phcc.gov.phphcc.gov.ph/.../PICPA_Accountancy-Week_21Jul2017_Final.docx · Web viewRepublic of the Philippines Philippine Competition Commission 6/F DAP Building, San Miguel Avenue,

Republic of the PhilippinesPhilippine Competition Commission

6/F DAP Building, San Miguel Avenue, Ortigas Center, Pasig City 1600Tel./Fax: (632) 6312129 • Email: [email protected] • Website:

www.phcc.gov.ph

Presentation on “Our Antitrust Law and Regulations: What Accountants Should Know and

Implement”By Chairman Arsenio M. Balisacan, PhD.

2017 Regulators’ Day Forum2017 Accountancy Week: SHINE (Service, Honesty, Innovation, and Nation-building through Education)Isla Ballroom, EDSA Shangri-la Hotel, Mandaluyong

City21 July 2017, 9:30 am-10:30 am

[SALUTATION]

To Philippine Institute of Certified Public Accountants National (PICPA) President, Atty. Zenaida P. Alcantara; Accountancy Week Committee Chair, Mr. Enrico E. Baluyut; Accountancy Week Committee Co-Chair, Atty. Ma. Gracia Casals-Diaz;

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To the officials and representatives of the Association of CPAs in Commerce and Industry; National Association of CPAs in Education; Association of CPAs in Public Practice; Government Association of CPAs; and PICPA Metro Manila Region;

To the other speakers, guests, and all attendees of this forum, good morning.

[INTRO]

I would like to extend my compliments to the organizers and sponsors of this year’s celebration of Accountancy Week. I am very fond of your chosen theme—SHINE, which stands for Service, Honesty, Innovation, and Nation-building through Education—as it can very well serve as dictum for all government agencies and institutions in the country.

[OUTLINE]

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We have many grounds to cover this morning so I ask your kind indulgence. My presentation endeavors to answer the following questions that you may have about competition:

1. Why should you listen?2. Is competition a new concept?3. Does the Philippines need competition?4. What does PCC do?5. What has PCC accomplished in its 17 months of

existence?6. What are PCC’s priorities?7. Lastly, how can accountants contribute to the

promotion of a culture of competition in the Philippines?

[WHY SHOULD YOU LISTEN?]

For those of you who are wondering whether competition law is relevant to you, your practice, and your clients: the answer is a resounding yes.

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Whether you are a corporate accountant, a government accountant, or teaching accountancy in the academe, competition law affects you. Competition law is changing not only the way that private businesses are conducted in the Philippines, but also how the public sector crafts legislation and regulations.

The Philippine Competition Act (PCA) casts a wide net, and it affects various industries. You and your clients will inevitably be affected by its implementation.

[IS COMPETITION A NEW CONCEPT?]

Next question – is competition a new concept? The answer is no.

Other countries have been implementing competition or antitrust policies for decades, some for more than a century! For instance, the USA has had the Sherman Antitrust Act since 1890. The Philippines, in contrast, is the second to the last country in the ASEAN to enact a comprehensive competition law.

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Let me mention a few cases to help motivate our discussion this morning.

[CASE EXAMPLE: GOOGLE’S DOMINANCE (2017)]

Case 1: You may have heard that Google—the world’s most popular online search engine—has just been fined 2.4 Billion Euros (or roughly 2.78 Billion US Dollars) by the European Commission after it has been found guilty of favoring its own shopping services. When people search for products or services online using Google, the giant multinational tech firm would first display results from its own shopping service. Evidence has shown that the market shares of Google’s rival online shopping platforms dropped significantly because of Google’s algorithms. The European Commission argued that by giving prominent placement only to its own shopping service, Google has deprived consumers of choice and its rivals of a genuine chance to compete.

[CASE EXAMPLE: PRICE FIXING IN GUANGDONG, CHINA (2012)]

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Case 2: In 2014, there was a case in China involving the price fixing imposed by three associations of driving schools. Rather than allow prices to be dictated by competition in terms of price and quality of service, the associations outright fixed the prices, effectively eliminating competition among them and, ultimately, real choices for the public. This was eventually found out by the Chinese government and all three associations were fined.

[CASE EXAMPLE: MERGER IN THE UNITED STATES (2011)]

Case 3: In 2011, the United States’ Federal Trade Commission or FTC challenged the proposed merger of healthcare service provider OSF Healthcare System and Rockford Health System in the state of Illinois. FTC argued that the merger would reduce the number of healthcare providers in the state from three to two; hence, lessening competition and potentially causing higher health care prices for the people.

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As you can see in all three cases, competition authorities stepped in to safeguard competition in the market, and consequently, the welfare of the consuming public.

[DOES THE PHILIPPINES NEED COMPETITION?]

Does the Philippines need competition?

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

However, our continuing, albeit huge, challenge is sustaining the growth momentum in the medium to long term. An even bigger challenge is making our growth more inclusive so that poverty reduction will be faster and rising prosperity will be felt deeper across the social spectrum. We also need to curb underemployment and improve the quality of jobs available to Filipinos. It is likewise necessary to tame the rapidly rising inequality

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which creates social instability, hinders human capital development (especially among the poor), and stifles innovations and productivity growth.

One of the key components of the overall strategy to make economic growth more enduring and more inclusive is the passage of the Philippine Competition Act which shall serve as instrument in implementing the National Competition Policy of the Philippines.

Considered immediately as a game-changing legislation when it was enacted by Congress in July 2015 and became effective in August 2015, the PCA is meant to address the very restrictive economic policies and anti-competitive business practices that have been too costly to the Philippine economy and public welfare.

Competition policy has been mainstreamed in the national government’s development agenda through the inclusion of a chapter on competition in the Philippine Development Plan (PDP) for 2017-2022.

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

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

[WHAT DOES PCC DO?]

Next question – what does PCC do? In common with competition authorities in other, more established jurisdictions, the PCC has the mandate to address

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competition-related inefficiency issues in all sectors of the economy. PCC’s powers fall under two basic pillars.

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

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

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

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

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

Abuse of dominance is the act of one or more entities to abuse their dominant position by engaging in conduct that would substantially prevent, restrict,

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

Anti-competitive M&As, especially those that create companies with dominant market power, could also potentially lessen, restrict, or prevent market competition. Under the PCA, parties to a merger or acquisition wherein the value of the transaction exceeds One Billion Pesos (Php1,000,000,000.00) or around 20 Million US

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Dollars are prohibited from consummating their agreement until thirty (30) days after providing notification to the PCC. Agreements consummated in violation of compulsory notification are considered void and parties involved are subject to an administrative fine of 1% to 5% of the transaction value.

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

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

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

The second pillar of PCC’s powers refers to the Commission’s role as a competition policy and advocacy champion. PCC conducts market studies and

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

[WHAT HAS PCC ACCOMPLISHED?]

After PCC was organized last year, we hit the ground running and have had notable accomplishments. To date, the PCC has received a total of 110 notifications for mergers and acquisitions since its inception in February 2016, of which 36 are for global mergers. These notifications carry a total transaction amount of about 1.8 Trillion Pesos or 36.4 Billion U.S. dollars.

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In terms of value of transactions, the manufacturing, and the “financial and insurance” sectors top the list with 1 Trillion Pesos and 254 Billion pesos, respectively.

I am proud to report zero backlog on all of our merger reviews, in keeping the PCA’s mandate of completing reviews within 90 days from notification of parties.

We have also received a total of 26 queries and informal complaints for possible anti-competitive conduct in various industries. Three (3) of those have advanced to preliminary inquiry while another three (3) have progressed to full administrative investigation.

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

[WHAT ARE PCC’s PRIORITIES]

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The PCC is also very aware about the concern that competition law may be considered by businesses as an additional burden.

We are tackling this issue head on. Thus, the PCC is collaborating with various sector regulators, such as the Securities and Exchange Commission, Bangko Sentral ng Pilipinas, and the Insurance Commission, to name a few, to ensure that our processes are aligned and will not cause unnecessary burden to business. Just last month, the PCC forged a partnership with the Office of the Ombudsman (OMB) with the objective of building a solid campaign against bid-rigging, price fixing, and cartels in government procurements and projects.

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

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

[CALL TO ACTION]

It has been a truly challenging—but at the same time rewarding—17 months for the PCC. Given these, we seek your support in advocating for a culture of competition by remaining vigilant as ever to make sure that the foundation we have laid down through the PCA is strong and durable.

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Hence, we come to the last question - how can accountants contribute to the promotion of a culture of competition in the Philippines?

As accountants, your main task is to help businesses and their owners guard their existing assets and ensure that their operations continuously yield sustainable profits. Making businesses aware of the Philippine Competition Act and the risks of engaging in anti-competitive acts can help you in this task.

Your field of expertise affords you accounting and investigative skills to determine if there is liability under the PCA. With heaps of financial data to identify and analyze, for instance, you can determine the presence of anti-competitive M&As, predatory pricing by dominant players, or the economic damages suffered as a result of a violation of the PCA.

Your familiarity with accounting procedures and systems can give insight to your clients whether they have been victims of an anti-competitive act or they have been engaged in one.

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Simply put, your value to your client goes beyond your accounting skills. As custodians of the book, you are in a primary position of knowing if your client is in danger of breaking the law. If they are, encourage them to seek appropriate legal advice. Our doors are also open, and our hands remain extended in partnerships to all, especially to erring businesses that want to rectify their anti-competitive behavior.

We are all new to these seas, and braving the unknown waters of competition successfully will require all of us to help one another.

Last but not the least, our advocacy of building a culture of competition will extend beyond our respective terms in our own agencies. We need to train the next generation of lawyers, economists, and accountants.

Your presence in this event furthers our goal of creating a pool of experts who can help build the wealth of knowledge on competition law and policy through practice, research, and teaching. We also hope that,

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through this activity, we can strengthen the PCC’s partnership with the institutions that you represent.

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

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

--END--

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