Now is not the time to rush a competition law

was my Trade Tripper column in the 22-23 May 2015 weekend issue of BusinessWorld:

Last Tuesday, the House of Representatives passed on third reading House Bill No. 5286 (or the substitute bill on the Philippine Competition Act). Speaking to reporters, House Speaker Feliciano Belmonte had been quoted as saying, “We hope this will become a law in this Congress, it will be for the benefit of Filipinos. It’s a [piece of] legislation that is very much needed.” This column vehemently disagrees: a Philippine competition law is not urgently needed. And even if passed, the law as currently constructed will hardly deliver the benefits its advocates insistently promise to our citizens.

The logic of the Philippine Competition Act seems to be is that to further regulate the market will set it free. Which is irony at its best. We know from trade policy history that regulation generally never benefits consumers, usually resulting in protectionism harmful to the economy. And we know that monopolies are created precisely because of regulations: that such regulations before had to do with tariff barriers and subsidies and now identified as monitoring and review really is of no difference.

Besides, the point of the Philippine Competition Act is to “prevent economic concentration, which will control the production, distribution, trade or industry that unduly stifle competition, distort, manipulate or constrict the discipline of free markets.” However, by any international standard, this is not the urgent problem of the Philippines.

We must consider that, competition-wise, we are not as ramshackle as others would have us believe. The Global Competitiveness Index gave us good marks for “intensity of local competition” (61), “effectiveness of anti-monopoly policy” (72), “prevalence of trade barriers” (51), and “prevalence of foreign ownership” (51).

Under the 2015 Economic Freedom Index, the Philippines has reasonably high marks, being categorized as “moderately free” but charting “an upward trajectory of economic freedom for the past five years.”

The Philippines ranks high (60 out of 186) in “investment freedom,” described as where there are “no constraints on the flow of investment capital.” In trade freedom” (the “composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services”), the Philippines ranks a good 75.4.

Instead, the Economic Freedom Index points as problems areas such as “corruption” and an “inefficient judiciary.” And this column has pointed to areas such as low productivity, high unemployment, red tape and the bureaucratic difficulties in doing business, energy and transport costs, smuggling, traffic, and increasing teenage pregnancy and marriage annulment rates.

In short, the real fundamental economic problems that the Philippine economy faces will not be, can never be, addressed by the present Philippine Competition Act.

However, even limiting the discussion to the area that the Philippine Competition Act ostensibly seeks to resolve (i.e., monopolies and cartels) yields quite unconvincing conclusions.

The Philippine Competition Act works on this quite simplistic assumption: monopolies are bad and government is the solution. But note, not even our Constitution sees monopolies in such light: the “State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

But as Lisa Campbell, senior deputy commissioner of the Canadian Competition Bureau, remarked (during the Fifth Annual International Antitrust Forum last year): “The size of a business, even one that dominates a particular market, is not in and of itself, a cause for concern. Businesses may need to become large to achieve lower production costs or to compete against foreign and domestic competitors.”

Indeed, the size of our market should lead us to appreciate the idea of “natural monopolies,” whereby maximum efficiency is derived by way of economies of scale through one or two suppliers.

As such, Filipinos should be supportive of even larger Filipino conglomerates. Take San Miguel Corp. (or PLDT or PAL), for example, which, despite its size and reach, could not really be considered possessing monopoly power due to the nature and threat presented by global (or regional) competition.

In reality, a Philippine Competition Act is far from being a necessity, at least for the present. With the many laws that we have now, the best anti-monopolization measure we can rely on is for the government to strictly enforce the rule of law. That is clearly better than adding a further layer of bureaucracy and further strain on the governmental budget.

Instead, as I have long suggested, if we must have a competition law, then let it include provisions that addresses the possibility of foreign corporations sneaking up in acquiring Filipino companies or influence to the point that monopoly powers are exercised from beyond Philippine jurisdiction, constricting Filipino entrepreneurial efforts, and damaging local consumer interests. And let us explore more vigorously the idea of implementing the “effects” doctrine as a manner of acquiring jurisdiction over those who seek to damage Philippine economic interests from abroad.

All in all, there’s really no harm if we take more time to craft a really effective competition law.