competition reform story is just only unfolding and there is much work ahead of the PCC in establishing a competition culture in the Philippines. Cognisant of this, the PCC moves forward in carrying out its mandate, keeping in mind its role of ensuring that all Filipinos can consistently reap the benefits of effective competition enforcement.

Notes

1. ‘World Bank Upgrades Growth Projections for the Philippines’, World Bank Press Release, accessed 12 February 2017 (www.worldbank.org/en/news/press-release/2016/12/15/world-bank-upgrades-growth-projections-for-the-philippines).
2. See, eg, Karl Kendrick Chua et al (2013), Philippine Development report: Creating More and Better Jobs, Washington, DC, World Bank Group; Joint USG-GPH Technical Team (2011), Partnership for Growth: Philippines, Constraint Analysis, accessed 12 February 2017 (https://assets.mcc.gov/documents/Philippines_CA_withCover.pdf); D Canlas, M E Khan and J Zhuang, eds (2009), Diagnosing the Philippine Economy: Toward Inclusive Growth, London, Anthem Press; and Arsenio Balisacan and Hal Hill, eds (2007), The Dynamics of Regional Development: The Philippines in East Asia, UK, Edward Elgar.
3. For instance, the recently completed Philippine Development Plan 2017–2022 dedicates a full chapter to the government’s national competition policy framework. See NEDA (2017), ‘2017–2022 Development Plan Draft Ready for Approval by Malacañang’, accessed 12 February 2017 (http://2040.neda.gov.ph/2017/02/09/2017-2022-development-plan-draft-ready-for-approval-by-malacanang/).
4. See R M Aldaba and G S Sy (2014), ‘Designing a Cooperation Framework for Philippine Competition and Regulatory Agencies’, Philippine Institute for Development Studies (PIDS) Discussion Paper Series No. 2014-31; and R M Aldaba, ‘Emerging Issues in Promoting Competition Policy in the APEC and ASEAN Countries’, PIDS Discussion Paper Series No. 2008-02 (Revised).
5. See G Sy (2015), ‘Philippines: Department of Justice’, The Asia-Pacific Antitrust Review 2015, accessed 17 February 2017, https://globalcompetitionreview.com/insight/the-asia-pacific-antitrust-review-2015/1066666/philippines-department-of-justice.
6. See E M Medalla (2003), ‘Philippine Competition Policy in Perspective’, Philippine Institute for Development Studies (PIDS) Perspective Paper Series No. 4, pages 30–32.
7.  Presidential Management Staff (2011), The 2011 State of the Nation Address Technical Report, accessed 22 February 2017 (www.gov.ph/2011/07/25/the-2011-state-of-the-nation-address-technical-report/).
8. See G Sy (2016), ‘Philippines: Department of Justice’, The Asia-Pacific Antitrust Review 2016.
9.  At least one should be a lawyer and one shall be an economist.