Competition Policy Briefing Paper

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A Policy Briefing Paper:

Competition Policy

A Policy Brie ing Paper: COMPETITION POLICY Asian Institute of Management August 18, 2011 by the Center for Media Freedom and Responsibility in partnership with the Asian Institute of Management Policy Center with a grant from the National Endowment for Democracy

COPYRIGHT 2011 Center for Media Freedom and Responsibility

TABLE OF CONTENTSIntroduction.................................................................................................... Overview and BackgroundCompetition: What Is It All About? .............................................................. Competition Policy: Why Does It Matter? ................................................... Time for Anti-Trust ......................................................................................

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6 9 11

Tracking the LegislationCompetition Policy Issues in the Countries of Asia: The Philippines ....................................................................... Existing Philippine Competition Laws and Pending Legislation .................................................................................................... Focus on Senate Bills .................................................................................

15 17 20

Multisectoral PerspectivesCompetition Experience in the Philippines: Cement Cartel ......................................................................................................................... Philippines: Competition Law, Policy Hope to Curb Monopolies, Cartels ................................................................... Journalism and Competition .......................................................................

25 34 37 41

Conclusion and Recommendations ............................................................ CMFR Media Forum on Competition PolicySpeakers ................................................................................................................................... Participants .............................................................................................................................

42 43

AnnexesExecutive Order No. 45 ...................................................................................... House Bill No. 4835 ............................................................................................ Senate Bill No. 1 ................................................................................................. 45 48 74

INTRODUCTIONThis is not the irst time for the Center for Media Freedom and Responsibility (CMFR) to engage the press in the discussion of policy and its coverage. A CMFR program in the early 2000s initiated roundtable discussions on mining, the environment (The Clean Air Act), federalism and parliamentary government. CMFR also conducted a training program on reporting policy news in 2004. The aim is to help the media to understand the policy making process which is central to good government. These efforts show the dif iculty of promoting policy news as a critical part of the news agenda. The conventions of journalism focus on reporting events. The policy process is often left unreported, unless the debates of proponents gain in con lict and color as when policy divisions become sharp and become controversial. When this happens, the coverage relies on the exchange of quotes and soundbites. The policy process is always relevant or signi icant as the outcome affects the public. But it is not easy to make policy news interesting. But it is actually more important to provide news about the process before legislation is past and policy is cast in stone. The time to engage the public is when the policy is still being debated, to make sure citizens understand the pros and cons, the gains and losses involved in policy decisions. In this series of policy forums, CMFR took up freedom of information (FOI), presenting the different versions of the bill being discussed in the executive department as well as in the 15th Congress. This program was supported by a grant from the National Endowment for Democracy and in partnership with the Asian Institute of Management Policy Center (APC) headed by Dr. Ronald Mendoza. The second forum focused on competition policy and the concern for fair competition and trade, a huge and highly complex subject. This brie ing paper includes discussions and analyses from experts who have been involved in studies and reports on various aspects of competition policy, just as the discussion was designed to give the media and the public an overview and background on the issues involved in competition and to consider the practical impact of competition on the public. The forum also presented the relevant bills iled in Congress. CMFR also reviewed the recent coverage of the issues which touch on competition policy. Most of the reports took up stories re lecting developments in a sector: 1) The oil price disparities, along with the review and critique of the rise in oil/fuel prices; 2) The Open Skies Policy; and

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A Policy Briefing Paper: Competition Policy

3) Telecommunications and the acquisition by Philippine Long Distance Telephone Company, Inc. (PLDT) of controlling shares in Digitel Corp. which operates Sun Cellular. (Given the critical place of Short Message Service (SMS)/texting technology in public life, it is not surprising that the developments in this ield have been given more space in the business news.) It is understandable that the interest in one particular aspect of trade be driven by the importance of a particular trade sector. So shifts in oil prices and yes, the price of texting, are well reported. In general, however, the public does not understand how the price of a product can be affected by fair or unfair competition. Because public interest is involved, the media must make sure that there is enough coverage of the full course of competition policy. We hope that this becomes the subject of more talk shows and public affairs programs. The current legislation in Congress covers all sectoral concerns, rationalizing fairness in trade in a way that will bene it the consumer and foster economic ef iciency as well as continued economic growth. So far, the bills now pending in Congress on competition policy and Executive Order No. 45 making the Department of Justice the deciding authority on competition issues such as monopolies, cartels, and trusts have received scant notice in the media. (Please see Annexes.) There has been an accumulation of competition legislation since the 1980s. There are in fact anti-trust and fair trade components in various laws, government rules and regulations. But with the combined weights of both Asia-Paci ic Economic Cooperation (APEC) and Association of Southeast Asian Nations (ASEAN) bearing down on the countrys framework for trade, current legislation may go further, at least in terms of public attention if not in actual passage. The forum also hoped to clarify issues so as to enable the media to better explain them: to give the efforts to broaden competition some traction in the public forum. The purpose then of the policy news program is to make these developments understandable to the media, and, through the media, the ordinary man and woman. CMFRs partnership with APC draws on the research and expertise of the public policy thinktank about the subject. It was also our purpose to broaden the media discussion with the participation of the academe, government, and business communities as well as civil society organizations.

MELINDA QUINTOS DE JESUS Executive Director Center for Media Freedom and Responsibility

A Policy Briefing Paper: Competition Policy

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OVERVIEW AND BACKGROUNDCompetition: What is it all about?Rafaelita M. Aldaba Philippine Institute for Development Studies Competition policy is a fashionable topic these days, and many developing countries and economies in transition are into drafting competition laws. But what exactly is competition law and policy and why does a country need it? Is trade liberalization not enough to ensure competition? Would competition not lead to cutthroat rivalry that eventually results in the death of domestic irms and the dominance of large irms? irms in the market? The answer is that if entry is easy and costless, the potential threat from imports or domestic competitors will make the incumbent irms behave competitively. For instance, as soon as one irm or a group of irms attempts to increase prices of lower quality from the competitive levels, a new irm can come in to serve the market, thereby driving prices back to competitive levels.

Barriers to competition Before one answers these questions, however, one irst needs to understand the concept of Competition, however, can be lessened sigcompetition as explained in the sidebar. ni icantly by structural characteristics, restrictive business practices, and government It is important to recognize that high levels regulatory policies, examples of which are of market concentration as well as the shown in Box 1. These act as barriers to enpresence of monopolies (a type of industrial try. Economies of scale is an example of a structure where there is only one large structural barrier. When there are increasing irm) or oligopolies (where there are a few returns to scale, there is a minimum size that large irms) are not necessarily detrimental irms have to attain if they are to have their to competition. Large irms may achieve a average cost as low as possible. If the minidominant position in the market through mum ef icient scale is so large that only one legitimate ways like innovation, superior irm can serve the entire market, there will production or distribution methods, or be a monopoly as in the cases of public utiligreater entrepreneurial skill