Philippine competition chief says agency faces high expectations, nurtures high hopes

31 January 2017 9:55am

6 May 2016. By Phoebe Seers.

Expectations of Asia’s newest antitrust regulator are high as it hopes that competition law will make the Philippines’ economic growth sustainable and ease the regulatory burden for business, Arsenio Balisacan, chief of the Philippines Competition Commission, or PCC, told MLex in an interview.

With regulations implementing the law due to be published in June, Balisacan is currently focused on advocacy, capacity building and implementing a national competition review to identify the sectors in which anticompetitive practices are most prevalent.

The PCC was formed in February, following the passage in June 2015 of a competition law that had languished in Congress for 24 years. Balisacan was handpicked by President Benigno Aquino to be its chair. “There is so much expectation of this commission,” Balisacan told MLex.

When asked about his new position during his first few weeks in office he would say: “’I’m the chair of the competition commission.’ The response? ‘Oh, so what sports are we developing? Boxing?’”

“We need to do a lot of work,” Balisacan joked.

Balisacan’s priority is crafting the implementing rules and regulations and supplementary guidelines to make the law operable, he told MLex. The implementing rules and regulations are due to be published in June and will become effective soon after.

Balisacan is also looking how other competition regulators approached their infancy. On a recent trip to Australia he said he was particularly interested in studying what the local watchdog was doing when it was still new. “I spoke with the original commissioner, Mr Fels,” he said. “The most important lesson he taught me was [to] get your communication right.”

In developing the commission’s communication strategy, Balisacan said he was reaching out to the media, the business community, civil society and even to the government bureaucracy and the court system.

The commission is also implementing a scoping study of competition in various sectors to assess where anticompetitive practices are most prevalent. That way, Balisacan said, “we are not perceived to be picking ad hoc cases which could be seen to be politically motivated.”

The Philippine economy has fared well in recent years, growing at a six-year average of 6.2 percent, making it among the fastest-growing emerging economies in the world, a remarkable turnaround from being the “sick man of Asia” not so long ago.

However, Balisacan raised concerns about the sustainability and inclusiveness of that growth.

“Rapid growth that is not inclusive cannot be expected to last,” he said. “Sooner or later, rising inequality will create social instability, hinder human capital formation, and stifle innovation and productivity growth.”

The opponents of competition law — big businesses — had always been very successful in stopping it, and had done so for decades until now, he said.

Balisacan told MLex that trade agreements such as the Asean Economic Community had provided additional impetus for many long-overdue domestic reforms that would otherwise have been difficult to push through “owing to the influence of powerful vested interests.”

“If you can have those external allies pushing for domestic reforms, the chances are you’ll have a better rate of success,” he said.

However, in a country in which the government has given exclusive contracts to the utility subsidiaries of some of the country’s biggest companies, it remains to be seen just how effective the commission will be. The operating contract of Manila Water, which is controlled by Ayala Corp, one of the Philippines’ biggest conglomerates, lasts until 2037, for instance, although Balisacan noted that water quality had improved and its price had decreased since Manila Water took over.

Agreeing that many of the country’s economic inefficiencies had their roots in government policies and practices, Balisacan said reforms needed to go beyond the private sector.

“While you may see anticompetitive conduct or practices in the market economy, it may be the case that that’s facilitated by the regulatory or policy environment in place,” he said.

By way of example, he said “unnecessary sanitary regulations on food” were “really a form of import protection.” Also, imports of certain foods were monopolized by government agencies that restricted them with the stated aim of achieving rice self-sufficiency, but that caused prices to rise.

“If we can point to the concerned government agencies about the high costs of these measures and that there are better instruments to achieve their regulatory goals without harming competition, and that we work together to achieve the desired outcomes, then the PCC can be a relevant activist in the pursuit of reforms,” Balisacan said.

The telecommunications and energy industries may feel initial pressure once the commission gets down to business. The Philippines’ telecoms market is effectively a duopoly, with Globe and Smart providing more than 99 percent of coverage. The country also has the second most expensive electricity in the region after Japan.

“I wanted to see a study that segmented the problems in the telcos and power sectors,” Balisacan said. “We don’t have to address the whole thing in one go. Perhaps we can do quick fixes on specific issues without going, for example, to Congress for an amendment to or repeal of relevant laws that have anticompetitive provisions.”

Allowing customers to transfer a telephone number from one provider to another would be one such “quick fix” that would make the market more contestable, he added.

In that respect, Balisacan emphasized the importance of building relationships with sector regulators. “Otherwise, it’s not going to be a battle between you and the private sector, it’s going to be a battle between you and the sector regulators,” he said. “We need to get that work done from the start. That’s what I learned from the Australians.”

Balisacan said he was very keen on leniency regimes and equally concerned by how difficult it had traditionally been to establish abuse of a dominant position. “If I can get someone to squeal, I guess that’s the preferred option than for us to, for example, confiscate somebody’s computer,” he said.

The Philippines has put in place a leniency regime in which successful applicants are immune from both administrative fines and from private claims. A lawyer told MLex she had not seen such an arrangement anywhere else in the world.

“Proving anti-competitive practices by a monopoly and getting a final judgment is extremely difficult,” Balisacan said. “In the US, you can count the number of cases in the last 100 years. There must be a better way of getting that information, especially if there are incentives for people to squeal.”

Balisacan said he was keen that the commission wasn’t seen as adding another layer of regulatory burden, particularly as there “is so much talk about the cost of doing business, and the regulatory burden being very high.”

“On the contrary, [the PCC] should help ease the burden, especially for small and medium enterprises, by leveling the playing field,” he said.

Merger notification guidelines were issued in February, and since then the commission has been notified of more than 20 deals. The threshold for notification is currently 1 billion pesos ($21 million), but that may change.

Balisacan said: “Yes, the threshold is quite low for some relevant markets, but it can be substantial in other relevant markets. The commission is empowered to update the threshold from time to time and to adopt other criteria for notification, such as market share in the relevant market.”

Singapore has the most established antitrust regime in the region, but Indonesia’s regulator is also extremely active, having investigated more than 350 cases of anticompetitive behavior. However, Balisacan said: “I hardly look at Asean as a benchmark,” alluding to the difficulties other regulators had experienced in successful enforcement against anticompetitive behavior, and even implementing competition law at all.

Lawyers told MLex that if new amendments to Indonesia’s antitrust law came into force, Indonesia and the Philippines could emerge as the heavy-hitters of antitrust regulation in the region.

Another key concern for Balisacan will play out when the commission comes to prosecute its first case. “The big players could afford to pay for the best lawyer or the best expert in town,” he said. “In government you don’t have that much of that flexibility for very high salaries to attract the top quality … so it’s going to be a challenge to attract the best people.

“I’m hoping the commission will be able to provide good training ground for young, bright lawyers. But we have to add value to the work — it’s not just about the salary,” he said.

However, he said: “We are a very good team — three lawyers and two economists. We allow cross-fertilization of ideas [and] we’re not starting from scratch — we’re learning from experienced regulators.

“We bought in European and American experts to help us with the implementing rules and regulations,” he said. “We brought in people from the Federal Trade Commission to help us with the M&A provisions and local experts to make sure they have a local context.”

ABA 2019