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Monopolies

"The Philippines has among the most restrictive markets in ASEAN."

 

Section 19, Article XII (National Economy and Patrimony) of the 1987 Philippine Constitution provides:

 “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.

This section is a repeat of Section 2, Article XIV (National Economy and Patrimony of the Nation) of the 1973 Constitution which provided:

“SEC. 2. The State shall regulate or prohibit private monopolies when the public interest so requires. No combination in restraint of trade or unfair competition shall be allowed.”

Despite these constitutional provisions, the Philippines never had an anti-trust or anti-unfair competition law.  

The result is that the Philippines has among the most restrictive markets in ASEAN, resulting in a lack of a level playing field, especially in businesses like telco (the Philippines has among the world’s slowest internet rates and the highest telco charges), retailing (foreigners must spend a minimum of P100 million per shop), shipping (it is cheaper to ship goods from Bangkok than from GenSan), airline, energy (the Philippines has among the highest priced electricity in the world), transportation, construction, and even schools (foreigners are totally banned, so Filipinos are denied access to Ivy League education).  

The biggest monopoly in the Philippines?  The government itself.  It is the country’s biggest landowner, biggest port operator, biggest banker, and biggest buyer of goods.  Thankfully, government doesn’t have a monopoly of stupidity. 

Can PCC go after the government?  That would be like biting the hand that feeds you. 

With greater competition, according to a World Bank study, the Philippine economy could grow faster and include the poor.  And also create more jobs.   Some 32 million good jobs are needed immediately, including three million to employ the jobless and the seven million who are underemployed, hire 1.5 million new entrants to the labor force, and the 21 million Filipinos who are informally employed (meaning no regular jobs). 

Only in June 2015 when Congress enacted the Philippine Competition Act (RA 10667) and created the Philippine Competition Commission did the government start getting serious in going after monopolies, duopolies, and oligopolies and in preventing and or punishing unfair competition or combinations in restraint of trade.

RA 10667 has three purposes:

(a) Enhance economic efficiency and promote free and fair competition in trade, industry and all commercial economic activities, as well as establish a National Competition Policy to be implemented by the Government of the Republic of the Philippines and all of its political agencies as a whole; 

(b) Prevent economic concentration which will control the production, distribution, trade, or industry that will unduly stifle competition, lessen, manipulate or constrict the discipline of free markets; and 

(c) Penalize all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions, with the objective of protecting consumer welfare and advancing domestic and international trade and economic development. 

Veteran pro-poor economist Arsenio Balisacan says the Philippine Competition Commission has three major pillars: 1) prevention of anti-competitive behavior and agreements; 2) prohibition of abuse of dominance of the market place; and 3) prohibition of anti-competitive mergers.

Under PCC’s regulations, any deal or acquisition of “asset” worth P1 billion must pass its approval. This threshold was later increased to P2.2 billion.  If the size of acquiring party is P5 billion, the deal must also pass PCC approval.

The previously low P1 billion threshold led the PCC to effectively disapprove the purchase by SM Retail of Goldilocks, a 53-year-old family-owned bakery with 600 branches and annual sales of over P5 billion.  

Why should PCC bother itself with cakes?  What is so strategic with cakes?   

The conditions imposed by PCC in approving the Goldilocks deal were ridiculous.  They meant SM couldn’t even look into the sales, profits, inventory, baking formulas, and store locations of Goldilocks if they meant giving Goldilocks undue advantage over its competitors.  If SM wants to lease space to Goldilocks for say P500 per sqm (because it owns the shop anyway), SM must give the same rate to a rival, say Red Ribbon of Jollibee Foods Corp., a company much bigger than Goldilocks.

Result: SM Retail backed out of the Goldilocks buy.  

Another deal PCC ran after was the sale of telco assets of San Miguel Corp. to PLDT Smart and Globe Telecom.   The $1-billion-plus sale was transacted in May 2017, before PCC started formal operations in February 2017.  The case is now pending with the Supreme Court.  PLDT Smart and Globe bought SMC’s telco because they wanted to speed up the internet speeds in the Philippines.

Big Business finds the P2-billion threshold too small, cumbersome and opens possibility of abuse, if not corruption.   

“With land prices in Taguig and Makati fetching P1 million per square meter, the purchase of a Forbes house and lot could easily reach P2 billion in value.  So it has to pass PCC approval.  What does a house and lot in Forbes Park have to do with unfair competition?” asks a worried property owner.

A company tried to sell its 16-story Makati building to a retailing tycoon, an otherwise simple real estate deal.  The company had to seek PCC approval for it.  The agency took more than two months before giving its imprimatur.  In retail, two months could be an eternity.  Goods that cannot be sold in two months cost money (retail is. Fast-moving business)—and opportunity.  

The very low thresholds for transactions that PCC must scan have overwhelmed PCC with unnecessary work.  PCC had to ramp up its personnel from five to over 166 in just two years.  So the agency is now populated with people, while highly qualified economists and lawyers, are fresh out of college, with little, if any, business experience.  Approval becomes red tape for nothing.

Businessmen want PCC to raise the threshold of deals that must seek its approval to P50 billion.   How about it, Chairman Arsi?

[email protected]

Topics: Tony Lopez , Monopolies , ASEAN , Philippine Competition Commission
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