PRESIDENT Duterte may not have heard of Dani Rodrik, but at least they agree on China. By not copying the Western version of going to market, China applied its own version of capitalism, Rodrik wrote in “The fatal flaw of neoliberalism: It’s bad economics.”
Whether that’s true or not, whether Duterte came across the already widely read article in The Guardian doesn’t matter for Philippine Competition Commission (PCC) Chairman Arsenio M. Balisacan.
What matters for Balisacan, known as the “antipoverty economist among business journalists,” is the full support of the Duterte administration in promoting a level playing field for all businesses in the country.
Between sips of coffee from a cup at the BusinessMirror office on Wednesday, Balisacan pointed to the Philippine Development Plan (PDP) 2017-2022 as evidence of that support.
Balisacan noted that this is the first administration to incorporate competition policy in the development plan. The Philippines’ competition law, which was passed in 2015, created the PCC as an agency under the Office of the President.
The PDP seeks to enhance market competition by fostering an environment that penalizes anti-competitive practices, facilitates entry of players and supports regulatory reforms to stimulate investments and innovation.
In essence, the PDP says the days of monopolies and control of the market by rent-seeking elite are over.
Chapter 16
THE plan’s Chapter 16, which is dedicated to Competition (“Leveling the Playing Field through a National Competition Policy”), aims to improve the country’s ranking in the Ease of Doing Business to the top third of the index by the end of 2022.
In this year’s global ranking, the Philippines’ rank in ease of doing business is one of the lowest in the world at 171 out of 185 countries. The country also slid down in terms of competitiveness from its top 6th position last year when compared to other member-countries in the Association of Southeast Asian Nations.
The chapter also outlines other targets such as diminishing anti-competitive practices, reducing barriers to entry and reducing limits to entrepreneurship.
Based on the PDP competition strategies, the Duterte administration aims to review legislations and policies that substantially prevent, restrict, or reduce competition; analyze competition issues in priority sectors; and investigate conducts and agreements that may substantially prevent, restrict or reduce competition.
Further, the administration commits to the promotion of competition-related policies and best practices; conduct of capacity-building activities for all branches of government; and institutionalize a mechanism to implement the National Competition Policy (NCP).
The chapter also outlined the Duterte administration’s legislative agenda when it comes to promoting competition in the country.
‘A-list’
FOREMOST on the list is the amendment of the Public Service Act, which will lift restrictions on foreign investments in economic activities, such as telecommunications.
The PCC submitted a position paper in July on the amendment of Commonwealth Act 146, or the Public Service Act. The law provides that public utilities are public services or entities that deliver public goods and thus can enjoy a “natural monopoly.”
But the PCC is opposing this definition and offers an enumeration of public utilities to include electricity transmission or distribution; gas or petroleum pipeline distribution system; water pipeline distribution; and sewerage pipeline system. This means these entities will be the only ones to enjoy a natural monopoly.
Apart from the Public Service Act, the Duterte administration is pushing for the passage of a Regulatory Management System Act, which will establish a more competitive and coherent regulatory environment.
The law will create a central body to ensure that there is an evidence-based approach to formulating laws, rules and regulations.
Balisacan said the inclusion of competition in the PDP as a priority of the current administration makes it easier for the PCC to work with various government agencies to further improve doing business in the Philippines
“We always tell them this part of the PDP, the priorities of the administration, so maybe we can work together to address competition issues,” Balisacan said.
Rice case
THE PCC has also not turned its back on this administration.
Balisacan himself supports the move of the Duterte administration to replace the Quantitative Restriction (QR) on rice with a tariff.
He recently told the BusinessMirror that removing the QR on rice and converting this into a tariff is a step in the right direction in terms of allowing more players to compete in the rice sector.
Balisacan also said the creation of a fund that will help address the needs of farmers will also not be anti-competition if the money is channeled to needs such as farm-to-market roads and irrigation facilities.
The QR, Balisacan said, is one of the major reasons why rice prices remain high in the country compared to other countries in the region that consider rice as their food staple.
But in some regions or locales in the country, the price of rice could be higher because of the presence of rice cartels. While the PCC is still in the process of crafting studies on this phenomenon, Balisacan maintained that rice cartels are among the anti-competitive practices that the commission aims to prevent, restrict, or reduce.
“So where are the high prices of rice coming from? If you look at the overall policy environment, as an economist I would say ‘maybe look at your trade policy,’ because the trade policy, if you look at it, is constraining the availability of imports even if they are able to produce most of what our consumers need at affordable prices,” Balisacan said. “So does it come from the cartel? I’m not saying there is no cartel but we would have a better appreciation of the problem at least in some geographic sectors of the country.”
More layers
IN 2014 a study released by the state-owned think tank Philippine Institute for Development Studies (PIDS) stated the number of layers in the local rice value chain, and the limited margins make it difficult for a rice cartel in local production and trade to exist.
Nonetheless, PIDS consultant Beulah de la Peña said some analysts do not discount the possibility that a group may “control certain markets in certain situations.” This, she explained, could stem from the fact that the Philippines is an archipelago.
Based on the study, the cost of rice production per bag is between a low of P1,586.25 and a high of P1,986.25. The lower cost is the estimate for low- quality rice and the high cost for premium-quality rice.
The study explained that paddy rice currently costs around P18-P20 per kilo or some P900-P1,000 per 50 kilos. Milling costs are P60 per kilo and milling recovery (rice produced from paddy) ranges from 60 percent to 65 percent.
Using a 64-percent milling recovery, the norm used by the government, the cost of rice ex-mill is about P1,716 per 50-kilo bag. Transport costs of some P70 per bag bring the rice cost ex-Manila at P1,786 per bag.
About margins
WITH the margins included, the total cost and margins reach anywhere between P1,766.25 and a high of P2,166.25. This results in a retail price range of around P35.33 to P43.33 per kilo.
The average margin in the rice trade, according to de la Peña, is P100 per bag. This means a maximum of P100 per bag per stage in the rice trade.
Broken down, the margin can reach P20 for the trader; P40 for the miller; P20 for the wholesaler or a total of around P80 up to the level of the wholesaler
With retailers placing a P100/bag margin, the total margin can reach a total of around P180 up to the level of the retailer. These are inputted in the final cost of rice per kilo.
Apart from slim margins, the study also said those engaged in the rice production and trade are also exposed to certain risks.
De la Peña said they often fall victim to bad weather that limits supplies and intensifies competition from big players and unplanned imports, as well as smuggling that floods the market with low-cost rice.
Further, the study said, there are “swindlers” that target the rice traders. These swindlers will get the rice traders’ trust and disappear once traders give them credit.
Oversight role
BUT the country’s two-year-old PCC is not yet keen on accommodating industries seeking exemptions from its oversight. These exemptions are referred to in the Competition Law as falling under the forbearance provisions.
We can’t do that yet as the agency is just beginning to study the country’s overall competitiveness landscape, according to Balisacan.
He explained that that was the PCC’s tack when an association of international shippers wrote a letter requesting for exemption from the agency’s oversight.
By way of example, the PCC chairman explained that international shipping lines are sometimes granted this temporary waiver from scrutiny in other jurisdictions by their respective competition authorities. The exemption request comes from shipping lines’ insistence that their associations follow a different set of norms and procedures that are observed in a particular country.
But, given the logistics industry as a whole is still roughly “unstudied” in terms of competition, the broad network of activities related to the industry—specifically shipping—needs to be looked at closer.
“The chain in logistics is quite long,” Balisacan said. “Sometimes there are problems at some points of the chain, and for [the PCC] to be effective, we have to understand where the weakest link is in terms of competition.
Earlier in the year, PCC Commissioner Stella Quimbo announced that the PCC will look into the logistics industry motu proprio (Latin for “on his own impulse”). Quimbo said the PCC will release an “issues paper.”
Exercising restraint
BALISACAN, however, pointed out that in the Philippine Competition Act (PCA), associations can be freely created provided they are not used as “a forum to discuss or promote quality standards, efficiency, safety, security, productivity, competitiveness and other matters of common interest involving the industry,” and further the creation of the association “is done without any anti-competitive intent or effect”.
The exemption sought by the international shippers fall under the forbearance section of the PCA. The provisions allow the commission the ability to exercise restraint in applying the provisions of the Act in certain cases, due to circumstances such as if the forbearance is consistent with public interest, and will benefit the consumers.
If the forbearance will also not impede competition in the market where the entity or group of entities seeking exemption operates nor in related markets, it may also be considered.
Balisacan clarified they have yet to develop guidelines on how to flesh out the forbearance provisions, and is inclined not to entertain any requests for it while they have yet to survey the general landscape of the industry.
“We can’t give exemptions, I think at this point while we don’t have enough samples in the industry,” Balisacan said, adding that any decision they make must be based on evidence of industry research.
Herculean task
THE PCC was given herculean tasks by law: balance the market, ensure competition and go after cartels.
As an independent quasi-judicial body, the PCC is mandated by Republic Act 10667, or the PCA, to investigate anti-competitive agreements and abuses of market dominance, conduct inquiries, decide on mergers and acquisitions and impose penalties.
In going after anti-competitive practices and cartels, the PCC found an ally in the unorthodox, unforgiving Duterte, who, since the election period, has expressed his disgust against oligarchs.
At the BusinessMirror Coffee Club Forum on Wednesday, Balisacan said his agency is backing the President’s crackdown on dominant companies taking advantage of consumers. He said the PCC is determined to do its job with a Chief Executive firing strong statements against oligarchs.
Duterte, in uncountable number of events, issued warnings against abusive companies, especially those in the telecommunications and mining industries.
The Commander in Chief has warned the listed ABS-CBN Broadcasting Corp., tycoon Lucio Tan and the duopoly of PLDT Inc. and Globe Telecom Inc.
“What [we are] looking at in competition is the market efficiency and the abuse of dominance, abuse of market power,” Balisacan said. “Now if we can establish that some sectors, [including] sectors that are controlled by the oligarchs, are also dealing with this kind of problem, then they are obviously part of our lens.
China play<
IN an unprecedented move, the President has allowed China to facilitate the entry of a third player in the Philippine telecoms industry.
According to Presidential Spokesman Harry L. Roque Jr., Duterte made this move as part of efforts to end the duopoly of Globe Telecom and PLDT in the telecommunications industry.
“This is the latest instance of the President proving that he has the political will to do what is necessary to benefit the Filipino people,” Roque said on Monday. “I repeat, the announcement is that duopoly—that telecoms duopoly—is about to end with the entry of the Facebook subsidiary, as well as the offer by the President of the People’s Republic of China to operate the third telecoms carrier.”
This move has earned the competition chief’s applause, saying this gives the PCC fuel to hunt down companies breaking the competition law.
“So far I’m very happy that in this case, in the telecoms industry, the President has been very supportive. So, I hope that kind of relationship supports the country because we really want to do our work effectively,” Balisacan said.
“It’s a welcome development that the President is actually very much supportive and is pushing for improvement in the Internet [service]. I think everybody knows that there has got to be an improvement in our access to and services in telecoms and Internet,” Balisacan added. “And the clamor for improving services, particularly in the quality, price and cost of Internet, has been around.”
Efficiently big
THE PCC is presently engaged in a court battle with Globe and PLDT for allegedly committing an anti-competitive practice. The two telecoms giants have purchased San Miguel Corp.’s telecoms assets amounting to P69.1 billion.
For the PCC, this is anti-competitive, as Globe and PLDT have been accused by the public of providing poor Internet service. Proof of this, the Philippines recorded the slowest connection speed among Asia-Pacific countries, according to a report by US-based Akamai Technologies Inc.
On the other hand, Balisacan said the PCC does not necessarily consider big companies as offenders of the competition law. “Of course, I can’t generalize. Do all oligarchs have a problem with competition? Our approach in the PCC is on a market-to-market basis. We cannot generalize,” the Balisacan said.
“If you are big but you are efficient, if you have become big because you were able to displace the inefficient, that’s pro-competitive, because the whole basis of competition is you can increase your market share if you offer better products, better prices,” Balisacan added. “So, we should not penalize them if they have become big by being efficient.”
Nonetheless, the competition chief took note of Duterte’s public statement against abusive oligarchs. For Balisacan, this is enough for them in the competition body to perform the regulator’s herculean task.
Whether that’s true or not, whether Duterte came across the already widely read article in The Guardian doesn’t matter for Philippine Competition Commission (PCC) Chairman Arsenio M. Balisacan.
What matters for Balisacan, known as the “antipoverty economist among business journalists,” is the full support of the Duterte administration in promoting a level playing field for all businesses in the country.
Between sips of coffee from a cup at the BusinessMirror office on Wednesday, Balisacan pointed to the Philippine Development Plan (PDP) 2017-2022 as evidence of that support.
Balisacan noted that this is the first administration to incorporate competition policy in the development plan. The Philippines’ competition law, which was passed in 2015, created the PCC as an agency under the Office of the President.
The PDP seeks to enhance market competition by fostering an environment that penalizes anti-competitive practices, facilitates entry of players and supports regulatory reforms to stimulate investments and innovation.
In essence, the PDP says the days of monopolies and control of the market by rent-seeking elite are over.
Chapter 16
THE plan’s Chapter 16, which is dedicated to Competition (“Leveling the Playing Field through a National Competition Policy”), aims to improve the country’s ranking in the Ease of Doing Business to the top third of the index by the end of 2022.
In this year’s global ranking, the Philippines’ rank in ease of doing business is one of the lowest in the world at 171 out of 185 countries. The country also slid down in terms of competitiveness from its top 6th position last year when compared to other member-countries in the Association of Southeast Asian Nations.
The chapter also outlines other targets such as diminishing anti-competitive practices, reducing barriers to entry and reducing limits to entrepreneurship.
Based on the PDP competition strategies, the Duterte administration aims to review legislations and policies that substantially prevent, restrict, or reduce competition; analyze competition issues in priority sectors; and investigate conducts and agreements that may substantially prevent, restrict or reduce competition.
Further, the administration commits to the promotion of competition-related policies and best practices; conduct of capacity-building activities for all branches of government; and institutionalize a mechanism to implement the National Competition Policy (NCP).
The chapter also outlined the Duterte administration’s legislative agenda when it comes to promoting competition in the country.
‘A-list’
FOREMOST on the list is the amendment of the Public Service Act, which will lift restrictions on foreign investments in economic activities, such as telecommunications.
The PCC submitted a position paper in July on the amendment of Commonwealth Act 146, or the Public Service Act. The law provides that public utilities are public services or entities that deliver public goods and thus can enjoy a “natural monopoly.”
But the PCC is opposing this definition and offers an enumeration of public utilities to include electricity transmission or distribution; gas or petroleum pipeline distribution system; water pipeline distribution; and sewerage pipeline system. This means these entities will be the only ones to enjoy a natural monopoly.
Apart from the Public Service Act, the Duterte administration is pushing for the passage of a Regulatory Management System Act, which will establish a more competitive and coherent regulatory environment.
The law will create a central body to ensure that there is an evidence-based approach to formulating laws, rules and regulations.
Balisacan said the inclusion of competition in the PDP as a priority of the current administration makes it easier for the PCC to work with various government agencies to further improve doing business in the Philippines
“We always tell them this part of the PDP, the priorities of the administration, so maybe we can work together to address competition issues,” Balisacan said.
Rice case
THE PCC has also not turned its back on this administration.
Balisacan himself supports the move of the Duterte administration to replace the Quantitative Restriction (QR) on rice with a tariff.
He recently told the BusinessMirror that removing the QR on rice and converting this into a tariff is a step in the right direction in terms of allowing more players to compete in the rice sector.
Balisacan also said the creation of a fund that will help address the needs of farmers will also not be anti-competition if the money is channeled to needs such as farm-to-market roads and irrigation facilities.
The QR, Balisacan said, is one of the major reasons why rice prices remain high in the country compared to other countries in the region that consider rice as their food staple.
But in some regions or locales in the country, the price of rice could be higher because of the presence of rice cartels. While the PCC is still in the process of crafting studies on this phenomenon, Balisacan maintained that rice cartels are among the anti-competitive practices that the commission aims to prevent, restrict, or reduce.
“So where are the high prices of rice coming from? If you look at the overall policy environment, as an economist I would say ‘maybe look at your trade policy,’ because the trade policy, if you look at it, is constraining the availability of imports even if they are able to produce most of what our consumers need at affordable prices,” Balisacan said. “So does it come from the cartel? I’m not saying there is no cartel but we would have a better appreciation of the problem at least in some geographic sectors of the country.”
More layers
IN 2014 a study released by the state-owned think tank Philippine Institute for Development Studies (PIDS) stated the number of layers in the local rice value chain, and the limited margins make it difficult for a rice cartel in local production and trade to exist.
Nonetheless, PIDS consultant Beulah de la Peña said some analysts do not discount the possibility that a group may “control certain markets in certain situations.” This, she explained, could stem from the fact that the Philippines is an archipelago.
Based on the study, the cost of rice production per bag is between a low of P1,586.25 and a high of P1,986.25. The lower cost is the estimate for low- quality rice and the high cost for premium-quality rice.
The study explained that paddy rice currently costs around P18-P20 per kilo or some P900-P1,000 per 50 kilos. Milling costs are P60 per kilo and milling recovery (rice produced from paddy) ranges from 60 percent to 65 percent.
Using a 64-percent milling recovery, the norm used by the government, the cost of rice ex-mill is about P1,716 per 50-kilo bag. Transport costs of some P70 per bag bring the rice cost ex-Manila at P1,786 per bag.
About margins
WITH the margins included, the total cost and margins reach anywhere between P1,766.25 and a high of P2,166.25. This results in a retail price range of around P35.33 to P43.33 per kilo.
The average margin in the rice trade, according to de la Peña, is P100 per bag. This means a maximum of P100 per bag per stage in the rice trade.
Broken down, the margin can reach P20 for the trader; P40 for the miller; P20 for the wholesaler or a total of around P80 up to the level of the wholesaler
With retailers placing a P100/bag margin, the total margin can reach a total of around P180 up to the level of the retailer. These are inputted in the final cost of rice per kilo.
Apart from slim margins, the study also said those engaged in the rice production and trade are also exposed to certain risks.
De la Peña said they often fall victim to bad weather that limits supplies and intensifies competition from big players and unplanned imports, as well as smuggling that floods the market with low-cost rice.
Further, the study said, there are “swindlers” that target the rice traders. These swindlers will get the rice traders’ trust and disappear once traders give them credit.
Oversight role
BUT the country’s two-year-old PCC is not yet keen on accommodating industries seeking exemptions from its oversight. These exemptions are referred to in the Competition Law as falling under the forbearance provisions.
We can’t do that yet as the agency is just beginning to study the country’s overall competitiveness landscape, according to Balisacan.
He explained that that was the PCC’s tack when an association of international shippers wrote a letter requesting for exemption from the agency’s oversight.
By way of example, the PCC chairman explained that international shipping lines are sometimes granted this temporary waiver from scrutiny in other jurisdictions by their respective competition authorities. The exemption request comes from shipping lines’ insistence that their associations follow a different set of norms and procedures that are observed in a particular country.
But, given the logistics industry as a whole is still roughly “unstudied” in terms of competition, the broad network of activities related to the industry—specifically shipping—needs to be looked at closer.
“The chain in logistics is quite long,” Balisacan said. “Sometimes there are problems at some points of the chain, and for [the PCC] to be effective, we have to understand where the weakest link is in terms of competition.
Earlier in the year, PCC Commissioner Stella Quimbo announced that the PCC will look into the logistics industry motu proprio (Latin for “on his own impulse”). Quimbo said the PCC will release an “issues paper.”
Exercising restraint
BALISACAN, however, pointed out that in the Philippine Competition Act (PCA), associations can be freely created provided they are not used as “a forum to discuss or promote quality standards, efficiency, safety, security, productivity, competitiveness and other matters of common interest involving the industry,” and further the creation of the association “is done without any anti-competitive intent or effect”.
The exemption sought by the international shippers fall under the forbearance section of the PCA. The provisions allow the commission the ability to exercise restraint in applying the provisions of the Act in certain cases, due to circumstances such as if the forbearance is consistent with public interest, and will benefit the consumers.
If the forbearance will also not impede competition in the market where the entity or group of entities seeking exemption operates nor in related markets, it may also be considered.
Balisacan clarified they have yet to develop guidelines on how to flesh out the forbearance provisions, and is inclined not to entertain any requests for it while they have yet to survey the general landscape of the industry.
“We can’t give exemptions, I think at this point while we don’t have enough samples in the industry,” Balisacan said, adding that any decision they make must be based on evidence of industry research.
Herculean task
THE PCC was given herculean tasks by law: balance the market, ensure competition and go after cartels.
As an independent quasi-judicial body, the PCC is mandated by Republic Act 10667, or the PCA, to investigate anti-competitive agreements and abuses of market dominance, conduct inquiries, decide on mergers and acquisitions and impose penalties.
In going after anti-competitive practices and cartels, the PCC found an ally in the unorthodox, unforgiving Duterte, who, since the election period, has expressed his disgust against oligarchs.
At the BusinessMirror Coffee Club Forum on Wednesday, Balisacan said his agency is backing the President’s crackdown on dominant companies taking advantage of consumers. He said the PCC is determined to do its job with a Chief Executive firing strong statements against oligarchs.
Duterte, in uncountable number of events, issued warnings against abusive companies, especially those in the telecommunications and mining industries.
The Commander in Chief has warned the listed ABS-CBN Broadcasting Corp., tycoon Lucio Tan and the duopoly of PLDT Inc. and Globe Telecom Inc.
“What [we are] looking at in competition is the market efficiency and the abuse of dominance, abuse of market power,” Balisacan said. “Now if we can establish that some sectors, [including] sectors that are controlled by the oligarchs, are also dealing with this kind of problem, then they are obviously part of our lens.
China play<
IN an unprecedented move, the President has allowed China to facilitate the entry of a third player in the Philippine telecoms industry.
According to Presidential Spokesman Harry L. Roque Jr., Duterte made this move as part of efforts to end the duopoly of Globe Telecom and PLDT in the telecommunications industry.
“This is the latest instance of the President proving that he has the political will to do what is necessary to benefit the Filipino people,” Roque said on Monday. “I repeat, the announcement is that duopoly—that telecoms duopoly—is about to end with the entry of the Facebook subsidiary, as well as the offer by the President of the People’s Republic of China to operate the third telecoms carrier.”
This move has earned the competition chief’s applause, saying this gives the PCC fuel to hunt down companies breaking the competition law.
“So far I’m very happy that in this case, in the telecoms industry, the President has been very supportive. So, I hope that kind of relationship supports the country because we really want to do our work effectively,” Balisacan said.
“It’s a welcome development that the President is actually very much supportive and is pushing for improvement in the Internet [service]. I think everybody knows that there has got to be an improvement in our access to and services in telecoms and Internet,” Balisacan added. “And the clamor for improving services, particularly in the quality, price and cost of Internet, has been around.”
Efficiently big
THE PCC is presently engaged in a court battle with Globe and PLDT for allegedly committing an anti-competitive practice. The two telecoms giants have purchased San Miguel Corp.’s telecoms assets amounting to P69.1 billion.
For the PCC, this is anti-competitive, as Globe and PLDT have been accused by the public of providing poor Internet service. Proof of this, the Philippines recorded the slowest connection speed among Asia-Pacific countries, according to a report by US-based Akamai Technologies Inc.
On the other hand, Balisacan said the PCC does not necessarily consider big companies as offenders of the competition law. “Of course, I can’t generalize. Do all oligarchs have a problem with competition? Our approach in the PCC is on a market-to-market basis. We cannot generalize,” the Balisacan said.
“If you are big but you are efficient, if you have become big because you were able to displace the inefficient, that’s pro-competitive, because the whole basis of competition is you can increase your market share if you offer better products, better prices,” Balisacan added. “So, we should not penalize them if they have become big by being efficient.”
Nonetheless, the competition chief took note of Duterte’s public statement against abusive oligarchs. For Balisacan, this is enough for them in the competition body to perform the regulator’s herculean task.
