Embed Size (px)
Citation preview
Introducing Competition Law:
Reaching out to the Filipino MSME
Community
Rachel Burgess, University of Southern Queensland
Gwen De Vera, University of the Philippines
Overview
Introduction to the Research Project (RB)
Methodology (RB)
MSMEs in the Philippines (GD)
MSMEs and the Emerging Competition Law Landscape in the Philippines (GD)
Risk Areas for MSMEs (RB)
Awareness of PCA – Survey Results (RB)
MSME Seminar and FGD (GD)
Policy Recommendations (GD)
Recommendations for Further Research (RB)
Introduction to the Research Project
“Evaluating the level of awareness of the Competition Act in the Filipino MSME community”
Research Grant awarded in 2017
Desk based research on MSMEs and competition law issues in the Philippines
Field work:
Survey
APEC-funded project: Capacity Building for Small and Medium-sized Enterprises (SMEs) on Competition Policy and Law
Ongoing involvement and support from:
University of the Philippines (UP) Institute for Small Scale Industries (ISSI)
UP Institute for Government and Law Reform (IGLR)
Industry e.g. PCCI and Phil Export
Outputs:
Survey results report
FGD and MSME Seminar – UP
Paper published in UP Law Journal
East Asia Academic Network on Competition Policy and Law (EANCP) conference held in Sydney
Final research paper
Methodology
Survey
Quantitative method - 10 question survey
Based on Schaper - used in Australia
Approximately 330 surveys collected
UP-ISSI
PCC
PhilExport
Supplemental questions – size of business, industry, gender of respondent,
role of respondent
Convenience sample only
MSMEs in the Philippines
Top 5 Industries
Based on 2016 figures, the top five (5) industries in terms of number of MSMEs
were:
Wholesale and retail trade
Accommodation and food service activities
Manufacturing
Other service activities
Financial and insurance activities
MSME Contributions
Based on 2016 figures, MSMEs –
Generated a total of 4,879,179 jobs (against 2,831,729 for large enterprises)
Accounted for 25% of the country’s total exports revenue
Contributed to exports through subcontracting arrangements with large firms,
or as suppliers to exporting companies
Definition of MSME
The Magna Carta for Small Enterprises (as amended) established the following
categories of enterprises:
MSME Asset size
Micro Not more than PhP3,000,000 (AUD75,000)
Small PhP3,000,001.00 – PhP15,000,000 (AUD75,000 - 375,000)
Medium PhP15,000,001 – PhP100,000,000 (AUD375,000 - 2.5million)
Large More than PhP100,000,000 (>AUD2.5million)
Definition of MSME (cont)
The Philippine Statistics Authority classifies MSMEs on the basis of number of
employees as follows:
MSME Number of employees
Micro 1 - 9
Small 10 - 99
Medium 100 - 199
Large More than 200
MSME Development
Promote the productivity and viability of MSMEs
Reduction of business costs by directing government agencies to practice
minimum regulation of MSMEs
Registration
Provision of financing
Other government services and assistance
The law also made it mandatory for all lending institutions to set aside a
percentage of their loan portfolio for MSMEs
Institutional Framework for MSMEs
Department of Trade and Industry (DTI)
Negosyo Centers
Small and Medium Enterprise Development Council (SMED Council) under the
Department of Trade and Industry, later renamed to the Micro Small and
Medium Enterprise Development Council (MSMED Council)
Small Business Guarantee and Finance Corporation (SBGFC), attached to the
DTI and under the administrative supervision of the SMED Council
MSMEs under the Philippine
Development Plan 2017-2022
Five strategic goals under the MSMED Plan 2017-2022
improved business climate;
improved access to finance;
enhanced management and labor capacities;
improved access to technology and innovation; and
improved access to market
MSMEs and the Emerging
Competition Landscape in the
Philippines
Philippine Competition Act 2015 (PCA)
PCA 2015 applies to MSMEs
Applies to any person or entity engaged in any trade, industry and commerce in the Republic of the Philippines (PCA, Section 3)
While no statutory exemption, offers specific safeguards against abuse of dominance for conduct involving directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers (PCA, Section 15g)
Some agreements and conduct between competitors are automatically prohibited (price fixing and bid rigging)
This means that MSMEs can fall foul of these provisions if they enter into agreements to price fix or rig bids with competitors
Other types of agreements and conduct between competitors only breach the PCA if they have the object or effect of substantially preventing, restricting or lessening competition
Where MSMEs have small market shares, agreements or conduct between them are unlikely to have the effect of ‘substantially preventing, restricting or lessening competition’
However, the agreement or conduct could still have the object of substantially preventing, restricting or lessening competition’
Philippine Competition Commission
Recognise the importance of MSMEs – key stakeholder in Communications and
Advocacy Strategy (PCC 2016 Annual Report)
Advocacy efforts not yet focused on MSMEs
Publications for SMEs: http://phcc.gov.ph/pcc-faqs-smes/
Risk areas for MSMEs
Risk areas for MSMEs
Trade or industry associations
Facilitating exchanges of commercially sensitive information
Reaching agreements on prohibited matters during association meetings
Making recommendations on pricing or output which are followed by members
Other ASEAN Member States
MSMEs have fallen foul of competition laws
Mostly because of ignorance or a lack of understanding
Often when meeting as part of a trade or industry association
Malaysia
Most of early MyCC cases involved SMEs
Cameron Highlands Floriculturist Association (CHFA) case (2012)
Agreement reached at CHFA meeting:
10% increase in price of flowers announced in the press
150 members of CHFA reported to have ’agreed’
No fine imposed (first case)
What is interesting?
Announcement made in the press
Good reasons for price increase – increases in cost of workers, fertilisers, plastics, wood
Evidence?
Minutes of meeting during which 10% price increase was agreed
List of names of CHFA members
Singapore
First seven infringement decisions involved SMEs
Collusive Tendering (Bid-Rigging) for Termite Treatment in Singapore (2008)
6 pest control companies
Approved to use ‘Agenda’ pesticide in Singapore (approved by the National Environment Agency)
Bid rotation arrangement – the bidder whose ’turn’ it was to win would put in a bid, while the other 5 would put in a ’cover’ bid above the price to be quoted by the bidder whose turn it was to ‘win’
Minimum price issue – not addressed by CCS
Fined S$263,000 (USD194,000) based on annual turnovers and level of cooperation
What is interesting?
Investigation commenced as result of complaint
Concurrent raids on premises
Information found at raid resulted in further raids at other company premises
Singapore (cont)
Evidence?
Emails found at premises
“Hi Pat/Joseph,
Could you quote for corrective treatment with Agenda for entire landscape areas … above
$120,000.
To install termite baiting station around the planters areas … above $48k.
Thank you for your support owe you guys.” (emphasis added)
Requests for information sent to project managers (who had received the bids)
Interviews of personnel involved (oral evidence)
In Singapore, bid rigging agreements are considered restrictive of competition by their very nature
This is legislative position taken in the Philippine Competition Act
Vietnam
Motor vehicle insurance case (2009)
Price fixing agreement reached through Vietnamese Insurance Association (VIA) – 19 out of 25 members reached agreement (foreign companies refused to sign because contrary to their ‘home’ competition laws)
What is interesting?
Firms didn’t realise they were doing anything wrong. Thought it was okay to use a common formula to calculate insurance fees. Even posted the ‘agreement’ on their websites.
Companies had been experiencing a price war in the form of insurance fee discounts and commission increases
Evidence?
Agreement was posted on website, publicly enforced compliance
Awareness of the PCA
APEC Study
Capacity Building for Small Medium Enterprises on Competition Policy and
Law
Completed in 2017
Outputs:
FAQs for SMEs
Policy notes – Advocacy, Competition Enforcement, Levelling the Playing Field,
Infrastructure Competition and SMEs, Lessons for SMEs, Government Restrictions
Four key policy recommendations
Priority Goal 4 – increase awareness and understanding of CPL issues
PCC Survey
Household Survey 2017
1,500 responses
53% had heard or read about the PCC
Less than 1% understood its functions
Only 5% had heard about, seen or read the PCA.
Government and Business Survey 2018
Firms (358)
21% aware of the PCC and understood its mandate to promote market competition.17%
of respondents understood its functions (based on follow-through questions).
31% of respondents said that they were aware that there was a law in the Philippines
that promotes market competition. Only 1% could name the PCA (without assistance). 8%
of respondents provided correct answers about the PCA on the follow-through questions.
PCC Survey (cont)
Government and Business Survey 2018
Government (521) - government owned or controlled corporations (GOCCs), non-
government associations (NGAs) and local government units (LGUs).
17% of respondents said that they were aware of the PCC and understood its
mandate to promote market competition. 12% of respondents understood its
functions (based on follow-through questions).
46% of respondents said that they were aware that there was a law in the
Philippines that promotes market competition but only 3% could name the PCA
(without assistance). 8% of respondents provided correct answers about the PCA on
the follow-through questions.
AIM Survey
Asian Institute of Management (AIM) Rizalino S. Navarro Policy Center for
Competitiveness
May to June 2017
Survey of SMEs in Metro Manila to determine attitude to competition
530 businesses – half small, half medium sized enterprises
Around a third of SMEs reported agreements in terms of pricing and product
variety = price fixing (per se prohibition)
ANU Research Project Survey
327 responses
10 questions
True/False
English and Tagalog
Respondents
Micro Small Medium Large Unknown
Industries
Industries
Manufacturing Retail Agriculture Pharma Other Unknown
Overall- Micro
Correct answers Incorrect answers
Overall- Small
Correct answers Incorrect answers
Overall- Medium
Correct answers Incorrect answers
Qu 3 – It is illegal to merge without
government approval
Qu 3
Correct Incorrect
Qu 7 – A monopoly is against the law
Qu 7
Correct Incorrect
Qu 8 – It is illegal to refuse to supply a
retailer
Qu 8
Correct Incorrect
Qu 10 – Competition law does not apply
to online businesses
Qu 10
Correct Incorrect
Qu 1 – It is illegal to fix prices among
themselves
Qu 1
Correct Incorrect
Qu 2 – Business cartels are against the
law
Qu 2
Correct Incorrect
MSME Seminar and FGD
MSME Seminar Held in collaboration with the University of
the Philippines Law Center – Institute of Government and Law Reform (UPLC-IGLR)
Introduce the PCA to MSMEs and other sector stakeholders
Provide basic information on the scope of the PCA and importance of (a) compliance and (b) looking at competition as policy tool for enhancing the MSME sector
The Philippine Competition Act and its Relevance to the Small Business Sector
Highlights of AIM RSN Survey
Anti-competitive, abuse of dominance, merger review regime
The role of the Philippine Competition Commission (PCC)
Recent decisions that may inform enforcement activities of the PCC
Case studies of selected ASEAN jurisdictions
Results of the APEC Capacity Building for SMEs on Competition Policy and Law
Competition v. competitiveness
Results of FGDs under the APEC Project, particularly in leveling the playing field
MSME FGD
Purpose of the FGD
FGD Questions and Guidelines
FGD Participants
Highlights of the FGD
MSME contracts and transactions
Difficulties in relation to contracts and transactions
Form of competition concern most relevant or significant for MSMEs
Business practices of MSMEs
“Cut throat competition”
The start-up ecosystem
MSME FGD Stories
“Most frustrating period is the “ber-months” and Christmas season because
prices of commodities typically go up. Suppliers (of vegetables and other
goods) claim that supply is low. But, based on experience, the suppliers hold
off on the product to create a vacuum for demand, then they release the
goods when prices have gone up. What bothers me is that this seems
widespread and fairly known in the food industry but no one has complained.
For example, a kilo of lettuce can go for as much as PhP200.00, but if not
consumed the resale can be at a much lower price leading to loss.”
“Price of sugar went up and the price difference is very little within a
particular municipality. But as soon as the MSME surveyed prices just outside
the municipality, they were much lower.”
“Large players (retailers included), can demand contractual terms perceived
to be unfair to MSMEs – amount of goods to be produced and consigned, but
90-day payment remittance period.”
Policy Recommendations
Policy Recommendations - Questions Ahead (From the PCC’s First Forum on Competition in Developing Countries – Slido Questions)
Should SMEs be awarded special treatment in ASEAN as some of the ASEAN member states seem to feel that there is a need to do so?....especially on the merger review front...
Should competition agencies be concerned with imposing regulations or play as think tanks to spot market failures?
What is/are the appropriate and effective enforcement tool/s against SMEs who have been found to infringe the competition law: fines, settlement, consent order?
For the established competition agency, how do you effectively advocate and protect/empower MSMEs? Also, how do you promote/keep fair competition among MSMEs and between MSMEs and large businesses/conglomerates?
SMEs may hold significant market power in narrow relevant markets and possess an incentive for anticompetitive behavior. What is the suitable approach in disciplining anticompetitive behavior by SMEs without constraining their ability to compete?
Should a dedicated policy unit be created to take charge of the competition issues faced by SMEs?
How should competition authorities enforce the law with small businesses that commit anti-competitive practices without alienating small businesses as a group? With lower fees and penalties? Should they merely order them to desist?
Policy Recommendations
Need to formulate awareness and advocacy programs for MSMEs
Review of existing laws and regulations affecting MSMEs (and competition) for consistency and alignment (more effectively deploy competition law as tool for intervention)
Determination by the competition authority of enforcement policy in relation to MSMEs; improve coordination among relevant government agencies
Development of knowledge products providing guidelines on the interpretation and enforcement of the PCA (and other competition related laws)
Competition policy landscape
Regulatory landscape
Nature of competition law as multi-dimensional and highly technical, with malleable legal standards
Further Research
More education is needed for MSMEs in this area:
MSME-focussed seminars - who to target, how to focus them?
Online training for SMEs
Educating trade associations on competition law
Competition law short course for UP-ISSI to use
Designing a compliance programme for MSMEs
Creating materials for dissemination:
Case studies
