Philippine Competition Commission



right-613833PCC 2020 YEAR-END REPORTFor Immediate Release05 January 2021Steadfast amid the Crisis: The 2020 Year-end Report of thePhilippine Competition CommissionArsenio M. Balisacan, PhDChairpersonUnprecedented. This sums up 2020 on almost all fronts, due to the COVID-19 pandemic and its concomitant crises and challenges. The pandemic has adversely affected consumer demand, business operations, employment, and the government’s fiscal position, posing a difficult challenge to policymakers on how to bring about economic recovery while containing the disease and saving lives.Yet, despite the tumultuous past months, the Philippine Competition Commission (PCC) has steadfastly carried on with its mandates, achieving significant goals. It has remained proactive in its advocacies and vigilant in protecting market competition. Allow me to report on our achievements in 2020 and share our priorities in 2021.A More Robust Competition Regime amid the Crisis The pandemic has upended both the global and domestic economies in ways nobody expected. For 2020, the World Bank estimated the global economy to shrink by 5.2%. Before the pandemic, the Philippine economy was projected to grow by 6.6% and sustain its high-growth trajectory as in the past few years. Now, World Bank’s latest estimates show that the country’s gross domestic product in 2020 will fall by 8.1%.Given the current economic crisis, some might ask: Is competition policy relevant at this time? The simple and straightforward answer is yes, now more than ever.The pandemic-induced recession has heightened the risk of anti-competitive behavior as firms struggle to cope with narrower margins. Firm closures and increased appetite for mergers and acquisitions (M&As) may also cause market power to become even more concentrated. Even government responses to the crisis may themselves have unintended anti-competitive effects. All these can exacerbate the already significant economic losses from the pandemic as inequality worsens and the playing field is further distorted, especially for micro, small, and medium enterprises (MSMEs). Lessened competition, increased capacity of dominant players to abuse market power, and distorted market structures also stifle long-term prospects for innovation, growth, and consumer welfare. Hence, having a more robust competition regime has become even more relevant and critical now to protect Filipino consumers and businesses alike and ultimately ensure a durable and inclusive recovery. We at the PCC fully recognize this crucial responsibility.Mergers and Acquisitions (M&As)In previous years, we sought to streamline and make more robust PCC’s merger review to support the government’s push to ease doing business. Our goal for 2020 was no different.Last February, we adjusted our notification thresholds for the third time. Based on the nominal GDP growth of 2019, we raised the values of Size of Party threshold from PHP 5.6 billion to PHP 6 billion and Size of Transaction threshold from PHP 2.2 billion to PHP 2.4 billion. Further, last June, the PCC issued rules exempting from compulsory merger notification projects between government agencies and private entities pursued under the framework of the National Economic and Development Authority (NEDA) Joint Venture Guidelines and joint ventures formed for unsolicited Public-Private Partnership (PPP) projects.As mentioned, there has been an increased appetite for mergers, given the greater financial burden caused by the crisis. Thus, the PCC has pushed for policy responses to remain pro-competitive for a smooth and sustainable post-recovery development. Against the Commission’s recommendations, Congress passed the Bayanihan to Recover as One Act (Bayanihan II) last September, which exempts M&As with transaction values below PHP 50 billion from compulsory notification if entered into within two years from the effectivity of the said law. Additionally, Bayanihan II has suspended PCC’s authority to conduct motu proprio reviews of such transactions for one year. It must be said that while the PCC, following global best practices and lessons learned from past economic crises, prefers to do an in-depth review of M&As, we recognize the need to provide some degree of regulatory relief during these times. Despite the constraints, we continued to exercise due diligence in our M&A reviews.In 2020, the PCC received 26 M&A transactions, altogether worth PHP 909 billion. Twenty (20) were approved, one (1) withdrawn, two (2) returned, and three (3) are in different review stages. The sectors with the most transactions are electricity and gas (6), and transportation and storage (5). Manufacturing, finance and insurance, and real estate each had 3 transactions. Despite the constraints due to community quarantine restrictions, we completed all reviews well within the statutory periods. These include the?approved acquisition by Universal Robina Corporation (URC) of assets in Central Azucarera de la Carlota, Inc. and Roxol Bioenergy Corp., and shares in Najalin Agri-ventures, Inc. in Negros Island, a year after a similar transaction by URC was blocked due to merger-to-monopoly concerns in Batangas.??With fewer merger notifications expected and motu proprio review effectively suspended, our Mergers and Acquisitions Office refocused its resources on capacity building and market monitoring to gear up for the return of motu proprio review powers in September 2021. We also continued to encourage firms to voluntarily notify the Commission of their M&A transactions to avoid the possible unwinding of these transactions should these be found anti-competitive after motu proprio review. Further, in light of Bayanihan II and given the heightened risks of anti-competitive behavior amid the crisis, we have deployed many of our staff from the Mergers and Acquisitions Office to the Enforcement Office to work on abuse of dominance petition EnforcementAt the start of 2020, the PCC sought to roll out a more robust competition regime, particularly as regards enforcement. One significant milestone in this regard was the Commission’s issuance of a Statement of Objections on its first cartel case. The investigation was initiated when the National Home Mortgage Finance Corporation (NHMFC) came to the PCC during the two-year transitory period under the Philippine Competition Act (PCA), seeking a review of its agreements with a pool of insurance companies. Last February, our Enforcement Office charged the pool and NHMFC for entering into anti-competitive agreements for the exclusive provision of mortgage redemption insurance (MRI) to its account holders for almost four decades. MRIs ensure the settlement of outstanding loans if a borrower dies. The exclusive arrangement effectively has deprived NHMFC and the housing loan borrowers from getting MRI coverage from other providers that may offer better terms at lower premium rates. This case is still under adjudication by the Commission, and we will ensure its proper and careful examination given its implication on the provision of better financial services to thousands of NHMFC account holders, which include low-cost and socialized housing loan borrowers. Throughout 2020, we found our thrust of competition enforcement to be crucial because of the higher risks of anti-competitive behavior due to the times. Hence, we intensified our enforcement activities. In particular, we boosted investigations of possible anti-competitive agreements and conduct, especially concerning the trade of essential goods and services. At the onset of the crisis, we set up a dedicated channel for receiving COVID-19 related complaints. In all, we received 162 queries and complaints, resulting in the commencement of 8 preliminary and 5 full administrative investigations. These particularly concerned water utilities, internet services, retail associations, and poultry. Immediately following Bayanihan II’s passage, we restructured our Enforcement Office to have distinct divisions dedicated to cartel and abuse of dominance cases. This will enable us to step up detection and investigation when consumers and MSMEs are at risk from such anti-competitive agreements and conduct.Moreover, last December, the PCC launched the BRIGADE project, short for Bid-Rigging Intelligence Gathering and Detection for Enforcement. This is in partnership with the Korean Government, which has committed to share its experience in managing its Bid Rigging Indicator Analysis System. We also expect to garner support for the establishment of an effective evidence collection method against public procurement bid-rigging. BRIGADE allows us to significantly improve our case-building capabilities and increase the number of bid-rigging prosecutions in the coming years. By protecting competition in the public procurement process, we can ensure effective and quality relief and recovery programs and guarantee that Filipinos get the best value for their petition ResearchTo inform the Commission’s decisions on cases and guide enforcement and advocacy prioritization strategies, we commenced work on several issues papers, awareness surveys, and policy notes in 2020. Notably, our Economics Office completed issues papers on five sectors: sugar, corn, cargo services, retail petroleum, and agro-chemicals. These sectors fall under our priority areas for 2020 and have also become more relevant given the pandemic. As in previously completed issues papers (i.e., on air transport, pharmaceutical, digital commerce, and manufacturing sectors), the new issues papers are published in the PCC website for public consumption. Allow me to share some findings in two especially important sectors during this pandemic: the digital commerce market and the pharmaceutical industry.In the digital commerce market, the rise in e-commerce has revealed the need for more effective regulation of courier services. Most critical is the proliferation of unlicensed companies and/or messengers. The issues paper also examined restrictive regulations and the regulatory environment to promote competition and innovation in the sector.On the other hand, the Competition Impact Assessment (CIA) we conducted on the Cheaper Medicines Act (CMA) showed that although some provisions may seemingly limit what the stakeholders in the pharmaceutical sector are allowed to do, the law has in fact fostered a favorable environment for generics, thereby increasing access to medicines, especially for lower income households. One of the CIA recommendations is for the Department of Health (DOH) and related agencies to assess their pooled procurement strategy and to require all government agencies and local government units (LGUs) to procure drugs and medicines through the Philippine Pharma Procurement Inc. (PPPI), thus reducing unit procurement cost for the benefit of these agencies and the greater public.These outputs and other ongoing research efforts have better equipped the Commission in rolling out effective enforcement and advocacy activities that address the Filipino consumers’ most urgent petition AdvocacyWe have always said that without mainstreaming competition policy what can be done is very limited. As such, we continued being proactive in popularizing competition principles throughout the year. We believe we can do more with less by encouraging voluntary compliance of key stakeholders and by collaborating with fellow government actors.In 2020, we successfully organized 27 advocacy and capacity-building activities tailored for the judiciary, the legislative, legal community, government agencies, and business groups. These include workshops for the House of Representatives, which was attended by the Chairpersons of the Committees on Economic Affairs and Trade and by about 200 legislative staff, and for the City Government of Pasig, the first of its kind for LGUs. Early in the year, we held the second Manila Forum, the PCC’s biennial flagship advocacy event. The Forum explored the complex interplay among regulation, legislation, and competition policy. It was attended by local and foreign antitrust experts, development practitioners, business leaders, legislators, and sector regulators. Consistent with the Philippine Development Plan, the Commission provided critical inputs to all three branches of government to advocate pro-competitive policies in priority sectors. Let me cite examples for each branch.For the Executive, we worked with NEDA for the immediate adoption of the National Competition Policy (NCP). Issued as a Joint NEDA-PCC Memorandum Circular last July, the NCP serves as a framework to steer all policies, rules, regulations, and interventions by national government agencies, government-owned or controlled corporations (GOCCs), and LGUs toward the promotion of fair market competition. It complements the PCA in guiding the design of government interventions, especially those relating to MSMEs’ recovery.Further, following multiple dialogues with the PCC, the Department of Information and Communications Technology (DICT) issued the Common Tower Policy last May to promote competition in the telecommunications tower construction sector and improve access to internet and mobile services. This is a welcome development at a time when the internet has become essential to keeping the economy running.For the Judiciary, the Commission played an instrumental role in the Supreme Court (SC) ruling in Philippine Contractors Accreditation Board (PCAB) v. Manila Water last March. This is a landmark decision for competition as it levels the playing field for local and foreign construction firms in the Philippines. In voiding the nationality-based restrictions implemented by PCAB, the SC extensively cited PCC’s amicus curiae brief in its decision that such licensing rules effectively bar the entry of foreign contractors and violate the constitutional policy against unfair competition. The SC ruling is expected to encourage more foreign participation in the sector, lower its longstanding high costs, and generate positive spillover effects across other sectors. Last December, on the instruction of the SC, we submitted another amicus curiae brief to respond to PCAB’s Motion for Reconsideration. Our stand remains the same—foreign participation in the construction sector is low and the sector could grow further if more foreign participation is allowed.For the Legislative, the PCC actively participated in the crafting of various stimulus bills to address the current crisis to ensure that they are pro-competitive. These include the Financial Institutions Strategic Transfer (FIST) Bill, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Bill, and the recently passed Bayanihan II Act. We have seen how past misguided interventions have caused market distortions and an uneven playing field. Hence, we consistently advocated the use of the competition lens to ensure that policies and state subsidies enhance economic efficiency by properly allocating scarce resources to critical sectors to stimulate production and innovation. In its various position papers, the PCC has always recommended that subsidies and grants be more equitable to and inclusive of MSMEs and that access to them be transparent and nondiscriminatory. We also continued to monitor and provide inputs to upcoming stimulus bills, as well as support game-changing reforms, intended to usher in a greater volume of foreign investments in key sectors of the economy.Institutional Partnerships Recognizing the many significant benefits of collaboration, the PCC worked out three formal partnership agreements in 2020.Last November, it signed a Memorandum of Understanding (MOU) with the Philippine Chamber of Commerce and Industry, the country’s largest private business organization. This first MOU with a business association enables us to further cultivate a culture of healthy competition and of corporate compliance among key stakeholders. Notwithstanding the current crisis and need for swift recovery, a closer dialogue between the government and the business sector has historically led to better solutions to the country’s economic challenges.In December, we signed an MOU with the Hong Kong Competition Commission. This MOU covers information exchange, coordination of enforcement activities, notification of cases of mutual interest, technical cooperation, and capacity building. Given the value of bilateral trade between Hong Kong and the Philippines and the growing volume of digital and cross-border transactions in the region, this partnership will enable us to continuously improve our capacity to safeguard competition.Lastly, we are set to sign a Memorandum of Agreement with the City Government of Pasig, our first with an LGU. The agreement will enable us to equip Pasig’s local government council with the proper understanding and skills to assess policies from a competition perspective and to design competition-friendly laws and regulations at the local level. Through virtual platforms, the PCC continued to actively participate in international meetings, competition fora, and technical workshops. These were sponsored by foreign competition authorities, the World Bank Group, International Competition Network (ICN), Organisation for Economic Co-operation and Development (OECD), United Nations Conference on Trade and Development (UNCTAD), and various partners through the ASEAN Experts Group on Competition (AEGC). These intergovernmental interactions and functions enable the PCC to expand its enforcement network and technical capacity.Institutional CapacityThrough a USD 23.3 million six-year project loan secured from the Asian Development Bank (ADB) last year, the PCC stepped up its partnership with the University of the Philippines for the establishment of a Center of Excellence in Competition Law and Policy. The project has been able to mobilize its first batch of ten (10) scholars from the PCC and its partner government agencies to pursue post-graduate degrees abroad in fields related to competition law and policy. Mobility challenges notwithstanding, the PCC has taken advantage of virtual platforms for in-depth training facilitated by renowned international experts. These initiatives are testaments to the PCC’s commitment to continuously hone the capacities necessary to safeguard competition in our markets.Last March, the Commission completed its roster of Commissioners with the appointment of Atty. Emerson B. Aquende, former Chairman of the Legal Education Board (LEB), further boosting PCC’s capacity and wealth of expertise. To date, the Commission is composed of 251 personnel, of which 194 are in plantilla positions, including 53 lawyers and 29 economists.2021: Making Competition Work for RecoveryThe PCC’s topmost priority remains unchanged: effectively investigate and enforce prohibitions against anti-competitive agreements and conduct. With the gains we have chalked up the past years, we stand ready and equipped to exercise our full investigative powers.In 2021 we will focus competition analysis and enforcement on e-commerce, health and pharmaceuticals, insurance, logistics and shipping, energy and electricity, water supply and distribution, real estate, and food. The pandemic has spotlighted the importance of these sectors, and they are expected to become even more relevant in the years to come. Initiatives in these sectors aim to protect consumer welfare, with or without the crisis.To boost investigation and case building, we will undertake the following:Establish a digital forensics laboratory and have our investigators undergo rigorous certification training in digital forensics.Develop an in-house bid-rigging screening tool through the BRIGADE project.Roll out the task force with the Commission on Audit and Office of the Ombudsman for the detection, investigation, and prosecution of possible bid-rigging in public procurement.Sustain efforts of the task force with the Department of Energy and Energy Regulatory Commission for the investigation of competition cases in the energy sector.With respect to merger review, we will continue to: Monitor priority markets for M&As that are likely to substantially lessen competition. Further improve our staff capacity and streamline our internal processes. Encourage the private sector to voluntarily notify and consult with the Commission.To inform policy choices and enhance enforcement effectiveness, we will: Conduct an ex-post impact assessment of the Commission’s enforcement and merger decisions over the past years so we can be better guided on what we need to improve or focus on.Continue to produce quality research outputs to support merger reviews, competition enforcement, and advocacy efforts, as well as conduct CIAs of relevant laws and regulations in priority sectors. In particular, we will study the impact of subsidies and subsidy-like measures relative to COVID-19 relief and recovery efforts such as the Bayanihan I and II. In terms of advocacy, we aim to amplify our efforts in mainstreaming competition policy in the entire government agenda. In particular, we will:Engage the Legislative-Executive Development Advisory Council to include pro-competitive legislation in the Common Legislative Agenda and to require the review of priority legislation using the competition lens. Monitor court cases that may affect competition and provide inputs to the courts.Launch the second seminar on competition for Senate legislative staff and a series of seminars for LGUs. To further widen our enforcement network, we will: Establish and reinforce ties with institutions and peers in other countries, particularly the competition authorities of Singapore, Japan, Korea, Australia, and Mexico. As transactions become increasingly borderless and with the pandemic accelerating the digital shift, international cooperation has become more critical in protecting the competition landscape. Strengthen and formalize ties with local sector regulators, particularly the DICT, DOH/FDA, Governance Commission for GOCCs, Intellectual Property Office, National Privacy Commission, and National Telecommunications Commission.The Commission will also be tapping the OECD’s assistance for a third-party peer review of PCC’s enforcement rules, processes, and results after five years of operations. The review will allow PCC to benchmark itself against more developed jurisdictions and international best practices.Finally, we will continue to strengthen our institutional capacity to increase our productivity as we expand PCC’s portfolio of enforcement and advocacy work. This includes requesting additional positions for our core offices in 2021, especially in view of plans to establish regional offices in Cebu and Davao by 2022. ConclusionThe pandemic-induced economic crisis has interrupted the country’s growth trajectory. The path to economic recovery requires a huge orchestrated undertaking from both the private and public sectors. Post-recovery development will require the same or even more effort, depending on our current policy choices. In this regard, competition policy is a key pillar to a durable recovery and inclusive economic development.The difficulties we all experienced in 2020 have made the Commission stronger and wiser. We have realized even more the relevance of competition policy in protecting consumer welfare, especially in times of economic crisis such as the one we are going through. In the midst of the pandemic’s challenges, the PCC has remained prepared and alert to anti-competitive forces threatening to exacerbate the already harrowing situation of Filipino businesses and consumers. The benefits of competition policy to consumers, especially the poor, are undisputable. Thus, we will continue to work tirelessly for policy and institutional reforms required to have a pro-competitive environment in the country. Whether the country is in a crisis or not, the PCC will always be an unwavering champion for the protection of competition in our markets and the advancement of consumer welfare and shared prosperity.### ................
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