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Published: 08:00 AM, August 07, 2017

Updated: 06:33 PM, August 06, 2017

ICD Breakfast Roundtable

With Commissioner Arsenio Balisacan of the Philippine Competition Commission

EDSA Shangrila, July 26, 2017

 

ICD hosted a Breakfast Roundtable with Commissioner Arsenio Balisacan of the Philippine Competition Commission.   The good Commissioner laid out the Commissions plans and challenges and answered questions in a short but highly involved forum. 




Following is the transcript of the speech delivered by Commissioner Arsenio Balisacan during the event.  


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Institute of Corporate Directors (ICD) Breakfast Roundtable

By Chairman Arsenio M. Balisacan, PhD.

 

EDSA Shangri-La Hotel, Mandaluyong City

26 July 2017, Wednesday, 7:00 a.m.-9:00 a.m.

 

To the CEO of Institute of Corporate Directors, Ricardo Jacinto, FICD; fellows and members of ICD; board members and executives of various companies, guests, and all attendees of this roundtable discussion, good morning.

 

I would like to extend my gratitude to the organizers of this monthly gathering of corporate directors, who have chosen to highlight the recent game-changing events in the Philippine competition environment. The continuing education for executives and business leaders through this series of discussions adds depth to the promotion of the professional practice of corporate directorship in the Philippines.

 

Today, I am pleased to share with you the developments, milestones, and priorities of the Philippine Competition Commission as the competition—or what is known in other jurisdictions as  antitrust—authority of the country. My presentation endeavors to discuss the following different topics to enhance your appreciation regarding competition:

The context for the need of having a competition law and policy

Key pillars of the Philippine Competition Act (PCA) and the PCC, notably (1) the prohibited practices, (2) the M&A notification threshold, (3) the notification and review process, (4) fines and penalties, and (5) the transitory provision of the law.

PCC accomplishments and priorities moving forward

And, our challenge to you, business leaders and corporate directors

 

MOTIVATION

Allow me to start the presentation by discussing some examples of competition cases around the world. 

 

First Case: You may have heard that Google—the world’s most popular online search engine—has recently been fined 2.4 Billion Euros (or  roughly 2.78 Billion US Dollars)  by the European Commission after it has been found guilty of favoring its own shopping platform services. When people search for products or services online using Google, the giant multinational tech firm would first display results from its own shopping service. Evidence has shown that the market shares of Google’s rival online shopping platforms dropped significantly because of Google’s algorithms. The European Commission argued that by giving prominent placement only to its own shopping service, Google has deprived consumers of choice and its rivals of a genuine chance to compete. This is an example of abuse of dominant position, and in this case the EU Commission has shown that there is no sacred cow in antitrust enforcement, even among very well-known giants.

 

Second Case: In 2003, the board members of the Tasmanian Salmonid Growers Association Limited, a trade association of salmonid growers in the State of Tasmania (Australia), were, upon the filing of complaint by the Australian Consumer and Competition Commission, penalized for agreeing to “cull” or discard stocks of salmon to reduce its supply and increase its price in the market. No penalties were sought but the court ordered that no future culls be attempted, and that trade practices training be undertaken and compliance programs established.

 

Third case: In 2011, the United States’ Federal Trade Commission or FTC, challenged the proposed merger of healthcare service provider OSF Healthcare System and Rockford Health System in the state of Illinois. FTC argued that the merger would reduce the number of healthcare providers in the state from three to two, hence lessening competition and potentially causing higher health care prices for the people. This is an example of an anti-competitive merger which did not push through after the intervention of the FTC and the US District Court.

 

These three (3) examples from other jurisdictions paint the picture of the 3 main prohibitions similarly held in our own competition law.

 

As the examples mentioned would show, competition is not a new concept. Other countries have been implementing competition or antitrust policies for decades, some for more than a century. For instance, the USA has had the Sherman Antitrust Act since 1890. The Philippines, in contrast, is the second to the last country in the ASEAN to enact a comprehensive competition law.

 

When compared to our counterparts in ASEAN, PCC may be the second to the last to have adopted a competition law, but we are catching up fast. It is also an advantage in disguise because we could choose and apply the global best practices suited in the local context.

To date, only Cambodia has yet to enact a competition law, while three (3) ASEAN countries—Brunei, Myanmar and Lao—do not still have independent competition authorities to carry out their antitrust laws. 

 

THE BIGGER PICTURE

Why do we need a comprehensive competition law? 

 

As you are aware, there is much work to be done in order to improve the country’s competition landscape. High barriers to trade and investment, barriers to entrepreneurship, and state control have been identified as factors that limit competition.  In the Global Competitiveness Report for 2016-2017, our country ranks 57th out of 138 countries. The Report assesses the competitiveness of economies based on the presence of an enabling environment supportive of competition, the state of human capital, market conditions, and the prevalence of an innovation ecosystem.

 

In terms of components related to enabling environment and market conditions, the Philippines ranked 86th for business dynamism. which captures businesses’ entrepreneurial spirit and the ways they respond to opportunities.

 

The country was 99th in terms of product market efficiency which measures the extent of market dominance, effectiveness of antitrust policy, competition in professional services retail services, among other factors.

 

Meanwhile, the Philippines did quite well in terms of market size, which reflects the country’s market potential for investors.

 

Let me underscore the fact that the Philippine economy is on a higher growth trajectory, registering a 6.3 percent GDP growth average in the past seven years, the highest record in about 40 years since the late 1970s. Despite the rather wobbly external environment, the Philippine economy is poised to grow at 6 to 7 percent in 2017.

 

Now, the challenge, however, is in sustaining the growth momentum in the medium to long term. An even bigger challenge is making our growth more inclusive so that poverty reduction will be faster.

 

What we want is that economic growth shall be felt across the social spectrum. It is also necessary to tame the rising inequality which creates social instability, hinders human capital development especially among the poor, and stifles innovations and productivity growth.

 

PCA and PCC

To address this, one of the key components of the overall strategy to make economic growth more enduring and more inclusive is the passage of the Philippine Competition Act or PCA which shall serve as an instrument in implementing the National Competition Policy of the Philippines.

 

The competition law was passed in Congress in July 2015 and became effective in August 2015. The PCA is meant to address the very restrictive economic policies and anti-competitive business practices that have been too costly to the Philippine economy and public welfare. As such, all eyes are on the PCA as it is considered a game-changing legislation, one that transforms the act of compliance into a catalyst of performance in the economy.

 

What does PCC do? In common with competition authorities in other, more established jurisdictions, the PCC has the mandate to address competition-related inefficiency issues in all sectors of the economy. PCC’s powers fall under two basic pillars.

 

The first pillar refers to PCC’s enforcement powers as an antitrust authority. The PCC enforces legal prohibitions against anti-competitive agreements, abuse of dominance, and anti-competitive mergers and acquisitions. 

 

Anti-competitive agreements are agreements among competitors not to compete with each other or to substantially reduce competition. The law also stipulates that agreements may refer to understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written or oral.

 

An example of an anti-competitive agreement is agreeing with rivals to assign sales territories to restrict competition. This is called  market allocation. Another example is agreeing to take turns with competitors in winning bids. This is called bid rigging.

 

During one of our advocacy programs geared toward mainstreaming the PCA to small and medium enterprises, we were very surprised to learn that there was also a prevailing uneasiness among trade associations with regard to the competition law. They wanted to know whether the law prohibits the existence of trade associations and whether joining one is tantamount to collusion.

 

The PCA is very clear about trade associations. In Chapter VIII, Section 48, the law states that such associations are allowed, recognizing their importance in promoting matters of common interest to particular industries. The law, however, also points out that trade associations should not be used for anti-competitive behaviors such as the example I mentioned earlier involving the Salmonid Growers in Tasmania.

 

Abuse of dominance is the act of one or more entities to abuse their dominant position by engaging in conduct that would substantially prevent, restrict, or lessen competition. It is important to note that it is not illegal to be dominant, especially if it has been achieved through honest-to-goodness efforts in becoming more efficient and having the lowest cost and offering the lowest price. But markets that are dominated by a single or handful of large companies are particularly vulnerable to anti-competitive practices. In the conduct of their business, dominant companies—considering their size, scope, and position of economic strength—may have a disproportionately severe effect on the market and its companies. An example is when a company temporarily sets prices below cost to block competitors. This illegal act is commonly referred to as predatory pricing.

 

Anti-competitive M&As, especially those that create companies with dominant market power, could also potentially lessen, restrict, or prevent market competition. Under the PCA, parties to a merger or acquisition wherein the value of the transaction exceeds One Billion Pesos (Php1,000,000,000.00) or around 20 Million US Dollars are prohibited from consummating their agreement until thirty (30) days after providing notification to the PCC. Agreements consummated in violation of compulsory notification are considered void and parties involved are subject to an administrative fine of 1% to 5% of the transaction value.

 

Here is a simplified list of steps on the notification process based on PCA’s Implementing Rules and Regulations. The notification and review process has 5 main action points:

Pre-notification consultation, which may be requested from our Mergers and Acquisitions Office

Filing of notification forms

Determination of sufficiency

Review

Commission Decision

 

The Pre-Notification Consultation is one of our ways to address or allay the concerns of the notifying parties by providing guidance such as our pre-notification consultations and open-line policy for queries. This allows the parties to seek non-binding advice on the specific information that must be included in the notification.

Our Mergers and Acquisitions Office has 30 days from the submission of complete documents to conduct Phase I review of the proposed merger or acquisition. Should said office find any concern regarding the proposed transaction, it shall have an additional 60 days to get more information from the parties. After due diligence and analysis from our lawyers and economists, the findings of the MAO is presented to the Commissioners and the Chairman to rule on the transaction in a timely manner as prescribed by the law.

 

 

It is worth noting that the Philippine Competition Act imposes substantial fines and penalties for the violation of the foregoing prohibitions. After due notice and hearing, the PCC may impose administrative fines of up to PHP 100 million on the first offense and up to PHP250 million on the second offense. Aside from the fines, the penalty of imprisonment may be imposed upon directors and officials of any corporation involved in an anti-competitive agreement.

 

The PCA has a built-in two-year transitory period, which ends on 8 August 2017, to allow affected parties time to renegotiate agreements or restructure their businesses to comply with the provisions of the PCA. An existing business structure, conduct, practice or any act that may be in violation of the PCA shall be subject to the administrative, civil and criminal penalties prescribed by the law only if it is not cured or is continuing upon the expiration of the transitory period.

 

The second pillar of PCC’s powers refers to the Commission’s role as a competition policy and advocacy champion. PCC conducts market studies and market investigations, examining markets which may not be working well, with powers to impose remedies where an adverse effect on competition is found. A market study can serve as a trigger for enforcement of remedies should anticompetitive behavior be suspected; or as a reason to introduce reforms and competition advocacy should there be evidence that the market is not functioning well. The Commission likewise promotes competition-enhancing business practices and partnerships toward eliminating barriers to competition.

 

WHERE WE ARE

 

After PCC was organized last year, we hit the ground running and have had notable accomplishments. To date, the PCC has received a total of 110 notifications for mergers and acquisitions since its inception in February 2016, of which 36 are for global mergers, 43 of which were reviewed under Phase 1 and while 1 transaction advanced to Phase II.

 

To date, these notifications carry a total transaction amount of about 1.8 Trillion Pesos or 36.4 Billion U.S. dollars.

 

When we look closer into the Top 5 Sectors according to Value of Transactions, our records show that this is led by…

Manufacturing

Financial and insurance activities

Electricity, gas, steam, and air-con supply

Administrative and support services

Information and communication

 

With all the hard work we put in place, I am proud to report zero backlog on all of our merger reviews, in keeping with the PCA’s mandate of completing reviews within 90 days from notification of parties.  We have also received a total of 26 queries and informal complaints for possible anti-competitive conduct in various industries. Three (3) of those have advanced to preliminary inquiry and subsequently progressed to full administrative investigation.

 

The PCC has formulated a total of seven (7) issuances in 2016; and another two (2) this year in efforts to provide guidance and clarity to market stakeholders especially businesses in the face of the changing trade and commerce landscape ushered in by the PCA.

 

CONCERNS / ISSUES

In line with our thrust to be a business-friendly agency, we at PCC actively listen to feedback from our stakeholders. Here are some of the concerns that were previously shared with us, and how we addressed or are addressing them.

 

Merger Notification Thresholds

First, we have heard concerns from some stakeholders that the One Billion Peso threshold for compulsory notification imposed by the PCA is too low. We conducted a review of businesses in the Philippines and found the One Billion Peso threshold to be reasonable and comparable to jurisdictions and economies similar to that of the Philippines. Out of about 200,000 businesses in the country, only 1,500 business entities have currently exceeded the threshold of One Billion Pesos in assets. Simply put, the threshold set forth in the Philippine competition law will only affect less than 1% of the businesses in the country, and only if they so decide to engage in a merger or acquisition.

 

Timeline and Requirements for Notification

 

Under the PCA’s Implementing Rules and Regulations, proposed transactions which breach the Php1 Billion threshold must be notified to the Commission before the Definitive Agreement for the said transaction is signed. We have received comments that some parties find this timeline burdensome. In line with this, we closely reviewed our merger notification rules. We expect that by this week, the draft revised  rules will be posted on our website for public comment.

 

The Commission also encountered resistance from notifying parties in providing information for purposes of merger review. To address this, we actively provided guidance on requirements and processes through our pre-notification consultations and open-line policy for queries.

 

We would appreciate hearing the thoughts of our stakeholders about these new rules.  We urge everyone here today to let us know how we can improve our processes. 

 

Overlap of processes with sector regulators and other government agencies

 

We wanted to dispel anxiety that PCC will just be another bureaucratic layer or an additional burden to business, so we have reached out or are reaching out to different government agencies to address issues concerning duplication and overlaps in our review and approval processes.

 

To date, we have MOAs with sector regulators such as Securities and Exchange Commission, the Insurance Commission, Bangko Sentral ng Pilipinas, and others like the Energy Regulatory Commission, National Telecommunications Commission, and Department of Trade and Industry, among other sector regulators, in different stages of completion. PCC also forged a partnership with the Office of the Ombudsman with the objective of building a solid campaign against bid-rigging, price fixing, and cartels in government procurements and projects. Our agreements with these agencies range from  information sharing, verification, and in the conduct of review and probe of transactions, if needed. 

 

Power to advocate pro-competitive policies

 

Another common question that we encounter is what can PCC do in relation to acts of other government agencies that may be anti-competitive? We note that the Commission has the power to advocate pro-competitive policies of the government by reviewing economic and administrative regulations, motu proprio or upon request, as to whether or not they adversely affect relevant market competition, and advising the concerned agencies against such regulations. In this connection, the PCC submitted to the Supreme Court an amicus brief, which stated that the nationality-based distinction in the grant of licenses to construction companies hinders competition in the construction industry, creating an uneven playing field between local and foreign contractors. One issue identified was the amount of application fee that the Philippine Contractors Accreditation Board imposed on foreign participants. A simulation showed that that foreign firms were paying as much as 12 times more in application fees compared to local firms.

 

Looking within this term, competition policy has also been mainstreamed in the national government’s development agenda through the inclusion of a chapter on competition in the Philippine Development Plan (PDP) for 2017-2022. It is the first time in the history of socio-economic planning that a dedicated chapter on competition has been made part of the Government Development Plan

 

Chapter 16 of the PDP elaborates on, among others, the promotion of market competition to achieve consumer welfare and market efficiencies, which goals are consistent with the government’s inclusive economic development and firmly anchored on the long-term vision called Ambisyon Natin 2040. Under Ambisyon Natin 2040, the government envisions a future where Filipinos enjoy a strongly rooted, comfortable, and secure life. Being strongly rooted means families living together in a high-trust society with a strong sense of community.

 

Among the key strategies that will be employed by the PCC to achieve these objectives is to analyze competition issues in priority sectors, such as: Agriculture, Manufacturing, and Public Services, particularly Electricity, Telecommunications, and Transportation.

 

PRIORITIES AND CHALLENGES

 

Continuous capacity building and training

 

Since competition law is new in the Philippines, there is little familiarity and appreciation of this field. Thus, the need for more local experts. In addition to organizational capacity building, there is a strong and urgent need to build capacity in our stakeholders – business sector, judiciary, legal practitioners, and academe.  To this end, the PCC has initiated discussions with several local and international universities for the development of a program in Law and Economics in the Philippines.

 

M&A and Enforcement Rules

 

In the interest of maintaining the transparency and predictability of our processes, we made it our top priority to finalize PCC’s rules for its  administrative investigations and pleadings and practice before the Commission. We will  post the draft rules soonest for public comments.

 

Building linkages with other antitrust agencies around the world

 

We are actively building links with our anti-trust counterparts here and abroad. This will allow us to tap into their rich insights and valuable experiences and be kept updated with recent developments in competition law and economics.

 

Developing a Culture of Competition, both in public and private sectors

 

We have also realized that we could do more in public advocacy and fostering a culture of competition.  This is not an easy matter. Most Filipinos have yet to hear about the Commission, or even understand what we do.  I believe this will take many years, judging from the experiences of our colleagues from other jurisdictions, but the Commission should take an active role in helping the process along.

 

Public advocacy definitely plays a large part in solving the issues I have mentioned, and we are in the process of coming up with information, education, and communication materials to increase awareness and understanding of competition policy and law. Aside from fear borne out of the lack of culture of competition and the relatively infant competition regime of the Philippines, the understandable-yet-unfounded anxiety of market players and stakeholders can be addressed through education.

 

CHALLENGE TO ICD

 

Good governance is the catalyst for economic prosperity. When we observe the rule of law, practice fair, efficient, and competitive markets, work towards inclusive growth, eliminate corruption, protect property rights and properly enforce contracts, and encourage innovation.

 

Indeed, at the macro level, with good governance as our compass, all roads lead to economic prosperity. More so in the private sector as this means there is (1) Market-enhancing and growth-inducing governance, (2) Accountability and effective democracy, (3) effective and sustainable good governance reforms.

 

We recognize that good corporate governance protects and balances all stakeholder interests, strengthens business relationships, increases access to external financing, and leads to better operational performance. We understand that many of the key decisions happen in your level as executives and corporate leaders and captains of industry, you meet your bottom line and still follow the law.

 

Adding the call for a culture of compliance and need to foster a culture of competition to the mix, we remind our stakeholders to (1) resist  anti-competitive practices and abusive conducts, (2) diligently notify  PCC if involved in mergers and acquisitions, (3) promptly submit documents if subject to investigation and (4) comply with other corporate laws and procedures.

 

After all that is said and done, the law can only go as far how well it is implemented. We call on our corporate executives and officials to rise to the challenge and be the purveyors of good corporate governance.

 

Allow me to give these pieces of advice to you here in ICD and your colleagues in the business sector:

 

1. First, we must uphold the provisions of competition law in adherence to good governance in your respective organizations. Understanding the law is the first important step which will inform your actions that have impact within your companies or organizations.

 

2. Second, we must promote fair market competition at all times. Decision points happen in the ranks where leadership is seen and strategy is valued. But in doing so, it must be done in accordance with the law. Your position determines your contribution on how best to implement this in your company, in your affiliations, your industry, until it becomes part of a larger picture of having a competitive environment.

 

3. Third, as the competition law will change how businesses will be done in the country, your directorship determines how the company thrives in a competitive environment. It is understandable that the business community may not be used to the idea of being regulated for competition and antitrust concerns, and will have different paces of adopting until it becomes the norm in business ethics and every business deal.

 

4. Fourth, good governance goes hand-in-hand with good corporate governance in creating value for the society as it delivers sustainable reform agenda. This is our shared goal both in the public and private sector, and we want to make our contribution to the reforms count.

 

5. Finally, corporate directives must adhere to this agenda—towards our shared goals of building a culture of compliance and fostering a culture of competition. 

Your presence in this event furthers our goal of creating a pool of experts who can help build the wealth of knowledge on competition law and policy through practice, research, and teaching. We also hope that, through this activity, we can strengthen the PCC’s partnership with the institutions that you represent.

 

And with partners such as you, I am sure the culture of competition in this country will bear fruit that will ultimately contribute to building a nation that is harmonious, inclusive, and progressive.

 

Thank you very much and I look forward to your questions and a fruitful discussion.

 

-END-

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ICD also inducted new fellows and members adding to the growing number of Good Corporate governance advocates.



From Left:  Atty. Florentino Mabasa Jr. - FVP/Head of Legal Services & Asst. Corp. Sec, PLDT Inc;  Atty. Policarpio Rufino III - Legal Counsel and Asst. Corporate Secretary, DATEM Inc.; Calvin Kohchet-Chua - EVP, Compliance and Legal Affairs, East West Ageas Life Insurance Corp.; BGEN. Cesar Idio - Assistant Division Commander 8th Infantry Division, Philippine Army; Zaida Angelita Lazaro - Head of Internal Audit, East West Ageas Life Insurance Corp.; Manuel Antonio Lisbona - President & Director, PNB Securities Inc.; Andrew Minnitt - Chief Executive Officer, AON Insurance and Reinsurance Brokers Philippines Inc.; and Cynthia Pantonal - President and Executive Director, AES Phils. Power Foundation