Balancing competition law and the preference for Filipino businesses
By Atty. Emerson B. Aquende
August 26, 2020

 

Starting as a spark in Wuhan, China in December 2020, the Covid-19 has spread across the world like a wildfire. By March 11, 2020, the World Health Organization declared the viral outbreak as a pandemic. Infection has creeped into every corner of the globe and to date afflicts peoples in 215 countries and territories, with the total worldwide death count reaching 810,885 as of August 23, 2020.

Eight months from the initial outbreak, science continues to play catch-up with Covid-19. As experts and researchers make new discoveries, prevention and treatment protocols are likewise evolving. The furious race to invent safe and effective vaccines is still months away from the finish line. With science yet unable to offer reliable solutions, governments are left with no choice but to supplement the gap in information with intuition resulting to either too draconian or overly lenient measures. Even the few governments that seemed to get the right mix of containment strategies have suffered setbacks from second or third waves of infections.

As people drastically reduce social interactions, the pandemic is also fast developing into a global economic crisis. With many economies screeching to a halt, the economic damage is fast becoming obvious. In its June Global Economic Prospects, the World Bank has forecasted a 5.2 percent contraction in the 2020 Global GDP.

The case of the Philippines is no different. As the country emerges from lockdown, the economic data confirms the devastating effects of the pandemic. The economy is projected to have lost as much as P1.1 trillion during the first 45 days of the lockdown. Tax collections slid by 61.56 percent year-on-year to P90.5 billion in April 2020 instead of the expected surge from the income tax filing deadline. Remittance from overseas Filipinos in 2020 is predicted by the Asian Development Bank to decline by 20.2 percent. The Philippine Statistics Authority recently reported an all-time high unemployment rate of 17.7 percent, with 7.3 million unemployed adults in April of this year. The economic recession was confirmed by the PSA when it announced a 16.5 percent decline in the 2nd Quarter GDP growth rate.

To reverse the recession, restart the economy, promote business continuity, and save jobs and livelihood, the government is deploying a new set of tools that will hasten economic recovery even as the country continue to battle the Covid-19 menace. Congress is enacting into law “Bayanihan II.” The measure will authorize the President to deploy a wide-range of measures to stimulate the economy and promote business continuity, the most significant of which include the following: (1) Flexibility in realigning government funds; (2) Provisions for assistance, subsidies and/or allowances to displaced employees and OFW; (3) Enforcement of protection measures against hoarding, profiteering, price manipulation, cartels, monopolies, or other combinations in restraint of trade, (4) Provision for expansion of access to credit at lower interest by businesses; (5) Liberalization of the grant of incentives for the manufacture or importation of essential goods; (6) Provision for assistance to critically-impacted businesses in the transportation tourism and agriculture sector; and (7) Acceleration of online commerce, including the digitalization of MSMEs.

Economic revival started after quarantine restrictions were eased across the country. In adopting a strategy of localized or micro lockdowns to contain infection outbreaks, the government has facilitated the calibrated reopening of businesses. However, as businesses struggle to cope with the negative shock of the initial quarantine measures, there are growing calls from various industries for government, businesses and consumers to adopt a policy of Filipino preference to speed up the economic recovery and job creation. Criticisms have been aired by some business quarters about the importation of Personal Protective Equipment (PPE) instead of sourcing from local manufacturers. In the agriculture sector, hog and poultry growers have likewise called for a ban on pork and chicken meat imports to avoid a local supply glut.

While a Filipino preference in business and trade finds constitutional support on the mandate for “the preferential use of Filipino labor, domestic materials and locally produced goods” in Section 12 of Article XII of the Constitution, the same provision does not, however, justify protectionist and anti-competitive biases. Counter-balancing the

Filipino preference are provisions found in the same Article XII that mandate trade policies that serve the general welfare, and anchored on equality and reciprocity, as well as that which prohibits combinations in restraint of trade and unfair competition.

Contrary to the misplaced beliefs of some market participants, competition is in fact essential in attaining economic recovery. As clearly laid out in the Philippine Competition Act, competition will propel economic development by promoting equal opportunity, improving productivity, and safeguarding consumer welfare.

It cannot be overemphasized that the national emergency brought about by the Covid-19 pandemic may spawn its own host of anti-competitive practices that can impact economic recovery efforts. There may be businesses incentivized to take advantage of the pandemic emergency to enter into anti-competitive agreements and/or to abuse their dominant market position in order to gain unfair advantage. It is not difficult to imagine that businesses may agree or collude to fix prices, or allocate markets, or control production, for basic and essential goods and services that are in high demand during the pandemic emergency, such medical supplies and PPE, courier and transportation services, and Internet services. On the contrary, the absence of barrier to entry of market participants, has allowed the country to address the initial supply shortages in face masks and other PPEs through importation sourced from foreign suppliers.

Emerging markets that have grown during the pandemic and their potential contribution to the economy may remain underdeveloped if anti-competitive practices of market participants are not effectively checked. A prime example are the digital and online markets that have found a niche during the lengthy community quarantines as substitutes for brick and mortar establishments. Early market participants who have attained dominance may abuse their market power by imposing barriers to entry of competitors, which will only slow down the development of this economic sector and negatively impact consumers.

Admittedly, the revival of Filipino businesses will greatly contribute to the economic recovery of the country. However, a protectionist and anti-competitive strategy to promote Filipino businesses will only yield short-term results and will eventually be counter-productive to economic development. The gains produced will be negated by the disadvantages and ills that are sought to be avoided by Section 19 of Article XII of the Constitution, and the PCA—that is, the detrimental effects to consumers and the concentration of market power in the hands of a few enterprises.

The interplay of these two factors require a careful balancing act on the part of our policy makers. While assistance and support should be extended by government to allow as many businesses as possible to restart their commercial activities, such support must be extended to all, or at least to those similarly situated on the basis of clear and sound criteria, without any market participant getting undue gain over its competitors.

Apparently, Congress has weighed well these two factors in drafting the Bayanihan II by focusing on provisions that support Philippine businesses and workers, without unduly giving market participants unfair advantage over other competitors, such as the subsidies to displaced workers, the expansion to access to credit with favorable interest rates and terms by affected businesses, the liberalization of incentive grants for manufacturers of essential goods, and the increased efficiency in processing permits. These measures will lessen the burden on businesses to resume full commercial activity without giving any market participant an advantage over other competitors.

In the final conclusion, with the right balance of competition law and preference for Filipino businesses, both Filipino businesses and consumers stand to be mutually benefitted by a competitive business climate and vibrant Philippine economy.

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Comm. Emerson B. Aquende is the newest member of the Philippine Competition Commission. Before joining the PCC on March 5, 2020, he headed the Legal Education Board, the government agency regulating legal education in the country. He has gained experience in insurance and finance as board director in the United Coconut Planters Life Assurance Corp., UCPB General Insurance Co., Inc., and its various subsidiaries. He practiced law as a litigation attorney, and has accumulated more than 22 years in the academe, 14 years of which as the law dean of the University of Santo Tomas-Legazpi. He currently teaches law in the University of Philippines College of Law.

 

(Originally published on Business Mirror’s Competition Matters column on August 26, 2020 here.)