Improving competition in the domestic economy

One of the major pieces of economic legislation in Congress is a bill designed to deal with monopolies and restraints of trade. This is an anti-trust bill. For years, several versions of such proposed legislation have competed for attention in the legislative mill, only to fail passage. Lately, there is more attention to the anti-trust legislation. Recently, the private chambers included this among its suggestions for priority legislation.

“The proposed anti-trust law.” The proposed bill is one designed to prevent the formation of monopolistic combines or cartels in the economy. The main objective of the bill is to promote domestic competition by eliminating the growth of monopolies and oligopolies in the economy.

The main bill under consideration in the House committee proposes to create a Fair Trade Commission. This is an economic regulatory body to oversee and prevent anti-competitive practices. A corresponding bill in the Senate likewise is also being considered.

The proposed commission is to be endowed with powers to investigate on its own initiative or on the petition of other parties regarding acts that are likely to lead to monopolies or to acts that lead to restraints in trade. A common problem that would fall under its jurisdiction relates to mergers and acquisitions.

The intended outcome of any merger is to cut costs and to create efficiencies. However, it would be possible for parties adversely affected by a merger to prevent it from taking place if they can get the commission to do so.

On paper the proposal to create an anti-trust agency is a welcome development. As an agency endowed with a public interest motive that is designed to promise greater competition, it would be easy to welcome such a development.

“The reality of economic concentration and monopolies.” The Philippine economy is dominated by large firms among the major sector groups. This outcome arises often from the minimum size of a plant required to set up  in a relatively small economy.

If the economy were triple or 10 times the present size, the domination of large firms would still be as strong in those sectors where economies of scale are important because of technological realities. These firms would still be large in view of capital requirements, and the size of their innovative activities.

Studies of manufacturing reveal a high degree of concentration in the value added that is attributed to the first four big firms. In fact, two thirds of manufacturing industry has value added concentration ratios that range from 70 percent to 100 percent.

“Special regulatory frameworks.” Many special laws are already in existence that deal with industry specific issues, including that of assuring competition. All these agencies are imbued with the public interest with respect to the sectors in which they have regulatory oversight. How will the Fair Trade Commission fit in?

As example, the petroleum refining companies come under the regulation of the Department of Energy. Under the Oil Industry De-regulation law, the petroleum companies are brought to account for their actions in the public sphere.

Airlines are subject to the regulation of the Civil Aeronautics Board; the telecommunications industry under the NTC (National Telecommunications Commission); banks and financial institutions under the BSP (Bangko Sentral); insurance industry under the IC (Insurance Commission); and so on.

Electricity generation companies are covered under the EPIRA (Electric Power Industry Regulatory Authority) law; and the various recipients of fiscal and investment incentives under either the BOI or the EPZA.

Surely, the mission of the Fair Trade Commission would have to be reconciled with the specific duties of these regulatory agencies. The danger is that its broad functions could come in conflict with the mandate or operational jurisdictions of these established regulatory bodies.

In addition to the potential overlap with the other regulatory agencies in its work, there are many sectors of the economy where the proposed Fair Trade Commission would have a clear oversight on aspects related to competition issues. The commission’s mandate would be wide-ranging, across sectors of the economy.

The commission could be an agency that would have to monitor the various possibilities of infractions against competition that other firms might play. Ideally, this is what would happen. It is the agency that would take special interest in the removal of barriers to economic competition.

It is possible for the actions of the regulatory bodies to be in conflict with those associated with the Fair Trade Commission. Whereas, the commission would tend to reduce monopolies and oligopolies, in some spheres, such mandate could be different from that practiced in the other regulatory bodies.

“The changing world in which we live.” Because we all live in a changing world, it is important to be clear that some needs for policy changes could even be in conflict with policy tools acquired by an agency designed to do a good thing.

When the government decided to strengthen the banking system, the important need was to raise the capitalization structure of commercial banks. The central banking authorities required that small banks seek new partners so that they could achieve the increased level of capitalization. It could be that the Fair Trade Commission would be enjoined to stop such efforts because it could lead to monopoly or restraint of trade.

The present strong position of Philippine banks is due to the reforms instituted then which followed a fairly quick path of reforms. The small banks became bigger because they were required to be so. Potentially, the Fair Trade Commission could put such programs in jeopardy because it might take the position of asserting that the reform would induce monopoly in banking.

“The ASEAN Economic Community.” The name of the game now as we enter the enlargement of the ASEAN Economic Community is that national boundaries in terms of defining competitive positioning have become irrelevant. What is relevant to the future is that Philippine firms must find the means of enlarging their economic position, sometimes in partnership with other regional firms.

I can imagine situations where our definitions of economic markets and competition could be in conflict with the wider market that is ASEAN that all Filipinos must think about. Our regulatory agencies must wake up to these realities. Or else, the country would be left behind within ASEAN.

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