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Quote Competition law Monopoly meaning History/background Proposed bills Pro Anti Own opinion (anti/pro) Conclusion (theres always two side of a coin; its up to the congress and senate)
Quotes Competition brings out the best in products and the worst in people." - David Sarnoff, Pioneer of American Commercial Radio and TV

The early bird gets the worm, but the second mouse gets the cheese. Willie Nelson Play to Dondi Scumaci win, not to "not preserve victory to over the lose". loser.

Law is made by the winner Toba Beta, Betelgeuse Incident

Nobody's going to win all the time. On the highway of life you can't always be in the fast lane. Haruki Murakami, What I Talk About When I Talk About Running

Competition is a rude Toba Beta, Master of Stupidity

yet

effective

motivation.

Companies arent families. Theyre battlefields in a civil war. Charles Duhigg, The Power of Habit: Why We Do What We Do in Life and Business Competition is not only the basis of protection to the consumer, but is the incentive to progress. Herbert hoover Competition creates better products, alliances create better companies. Brian Graham quotes The higher we soar, the smaller we appear to those who cannot fly. - Friedrich Wilhelm Nietzsche They And that if stand they high, fall, have they many dash blasts to themselves shake to them; pieces.

Shakespeare.

Monopolies are bad for business. Monopolies tell companies, especially small ones, that they cannot aspire to be as big; the latters destiny is to swallowed whole or in part by the rampaging monopolist beast. All we have now is a hodge-podge of disparate laws that offer no stiff protection to Filipinos in the face of new and reemerging monopolies, or abusive companies, in the telecom sector and beyond. Addressing this situation will send a message to domestic and international investors that the Philippines offers fair opportunities, and does not play favorites, especially to big, moneyed and influential businessmen. Globally, regionally and nationally, there is a continuing rejection of all sorts of business monopolies. Opposing monopolies is not bad for business. The opposite is true.

A monopoly captures the market not by providing superior products but by the capricious use of the monopolist of his immense resources and prerogatives to monopolize the market. Arranza strongly believed that prosecuting monopolies and combinations that restraint trade would necessarily promote competition, level the playing field in the market, and ultimately inure to the benefit of the consumers. Senate Bill No. 1 or the "Competition Act of 2010" is anchored on 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." Competition Law and Policy The Philippines should be fertile ground for a national competition law and policy. The country experienced nearly a half-century of rule under the legal and political traditions of the United States. The Philippines Constitution recognizes the indispensable role of the private sector (and) encourages private enterprise. It authorizes the state to regulate or prohibit monopolies when the public interest so requires, and disallows any combinations in restraint of trade or unfair competition. Yet the Philippines has neither a comprehensive law of competition nor a specialized enforcement entity. Some Philippine laws and government entities are vested with authority to challenge trade restraints, and these laws provide remedies. There is, however, no substantive Philippine jurisprudence on competition because virtually no cases have been litigated. Litigation of cases also would be difficult because the law does not define, explain, or establish criteria for what constitutes the elements of a violation. While there are specific sectors that have made headway to open competition, there is no central government authority responsible for competition law or policy. At present, a national competition lawor an agency to enforce itis not a high priority with the current administration or with Philippine lawmakers. Consequently, political will is insufficient to push forward one of the several existing draft competition laws pending in the Philippine House and Senate. Moreover, there is no widespread public constituency for competition law, and little public understanding of its potential benefits to consumers and new business entrants. This apparent domestic complacency contrasts with the Philippines' sensitivity about its role as a regional economic and political influence. In the ASEAN trade organization, where the common goal is a single market, the Philippines is falling behind as other member states that have adopted competition laws are developing a body of law and experience. Since President Aquino mentioned a new antitrust law in his first State of the Nation Address, much work has been done on the antitrust bills filed in Congress. Legislative hearings have been concluded and proponents say that after decades of waiting (since the Eighth Congress, Im told), we will finally have a unified, up -to-date and comprehensive antitrust or competition law. What are antitrust laws? Antitrust or competition laws are laws that regulate and maintain market competition by prohibiting or regulating anti-competitive behavior.

Three acts that antitrust laws normally seek to prohibit are monopolies, cartel-like behavior and abuse of dominant market position. In an economic sense, antitrust laws are in place to promote a freer market and more open trade, which will result in substantial efficiency and welfare gains for everyone. A hot topic The proposed acquisition of Digitel by PLDT has sparked even more interest on an antitrust law for the country. Globe, a competitor, argues that the transaction will lead to PLDT controlling close to 70 percent of the market and will eventually lead to higher prices and rates. However, PLDT and Digitel maintain that the deal will result in continued unli benefits, to use telco lingo, for consumers. Aside from the PLDT-Digitel deal, Nestl has its own antitrust controversy: Allegedly, it has been engaging in predatory pricing to drive out competition from the market. Expectedly, Nestl contends that its products are not the cheapest in the market and that competition among lower-priced products remains intense. Justice Secretary Leila de Lima also had reportedly ordered a review of antitrust cases filed against Fraport AG (Fraport), a German company, and its local partner Philippine International Air Terminals Co. (Piatco), in connection with the Ninoy Aquino International Airport Terminal 3. Interestingly, perhaps in an attempt to respond to these antitrust controversies, the President issued Executive Order No. 45, which created an Office of the Competition Authority in the Department of Justice, to help enforce our antitrust laws. Current law This is not to say that our country has no antitrust laws at all. From myriad sources of law, one can find snippets of an anti-competition framework that serves as some sort of precedent for the current bill. Foremost is Article XII, Section 19, of the Constitution, which mandates the State to regulate or prohibit monopolies when required by public interest and at all times to prohibit combinations in restraint of trade and other unfair competition practices. There are implementing pieces of legislation, like the Revised Penal Code which, in Article 186, punishes monopolies and combinations in restraint of trade. Meanwhile, the Civil Code under Article 28 authorizes the collection of damages arising from unfair competition in agricultural, industrial or commercial enterprises or in labor. There are other laws that attempt to penalize anti-competition activities. However, with very few exceptions, many of these laws have but skeletal provisions and do not provide meaningful guidance to the market on how our competition policy should be implemented. Salient features What is clear from the bills (at least after the Senate and House committee hearings) is that they do not prohibit monopolies per se, perhaps taking their cue from the Constitution and our Asean neighbors. At the core of the bills are more detailed provisions on anti-competitive agreements (like price-fixing, market allocation), abuse of dominant position (like predatory pricing), anti-competitive mergers and more detailed enforcement mechanism. Unlike its Senate counterpart, the House version proposes to create a five-man Philippine Competition Commission as a single venue for anti-competition issues. Similarly, the House version proposes to adopt non-adversarial methods of enforcement, like a request for binding ruling to make the law more business-friendly. Anti-antitrust law

There are, of course, those who are against an antitrust law. Some economists argue that the need for an antitrust law stems from the wrongful notion that an unhindered and unregulated market leads to coercive monopolies. They assert that no unfair monopoly can ever be created by means of free trade in a free market economy. Surely, there are policy issues yet to be decided in the plenary sessions of both Houses before an antitrust law becomes part of our statute books. A basic policy issue, of course, is whether we really need a new antitrust law. If so, do we adopt the American system or the European model? What acts should be outlawed and what type of enforcement mechanism should be adopted considering the stage of our economic development? Should the law go for a separate competition commission or just create an office in the DoJ? How should the competition authority interface with other government agencies, like the Department of Energy, Department of Trade and the Securities and Exchange Commission on antitrust-related matters that, by law, are currently under their jurisdiction? The big question is, whether a new antitrust law will finally see the light of day or will the bills suffer the same fate as the preceding measures? Your guess is as good as mine. Anti-trust law needed to curb emerging monopolies paper October 7, 2010 Congress was urged yesterday to enact new legislation that will police monopolistic practices that stifle free competition and hurt consumers in the face of the wave of mergers and consolidations now sweeping the country and across the globe. Forensic Law and Policy Strategies Inc. (Forensic Solutions), which is headed by former Justice Secretary Alberto Agra, said in its latest policy paper that an anti-trust law is necessary to ensure unfettered competition in Philippine industries and position Filipino consumers as the supreme arbiter in a free market that yields the highest quality of good and services at the lowest prices possible. In its 10th policy paper, Forensic Solutions cited the urgency for new anti-trust legislation at a time when the current trend is toward the privatization and deregulation of vital industries, with governments getting off the back of business and ceding state control over economic activities. Mergers and acquisitions, which are tools for expansion and restructuring, have resulted in even greater market power being concentrated in fewer corporations, said Forensic Solutions in the policy paper titled Competition Laws in the Face of the Merger Wave. This environment is fertile ground for restrictive business practices that prevent true and fair competition. The absence of legislation particularly addressing the effects of mergers and consolidations on market competition leaves the Philippines ill-equipped to police abuses and anti-competitive practices, the paper said. It noted that subsidiaries of multinationals that may behave competitively in industrialized countries where strong anti-trust regulations are in place might be more inclined to indulge in anti-competitive practices in developing countries where there are few such regulations. In the Philippine setting, such corporate consolidations include the 2006 takeover by Banco de Oro of Equitable PCI Bank, which is the largest bank merger in local history; the preceding takeover by Equitable Bank of the larger PCI Bank in 1999; the takeover

by the Bank of the Philippine Islands of the Far East Bank and Trust Co. and DBS Bank Philippines in 2000. Another big merger was that of Philip Morris International and Fortune Tobacco Co. and the absorption by Aboitiz Transport Systems Corp. of its subsidiary the logistics firm Zoom in Packages. Following the global merger of Merck & Co. Inc. and Schering-Plough Corp., their local counterparts MSD and Schering Plough (Philippines) also began the process of integrating their respective businesses in the country, Agra and Raola said. Other notable domestic mergers were those of Aboitiz, William Lines, and Gothong Lines, all shipping companies, into WG&A Super Ferry; the acquisition by PLST of the local Internet service provider Sequel Net; and the Lopez conglomerate consisting of ABS-CBN, Bayantel, Meralco, Sky Cable and Sun Cable, Manila Water Co. and the newspaper Manila Chronicle. The policy paper noted that mergers and corporate consolidations in rich countries have a significant effect on developing economies like the Philippines, where the local subsidiaries of foreign corporate giants could engage in similar moves, leaving local consumers unprotected from such anti-competition practices. It noted for instance the possible cartelization of the pharmaceuticals sector on account of the mergers of US drugs manufacturers. A 1999 study by Ajit Singh and Rahul Dhumale of the University of Cambridge highlighted, they said, the importance of a competition policy in developing countries in the face of the global merger wave. This University of Cambridge study shows that the large incidence of cross-border takeovers and mergers has a competition-reducing effect, which developing countries will find difficult to stop, said Agra and Raola. They noted that in response to these developments in the corporate world, two bills have been filed by Senate President Juan Ponce Enrile and Sen. Miriam Defensor Santiago that aim to penalize questionable mergers. Enriles Senate Bill 123 penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free market competition. The Enrile bill also prohibits stock or asset acquisitions, grant of proxies or voting rights, and board membership in two or more corporations that have the effect of substantially reducing competition or tending to create a monopoly. On the other hand, Santiagos Senate Bill 1835 amends certain provisions of the Revised Penal Code against monopolies by prescribing criminal penalties and fines on corporation of persons taking part in any monopoly or combinations of practices in restraint of trade. Agra and Raola noted, however, that Congress needs to address other equally important concerns regarding mergers and consolidations. They recommended, for one, a law calling for the review of proposed mergers and consolidations before they are approved to check against abuses. A threshold should be set to determine when and under what conditions an enterprise is said to be enjoying a dominant market position, they noted. Arrangements that do not comply with fair competition guidelines and those that significantly limit competition should not be allowed.

They said the SEC should be allowed to take remedial action, and impose penalties and sanctions against existing merged corporations that are engaging in anticompetitive practices. Agra and Raola also proposed the simplification of the current legal mechanisms available to interested parties for them to obtain relief or file injunctions against questionable mergers without going through a protracted litigation process. In its paper on corporate mergers and consolidations, Forensic Solutions noted that anti-trust legislation is not new in the Philippine legal landscape as the Constitution and local jurisprudence already address such concerns. It noted that the Supreme Court has already issued several rulings on mergers, including the landmark Gokongwei vs SEC case, in which the high tribunal stated that the inclusion of John Gokongwei, who owns a substantial stake in the food company CFC-Robina, in the board of its rival San Miguel Corp., could lead to an anticompetitive situation. The Revised Penal Code, Civil Code, Corporation Code, Anti-Monopoly Law (Republic Act 3247), Revised Securities Act, Intellectual Property Code, Price Act, Consumer Act, Downstream Oil Deregulation Act, Anti-Dumping Act, and Electric Power Industry Reform Act also contain various provisions against restraint of trade, cartels and other anti-competition practices. Daily Tribune RECOMMENDATIONS FOR PHILIPPINE ANTI-TRUST POLICY AND REGULATION 1 Anthony Amunategui Abad Introduction Various economic reforms were introduced in the Philippines through substantial trade and investment liberalization, deregulation and privatization during the administration of President Fidel V. Ramos (1992-1998). These reforms have led to the realization that freer trade and open markets are good for Filipinos in general. Substantial efficiency and welfare gains were brought about by increased competition from new products and services. Inversely, the Philippines' long and sad history of underdevelopment can actually be traced to a lack of competition in its economy. With this important realization, the Ramos administration adopted a policy of

introducing more competition-enhancing measures, such as the further lowering of trade and investment barriers and the reform of certain economic regulations. Throughout the years, awareness of the need for a new and comprehensive framework for anti-trust policy and regulation has increased within the Philippines, and the central role played by antitrust policy in economic reform measures for enhancing competition is now recognized. There have been a number of draft bills 2 for a proposed anti-trust or competition law filed in Congress, reflecting a growing appreciation by Philippine political leaders of their importance. These bills could form the nucleus of a truly comprehensive framework for anti-trust policy and regulation. It is unfortunate that these bills did not form part of the priority measures under the term of President Joseph E. Estrada (1998-2001), the administration succeeding Ramos, and have therefore languished as pending legislation. The same holds true until now under the present administration headed by President Gloria Macapagal-Arroyo. 3 To avoid committing these past mistakes of omission , a thorough study of the Philippines current approach to sustaining a market-oriented economy and regulating economic activity, will be needed. Reviewing existing economic laws and regulations and testing their effectiveness as tools for promoting economic efficiency and public welfare through competition should also be done. These analyses can then form the basis for

crafting a framework for anti-trust policy and regulation, and probably the direction that the Philippines should be headed in to become truly pro-competition.

1 Paper presented during the conference entitled Policies to Strengthen Productivity in the Philippines, sponsored by the Asia-Europe Meeting (ASEM) Trust Fund, Asian Institute of Management Policy Center, Foreign Investment Advisory Service, Philippines Institute of Development Studies and the World Bank, June 27-28, 2005 2 See Appendix 2 for such bills. 3 2001 to date Recommendations for Philippine Anti-Trust Policy and Regulations page 2 of 53 Rationale and Scope Since competition policy is a rather broad topic encompassing various aspects of functioning market economies, this paper will focus on specific key areas. The emphasis of this paper is on the legal and regulatory aspects of competition policy, particularly the framework for effective enforcement of competition in all sectors of the Philippine economy. This is important because of its bearing on the actual implementation of competition policy in the country. The scope of work and objectives of this paper are: 1. 2.

3. 4. 1. 2. to review existing anti-trust laws and regulations to examine the effectiveness and adequacy of these laws and regulations to examine how well these laws conform with international rules to suggest recommendations for reform. The paper will have three major components: Survey of Existing Anti-Trust Laws and Regulations in the Philippines The concept of anti-trust regulation is not exactly new to the Philippines. Apparently, old anti-trust provisions of U.S. laws found their way into the Philippine Constitution, the Revised Penal Code and Civil Code. Anti-trust enforcement is also implicitly vested in various regulatory agencies and bodies. This section of the paper surveys the existing laws and regulations that are deemed as constituting an anti-trust and/or competition policy framework for the Philippines. Analysis of Existing Anti-Trust Regulation in the Philippines Knowing the existing laws and regulations for anti-trust enforcement at the disposal of the Philippine government, what is then the actual effectiveness of these laws and regulations in promoting competition in the Philippine economy? This section analyzes the state of anti-trust regulation in this country and examines the government's thrust on implementing, and capability to implement, anti-trust laws and regulations. It studies the general regulatory structure in place, and identifies a number of the regulators and institutions involved in the anti-trust process. How have

they managed to control the behavior of the players in various industries and sectors? How have they affected the structure of markets in the Philippine economy? What are the major problem areas? Recommendations for Philippine Anti-Trust Policy and Regulations page 3 of 53 3.

Recommendations for a New Legal and Regulatory Framework for AntiTrust Enforcement in the Philippines This section recommends a new anti-trust policy and regulatory framework for the Philippines. Given the Philippines' long history of protectionism and over-regulation, market distortions are rampant in the economy despite the existence of basic anti-trust laws and regulations. Therefore, there is still a need to propose a more effective framework for anti-trust regulation in this country. Such a framework should first lay down the basic policy objectives and principles, and then spell out the basic structure for regulation. This section also suggests certain basic provisions for new anti-trust legislation and mechanisms for more effective enforcement. This section also covers draft bills on the proposed anti-trust or competition law of the Philippines. Survey of Existing Anti-Trust Laws and Regulations in the Philippines Anti-trust laws and regulations are not new to the Philippines. Apparently, old anti-trust provisions of U.S. laws found their way into the Philippine Constitution, the Revised Penal Code and Civil Code. Anti-trust enforcement is also implicitly vested in various regulatory agencies and bodies. This section of the paper surveys laws and

regulations that are deemed as the existing anti-trust and/or competition policy framework of the Philippines. The Constitution Under the Constitution, 4 the State is mandated to regulate or prohibit monopolies, combinations in restraint of trade and other unfair competition practices, for the sake of public interest. These provisions were based on the U.S. Sherman Act. Note that the Constitution does not prohibit monopolies per se. Monopolies are not illegal in themselves, as opposed to combinations in restraint of trade and other unfair competition practices. The latter are to be prohibited without exception. However, since the Constitution does not define what would constitute unlawful monopolies, or combinations in restraint of trade or unfair competition practices, separate legislation and/or case laws are the bases for making such definitions. Criminal Law Republic Act (R.A.)No. 3815 as amended, otherwise known as the Revised Penal Code, punishes anti-competitive behavior that is criminal in nature. Article 186 defines 4 Constitution, Article XII, Section 19 Recommendations for Philippine Anti-Trust Policy and Regulations page 4 of 53 and penalizes monopolies and combinations in restraint of trade while Article 187 provides penalties.

Combinations in restraint of trade are defined as: 1. 2. 3. 1. 2.

Any agreement, whether in the form of a contract or conspiracy or combination in the form of trust or otherwise, resulting in the restraint of trade or commerce Preventing by artificial means free competition in the market Any manner of combination, conspiracy, or agreement between or among manufacturers, producers, processors, or importers of any merchandise or object of commerce, or with any other persons, for the purpose of making transactions prejudicial to lawful commerce, or increasing the market price of such merchandise or object of commerce or of any other article in the manufacture, production, or processing, or importation of which such merchandise or object of commerce is used. Illegal monopolies are defined as: Monopolizing any merchandise or object of trade or commerce Combining with any other person or persons to monopolize any merchandise or object of trade or commerce, in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market. The Revised Penal Code also penalizes other frauds in commerce and industry such as falsely marking gold and silver articles and altering trademarks

5 . Civil Law R.A. No. 386 (1949) as amended, otherwise known as the Civil Code of the Philippines and which took effect in August 1950, allows the collection of damages arising from unfair competition in agricultural, commercial, or industrial enterprises or in labor 6 It also allows the collection of damages arising from abuse in the exercise of rights and in the performance of duties 7 , e.g., abuse of a dominant market position by a monopolist. Peculiarly enough, the Civil Code does not define unfair competition and merely lists the means by which unfair competition can be committed: force, intimidation, deceit, machination, or any other unjust, oppressive or highhanded method. Treble damages for civil liability arising from anti-competitive behavior is allowed under R.A. No. 165, otherwise known as An Act to Prohibit Monopolies and Combinations in Restraint of Trade. 5 Republic Act No. 166 (1947) 6 Article 28 7 Article 19 Recommendations for Philippine Anti-Trust Policy and Regulations

page 5 of 53 Special Laws Special laws specifically address some unfair competition practices. 1. R.A. No. 9136 (2001), otherwise known as the Electric Power Industry Reforms Act of 2001 This Act provides for the restructuring of the electric power industry, including the privatization of the assets of the National Power Corporation, the transition to the desired competitive structure, and the definition of the responsibilities of the various government agencies and private entities. 2. R.A. No. 8752 (1999), otherwise known as the Anti-Dumping Act of 1999 This law was passed to protect Filipino enterprises against unfair foreign competition and trade practices. 3. R.A. No. 8479 (1998), otherwise known as the Downstream Oil Industry Deregulation Act of 1998 This law led to the liberalization and deregulation of the downstream oil industry to ensure a competitive market to encourage fair pricing, adequate and continuous supply of environmentally-clean and high-quality petroleum products. 4. 5.

R.A. No. 8293 (1997), otherwise known as the Intellectual Property Code of the Philippines This law provides for the protection of patents 8 , trademarks

9 , and copyrights 10 and the corresponding penalties for infringement. Batas Pambansa Blg. 68 (1980), otherwise known as the Corporation Code of the Philippines This law provides for the rules regarding mergers and consolidations 11 and the acquisition of all or substantially all the assets or shares of stock of corporations 12 . It must be noted, however, that the Corporation Code does not address the problem of the probable abuse of a dominant position when horizontal mergers occur, e.g. merger of three shipping lines - Aboitiz, William Lines, and Gothong Lines into the WGA Super Ferry, or in case of vertical acquisitions, e.g. the acquisition by Metro Pacific Corporation, owner of cellular phone company, SMART Communications, Inc., of Philippine Long Distance Telephone Company, along with Sequel Net (an Internet service provider), and Home Cable. 8 Rep. Act No. 8293 (1997), at Part II 9 Id., at Part III 10

Id., at Part IV 11 Title IX 12 Title IV, Sections 40 and 42 Recommendations for Philippine Anti-Trust Policy and Regulations page 6 of 53 6. 7.

Batas Pambansa Big. 178 (1982) as amended, otherwise known as the Revised Securities Act This law complements the Corporation Code. It prohibits and penalizes the manipulation of security prices and insider trading 13 . R.A. 7581 (1991), otherwise known as the Price Act, and R.A. 7394 (1932), otherwise known as the Consumer Act of the Philippines Consumer welfare and protection is also an important aspect of competition policy. In this area, the significant laws are the Price Act and the Consumer Act of the Philippines. The Price Act defines and identifies illegal acts of price manipulation such as, hoarding, profiteering and cartels. Through price controls and mandated ceiling mechanisms, the Price Act also seeks to stabilize the prices of basic commodities and prescribes measures against abusive price increases during emergencies and other critical situations.

The Consumer Act of the Philippines provides for consumer product quality and safety standards. It also covers deceptive, unfair, and unconscionable sales acts and practices (including weight and measures, product and service warranties), consumer credit transactions, and penalties for violations of the statute. Jurisprudence Since the law itself is not clear, case law or judicial interpretation is particularly important in defining unlawful monopolies, combinations in restraint of trade, and unfair competition practices. The Supreme Court has affirmed the need to "... recast our laws on trust, monopolies, oligopolies, cartels and combinations injurious to public welfare to restore competition where it has disappeared and to preserve it where it still exists. In a word, we need to perpetuate competition as a system to regulate the economy and achieve global product quality.? 14 Defining Unfair Competition. To date, there have been only two cases decided by the Supreme Court defining monopoly. In the case of Gokongwei, Jr. v Securities and Exchange Commission, et al., 15 the Supreme Court narrowly defined monopoly as 13 Id. at secs. 26 and 30. Sec. 15 also provides for the revocation of registration for engaging in fraudulent

acts in connection with the sale of securities. Sec. 27 prohibits manipulative and deceptive devices, sec. 28 artificial measures of price control, and sec. 29 fraudulent transactions. 14

Tatad v The Secretary of the Department of Energy and The Secretary of the Department of Finance, etc, G.R. Nos. 14360 and 17867, Decision En Banc dated 03 December 1997 on the Motion for Reconsideration, citing the State of the Nation Address of President Fidel V. Ramos, 3rd Session of the Ninth Congress, 25 July 1994. 15 G.R. No. L-45911, 89 SCRA 339 (1979) Recommendations for Philippine Anti-Trust Policy and Regulations page 7 of 53 "unified tactics with regard to price." Further, it apparently considered a monopoly as undesirable in itself, and not the abuse of a monopoly or dominant position. "A 'monopoly' embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment of the public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired. Further, it must be understood that the idea of a monopoly is now understood to include a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusivity or unity, or the suppression of competition by the unification of interest or management, or it may

be through agreement and concert of action. It is, in brief, unified tactics with regard to price." In the Gokongwei case, John Gokongwei, Jr. acquired enough shares of stock to get himself elected to the board of directors of San Miguel Beer Corporation (SMBC), a beer manufacturer. manufacturing However, Mr. Gokongwei also controlled a rival beer

company, Asia Brewery, Inc. The Supreme Court held Mr. Gokongwei's action as constituting unfair competition. In the Tatad case, 16 the Supreme Court, in its original decision, held that: "A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right or power to carry on a particular business or trade, manufacture a particular article, or control the sale or the whole supply of a particular commodity. It is a form of market structure in which one or a few firms dominate the total sales of a product or service." (Citations omitted) In the Gokongwei case, it was likewise held that a monopoly can be achieved through the "suppression of competition by the unification of interest or management, or it may be thru agreement and concert of action. 17 Thus, even mergers and consolidations of companies, where these could lead to unfair competition, can be regulated. The Tatad case 18 also defined combinations in restraint of trade and differentiated

a combination from a monopoly: "On the other hand, a combination in restraint of trade is an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding company, or other form of association, for the purpose of unduly restricting competition, monopolizing trade and commerce in a certain commodity, controlling its production, distribution and price, or otherwise interfering with the freedom of trade without statutory authority. Combination in restrain of trade refers to the means while monopoly refers to the end." (Citations omitted} COMPETITION LAW AND POLICY A. 1. DEFINITION OF TERMS What is Competition Law?

Competition law refers to the framework of rules and regulations designed to foster the competitive environment in a national economy. It consists of measures intended to promote a more competitive environment as well as enactments designed to prevent a reduction in competition. 2. What is Competition Policy?

Competition policy, on the other hand, broadly refers to all laws, government policies and regulations aimed at establishing competition and maintaining the same. It includes measures intended to promote, advance and ensure competitive market conditions by the removal of control, as well as to redress anti-competitive results of public and private restrictive practices. B. 3. GOALS/OBJECTIVES OF COMPETITION POLICY What are the Goals of Competition Policy? To promote economic efficiency, which comprises three (3) components

o Productive efficiency Firms use the least cost production techniques to produce maximum possible goods and services from given inputs o Allocative efficiency Resources are channeled to those sectors where they are best utilized in order to produce goods and services that are valued most highly by consumers

Dynamic efficiency Firms strive to maintain their competitiveness by investing in Research and Development, innovation, marketing and management to keep abreast of the changes in technology, preferences and products. To correct market failure To enhance consumer welfare To achieve higher economic growth To promote competitiveness in both and domestic and foreign market

4. Basic Market Structure in which the degree of competition affects prices, output and profits. These are: Perfect Competition - This is an ideal or extreme form of competition. It occurs when a market consists of many firms selling an identical product to many buyers. Any firm that wishes to do so can enter or leave the market. Monopoly - A market with a sole supplier of a good, service or resource for which there is no close substitute. In addition, there are barriers to entry of new firms. Natural Monopoly - A natural monopoly arises from natural barriers to entry (such as a unique source of supply) or situation in which one firm can supply the entire market at a lower price than two or more firms could offer. Monopolistic Competition - Similar to perfect competition, but rather than firms producing identical products, these are many firms competing against each other by producing similar but slightly different products. Oligopoly - One characterized by a small number of firms where quantity sold by any one firm is influenced by its choice in respect of strategic variables ( such as prices, product design, research and development, advertising, and sales locations) and these choices are strongly influenced by other firms in the industry. C. 5. MARKET FAILURE What is market failure?

Occurs when the market is unable to achieve an efficient and equitable allocation of resources. 6. What are the sources of market failure?

I. Public Goods a public good is one, which if provided to one consumer, is freely available to all consumers. Ex. - Street lighting, parks, roads, etc,. This means no private firm is able to make a profit from providing such goods. Therefore, government should ensure that such goods are provided at the socially desired level. II. Income Distribution The market will not necessarily ensure equitable distribution of incomes. This may motivate government to introduce policies to redistribute wealth through measures, i.e., income taxes and social security benefits. III. Monopoly The operations of monopoly or natural monopoly often result in misuse of market power and inefficient allocation of resources, which reduce community welfare. For this reason, governments generally regulate monopoly and enforce laws preventing cartels. This type is a major rationale for a comprehensive competition policy. IV. Externalities An externality arises when an activity confers a benefit (like the benefit of education or immunization) or imposes a cost (pollution) on a third party, without the cost or benefit being included in the market price of that activity. V. Information Asymmetries In theory, buyers and sellers in a competitive market have complete knowledge about a product or service characteristics and quality. Information asymmetries between producers and consumers can lead to market failure and reduce community welfare. D. 7. COMPETITIVE CONDUCT RULES What are the competitive conduct rules?

Competitive Conduct - describes the decision-making processes of firms in a competitive market, where price, quantity and profit choices are dictated by overall market conditions and these are not unduly influenced by the actions of one or more large firms. In essence, competitive conduct describes firm behavior under conditions of perfect competition. Competitive Conduct Rules are governments response to the absence of perfect competition in a market. Their primary objective should be to protect or enhance the competitive process in markets where it is only partially operating. Competitive Process competitive conduct that reduce costs and prices, which is driven by impersonal and diffuse market forces and the threat of entry of additional suppliers. It results in efficient resource allocation and pricing, which can be attained in open, dynamic markets resembling perfect competition.

Competitive conduct rules codify what is acceptable behavior in an economy. Typically, such rules prohibit arrangements that can be construed as anti-competitive, in that they either:

Increase the power of firms within a market to the extent that this inhibits competitive conduct; Prohibit existing competitors or potential market entrants from effectively competing. 8. What are anti-competitive agreements? Anti-Competitive Outcomes or Agreements The Hilmer Report (Hilmer 1993) identifies several market outcomes or agreements which can be viewed as anti-competitive. These are: Horizontal Agreements agreement that exists between firms (suppliers or consumers) at the same level of production chain. This is often referred to as collusion. Collusion usually takes the form of an agreement on price, such a combination of firms provides them with a degree of pricing power, or in other words, the ability to at least influence the price of a good. Vertical Agreements It may vary where firms at different stages of the production chain collude. In most cases, vertical collusion occurs between suppliers and users of business inputs. This may relate to price or other matters (i.e. quotas, exclusive dealings, etc.,) Misuse of Market Power This type of anti-competitive conduct occurs when a single firm in a dominant position in a market misuses its market power. EX: predatory pricing Mergers and acquisitions - Mergers and acquisitions can constitute inappropriate market behavior where they lead to market outcomes of the typed described above. It is unlikely that a move towards increasing market concentration will normally be viewed as favorably affecting competition. Potential solution to different types of anti-competitive conduct. These include:

Per se Prohibition Prohibition is the most direct form of anti-competitive measure that an authority can undertake. IT refers to those activities which are ambiguously detrimental to regular competitive behavior in a market (e.g., price fixing). Rule of Reason (Competition Test) A wide variety of business practices that while inhibiting competition, may not require total prohibition, The most

widely used determinant in such a case is whether or not such activity reduces competition in the market. Authorization A mechanism through which the public benefit from ostensibly ant-competitive conduct can be assessed as a counter balancing consideration. The process involved here is a direct intervention or inquiry by a governing commission. Authorization implies that the commission can authorize certain conduct where there is a perceived net benefit to the community from anti-competitive conduct. Notification involves the approval of certain types of anticompetitive conduct upon the offender being granted immunity, conditional on the consent of the market regulator. These type of arrangements rely on absolute openness and transparency. Examples of Anti-competitive Conduct o Price-fixing agreement competitors agree to fix prices at a particular level, use of less obvious devices such as recommended prices, in reality, fix prices by agreement. Market sharing agreements agreement among competitors to share a market. Ex: a number of producers may choose to restrict their sales to certain geographic areas, thus developing local monopolies. Exclusionary provisions agreements between competitors to limit dealings with a particular supplier or customer or a particular class of customer. Ex: primary boycotts, secondary boycotts. These actions are taken to prevent new firms from entering the market, or to force existing firms out of the market.

Primary boycotts or exclusionary provisions occur when a group of people or firms agree not to deal with a particular supplier or customer. This is subject toper se prohibition. Secondary boycotts occur when a group of people who may not otherwise deal with the target organization persuade another uninvolved (supplier) not to deal with the target organization. o Tie-in arrangements and third line forcing when the supply of goods or services to a person is made provisional upon them also purchasing additional goods and services, either from the same supplier (tie in arrangement) or from another specified supplier (third line forcing) o Retail price maintenance refers to action by suppliers, manufacturers or wholesalers specifying a minimum price below which goods or services may not be resold or advertised for resale.

E. 9.

REGULATORY RESTRICTIONS ON COMPETITION What are regulatory restrictions? o Regulatory restrictions are governments own restrictions on competitive conduct, either through legislated regulation or direct ownership.

These restrictions can detract from overall competitiveness in the economy, in much the same way as market failure, in the sense that they detract from the regular workings of the market. Regulatory restrictions may entrench a smaller number of players in a less competitive environment. Consequences of these are higher prices, poorer quality goods and a group of firms that have a diminished response to their market. Regulatory Restrictions Existing in the Philippines o o Regulatory barriers to market entry, including licensing and franchising agreements; Government monopolies, including monopolies on public utilities such as electricity generation and supply, telephone services and the shipping industry;

Rural marketing, especially restrictive marketing boards; and o 10. directly: Other restrictions on competitive conduct.

Forms of Regulations that Impact on Competition There are two (2) forms of regulations that impact on competition Barriers to entry are burdens or limitations forcing any firm not presently operating in a market. They derive from;

o Economies of scale due to market share achieved by the incumbents; o o Capital requirements (including investment development through advertising and the like); in brand

Cost savings accruing to existing firms from their experience and familiarity with the particular industry

o o o

Monopoly access to key infrastructure; Monopoly of key industry knowledge.

Regulations that restrict competitive behavior: Price control; and o Advertising restrictions

Impact of Regulation o o o Higher prices; Lower quality goods; and Less consumer choice as a result of reduced competition

In the case of monopolies, they can prevent any competition in the market F. 11. ESSENTIAL FACILITIESWhat is essential facility?

Within the framework of competition policy, an essential facility is a major infrastructure which exhibits two characteristics: The facility is essential to the effective operation of an economic organization; and The facility exhibits natural monopoly characteristics. Ex: electricity grids, rail infrastructure, roads, port facilities, pipelines and telecom network. What is natural monopoly?

12.

Distinguishing feature: one facility can supply the entire market demand more clearly than two or more smaller facilities. Typically, natural monopolies have the following features: Large development and start-up costs Economies of scale: as the organization increases its output, the average cost per unit output declines

Natural monopolies are an outcome of the size of the market and the type of technology available to meet its demand. It is not a market structure, it is a cost minimizing method of production. There are two major implications: G. An industry may consist of more than one firm even though the existing technology would suggest that monopoly is more economically efficient. The existence of natural monopoly conditions in an industry may vary as demand varies and as the prevailing technology changes MAIN AREAS OF CONCERN OF COMPETITION LAW/POLICY What are the main areas/concerns which competition law/policy should address? Competition laws and policies are meant to address concerns that include: a) preventing enterprises from entering into agreements which do not have any beneficial features and which will restrict competition, either amongst themselves or between them and third parties; controlling attempts by monopolists or dominant firms from abusing their market position and preventing new firms from entering the market; competition is maintained in

b)

c) ensuring that workable oligopolistic industries; and

d) monitoring mergers between independent enterprises, where the effect of the merger may result in market concentration and reduction in competition. H. AGENCIES IMPLEMENTING COMPETITION POLICY

1. What are the agencies in the Philippines undertaking the implementation and enforcement of competition laws? Tariff Commission (TC) An attached agency of the National Economic and Development Authority (NEDA), it is mandated to assist the Cabinet Committee on Tariff and Related Matters (TRM) in the formulation of a national tariff policy and to monitor the implementation of the Tariff and Customs Code (TCC). Bureau of Import Services (BIS) A staff agency of the Department of Trade and Industry (DTI), it is mandated to monitor import quantities and prices of selected sensitive items (particularly liberalized goods) to

anticipate surges of imports and assist domestic industries against unfair trade practices. Bureau of Trade Regulation and Consumer Protection (BTRCP) - Also a staff agency of the DTI, it is mandated to formulate and monitor the registration of business names and the licensing and accreditation of establishments; it also evaluates consumer complaints and product utility failures. Securities and Exchange Commission (SEC) An attached agency of the Department of Finance (DOF), it is mandated to administer corporate government laws such as the approval and registration of corporate consolidations, mergers and combinations. It 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, etc).

Other agencies likewise enforce laws on anti-competitive behavior such as: DTI and attached agencies including the Bureau of Foods 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 Commission 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

2.

What are the problems encountered in the enforcement of competition laws?

The following have been identified as some of the reasons behind the poor enforcement of competition laws: Despite the number of laws and their diverse nature, competition has neither been fully established in all sectors of the economy nor has existing competition been enhanced in other sectors. Since each law is meant to address specific situations, there runs the risk of one law negating the positive effects of another. There is no central enforcement agency. Enforcement is done by several individual agencies that do not operate in a coordinated manner and sometimes produce conflicting policies. Moreover, responsibility is too diffused and accountability for implementation of the laws is difficult to place. There is also a lack of expertise in the appreciation and implementation of competition laws. Fines imposable for breaches of the laws are minimal. Likewise, most punishments are penal in nature, hence, evidence requirements are substantial. There is a lack of jurisprudence and judicial experience in hearing competition cases. The SEC regards efficiency gains as more important than competition considerations in mergers and does not have a mandate to challenge mergers unless it can demonstrate they are against the public interest.

3.

Does the Philippines have a formal competition policy framework?

Although the Philippines has no explicit competition policy framework, the promotion of competition has been implicit in the major reforms implemented since the 1980s. Before the reforms, the Philippine economy was characterized by a highly restrictive policy, pervasive industry regulations, and other government intervention in various forms, e.g., protective policies, industry regulation and regulatory controls. 4. What has the government done to open up the market to competition? Since 1993, the government has demonstrated greater determination and better success in its program to open up the market to competition. It has implemented an economic reform agenda designed to strengthen the market structure through deregulation and economic liberalization.

The major reforms implemented include, among others: 1. 2. 3. 4. 5. 6. 7. 8. substantial trade reforms which reduced the number of regulated items to a minimum and brought down tariff rates abolition of a number of regulatory bodies privatization demonopolization of the telecommunications industry some deregulation in the shipping and airline industries oil deregulation easing of entry of foreign banks easing the foreign equity limits, and resorting to a much less restrictive negative list of activities where foreign equity is limited the retail trade law.

I. 1.

BASIC PHILIPPINE LAWS DEALING WITH COMPETITION POLICY What are some of the basic laws dealing with competition?

The Philippine Constitution provides that 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. The most basic law addressing anti-competitive behavior is penal or criminal in nature. Article 186 of the Revised Penal Code defines and penalizes monopolies and combinations in restraint of trade and provides penalties therefor. The Civil Code of the Philippines (which came into effect in August 1950) and Republic Act No. 165 (otherwise known as the Act to Prohibit Monopolies and Combinations in Restraint of Trade) allow for the collection of damages arising from unfair competition. While the cited statutes mention or refer to competition, none of them actually defines the term. Special laws or statutes have also been enacted to specifically address some unfair trade practices. The Intellectual Property Code provides for the protection of patents, trademarks and copyrights. The Corporation Code of the Philippines provides for the rules regarding mergers and consolidations, and the acquisition of all or substantially all the assets or shares of stock of corporations. The Revised Securities Act which complements the Corporation Code proscribes the manipulation of security prices and insider trading. Another piece of important legislation is the Price Act which defines and identifies illegal acts of price manipulation such as hoarding, profiteering and cartels. Just as important is the Consumer Act of the Philippines which, among others, provides for consumer product quality and safety standards.

2. What should the government do to strengthen the economys competition regime? The government recognizes the need to enact a comprehensive competition policy framework in order to address the inadequacies of past legislations dealing with unfair trade measures. Identifying areas for change and improvement is a fundamental step in developing an effective competition regime. The following factors should be taken into consideration: Markets in the formulation of competition policy, both the domestic and international markets should be taken into consideration. Competing in the international market is largely dependent on how open, strong and integrated the domestic market is. Unfair trade practices and anti-competitive behavior in the domestic market may very well undermine, even nullify, gains from market opening initiatives. Measures Laws bearing on competition are numerous and varied. However, there remains a need to enact an overall law on competition, particularly a comprehensive anti-trust legislation. There are several bills pending in Congress where some authors have suggested that competition law should: (a) focus on the actual and or potential business conduct of firms in a given market, and not on the absolute or relative size of firms. It should look at the business conduct of firms and the business environment in which the firms operate. (b) be effectively harmonized and linked with other government policies. Promoting competition in the business environment constrains anticompetitive behavior by firms and also inculcates sound business practices and ethics. (c) be a law of general application, addressing all sectors of the economy. Exemptions from its application may be allowed if they will not limit competition, are based on sound economic principles and are aimed at facilitating legitimate economic activity. (d) contain provisions explicitly prohibiting business practices that are clearly against economic efficiency and consumer welfare, such as price fixing, bid rigging, restriction of output and market shares, allocation of geographic markets and customers, which should be deemed illegal per se and subject to criminal law and severe penalties. (e) provide for a rule of reason approach with respect to horizontal and vertical mergers, specialization agreements, joint ventures, vertical manufacturing, wholesale and retail distribution arrangements. Prior notification to and approval by the concerned agency of such business arrangements are recommended but only with respect to the largest

transactions, taking into consideration size thresholds in terms of market share, assets, sales and/or employment of parties involved. Maintenance - The effective implementation and enforcement of anti-competition laws should be vested in a centralized agency with sufficient powers to oversee and monitor the competitive climate in the different sectors of the economy, to formulate and recommend such measures as would ensure the maintenance of competition in the Philippine domestic market and as would anticipate developments in the international market. Message - Finally, a competition policy can only be effective if the people believe in it. This is best ensured by allowing the people to participate in making the decision. Consultations and consensus building, therefore, are prerequisites to the adoption of such policy. It is also important to consult the public because much of the anti-competitive behavior in the market may be attributed to them. To ensure appropriateness and acceptability of proposed measures as well as easier implementation and observance by the public, dissemination, awareness, education and information campaigns should be undertaken through mass media. 3. What are the difficulties encountered in enacting a National Competition Law and creating Central Competition Authority? A number of underlying issues exist which hinder the development of a workable competition policy. These issues include: Lack of Understanding and Education on the Rationale and Positive Implications of a Competition Policy Despite the introduction of pro-competitive reforms in the economy, competition culture has yet to be ingrained in the psyche of the Filipino people (business community, consumers, government officials, legislature) especially in these times of global economic slow down. Lack of Political Will Certain influential members of Congress are themselves corporate owners/majority stockholders of dominant firms who are threatened by the enactment of a comprehensive competition policy/law. They would resist the passage of a competition bill. Lack of Technical Expertise and Experience The competition authority should have very competent and knowledgeable manpower to define markets, identify anticompetitive actions, and judiciously construct and administer competition tests on issues of concentration, agreements, mergers and acquisitions. The question is, what would be the best way of developing such expertise and institutions? Lack of Agreement on How to Establish a Single Central Competition Authority

One approach is to do this gradually, possibly on a piecemeal basis. The creation of a coordinating body to administer an austere law would be a good start. Another approach is to transform an existing body which is performing some of the functions of competition policy. A third approach would be to create a new central body which could be designed to develop and evolve into what it should ideally become. Current Lack of Experience and Knowledge in Competition Policy Matters 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. The issue in respect to insufficient knowledge and experience is clear: It is one thing to know that a firm in a position to control the relevant market for a particular good or service is not permitted to limit production for the purpose of raising prices, and another to prove that the firm in question has control of a market and that it is reducing production to raise prices. Still another thing is adjudicating a case where such accusations are made. Continuing Resistance to Globalization by Certain Sectors Who Feel Threatened by Liberalization and International Trade Commitments Domestic industries allege that they are suffering injury or the threat thereof because of import surge resulting from the governments unilateral tariff reduction program and/or tariff commitments in ASEAN and WTO. J. THE WAY FORWARD

Sustained advocacy and public information campaign on the culture of fair competition Drafting of a competition policy bill incorporating international best practices including competitive neutrality, legislative review and access regimes Act of Congress Competition authority as a constitutional body Multilateral/Regional/Bilateral Agreement on Competition Policy

COMPETITION POLICY Republic of the Philippines EXISTING COMPETITION LAWS

Philippine Constitution (1987)- The Philippine Constitution of 1987 prohibits anticompetitive practices. Monopolies are not prohibited "per se", but only when public interest so requires. It also prohibits combinations in restraint of trade or unfair competition. However, the 1987 Constitution provides no imposable sanctions for violations of these provisions. Article 186 of the Revised Penal Code R.A. 3815 (1930)- Similar to Section 2 of the Sherman Act (1890) which was the major legislation that ushered competition law into the limelight in the U.S. It describes the acts punishable, such as monopolies and combinations in restraints of trade, and the penalties imposable on such. Republic Act 3247 (An Act to Prohibit Monopolies and Combinations in Restraint of Trade) (1961) provides for recovery of treble damages for civil liability arising from anti-competitive behavior. Republic Act 165 (1947) (Patent Law) and Republic Act 166 (1971) (Trademark Law) describes the appropriate civil action which can be resorted to, and the penalties imposable. Presidential Decree 49 (1972) (Copyright Law) penalizes copyright infringement. Republic Act 8293 (1997) An Act prescribing the Intellectual Property Code and establishing the Intellectual Property Office Republic Act 386 (1949) (Civil Code of the Philippines) stipulates the collection of damages arising from unfair competition. Republic Act 7581 (1991) (The Price Act) protects the consumers by stipulating price manipulation (hoarding, profiteering and cartels) as illegal acts. Republic Act 7394 (1932) (The

Consumer Act of the Philippines) imposes penalties for such behavior as deceptive, unfair and unconscionable sales practices in both goods and credit transactions. The Philippine Corporation Code Batas Pambansa Blg. 68 (1980) provides for rules and procedures to approve all combinations, mergers and consolidations. Revised Securities Act, Batas Pambansa Blg. 178 (1982) Republic Act No. 337 regulates Banks and Banking Institutions and for other purposes (General Banking Act) (1948) In recent years, there were already a number of laws passed by Congress and various Executive Orders signed by the President to strengthen the Competition policy framework. 1. Trade and Investment Liberalization To liberalize trade and in compliance with international commitments, tariffs on numerous industrial and agricultural products have been reduced and/or modified through various executive orders. These are the following: Republic Act No. 8178 (1996) - An Act Replacing Quantitative Import Restrictions on Agricultural Products, Except Rice, with Tariffs, Creating the Agricultural Competitiveness Enhancement Fund, and for other Purpose. Republic Act 7650 (1993) - An Act Repealing Section 1404 and amending Sections 1401 and 1403 of the Tariff and Customs Code of the Philippines, as amended, relative to the Physical Examination of Imported Articles. Republic Act 8181 (1996) to shift the basis for the computation of duties from home consumption value to transaction value to address some of the leakages in collections. Republic Act 7843 (1994) also known as the AntiDumping Act of 1994, was enacted to rationalize and strengthen the

provisions on antidumping in the Tariff and Customs Code. Executive Order No. 264: (1995) Modifying the Nomenclature and the Rates of Import Duty on Certain Imported Articles under Section 104 of the Tariff and Customs Code of 1978 (Presidential Decree No. 1464) as amended. Executive Order No. 287: (1995) Modifying the Rates of Duty on Certain Imported Articles as Provided for under the Tariff and Customs Code of 1978, as amended, in Order to Implement the 1996 Philippine Schedule of Tariff Reduction under the New Time Frame of the Accelerated Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA). Executive Order No. 288: (1995) Modifying the Nomenclature and the Rates of Import Duty on Certain Imported Articles under Section 104 of the Tariff and Customs Code of 1978 (Presidential Decree No. 1464), as amended. Executive Order No. 313: (1996) Modifying the Nomenclature and the Rates of Import Duty on Certain Imported Articles under Section 104 of the Tariff and Customs Code of 1978 (Presidential Decree No. 1464), as amended Executive Order No. 328: (1996) Modifying the Nomenclature and the Rates of Import Duty on Certain Imported Articles under Section 104 of the Tariff and Customs Code of 1978 (Presidential Decree No. 1464), as amended. Executive Order No. 365: (1996) Modifying the Nomenclature and the Rates of Import Duties on Certain Imported Articles under Republic Act Nos. 8180 and 8184. Executive Order No. 388: (1996) Modifying the Nomenclature and the Rates of Import

Duties on Certain Imported Articles under Section 104 of the Tariff and Customs Code, as amended. Executive Order No. 390: Modifying the Nomenclature and the Rates of Import Duties on Certain Imported Articles under Section 104 of the TCC of 1978 (P.D. No. 1464) as amended. Public Utilities a. Maritime Industry Executive Order No. 185 (1994) was adopted to foster competition through more liberalized rules on the entry of new operators for existing routes, the deregulation of the entry of newly-acquired vessels into routes already served by franchised operators, and vessel rerouting or amendment of authorized route and change in sailing schedules and frequency. Executive Order No. 213 (1994) provides for the deregulation of domestic shipping rates in the following areas: a) first and second class passage rate for passenger-carrying domestic vessels, b) passage rates for vessels catering to tourism as certified by the Department of Tourism or those serving DOT-certified tourist priority links/areas, c) freight rates for all commodities classified as Class "A" and "B" and "C", except for non-containerized basic commodities, and where the route/link is still being serviced by only one operator. b. Civil Aviation Executive Order No. 219 (1995), international civil aviation was sought to be liberalized through the designation of at least two official carriers for the Philippines, and the possibility of designating other carriers as official carriers when the total frequency requirements of the Philippines under its various Air Services Agreement cannot be fully serviced by the first two designated official carriers. c. Port Services Executive Order No. 212 (1994) - In order to accelerate the demonopolization and privatization program for government ports. Competition is

encouraged in the provision of cargo handling and other port services. Under the government's demonopolization program, ship owners, operators, charterers or other users have the option to contract or engage the services of the Philippine Port Authority (PPA) authorized handler or port service contractor of their choice. d. Telecommunications The most successful efforts expended in breaking up monopolies and cartels were undertaken in the telecommunications industry. Executive Order No. 59 (1993) required mandatory interconnection for other telecommunications firms with the Philippine Long Distance Telephone Company (PLDT) backbone. Executive Order No. 109 (1993) laid down the government's policy to improve the Local Exchange Carrier Service. Authorized international gateway operators were required to provide local exchange service in served and unserved areas, including Metro Manila, within three years from the grant of authority from the National Telecommunication Commission. Republic Act NO. 7925 (1995), entitled "An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunications Services" was enacted to provide a comprehensive guideline regulating the public telecommunications industry in the Philippines. e. Energy Executive Order No. 215 (1987) was issued to promote private sector participation in the business of generating electricity. Republic Act No. 8180 (1996), which provides for the deregulation of the oil industry, was also recently enacted. Executive Order No. 377, Providing the Institutional Framework for the Administration of the Deregulated Local Downstream Oil Industry, Series of 1996 f. Water Executive Order No. 311 (1996) was issued to encourage private sector participation in the operation and facilities of the MWSS. g. Privatization of State Enterprises Executive Order No. 298 (1996) - issued by the President to provide for alternative and/or intermediate modes of privatization through

joint ventures, B-O-T schemes, management contracts, lease purchase arrangements and securitization. h. Taxation, Monetary and Fiscal Reforms Republic Act No. 7660 - rationalization of the documentary tax system. Republic Act No. 7717 - the imposition of taxes for sale of shares of stock through the stock exchange or through initial public offerings. Republic Act No. 7716 - Expanded Value-Added Tax. Republic Act No. 7642 was also enacted to increase the penalties for tax evasion and violation of the provisions of the National Internal Revenue Code. Still pending deliberations in Congress is the Comprehensive Tax Reform Package endorsed by the Ramos Administration. Under Central Bank Circular No. 1389 (Consolidated Foreign Exchange Rules and Regulations), as amended, foreign exchange restrictions were lifted thereby allowing the market to freely trade in foreign currencies. Republic Act No. 8183 was passed expressly repealing the Uniform Currency Law (Republic Act No. 529) which restricted parties to a contract to deal only in Philippine Peso in order to settle monetary obligations. MEMORANDUM COMPETITION LAW IN THE PHILIPPINES ________________________________________________________________________ To date, the Philippines do not have a comprehensive and developed legislation relating to anti-trust and monopoly activities. pending However, there are several anti-trust bills

before the Twelfth Philippine Congress. They are as follows: 1. Senate Bill (S.B.) No. 175 - An Act creating the Fair Trade Commission, prescribing its powers and functions in regulating trade competition, and monopolies and for other purposes; 2. S.B. No. 1361 - An Act providing for more effective implementation of the

Constitutional mandate against monopolies, combination and restraint of trade and unfair competition by redefining and strengthening existing laws, processes and structure regulating the same, and for other purposes; 3. S.B. No. 1600 - An Act prohibiting monopolies, attempt to monopolize industry or line of commerce, manipulation of prices of commodities, asset acquisition and interlocking membership in the board of directors of competing corporate bodies and price discrimination among customers, providing penalties therefore, and for other purposes; 4. House Bill (H.B.) 1906 - An Act declaring unfair trade practices as acts of economic sabotage. HB 1906 declares the following acts as economic sabotage and provides criminal sanctions for the same: (i) smuggling; (ii) technical smuggling; (iii) misclassification of importation; (iv) dumping, and (v) other forms of unfair trade practices. 5. H.B. No. 198 - An Act creating a special body that shall regulate and exercise authority over monopolistic practices, combination in restraint of trade and unfair competition and appropriating funds therefore; and 6. H.B. No. 2439 - An Act penalizing unfair trade practices and combinations in restraint of trade, creating the Fair Trade Commission, appropriating funds therefore, and for other purposes. The most significant of these bills is S.B. No. 175, proposing the passage of the Fair Trade Act or an Act Creating the Fair Trade Commission, Prescribing Its Powers and Functions in Regulating Trade Competition and Monopolies and For Other Purposes. This bill consolidates all anti-trust laws into one law and establishes a Fair Trade Commission (Commission), an executive body that will enforce the Fair Trade Act. Generally, the bill seeks to prohibit monopolies and cartels and other practices which diminish, impair or prevent competition and free trade. It defines absolute monopolies,

relative monopolies and trusts which may constitute prima facie violations of the law. A trust is defined as a merger, acquisition of control or any act whereby companies, partnerships, shares, equity, trusts or assets are concentrated among competitors, suppliers, customers or any other business entity. Under enumerated circumstances, the bill, if passed into law would require prior notification to the Commission before trusts are formed. There are also laws of general application that are relevant to the regulation of antitrust and monopoly activities. The Philippine Constitution outlines the state policy of regulating or prohibiting monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition are to be allowed. In relation to this policy, the Revised Penal Code of the Philippines penalizes parties entering into any contract or agreement or taking part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce, as well as penalizes those who prevent, by artificial means, free competition in the market. It also imposes penalties on parties who monopolize any merchandise or object of trade or commerce, or who combine with any other persons to monopolize said merchandise or object in order to alter the prices thereof or who spread false rumors or make use of any other artifice to restrain free competition in the market. The Civil Code allows the recovery of damages in cases of unfair competition in agricultural, commercial or industrial enterprises. There are also other laws on unfair competition pertaining to the protection of intellectual property rights.

President Aquinos Most Evil Proposal: Antitrust Law AUGUST 7, 2010 tags: anti-competition laws, antitrust law, Capitalism,COMPETITION, FREEMARKET, JUAN PONCE ENRILE, NOYNOY Aquino, philippine economy, Senate bill 123

Theres a legislative proposal that will make successful businessmen in this country criminals: Antitrust Law! Say no to this non-objective law! The Aquino administration is now preparing for the implementation of an antitrust law in the Philippines in order to legislate private corporations and companies monopolistic tendencies. The President said in his first State of the Nation Address (SONA) that it is the governments duty to ensure that the market is fair for all - and, to fulfill his statist duty as the highest elected official of the land, he believes that he has to put an end to monopolies or cartels in the country. Thus, he said that the country needs an antitrust law that will give life to these principles, to afford Small - and Medium-Scale Enterprises the opportunity to participate in the growth of our economy. Does the economist President know what hes talking about?

The Philippine Senate already has its proposed Antitrust Act (Senate Bill 123) entitled, An Act Prohibiting Monopolies, Attempt to Monopolize an Industry or Line of Commerce, Manipulation of Prices of Commodities, Asset Acquisition and Interlocking Memberships in the Board of Directors of Competing Corporate Bodies and Price Discrimination Among Customers, Providing Penalties Therefor, and for other Purposes. However, what is clear is that the Senate proposal authored by Senator Juan Ponce Enrile is simply a rip-off- or a plagiarized copy- of three United States laws, which are the basis of the proposed anti-trust and unfair competition laws: the Sherman Act (15 USC 1-7), the Clayton Act of 1914, and the Robinson-Patman Act of 1936 (15 USC 13). Sen. Enrile wrote the following in the bills Explanatory Note: Our people have been victims to big business. It behooves the Senate to provide protection to our people against price manipulators. In a volatile economic situation such as that which we are experiencing now, it is not very difficult to imagine how artificial prices in oae or two commodities is able to directly or indirectly raise the prices of related goods and services. In Article XII, Sectioii 19, our Constitution provides: Section 19. 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. As proof of the importance of this Constitutional mandate, Section 22 of the same article encourages the promulgation of legislation that would impose civil and criminal sanctions against those who circumvent or negate this principle. Hence, Section 22 of the Constitution provides: Section 22. Acts which circumvent or negate any of the provisions of this Article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law. Although previous legislations have been passed pursuant to this Constitutional mandate, the increased deviousness and complexity of schemes in perpetuating monopolies in the free market landscape necessitates an equally sophisticated legislation that would efectively address this concern. Generally, this bill penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free market competition.

For these reasons, the passage of this hill is earnestly recommended. It is very interesting to note that Sen. Enrile is a big business owner himself. In fact, it was declared that the good senator has business interests in over 40 companies and corporations located in Makati area alone as of 2004. So in the name of the people and of public interest, there is a need to legislate corporate success, according to this explanatory note of Sen. Enrile. By personally proposing such an antitrust bill, will he benefit from the enactment of this antitrust proposal in the Philippines? The problem with this antitrust proposal, which was imported from the United States, is that it is a non-objective law. Under this law, a business-owner is already condemned as a criminal from the moment he starts his own business, regardless of his line of business or corporate practice. According to this law, a business-owner can be held liable for monopoly or for a mere attempt to monopolize, to combine or conspire, expressly or impliedly, with any other person or persons, to monopolize any part of the trade of commerce within the country, among others. If evaluated very carefully, there is only one distinction in the legal treatment given to a businessman or to a criminal: the rights of the criminal are protected much more objectively than the businessmans. The crimes that can be committed by any business-owner, corporation, partnership, or association are provided under Sections 3 to 10 of SB 123. As stated by Sen. Enriles Explanatory Note, the alleged intent of his antitrust proposal is to protect competition in the business sector. However, such an expressed intent is founded on the statist or socialistic delusion that an unhindered, unregulated market will necessarily lead to the creation of coercive cartels or monopolies. What Sen. Enrile and his cohorts failed to understand is that no unjust cartel or monopoly has even been and can ever be created or established by means of free trade on a free-market economy. Both American and Philippine history tells us that all economic crisis and coercive cartel or monopoly was caused by government interference with the economy by means of special privileges, such as subsidies or franchises, and by means of legislative action. In the Philippines, we have the Independent Power Producers (IPP) that hold a seemingly perpetual monopoly on the countrys power sector because of a franchise or a privilege given to them by the government. Those who are advocating or proposing for the passage of this evil bill are either stupid or have vested economic interest. This bill, once enacted, may be used by incompetent businesses against their highly competent competitors. It can also be used by some of our elected politicians and public officials like Sen. Enrile who have business interests for personal economic benefits.

It is now the moral obligation of all business owners and all competent and successful companies and corporations in the country to oppose this evil bill. It is true that the 1987 Constitution permits the enactment of such a law simply because our charter is a mixture of Republicanism and socialism. The Constitutional provisions (under Article XII) cited by Sen. Enrile in his Explanatory Note simply expose the dictatorial and socialistic tendencies of the fundamental law of the land. Since we have a Constitution possessed by socialism or statism, the best thing that the concerned businesses, big or small, can do is to fight this bill by exposing its evils and flaws and how it affects the country as a whole. Again, since this bill was plagiarized by Sen. Enrile from at least three notiorious American laws, we can fight it by citing the evils of the American antitrust and anticompetition laws. Here are some of the evils of an anti-trust law, according to Raymond Niles, who wrote an article entitled The Case Against Capitalism. Antitrust punishes the best companies The list of antitrust targets reads like a Whos Who of American business success stories. Standard Oil Company, Alcoa Aluminum Company, IBM, and Microsoft, are just a few. These companies were pioneers in developing new and beneficial products. Who doesnt benefit from cheaper gasoline using methods pioneered by Rockefeller, the aluminum foil and light-weight aluminum parts invented by Alcoa, or the computer revolution, first in mainframes by IBM, and then in personal computing by Microsoft? These companies pioneered new industries and offered new products that were widely demanded by customers. The huge demand for their products and their large marketshare was a sign of how successful these companies were in selling products that many people wanted. Yet, that market share became the basis for antitrust lawsuits. Antitrust is used by unscrupulous companies against their competitors An honest businessman competes by selling a better product. It is not a coincidence that it is usually second and third-tier companies who use antitrust to hammer a more successful competitor. What does it say about the competitive spirit of a company that must cry to mother (i.e., the Fede ral Trade Commission) when the competition gets too tough? Antitrust is used by less successful businessmen to stifle competition. Antitrust is arbitrary and non-objective; it is bad law

A good law is easy to understand and apply, so that one clearly knows in advance what is a crime and what is not a crime. Antitrust laws make it impossible to know whether one is committing a crime. Under antitrust, it can be illegal to charge less than your competitor (that is considered price gouging or dumping), to c harge the same price as a competitor (that could be collusion or oligarchy), or to charge a higher price than your competitor (that could be monopolistic behavior or destroying consumer surplus). Thousands of lawyers and regulators extract hundreds of millions of dollars out of the economy wrestling with these questions. No one should be subject to such arbitrary law. Capitalism doesnt need antitrust The great successes in business were achieved by companies that began small, and became large through innovation and lower prices. Antitrust did not make those successes happen. On the contrary, antitrust is poised like a guillotine at the throats of every businessman who has the foresight, perseverance and pluck to become successful. His very success, his large market share, puts a target on his back for unscrupulous competitors and eager bureaucrats.

No to Kuya Noys Anti-Trust Law JULY 29, 2010 tags: ANTI-TRUST LAW, Benigno Noynoy III, Capitalism,COMPETITION, competition laws, MONOPOLY, sherman act

Aquino

No to Anti-Trust law! Anti-trust law is one of the most non-objective laws in the United States. But since we have this habit of borrowing even the bad legal doctrines, principles, and legal concepts from other countries, the United States in particular, the new administration promised to implement an anti-trust law in the Philippines. In his first State of the Nation Address (SONA), President Noynoy Aquino vowed to ensure that the market is fair for all. Thus, he said: According to our Constitution, it is the governments duty to ensure that the market is fair for all. No monopolies, no cartels that kill competition. We need an Anti-Trust Law that will give life to these principles, to afford Small- and Medium-Scale Enterprises the opportunity to participate in the growth of our economy. Now the Senate came up with its proposed anti-trust act (Senate Bill 123) entitled An Act Prohibiting Monopolies, Attempt to Monopolize an Industry or Line of Commerce, Manipulation of Prices of Commodities, Asset Acquisition and Interlocking Memberships in the Board of Directors of Competing Corporate Bodies and Price Discrimination Among Customers, Providing Penalties Therefor, and for other Purposes. The main proponent of the act, Senator Juan Ponce Enrile said: The enactment of the bill would prevent abuses, such as those perpetrated by Meralco, including overcharging of customers, price manipulations, ghost deliveries, book manipulations and charging of system losses to customers, amounting to billons of pesos, and others. Prohibiting price fixing is just one aspect of the proposed antitrust legislation. Broadly speaking,competition laws seek to either regulate or outlaw the following acts:

Prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels; Banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others, and; Supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to remedies such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing.

Its good that Sen. Enrile revealed that the Senate proposal is merely a rip -off of the three United States laws, which are the basis of the proposed anti-trust and unfair competition laws: theSherman Act (15 USC 1-7), the Clayton Act of 1914, and the Robinson-Patman Act of 1936 (15 USC 13). This means that it is simply OK to criticize the proposed bill based on the substantial body of work either expressed in scholarly works, jurisprudence, legal commentaries, among others. However, an anti-trust legislation must be opposed on the ground that it is antiinnovation and anti-business. I dont have the time yet to deal with this issue so let me point out the basis why an anti-trust law must be rejected. To quote philosopher Ayn Rand writing in Choose Your Issues, The Objectivist Newsletter: The Antitrust lawsan unenforceable, uncompliable, unjudicable mess of contradictionshave for decades kept American businessmen under a silent, growing reign of terror. Yet these laws were created and, to this day, are upheld by the conservatives, as a grim monument to their lack of political philosophy, of economic knowledge and of any concern with principles. Under the Antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful intent to monopolize; if he charges prices lower than those of his competitors, he can be prosecuted for unfair competition or restraint of trade; and if he charges the same prices as his competitors, he can be prosecuted for collusion or conspiracy. There is only one difference in the legal treatment accorded to a criminal or to a businessman: the criminals rights are protected much more securely and objectively than the businessmans. She also states in Antitrust: The Rule of Unreason, The Objectivist Newsletter: The alleged purpose of the Antitrust laws was to protect competition; that purpose was based on the socialistic fallacy that a free, unregulated market will inevitably lead to the establishment of coercive monopolies. But, in fact, no coercive monopoly has ever been or ever can be established by means of free trade on a free market. Every coercive monopoly was created by government intervention into the economy: by special privileges, such as franchises or subsidies, which closed the entry of competitors into a given field, by legislative action. (For a full demonstration of this fact, I refer you to the works of the best economists.) The Antitrust laws were the classic example of a moral

inversion prevalent in the history of capitalism: an example of the victims, the businessmen, taking the blame for the evils caused by the government, and the government using its own guilt as a justification for acquiring wider powers, on the pretext of correcting the evils. Free competition enforced by law is a grotesq ue contradiction in terms. Business people in this country must understand the perils or evils behind this nonobjective proposed legislation.

A CRITIQUE OF PHILIPPINE ANTI-TRUST LAWS Atty. Lorna Patajo-Kapunan was a resource speaker at the second "Understanding Anti-Trust" Public Forum held at the Philippine Senate last February 10, 2011. Atty. Kapunan gave a detailed and very informative talk on previous and existing anti-trust laws in the Philippines, the issues surrounding what she described as these "scattered" provisions, and the need for a comprehensive anti-trust framework. A brief outline of Atty. Kapunan's presentation during the public forum appears below:

A Critique of Philippine Anti-Trust Laws by Atty. Lorna Patajo-Kapunan Senior Partner Kapunan Lotilla Garcia & Castillo Law Offices

Various Existing Anti-Trust Laws in the Philippines


THE PHILIPPINE CONSTITUTION, Article XII, Section 19 The Revised Penal Code of the Philippines, Article 186 The New Civil Code of the Philippines, Article 28 Republic Act No. 7394, the "Consumer Act of the Philippines" Republic Act No. 7581, the "Price Act" The Corporation Code of the Philippines, Section 79 The Intellectual Property Code of the Philippines Republic Act No. 8479, the "Downstream Oil Industry Deregulation Act of 1998" Republic Act No. 7042, the "Foreign Investments Act of 1991" Republic Act No. 8762, the "retail Trade Liberalization Act of 2000"

Problems of the Current Anti-Trust Laws


All laws relating to anti-trust are scattered in different codes. Existing anti-trust laws do not provide for clear-cut guidelines, elements/requisites or evidence to determine whether an act constitutes unfair competition, monopolistic behavior or restraint of trade. Lack of judicial experience in determining anti-trust laws, caused also by inadequate laws. Need for proper body to determine whether there was any violation of anti-trust laws.

"In the case of SEDI and FDI 2 vs. Nestle Philippines, Inc., the DTI refused to assume jurisdiction over an administrative complaint for violating Article 186 of the Revised Penal Code, which is a trade and industry law. DTI itself is confused with its jurisdiction when it ruled that the proper office to assume jurisdiction is the DOJ because Article 186 of the Revised Penal Code is a penal law."

Codification of anti-trust laws into one statute. Recognition of the rise of Small and Medium Filipino Enterprises (SME) and the need for protection. Clearer protection against vertical agreements which have the effect of restraining trade. Definition of vertical price restraints and predatory pricing. Recognition of the disadvantage of vertical price restraint to the distributor or retailer. Recognition that protection from vertical price restraint is not a novel concept as other countries have protected against such form of anti-trust practice.

Proposed Bills

Senate Senate Senate Senate

Bill Bill Bill Bill

No. No. No. No.

1 (Senator Juan Ponce Enrile) 123 (Senator Sergio R. Osmena III) 175 (Senator Antonio "Sonny" F. Trillanes IV) 1838 (Senator Miriam Defensor Santiago)

Key Features of the Law Prohibition against anticompetitive mergers Merger regime suspensive Prohibition of collusive agreements Leniency policy

(if threshold met)

Prohibition applying to vertical conduct Prohibition against unilateral conduct Criminal sanctions Private rights

(eg abuse dominance)

of

Competition in Philippines - Market Overview Anti-trust has long been part of the Philippine legal system starting with Articles 543 to 545 of the Old Penal Code then enforced by the Spanish regime. During the American occupation, in 1917, the Philippine Legislature enacted Act No. 3247 entitled An Act to Prohibit Monopolies and Combinations in Restraint of Trade understandably based on the Sherman Act of the United States. Upon Philippine independence in 1935, however, Act No. 3247 was repealed by the Revised Penal Code which reverted to providing penalties for machinations, monopolies and combinations but deleting treble damages. Despite the early start and the fact that the 1987 Philippine Constitution has reaffirmed the States mandate to regulate or prohibit monopolies, combinations in restraint of trade and other unfair competition practices, for the sake of public interest, there is presently no comprehensive competition law in the Philippines. What it does have are several anti-trust legal provisions, ranging from the general to very specific ones, scattered among various unrelated sector-specific statutes. As mentioned, the Revised Penal Code treats as criminal certain acts deemed to be monopolistic or in restraint of trade such as: 1. entering into any contract or taking part in a combination in restraint of trade or commerce to prevent by artificial means free competition in the market; 2. monopolizing any merchandise to alter the price by spreading false rumors or making use of any other article to restrain free competition in the market; and 3. making transactions prejudicial to lawful commerce or increasing the market price of any merchandise. The more recent Price Act patterned after the Clayton Act of the United States, also penalizes price manipulation in three forms namely: 1. hoarding or the undue accumulation of prime commodities beyond normal inventory levels; 2. profiteering or selling at a price grossly in excess of the goods true worth; and 3. cartel or combining to artificially and unreasonably manipulate prices. There is prima facie existence of a cartel whenever two or more persons or businesses in competition perform uniform, complementary or simultaneous acts to bring about artificial prices. The Intellectual Property Code likewise imposes criminal penalties on

acts of infringement of a registered mark and unfair competition. Examples of unfair competition are selling goods which have been given the general appearance of the goods of another as to deceive the public and defraud the legitimate owner; making false statements or acting in bad faith to discredit the goods of another; or inducing the false belief that one is offering the services of another. On the other hand, the Civil Code of the Philippines of 1950 allows, in general terms, the recovery of damages arising from unfair competition in agricultural, commercial or industrial enterprises or in labor. Note, however, that for the offending party to be liable for damages, he should have acted through the use of force, intimidation, deceit, machination, or any other unjust, oppressive or highhanded method subject to proof of clear and convincing evidence. More specific provisions dealing with competition are those found in the Electric Power Industry Reform Act of 2001 which provides for de-monopolization and shareholding dispersal in distribution utility and holding companies. Thus, holdings of persons shall not exceed 25% of voting shares of stock unless the utility or holding company or controlling stockholders are already publicly listed. Additionally, no participant in the electricity industry may engage in any anti-competitive behavior such as crosssubsidization, price or market manipulation, or other unfair trade practices detrimental to the encouragement and protection of contestable markets. The Energy Regulatory Commission (ERC) is tasked to enforce safeguards against anyone owning, operating or controlling more than 30% of the installed generating capacity of a grid, or 25% of the national installed generating capacity and to monitor and penalize any market power abuse or anti-competitive or discriminatory act or behavior in the electric power industry. The ERC has the power to impose price controls, issue injunctions, requirement divestment or disgorgement of excess profits and impose fines and penalties. Similarly, the Downstream Oil Industry Deregulation Act of 1998, ensures fair competition and prevents cartels and monopolies by providing penalties for persons engaged in any act to fix prices, restrict outputs or divide markets, or are into predatory pricing. As could be seen, except perhaps for the ERC in the case of the electric power industry, the prosecution of persons engaged in anti-trust or unfair competition behavior as well as recovery of civil damages arising there from is the primary responsibility of the private offended party. While the Department of Justice supervises the prosecutorial service for all criminal complaints in the country, it does not function like a trade board or commission dedicated to the enforcement of anti-competition legal provisions. Apart from this lack of specialized implementation and the absence of a cross-sector or comprehensive law against monopoly, there is also a dearth of jurisprudence on the matter. So far, the most important one is where the Philippine Supreme Court had denied a petition to declare null and void the amended by-laws of a big manufacturing company which would disqualify any stockholder from being nominated to its board of directors when he is engaged in a competing business. The Supreme Court held that a monopoly can be achieved through the suppression of competition by the unification of interest or management, or it may be thru agreement and concert of action. It further said that when a competitor, has access to the pricing policy and cost conditions of the products of the company, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated. In another case, the Supreme Court determined that an exclusivity clause

which prohibited the sales personnel of a direct selling enterprise from carrying or selling its competitors products, was not per se void and only that whose probable effect was to foreclose competition within a substantial share of commerce can be considered void for being against public policy. No less than the Supreme Court has said that there is a need to recast our laws on trust, monopolies, oligopolies, cartels and combinations injurious to public welfare to restore competition where it has disappeared and to preserve it where it still exists. For the past 20 years, Philippine lawmakers have attempted to pass bills to either strengthen existing legal provisions on anti-trust or come out with a comprehensive anti-competition legislation like those of their Asian counterparts. Minimise

Competition Policy in Philippines The Philippines has a wide range of laws and statutes that deal with the various aspects of competition law such as monopolies and combinations in restraint of trade, restrictive business practices, price control measures and consumer protection. In fact, the concept of anti-trust regulation or competition policy is not new to the Philippines. Old anti-trust provisions of US laws (e.g., Sherman and Clayton Acts) found their way into the Philippines Constitution, the Revised Penal Code and the Civil Code. The Philippines Constitution prohibits and regulates monopolies, combinations in restraint of trade and other unfair trade practices. Under the Constitution, monopolies are not illegal in themselves as opposed to combinations in restraint of trade and other unfair competition practices that are prohibited without exception. But since the Constitution does not define what would constitute unlawful monopolies, or combinations in restraint of trade or unfair competition practices, separate legislation/or case laws are the basis for making such definitions. The Revised Penal Code defines and penalizes anticompetitive behavior that is criminal in nature. The Civil Code of the Philippiness allows the collection of damages arising from unfair competition as well as abuse of dominant positions by a monopolist. The Act to Prohibit Monopolies and Combinations in Restraint of Trade allows damages for civil liability arising from anticompetitive behavior. There are also special laws and statutes enacted to specifically address unfair competition practices. These include: The Corporation of the Philippiness (1980) It covers rules on mergers, consolidations and acquisitions. The law, however, does not address competition issues such as the possible abuse of dominant positions arising from mergers and acquisitions. The Revised Securities Act (1982) The Act prohibits and penalizes the manipulation of security prices and insider trading. The Price Act (1992):

It defines and identifies illegal acts of price manipulation such as hoarding, profiteering and cartels. Through price controls and mandated ceiling mechanisms, the Act also aims to stabilize prices of basic commodities and prescribes measures against abusive price increases during emergencies and other critical situations. The Consumer Act of the Philippiness (1992) The Act prescribes conduct for business and industry. It sets penalties for deceptive, unfair and unconscionable sales practices to protect and promote the interest of consumers. It also covers consumer product quality and safety standards. The Intellectual Property Code of the Philippiness (1997) The Act provides for the protection of patents, trademarks and copyrights and the corresponding penalties for infringement. The Downstream Oil Industry Deregulation Act of 1998 The Act liberalizes and deregulates the downstream oil industry to ensure a truly competitive market, encourage entry of new players to the industry. It introduced measures to achieve these objectives, notably the provision of anti-trust safeguards meant to ensure fair competition and prevent cartels. The Anti-Dumping Act of 1999 The Act provides for the protection of Filipino enterprises against unfair competition and trade practices. The Electric Power Industry Reform Act of 2001 The Act provides for the restructuring of the electric power industry, including the privatization of the assets of the National Power Corporation, the transition to the desired competitive structure, and the definition of the responsibilities of the various government agencies and private entities. Antitrust laws, also known as competition laws, are legal rules to promote fair competition in the marketplace. These laws can apply to both businesses and individuals. Antitrust laws are designed to prevent actions that might hurt consumers or unfairly harm other businesses, such as the formation of monopolies, illegal cooperation between competing businesses, and certain mergers between companies. These types of laws are in effect in many countries, and are even shared between countries in some cases, such as in the European Union. Competition and Monopolies In most cases, competition between businesses results in lower prices for consumers. It may also encourage businesses to provide a higher quality of goods and services in order to attract customers. When a business is a monopoly, it is the only seller of a particular product or service in its market; without competition from other businesses, it is often able to charge consumers higher prices. Antitrust laws may help prevent companies from becoming too large, eliminating their competition, or being able to fix prices in the marketplace.

Collusion between Competitors Antitrust laws are often designed to prevent competing companies from working together to set prices. When companies work together or collude they may be able to raise prices without fear of a competitor offering the same type of item or service at a lower price. These laws also make it illegal for other types of collusion, such as agreeing not to compete in certain areas or with certain products. By forcing competing businesses to make decisions independently, the laws can help ensure that consumers benefit from competition within the marketplace. Company Mergers One of the most difficult issues often addressed by antitrust laws is the merger of formerly competing companies. Many times, a merger will result in a business that is stronger, more efficient, or more stable. A merger may also reduce competition, however, leaving fewersuppliers of particular products or services in the market. This could result in higher prices and less incentive to provide consumers with higher quality goods and services. Antitrust laws often regulate mergers to help prevent monopolies and other situations where consumers or other businesses may be significantly harmed. U.S. Antitrust Laws In the United States, these types of laws essentially began with the Sherman Antitrust Act of 1890, which applied to interstate transactions. It removed limits on competitive trade and made it illegal to form a monopoly or attempt to monopolize a market. The Clayton Act, which was passed in 1914, regulates against mergers or acquisitions that would substantially decrease competition or might create a monopoly. In 1936, the RobinsonPatman Act made it illegal for producers to engage in price discrimination by allowing some businesses to purchase products at lower prices than other businesses. Various other laws also encourage fair competition in the marketplace. The U.S. Federal Trade Commission (FTC), which was formed in 1914, is charged with enforcing the country's antitrust laws. Many of the laws are not specific and are subject to interpretation about what is best for a competitive marketplace. The FTC must enforce the standards and interpret the law in each particular case. For example, the FTC often reviews mergers to determine whether they reduce competition or create monopolies. Competition Law in the European Union In the European Union, these types of laws are often similar to those in the U.S. They restrict or prohibit things such as monopolies, certain mergers, and collusion between competitors. One difference is a restriction on countries unfairly helping their own companies to give them advantages over businesses in other nations in the European Union. The European Commission, which is the executive branch of the European Union, is responsible for enforcing its competition laws.

Competition policy is increasingly becoming an integral part of economic reform programs of developing economies like the Philippines. After more than three decades of protectionism and highly concentrated industries, the shift toward a more open economy through highlighted liberalization, deregulation and privatization has

the role of competition policy in our economy. As we rely more on market mechanisms and less on government intervention to achieve economic progress, we need sound competition policy to ensure that the market works effectively and produces economic efficiency. Much of the world is already striving to deal with the impact of globalization where the integration of economies has broken down barriers to trade and opened wide the marketplace. But before we can even think about globalization, we need to craft our own domestic competition policy. In so doing, we will be able to enhance the competitive behavior and technical efficiency of our industries and make them better to compete with foreign firms. These will eventually make our economy more attractive to foreign investment. Moreover, since the Philippines has no established competition policy to date and its antitrust law is hardly implemented nor effective, the need for a national competition policy acquires even greater urgency. In this light, we hope that the invaluable wealth of information contained in this book will be useful to and considered by our national leaders, policymakers and industry players. Conducted by authorities in their fields of research, the studies in this Volume aim to give us a mold by which to shape an effective Philippine competition policy. On behalf of the PASCN, I would therefore like to thank and congratulate the authors of this book for their diligence and commitment in coming up with these

studies that are not only highly instructive but timely. Finally, I also wish to acknowledge all those who made possible the publication of this book. D uring the past decade, economic literature and policy discussions around the globe have been increasingly focused on competition policies. It is not that radically new concepts are being formulated. Rather, a growing need for new approaches in competition policies is being felt because of its significance to international trade, which have become highlighted with the reduction of trade barriers worldwide. Although justification for competition policies is well founded in economic literature, there is a need to understand their implications more fully, brought about not just by what is happening in the global arena but even more importantly by various comprehensive policy reforms that have been undertaken by the government during the past decade or so. 2 TOWARD A NATIONAL COMPETITION POLICY FOR THE PHILIPPINES The series of competition policy studies undertaken under the Philippine APEC Study Center Network (PASCN) recognizes the need for a new perspective, a new way of understanding the issues and hopefully, a better approach to reforming economic policies. The reforms starting in the mid-1980s have done much to move the economy toward a more market-friendly policy environment. Trade reforms, banking reforms, foreign investment policy reforms, deregulation, privatization and the policy thrusts in general have explicitly and implicitly recognized the benefits from competition. However, it is time to consider what more should be done. The next step is to examine the state of competition in the Philippine economy and determine how competition policies that would help sustain and maximize benefits from the reforms could be formulated. The studies presented in this volume are envisioned to be just the first stage

toward achieving a workable competition policy for the Philippines. Given the decades of protectionism and regulation prior to reforms, a culture of competition in the country has not fully evolved. And while there may be a general consensus that competition is good, there is vagueness in the minds of many and uncertainty about the need for competition policy and how competition should be enforced. As the government becomes more involved in the development process in general and markets in particular, such a need would become more acute. It is ironic that for a developing country with usually less perfect markets, there is a greater need for an effective competition policy to encourage better use of scarce resources but there is less recognition of this need. It is thus timely for policymakers to pause and consider how competition policy has affected, promoted, or hindered competition and to look more closely at what role it could play. It is not that the government has done nothing to foster competition. As earlier noted, the reforms the government has implemented starting in the mid-1980s have done much to enhance the state of competition in the different sectors of the economy, particularly in the liberalization and deregulation efforts. In the process, however, new problems emerge and the need for clearer competition rules becomes more apparent. This is especially true in the case of specific industry regulations. Moreover, while there is a proliferation of laws governing competition, there appears to be a lack of consistent, comprehensive, and rational competition policy. In short, the Philippines has undertaken major reforms in what could be considered the first layer of competition policy: trade reforms. It has also implemented steps in what could be considered the second layer of competition policy deregulationbut a lot more needs to be done with respect to how to move it a step further and develop more rational competition rules. Finally, the government, must,

sooner or later, decide to what extent it wishes to implement what could be considered the third layer of competition policy, the core competition policy that deals directly with the anticompetitive behavior of firmsa working antitrust law. Hopefully, the studies in this volume would help shed some light on what needs to be done further. OBJECTIVES AND ROLE OF COMPETITION POLICY Almost everyone has a concept of what is competition. When one thinks of competition, one envisions a number of sellers/producers competing among each other to sell the most products to the most number of consumers. Quoting from the World Bank/OECD glossary, competition is: a situation in a market in which firms or sellers independe ntly strive for the patronage of buyers in order to achieve a particular business objective, e. g., profits, sales and/or market share. Competition in this context is often equated with rivalry. Competitive rivalry between firms can occur when there are two firms or many firms. This rivalry may take place in terms of price, quality, service or combinations of these and other factors which customers may value, or the process by which economic agents, acting independently in a market, limit each others ability to control the conditions prevailing in the market. Such a competitive situation may also be effected by market contestability. That is, competition comes not only from actual firms or sellers already in the market but also from firms or sellers that could enter and contest the market. In other words, when the market is contestable, the threat of entry is enough to provide competition. Monopolists and oligopolists would behave like perfect competitors when faced with threat of new entrants into the market (Baumol and Willig 1981). What does such a competitive setting accomplish? Why is competition desirable? Or, conversely, what is objectionable about a noncompetitive market

setting? If there is competition, whether coming from existing rival firms or from the threat of new entrants into the market, the seller must make sure that he produces the best quality products at the least cost and sell his product at the price dictated by the market. Otherwise, he loses his clientele and his market share to some other seller who could do better. In other words, the producer/supplier has no market power. 1 That is, he cannot manipulate prices and extract excess profits (rents). And (as former Tariff Commissioner Abad puts it), he profits with honor. The end result is optimized welfare for all.

Manila, Philippines : 26 October 2011 - The Philippine Long Distance Telephone Company ("PLDT") (NYSE: PLDT) (PSE: TEL) and JG Summit Holdings, Inc. ("JG Summit") (PSE: JGS) jointly announce that PLDT has successfully completed the acquisition of a majority interest in Digital Telecommunications Philippines, Inc. ("Digitel") (PSE: DGTL) from JG Summit and other shareholders of Digitel, in a landmark share swap transaction valued at about P69.2 billion.

Together with 3.277 billion shares representing 51.55% of Digitels outstanding common stock, PLDT also acquired the zero-coupon bonds issued by Digitel Group to JG Summit, which were assumed to be convertible or exchangeable into 18.6 billion Digitel shares, and assumed P34.1 billion in advances made by JG Summit to Digitel Group (collectively, the "Enterprise Assets"). As payment for the Enterprise Assets, PLDT issued 27,679,210 new shares of common stock at the issue price of P2,500 per PLDT share. As a result, the JG Summit Group presently holds approximately 12.9% of PLDTs expanded outstanding common stock. Approvals Obtained The transaction was completed today following the issuance by the Securities and Exchange Commission ("SEC") on July 29, 2011 of its confirmation of the valuation of the Enterprise Assets and by the National Telecommunications Commission ("NTC") on 26 October 2011 of its approval of the transfer of 51.55% interest in Digitel. PLDTs common shareholders had earlier approved the issuance of PLDT common shares as payment for the Enterprise Assets during their meeting on June 14, 2011.

Divestment Sale of CURE by SMART Cognizant of the concerns raised by government and certain oppositors regarding the PLDT groups ownership of 3G frequency, and to assure all parties that it is not PLDTs intention to accumulate the said frequency, PLDT presented a plan to the NTC covering SMART Communications, Inc.s ("SMART") divestment of its subsidiary, Connectivity Unlimited Resource Enterprises, Inc. ("CURE"). CURE owns 10MHz of 3G frequency in the 2100 band (the "Affected Frequency"). As part of its approval of the acquisition of Digitel by PLDT, the NTC also approved the divestment plan presented by PLDT, which covers the following commitments: CURE will sell its Red Mobile business to SMART consisting of its subscriber base, brand and fixed assets SMART will sell all of its rights and interests in CURE whose remaining assets will consist of its congressional franchise, the Affected Frequency and related permits (the Divestment Sale) PLDT will have a period of nine months to effect the orderly migration of CUREs customers and an orderly transfer of CUREs assets to Smart with the least disruption and degradation of service to CUREs existing customers (the Transition Period). The Transition Period will be reckoned from the date of promulgation of the Decision of the NTC approving the PLDT acquisition of Digitel (the Decision). The Divestment Sale will be made under the supervision and control of the NTC and will be effected through a competitive bidding among duly enfranchised and qualified public telecommunication entities. A minimum price will be prescribed to allow SMART to recover its investment in acquiring, developing and operating CURE (the Cost Recovery Amount). In the event that the actual proceeds from the Divestment Sale exceed the Cost Recovery Amount, PLDT will pay the NTC, as fee for supervising the Divestment Sale, at least 50% of such excess less government fees and taxes payable as a consequence of the Divestment Sale. The Divestment Sale will be conducted within six months after the Transition Period provided the Decision shall have become final and executory. However, in the event that there will be a delay in the implementation of the Divestment Sale by reason of appeal or any legal challenge against the Decision, CURE will continue to pay Spectrum User's Fee and other related fees which will form part of the Cost Recovery Amount. While the Divestment Sale is pending, the PLDT group will not use the Affected Frequency. Appointments

At meetings held today by the respective boards of directors of Digitel and Digitel Mobile Philippines, Inc. (DMPI), Mr. Manuel V. Pangilinan was appointed as Chairman while Mr. Orlando B. Vea was appointed as President and Chief Executive Officer, of Digitel and DMPI. Lock-up and Option Agreements The PLDT shares that were issued as payment for the Enterprise Assets are subject to a lock-up period of one (1) year during which JG Summit and the other sellers may not transfer or encumber such PLDT shares without the consent of PLDT. PLDT has granted consents to the potential sale by JG Summit of 5.81 million and 4.56 million PLDT shares under separate option agreements that JG Summit has entered into with an associate company of First Pacific Company Limited and NTT Docomo, Inc., respectively. Following the sale of these shares, expected to occur within 30 days from the listing date of the PLDT shares issued to JG Summit, the JG Summit Group will own approximately 8.0% of PLDTs common shares. Tender Offer As the transaction triggers a mandatory tender offer for the acquisition of the remaining 48.45% of Digitel shares held by the public, PLDT will launch a tender offer for such shares on a date to be announced by PLDT. Under the terms of the tender offer, Digitel shareholders will be given an option to sell at P1.6033 per Digitel share or swap their holdings for PLDT common shares at a swap ratio of 1,559.28 Digitel shares for every new PLDT common share. If fully taken up, the tender offer would bring the total transaction value to P74.1 billion, making it the largest buyout in Philippine corporate history. On June 21, 2011, the SEC issued its confirmation that PLDT may close the main transaction with JG Summit prior to the closing of the tender offer. Impact on the Telecommunications Industry With PLDTs successful acquisition of Digitel, consumers are expected to begin realizing the substantial benefits to be reaped from the combined expertise, resources and capabilities of the PLDT Group and Digitel. PLDTs Chairman, Manuel V. Pangilinan, remarked: PLDT is extremely pleased to welcome Digitel to the PLDT Group. PLDT will continue to provide its consumers with the best value in terms of price, quality and range of products and services and we have committed to continue offering unlimited type of services in fulfillment of this promise. In addition, Sun subscribers can benefit from PLDTs extensive infrastructure and varied service offerings. On the other hand, JG Summit Chairman, James L. Go, said of the transaction: This transaction ensures that Digitel remains in good hands. Together, the PLDT-Digitel

Group will be well-positioned to compete not only with formidable existing competitors but with well-funded new entrants as well.

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