Rhouan Loseriaga of Valenton Loseriaga in Makati City looks at the new Competition Act
After being relegated to the back burner of the legislative mill for 25 years, Congress finally enacted Republic Act (R.A.) 10067 or the Philippine Competition Act. It was signed into law on July 21 2015 and its Implementing Rules and Regulations (IRR) were published in the Official Gazette on May 31 2016 thereby ushering the law’s full effectiveness.
Prior to the enactment of the Competition Act, the Philippines had adopted multifarious reforms such as deregulation, trade liberalisation and privatisation, to address constraints that stymied the growth of its economy. It even adopted the policy of devolution under the Local Government Code of 1991 to allow local government units more flexibility in hastening development. Even then, weakness of competition in the economy has been perceived as a perennial bane that stunted the country’s growth.
The Competition Act is the country’s first foray into full antitrust legislation. It is poised to reshape the country’s economic landscape and aims to protect consumers while preserving the efficiency of competition in the marketplace which is traditionally dominated by monopolies or duopolies, and even oligopolies, especially in strategic sectors like power distribution and telecommunications.
Salient features
This game-changing legislation is designed to shun the negative effects of anti-competitive agreements, abuse of dominant position in the market and anti-competitive M&A. It boasts of an array of legislative measures designed to destroy the proverbial wall of monopoly and unfair competition.
The law mandated the creation of the Philippine Competition Commission (PCC), an independent quasi-judicial body tasked to implement the national competition policy and ensure full enforcement of the provisions of the Act. It shall exercise distinct powers and functions in order to ensure the effective enforcement and implementation of the provisions of the Act which shall include, among others, the following:
- Conduct inquiry, investigate, hear and decide on cases involving any violation of the Act;
- Conduct administrative proceedings, impose sanctions, fines or penalties for any non-compliance with or breach of the Act and its implementing Rules and Regulations and punish for contempt;
- Issue adjustment or divestiture orders including orders for corporate reorganisation or divestment in the manner and under such terms and conditions as may be prescribed in the rules and regulations implementing the Act; and
- Issue advisory opinions and guidelines on competition matters for the effective enforcement of the Act and submit annual and special reports to Congress, including proposed legislation for the regulation of commerce, trade, or industry.
Coverage/prohibited acts
The Competition Act covers any person or entity engaged in trade, industry and commerce in the Philippines. The Act likewise applies to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce in the Philippines, including those that result from acts done outside the Philippines. However, it shall not apply to combinations or activities of workers or employees nor to agreements or arrangements designed solely to facilitate collective bargaining between employers and employees.
Competitors should refrain from entering into Anti-Competitive Agreements that are per se prohibited such as those (1) restricting competition as to price, or components thereof, or other terms of trade; and (2) fixing price at an auction or in any form of bidding including bid suppression and bid manipulation. Agreements shown to have the object or effect of substantially preventing, restricting or lessening competition shall likewise be prohibited, i.e., setting, limiting, or controlling production, markets, technical development, or investment, dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means.
Competitors are also prohibited to abuse dominant position which refers to a position of economic strength that an entity holds which makes it capable of controlling the relevant market independently from any or a combination of the following: customers, suppliers, or consumers.
Finally, Anti-Competitive M&A are prohibited under the Act or those that substantially prevent, restrict or lessen competition. The PCC may exempt such transactions from the coverage of the prohibition when the parties establish either of the following: (1) it will most likely bring about gains in efficiencies that are greater than the effects of any limitation on competition; and (2) a party is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement among the known alternative uses for the failing entity’s assets.
The PCC is empowered to review M&A (the latest IRR issued by the PCC includes joint ventures in the scope of mergers) based on factors that it deems relevant. Mandatory notification by an entity to the PCC is required if the value of the transaction exceeds P1 billion ($22.2 million). The parties to such transaction cannot consummate their agreement until 30 days after notifying the PCC of their intentions. Failure to do so shall void the agreement and subject the parties to an administrative fine of between 1% to 5% of the value of the transaction.
Fines and penalties
In any investigation conducted by the PCC involving anti-competitive agreements, abuse of dominant position, failure to notify the PCC on any M&A where the value of the transaction exceeds P1 billion or in case of prohibited M&A, the PCC may impose administrative fines of up to P250 million (about $5.5 million).
An entity that enters into any anti-competitive agreement, for each and every act, shall be penalised by imprisonment ranging from 2 to 7 years and a fine of up to P250 million. The penalty of imprisonment shall be imposed upon the responsible officers and directors of the entity.
Remedy
An entity criminally charged with a violation of the prohibition against anti-competitive agreements may enter a plea of Nolo Contendere wherein the entity, without admitting liability for the supposed acts charged, agrees to accept punishment as if it had pleaded guilty. The plea, however, is inadmissible in evidence to prove liability against the entity in a civil case arising from the same acts charged in the criminal case.
Prospects
With the noble intentions of the law combined with the plenary powers granted to the PCC, the efficacy of its implementation would be tested against the ability of the officers appointed therein to go against big businesses that maintain a stranglehold in the country’s economy. Be that as it may, expectations are high that the Act would live up to achieving its objective of bringing about meaningful change in the country’s business milieu by protecting consumers while at the same time ensuring a fair and competitive business environment.
Rhouan Loseriaga
Partner
Valenton Loseriaga Law Offices
Makati City
About the author
Rhouan Loseriaga has an extensive exposure in litigating a wide gamut of complex civil, commercial and criminal cases but much later in his career, he has shifted his focus on BOT/PPP law, public utilities regulation, infrastructure, public biddings/procurement law and foreign investments. He has had the rare privilege of advising the Philippine government on the contractual, legal and regulatory aspects of some of its biggest toll road infrastructure projects and acts as counsel to some of the world’s leading suppliers of high-security technology, biometrics, secure documents and banknotes solutions.
He has attended various international seminars and fora on toll road financing, road safety, and public and private partnerships sponsored by the International Road Federation and the International Bridge, Tunnel and Turnpikes Association. Mr Loseriaga obtained his law degree from San Beda College in Manila and completed an advance course in International Commercial Transactions.