Doing business fair and square

Where many have failed, the proposed Fair Competition Act of 2014 approved in the Senate at the close of the year aims to succeed.

Due for passage into law this year, the FCA is described to be the definitive piece of legislation that would create the aspired level field for businesses to operate in by avoiding manipulative and anti-competitive actions of bigger companies against smaller ones.

The proposed law would supplement what some six other previous laws have failed to accomplish and what many business firms deem to be fundamental in protecting their rights to fair trade, and ultimately, the public’s welfare.

It’s a pity that these already existing laws have not been enough to define the conduct of businesses when it comes to competitive practices, so much so that aggrieved parties usually end up folding up or, if their resources permit, filing cases in the courts.

Limitations of existing laws

For example, the Corporation of the Philippines (passed in 1980) covers just the rules on mergers, consolidations and acquisitions, but does not address competition issues such as the possible abuse of dominant positions arising from mergers and acquisitions.

The Revised Securities Act (1982), on the other hand, zeroes in only on the manipulation of security prices and insider trading by defining what is prohibited and assigning penalties to transgressions.

The Price Act (1992) only defines and identifies illegal acts of price manipulation such as hoarding, profiteering, and cartels, and prescribes measures against abusive price increases during emergencies and other critical situations.

The Consumer Act of the Philippines (1992), on the other hand, prescribes conduct for business and industry by setting 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 Philippines (1997) only deals with the protection of patents, trademarks and copyrights and the corresponding penalties for infringement.

The Anti-Dumping Act of 1999 is specific only to the protection of Filipino enterprises against unfair competition and trade practices.

There are two other laws, the Downstream Oil Industry Deregulation Act of 1998 and the Electric Power Industry Reform Act of 2001, but both are prescriptive to specific business sectors only.

Historical abuses

This has left other sectors to either adopt a self-policing body that would arbitrate conflicts within its rank, or if there is none available or in-sector arbitration is not an option, to file civil or criminal cases with the courts.

We had seen this happening in the telecommunications industry when Globe Telecommunications in 2011 filed a case against PLDT to prevent the latter from finalizing the buy-out of Digital Telecommunications from the Gokongwei Group.

In an apparent retaliation, PLDT filed a case against Globe last year asking the court to stop the National Telecommunications Commission from approving Globe’s bid to buy the Lopez-owned Bayantel Telecommunications. The case is still pending to date.

The above is a case of two giants fighting for control of a lucrative business sector, but there are many less celebrated cases in Philippine business that deal with Davids fighting off Goliaths, which unfortunately often ends with the smaller entity losing to the giant conglomerate.

The export sector, particularly the Philippine Exporters Confederation Inc. (Philexport), had issued a statement supporting the passage of the FCA as supportive of attracting investments and ensuring that businesses are able to operate in a level playing field, especially with the Asean Economic Community just around the corner.

Particularly, Philexport pointed out that the creation of a Fair Competition Commission would prevent the big firms in industrial groupings from seizing economic power, thus being able to prevent the entry or growth of new groups.

Stumbling blocks

The caveat on this new commission, of course, in the exercise of its mandate should be the “freedom from political undertones and influences,” which we all know has spoiled the broth in many instances, including the bid of the country in the latter part of the 1900s to build its own petrochemicals industry.

Another blockage in the past that hopefully would be prevented with the establishment of the FCA is the excessive meddling of the judiciary in matters of business, and like the case of the aborted petrochemicals industry, ends up hurting the economy.

The FCA is also part of the country’s commitment to the Asean Economic Community, which is targeted at the end of 2015. It would also possibly be a requirement for the Philippines’ participation in the Trans-Pacific Partnership (TPP) agreement set in the latter part of the decade.

Prohibited acts

The FCA, introduced as a bill by Sen. Paolo Benigno Aquino IV as chairman of the Senate Committee on Trade, Commerce and Entrepreneurship, defines the characteristics of prohibited acts like anti-competitive agreements and abuse of dominance in position.

Under anti-competitive acts is price fixing, control of production, markets, technical developments or investments prejudicial to consumer welfare, manipulation of market shares, and the application of dissimilar conditions to equivalent transactions to produce competitive disadvantages.

Under abuse of dominance in position include predatory behavior towards competitors, imposition of barriers to entry, price fixing to control the market, unjustified restrictions on trade contracts, and stipulations of exclusive supply in contracts (or fencing).

The proposed law is also more specific about the sins involved in mergers and acquisitions (M&A) by setting compulsory notifications as well as giving more power to the FCC to determine whether there are ethical breaches in the process or outcome of the M&As.

While the FCA does seem to introduce laws that would encourage a more ethical conduct of business competitive practices, at the end of the day, it is really up to the concerned government agencies to enforce what should be morally correct and upright. Let’s hope that this is what the country really needs.

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