Trump and the continuing ignorance on trade

my Trade Tripper column in this 9-10 July 2016 issue of BusinessWorld:

You know how messed up the Left is when it’s getting what it wants and yet remains angry.

After all, last week brought forth finally a global figure willing to say what Leftists have been saying for so long:

“We do not need to enter into another massive international agreement that ties us up and binds us down.” We have a “leadership class that worships globalism.” And finally, “globalization has made the financial elite who donate to politicians very, very wealthy... but it has left millions of our workers with nothing but poverty and heartache.”

This personality promises to keep jobs domestically (rather than being shipped abroad), to apply protective tariffs so that local industries are freed from foreign competition, and to keep his country away from signing into new trade agreements.

And yet the Left has been strangely silent as far as Donald Trump’s trade policies are concerned.

After railing for so long against international trade, globalization, and multinational corporations, one would think that Donald Trump is the change the Left has been looking for -- the one who speaks truth to power.

It’s an interesting study in politics and psychology really.

In the end, there’s the bind, with the Left forced to contradictorily respond to Trump’s trade pronouncements by relying on the fallacy of lack of charity (akin to ad hominem): since Trump said it, then something must be wrong.

But the thing is, no matter who said it, such criticisms of trade (and globalization) are just plain mistaken. Period.

Such ignores the benefits of trade in a globalized economy: lower prices, improved quality products, greater transparency in government procurement and investment rules, increased resources for environmental protection, better labor standards, as well as larger market access for developing countries (like the Philippines), thus translating to higher incomes and more jobs.

And Trump is utterly ignorant, as David French (Free trade isn’t a burden, March 17, 2016, National Review) points out, of the fact that the US “largely embraced free trade not for the sake of the few but because it has benefited the many. Families benefit from less expensive goods. We enjoy affordable access to technology unthinkable ten short years ago, with even poor families owning smartphones and televisions that couldn’t be bought for any sum of money even last decade. By virtually every measure of material progress, we have access to more for less than ever before -- so much so that our primary national spiritual challenges include consumerism and materialism.”

The great thing about trade is the utter democratic attitude behind it: people run trade, not governments. Governments rarely buy and sell with each other. If ever, governments buy from the private sector, whether local or foreign. And international trade helps put a spotlight on such transactions by applying transparency rules present in most trade agreements.

It’s the people themselves that trade: from the multinational to the local cooperative to the small home business, exercising their freedoms to buy and sell goods and services with each other, except this time the exchange is done not merely amongst neighbors within a village but on a much bigger scale.

And the benefits of trade are enormous, extending beyond the simple numbers of economics. Countries get to know other cultures, bring peoples together, and -- quite notably -- provide a disincentive for resorting to armed conflict.

But sadly, if it can get away with it, government hinders trade through tariffs, quotas and non-tariff measures.

As I pointed in a previous column, Jonah Goldberg (Arguments against Free Trade are Deeply Flawed; April 2016) nails it: protectionists are “wrong philosophically. Countries don’t trade with other countries; businesses and consumers transact with other businesses and consumers. Protectionism is corporate welfare by other means.”

What it means is that every time regulations are imposed on trade, it is never the ordinary citizen that benefits. Prices go up (because tariffs and license fees essentially make up additional costs), the choices (and quality) amongst available products go down, and the incentive to create and produce is dissipated (thus lessening opportunities for more jobs).

Instead, who benefits are government bureaucrats squeezing businesses and consumers to shell out more money, entrenched interests (including elite families) that can now do whatever they want because they are babied away from competition, and the corrupt because regulations strongly provide incentives for those cheating the system.

In short, stopping international trade helps the old rich, prevents the creation of new wealth, and hurts the poor.

Arguably, there would be some dislocations or problems that accompany trading between countries but “the solution isn’t to rip up trade agreements or impose barriers that could trigger a trade war. The solution is to help workers maintain their standard of living through retraining, relocation or retirement if necessary.” (Counting the Ways That Trump Is Wrong on Trade; Paula Dwyer, Bloomberg, March 23, 2016).

Hopefully, the new Duterte administration brings a consistent, effective policy on international trade.

The unbearable lightness of the competition law

was my Trade Tripper column in the 17-18 July 2015 weekend issue of BusinessWorld:

The passage of a competition law by Congress seemed to have set a celebratory mood in some people. After years of suffering insecurity that other countries have a competition law and we don’t, these people can now say we have one. The fact that the law’s assumption is that more competition can be forged only through greater regulation is an irony lost on many.

The thing is, friends of mine with more sense in their heads than others do appreciate having a competition law, but mainly for this reason: The need to break up monopolies. Or to be more specific, the monopolies of our local oligarchy. Which is all well and good if not for one thing: the present competition law passed by Congress practically ignores existing monopolies.

The new law simply does not directly address the monopolies of the ruling elite. It does seek to regulate possible new monopolies (hence, the power of the conceived Philippine Competition Commission or PCC to regulate and approve planned mergers and acquisitions). But existing monopolies are left alone. The most that can be held against them are possible penalties for “abuse of dominant position.” And even that has a lot of loopholes.

That is, aside from a faulty assumption: Predatory pricing works if the “predator” is willing (and able) to suffer deep financial losses and if the market itself is inundated with regulations that protect current players. Predatory pricing actually benefits consumers (which is the whole rationale, presumably, of the competition law).

Furthermore, considering the internationalized economy, in that businesses need to be efficient and strong not only against domestic but also foreign competition (i.e., companies that operate outside local shores), the competition law’s working paradigm is strangely confined to local market conditions.

So, effectively, the old monopolies are left to go on with their old smug ways while new, bigger, and potentially efficient competitors have to contend with satisfying the PCC. And this is where another problem lies.

I invite everyone to peruse BizNewsAsia’s Dec. 1, 2014 issue. There it reiterates a fact that every economist and policy maker knows: the Philippines has “24 million families and 100 million people.” And yet, political and economic power has been held only by a select few. With that, “since 1962, the country has deteriorated, from Asia’s richest to being the region’s economic laggard.”

I mention that because, indeed, another area we need to look at is the connection that competition policy has with corruption, and thus, relatedly, the need to constrain the ill effects of having both political and economic power held by a select number of families in the country, which is something that even this competition law seems to ignore.

Because, what is the point of having trade commissions, legal procedures, and set penalties if in the end the judged and the judge are from the same side of the fence? Competition laws work in the United States and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exist between the two groups in any country, that is a far cry from having the same families actually in control of both business and government.

In other words, what’s the use of appointing (for example) a competition law chairman or commissioner who most likely will belong to the same upper economic and social class of people -- from the same “elite” local schools, his (or his wife’s) social network, family, friends, neighborhood, and future political appointers or business clients -- that he will be regulating?

A recent Financial Times research publication, in fact, gives the following insights about the new competition law: “In light of these close ties between the country’s political and business elites, it is reasonable to question how effective the new antitrust legislation will be.” Thus, in the FT’s view, “there could be increased business risk arising from the creation of an entirely new layer of government regulation that may be susceptible to political influence” and that “there is also wide scope for subjective, rather than objective, implementation.”

Indeed. Note that the PCC’s powers do not extend to retroactive business deals. But the PCC does have the power to “forbear from applying the provisions” of the law (i.e., be relaxed or stricter, or just exempt anyone) according practically to its discretion. And if that were not enough, the measures of the PCC, being attached to the Office of the President, logically would go through the President first (even before any appeal can be made to the Court of Appeals), and remember that it is the President who appoints the PCC members.

So if people are asking if it’s possible that the new competition law is perhaps only capable of protecting the established local and foreign political and economic elite, while at the same time keeping upstart competitive local businesses out, well... yes.

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.

Interview on ASEAN integration

My December 2014 (well, i think it was December) Eagle News PH interview on ASEAN integration and competition policy, that for some reason then shifted to a discussion on the 'effects' doctrine in international law. View here.

Again: competition law? Maybe.

(Remarks at the 1^st National Competition Conference, Philippine International Convention Center, Manila, Philippines; 09 December 2014)

Good morning.

And thank you for inviting me to participate in today’s discussion on “Competition Policy and Regional Economic Integration”. Indeed, prevalent in today’s mind would be the subject of ASEAN integration. As it should.

With countries touted as interconnected and technology perpetually advancing, nevertheless, most international trade remain affected significantly by geography. And thus ASEAN will always play, should always play, an important part in the formulation of Philippine economic policy.

Competition policy is said to constitute a vital cog leading up to ASEAN integration by 2015. And members are “endeavored” to introduce competition policy and legislation by that year to “ensure a level playing field and to foster a culture of fair business competition for enhanced regional economic performance in the long run.”

It is worth exploring, however, the thought that before the Philippines indeed contribute to enhancing regional economic performance that its own economic interests – both in the short and long term – be solidified. And perhaps it is in that light that we best look at competition policy and legislation.

The trouble with assumptions

One fundamental problem with present discussions on competition law is the implicit reliance on this one assumption: monopolies are bad and government is the solution. But note, not even our Constitution see monopolies with that perspective: 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.” (italics supplied)

As my own newspaper BusinessWorld reported (Competition Law Urged, 28 August 2013) on the East Asia Forum on competition law, the consensus seemed to be that “a competition policy is considered important for a country to grow and consider itself an advanced economy.” Furthermore, “competition law should also be separated from politically motivated industrial policy as the latter allows the government to choose which industries to champion instead of letting natural competition occur in the market.”

Urging must be made to re-examine the assumptions on which such assertions are made. It is not dogma that monopolies are inefficient and stifles innovation. And because of the way today’s economic system is, with globalization and technology, the probability of a new entrant, whether locally or elsewhere, breaking in will always serve as an impetus to improve products or services.

Even claims related to predatory pricing need not go unexamined. Predatory pricing can work if the “predator” is willing (and able) to suffer deep financial losses and even then such would only be effective if the market itself is inundated with regulations that exempt, protect, subsidize current players.

Even declarations like “all advanced economies have a competition policy” should be rendered suspect. Simply because we’re not an “advanced economy”. Not yet anyway. Which should tell you a lot about the wisdom of importing and imposing a regulatory framework tailored for countries whose circumstances are not similar to the Philippines.

Indeed, the logic of the foregoing assumptions seems to be is that to further regulate the market will set it free. But we’ve known from trade policy history that such never benefits consumers and that protectionism has generally harmed the economy. And we’ve known from trade policy history 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.

A question of necessity

And then, there is the question of necessity. Or, more accurately, the degrees thereof. At the outset, let us get this straight: to agree to “endeavor” to have a competition law by 2015 does not mean we should have a competition law by 2015. The only deadline the Philippines must consider at this stage is its own interests and the welfare of its people.

Reference has been made (here and elsewhere) of the 2014 Economic Freedom Index. As its name indicates, the Heritage Foundation’s study measures a country’s openness to trade, economic mobility, and prosperity.

The Philippines is currently ranked 89 (out of 186 countries), although the same is said to be an improvement by 1.9 points. Amongst Asia-Pacific countries, the Philippines placed 16th out of 42. Overall, the Philippines is considered “slightly below the world average” or “moderately free”.

Of particular interest is the Index’s category of “Rule of Law”. For the Philippines: “Corruption and cronyism are rife in business and government, with a few dozen leading families holding an outsized share of wealth and political power. Judicial independence has traditionally been strong, but the rule of law is generally weak. A culture of impunity, stemming in part from a case backlog in the judicial system, hampers the fight against corruption. Delays and uncertainty negatively affect property rights.” In this regard, it is to be noted that as of 2010, Vietnam has overtaken the Philippines in terms of lessened corruption and is currently three ranks higher.

The Economic Freedom Index goes on to discuss ease of doing business or “regulatory efficiency”, noting that in the Philippines “launching a business takes 15 procedures and 35 days.”

The foregoing makes informative reading when set alongside the World Economic Forum’s 2014-2015 Global Competitiveness Index.

The Philippines certainly made improvements, ranking 52 out of 144 countries. However, the data seems to give the impression of the huge role that the private sector played in our improved ranking.

One can see this in our high scores in “business sophistication” and market size (which perhaps can be related to the fact that the Index declares our population to be at 97.5 million, with a substantial chunk of that, it must be added, belonging to the youth sector – more on this later). High scores in innovation and financial market complement this.

However, what is telling are the areas where the Philippines rank lowest: infrastructure, corruption, health and primary education, ease of starting a business, inefficient bureaucracy, and wage determination, hiring and firing procedures, and redundancy costs.

The media trumpets Philippine improvement in one pillar: “institutions” (rank: 67, formerly 79). But even then, when broken down, one sees that it is private institutions that gave us that higher score (at 48), with public institutions at 75. Two additional figures worth noting in this regard: judicial independence (77) and transparency in policymaking at 85 (and which probably highlights why a Freedom of Information Law can help attain better competitiveness for the country).

Nevertheless, the undoubted key for whatever prospects that may open to the Philippines is in education. There is one striking Philippine statistic that everyone should be aware of and that is in the area of demographics: Filipinos 30 years old and below comprise around 70% of the population (with those below 14 years at 35%, with the median age at 22.9 years old). Those at 65 years old comprise only about 4.1%. The future of this country quite simply depends on how well that 70% is educated.

In this regard, let us take note of The Times Higher Education World University Rankings 2014-2015, which declares itself to be “the only global university performance tables to judge world class universities across all of their core missions - teaching, research, knowledge transfer and international outlook. The top universities rankings employ 13 carefully calibrated performance indicators.”

The usual suspects are there: Cambridge and Princeton definitely (as well as some school called Oxford). From the Asian region, the list is filled with Japanese, Singaporean, Hong Kong, South Korean, Taiwanese, Indian, Israeli, Turkish, Saudi Arabia, and Thai schools.

And yet (although one is free to ignore the rankings for whatever excuse) not one of our schools joined the list of top universities. Not even in the “looser” Times Higher Education World Reputation Rankings, which is based on “nothing more than subjective judgment”.

Relate the foregoing with recent figures indicating that teenage pregnancy in this country rose by 70% in the past 10-year period (114,205 in 1999 to 195,662 in 2009). 2010 figures show 206,574 of such pregnancies. Data from the National Youth Commission show that the Philippines is third highest in Southeast Asia and among the highest in the ASEAN region and the only country where such number is increasing.

Furthermore, of the almost 3 million Filipinos currently unemployed, 48.2% are within the 15-24 age group, with 29.9% from those 25-34 years old. Most of them are high school graduates.

Also disconcertingly, 13-14% of all registered marriages are among teenagers below 20 years old while. On the other hand, perhaps not coincidentally, there is also a rise in annulment cases (records indicate a 100% increase in the past 10 years). Add to that the increasing incidences of rape.

Why are these numbers important in relation to our economy? Because the basic economic unit and source of productivity are people. And nothing develops people better than a strong family unit.

Potrykus and Fagan tell us that: “It is worth emphasizing that though economic production generally, and growth particularly involve three components, economic enterprise is a human activity. Human beings, by the measure of growth accounting, contribute over half of what is valuable to production. Only one third of growth may be attributed to non-human, physical capital. Domestic production is affected massively by the human component’s contribution.”

It bears worth pointing out that despite ASEAN integration being packaged as turning ASEAN into one big “production base”, the Philippines nevertheless is also hinging its strategy on expanding our services industry. But services require people. And people need to be educated and trained.

To further press the matter, while the Global Manufacturing Competitiveness Index recognized the importance of infrastructure, the economic, trade, financial and tax system, and the rule of law as drivers of competitiveness, the biggest driver of competitiveness and economic growth is, you guessed it, a country’s people: “the availability of high quality human talent will always remain in the top set of competitiveness drivers.”

And this is key for the Philippines: “Demographics, more specifically aging populations, will have a significant impact on market attractiveness over the coming decades, with some nations like Japan, and even China, despite its large population, significantly inhibited by their aging populations and others, including the U.S. with favorable population age demographics gaining the upper hand as time passes.”

How the foregoing, which are clearly urgent matters all, are to be addressed by a competition law is something that needs further examination.

Competition Law? Maybe.

At this point, perhaps it’s best to state some caveats: do we need a competition law? Yes. But we need one that will work effectively for the interests of Filipinos. And the measure of its importance tells us that we better not be too eager in passing such legislation.

And indeed, when we say that we want to foster better competition then we better address the question: competition for whom? And competition where?

So, on a substantive level, and inasmuch as he pulled me to the punch in saying it, then I might as well borrow the words of Teddy Boy Locsin (in his 04 September 2014 “Teditorial”): “If the anti-competition law seeks to stop giant local companies from keeping local competition down and foreign competition out, then that law is a yes. But if seeks to break up local giants now dominating the local market and getting a lion’s share of a cash rich country after beating the foreigners who were taking all the money long ago, then it is a big, fat no.”

If we say better competition to benefit our consumers, then we have to remember that our consumers need money to consume. Which they can’t do if they’re unemployed or underemployed. Which means that they need companies, preferably Filipino companies, succeeding and succeeding well not only in the Philippines but also in an ASEAN integration and beyond.

Ultimately, size is relative and what may seem like giants in our neighborhood that is the Philippines may actually be puny when placed in regional and global arenas.

Consequently, 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 any as example and one would see that despite their size and reach, could not really be considered possessing monopoly power due to the nature and threat presented by global (or regional) competition.

Again, Teddy Boy Locsin gets it remarkably right: “Big is better if it is Filipino because capital has a nationality” but “big is bad if it is foreign, which will destroy what we have, milk it by big bonuses, siphon profits abroad, and make sure no Filipino ever gets big again. If foreign competition wants to break up Filipino giants, let the free market do it. Do not make a Filipino law tailor-made for foreigners do the job for them. Foreign competition does not believe in Filipino competition in their home countries. It only believes in foreign competition here and elsewhere abroad.”

That is why questions on the need to regulate mergers through a competition law at this point are with merit. Not all countries with competition laws even have provisions on merger regulation. As Lisa Campbell, Senior Deputy Commissioner, of the Canadian Competition Bureau, remarked: “the size of a business, even one that dominates a particular market, is not in an 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.” (International Antitrust Forum Fifth Annual Chicago Forum on International Antitrust Issues, June 12-13, 2014)

Further on the substantive, we know that a government-managed competition will not result in free competition. We know that doing so results in inefficiency. Instead, at this point, the best competition policy that we could advance would simply be to strictly enforce the rule of law. The many many laws that we already have now.

Instead, if we must have a competition law by next year, then let it include provisions on 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.

One last point on the substantive: if we must have a competition law then why are the competition law drafts essentially similar in text to foreign competition laws? To have influences is understandable but that is not the point. US laws are worded generally, for example, but that is so because the core provisions were made a century ago. But that was followed by more than a hundred years of US jurisprudence (plus that of Europe and Japan) that we should have learned from and could have been inputted into the draft competition law, thus giving the same more depth and precision.

At the institutional level, I invite everyone to peruse BizNewsAsia’s 01 December 2014 issue. There it reiterates a fact that every economist and policymaker knows: the Philippines has “24 million families and 100 million people.” And yet, political and economic power has been held only by a select few. With that, “since 1962, the country has deteriorated, from Asia’s richest to being the region’s economic laggard.”

I mention that because indeed, another area we need to look at is the connection that competition policy has with corruption, and thus, relatedly, the need to constrain the ill-effects of having both political and economic power held by a select number of families in the country, which is something that even the latest drafts of our competition laws seem to ignore.

Because, what is the point of having trade commissions, legal procedures, and the like if in the end the judged and the judge are from the same side of the fence? Competition laws work in the US and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exists between the two groups in any country, that is a far cry from having the same families actually in control of both business and government.

In conclusion --

I should wrap up here before I exceed your patience (if I had not done so already!).

Competition policy and law are definitely important. But they are not panaceas. And like everything else, they would need a certain context to have any positive effect.

In this regard, 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), “prevalence of trade barriers” (51), and “prevalence of foreign ownership” (51). And studies (such as Ajit Singh’s) suggest that policymakers should consider “optimal” degrees of competition rather than maximum competition as apt for a developing country economy (such as the Philippines’).

Contrast this with the scantiness of our resources and experience, administratively and judicially, that are necessary to implement a competition law. Couple this with the abundant reliance on outside analysis that may not have thoroughly considered the peculiarities of the Philippines.

On this point I agree there is a huge need to develop competition advocacy: the thorough education of both Bench and Bar, and the eventual creation of experienced and trained competition and consumer champions.

From years of policymaking we know that if there’s a thing that the ruling sector wants immediately accomplished, with zero fuss, then generally it’s best to make a fuss about it. It is precisely at such moments that time for further study becomes a necessity.

In relation to crafting our competition law, the same thought should apply considering the profound effect it will have on the country’s economy and Filipino lives.

Thank you. I think shall stop here.

= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

References:

ASEAN Competition Law and Policy: Toward Trade Liberalization and Regional Market Integration (Pornchai Wisuttisak & Nguyen Ba Binh; ICIRD 2012)

Drafting Competition Law for Developing Jurisdictions: Learning from Experience (Eleanor M. Fox
 and Michal S. Gal; 2014)

The Divorce Revolution Perpetually Reduces U.S. Economic Growth: Divorce Removes a Fourth of Head-of-Household Productivity Growth (Henry Potrykus and Patrick Fagan; 2012)

Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions (Ajit Singh; G-24 Discussion Paper No.18, 2002)

2014 Economic Freedom Index (Heritage Foundation)

2014-2015 Global Competitiveness Index (World Economic Forum)

2014-2015 Times Higher Education World University Rankings

2013 Global Manufacturing Competitiveness Index (Deloitte Touche Tohmatsu Limited and the U.S. Council on Competitiveness)

2010 ASEAN Regional Guidelines on Competition Policy

Competition law? Maybe.

was my Trade Tripper column in the recent weekend issue of BusinessWorld:

I'm not sure if people are aware of this, but if there is a piece of legislation that policy makers are going gaga over to get passed, it is not the Freedom of Information law. Rather it is the competition law, now in its present form as House Bill 1133 (partnered with Senate Bill 2282, both known as the Fair Competition Act). Unfortunately, the people pushing for this law miss the point: yes, clearly we need a competition law. But we need one that will work effectively for the interests of Filipinos.

Teddy Boy Locsin was spot on in his Sept. 4 Teditorial: “If the anti-competition law seeks to stop giant local companies from keeping local competition down and foreign competition out, then that law is a yes. But if it seeks to break up local giants now dominating the local market and getting a lion’s share of a cash-rich country after beating the foreigners who were taking all the money long ago, then it is a big, fat no.”

One fundamental problem with present competition bills is their implicit reliance on this huge 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.”

And as Nonoy Oplas, president of Minimal Government Thinkers Inc., correctly pointed out: “When government intervenes hard to force or pretend to attain social equality, such intervention will naturally result in subsidizing the lazy and irresponsible, while penalizing and over-taxing the efficient and industrious.” For him, “fierce competition is fair competition. Government-managed or protected competition is not fair competition.”

I also concur with his assessment that, at least for the present, the “best anti-monopolization regulation that government can do is to have rule of law strictly enforced.”

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.

As I’ve written several times before, Filipinos should be more discerning about the strong possibility of foreign corporations sneaking up and 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.

Again, Teddy Boy Locsin (who’s not a trade lawyer but has more sense than most competition experts) gets it exactly right: “Big is better if it is Filipino because capital has a nationality,” but “big is bad if it is foreign, which will destroy what we have, milk it by big bonuses, siphon profits abroad, and make sure no Filipino ever gets big again. If foreign competition wants to break up Filipino giants, let the free market do it. Do not make a Filipino law tailor-made for foreigners do the job for them. Foreign competition does not believe in Filipino competition in their home countries. It only believes in foreign competition here and elsewhere abroad.”

Another area we need to look at is the relationship that competition law has with corruption, and thus, relatedly, the need to constrain the ill effects of having both political and economic power held by a select number of families in the country, which is something that even the latest drafts of our competition laws seem to ignore.

Because, what is the point of having trade commissions, legal procedures, and the like if in the end the judged and the judge are from the same side of the fence? Competition laws work in the United States and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exists between the two groups in any country, that is a far cry from having the same families actually in control of both business and government. Which is the case in the Philippines.

Finally, why are the competition law drafts merely aping the texts of foreign competition laws? After all, US laws are worded generally, which is understandable as the core provisions were made a century ago. But that was followed by more than a hundred years of US jurisprudence (plus that of Europe and Japan) that we should have learned from and could have been incorporated into the draft competition law, thus giving the law more depth and precision.

We need to really put more thought in crafting our competition policy law, considering the profound effect it will have on the country’s economy and Filipino lives.