Anti-trust law needed to curb emerging monopolies — paper

Congress was urged yesterday to enact new legislation that will police monopolistic practices that stifle free competition and hurt consumers in the face of the wave of mergers and consolidations now sweeping the country and across the globe.

Forensic Law and Policy Strategies Inc. (Forensic Solutions), which is headed by former Justice Secretary Alberto Agra, said in its latest policy paper that an anti-trust law is necessary to ensure unfettered competition in Philippine industries and position Filipino consumers as the supreme arbiter in a free market that yields the highest quality of good and services at the lowest prices possible.

In its 10th policy paper, Forensic Solutions cited the urgency for new anti-trust legislation at a time when the current trend is toward the privatization and deregulation of vital industries, with governments getting off the back of business and ceding state control over economic activities.

“Mergers and acquisitions, which are tools for expansion and restructuring, have resulted in even greater market power being concentrated in fewer corporations,” said Forensic Solutions in the policy paper titled “Competition Laws in the Face of the Merger Wave.” “This environment is fertile ground for restrictive business practices that prevent true and fair competition.”

“The absence of legislation particularly addressing the effects of mergers and consolidations on market competition leaves the Philippines ill-equipped to police abuses and anti-competitive practices,” the paper said.

It noted that subsidiaries of multinationals that may behave competitively in industrialized countries where strong anti-trust regulations are in place might be more inclined to indulge in anti-competitive practices in developing countries where there are few such regulations.

In the Philippine setting, such corporate consolidations include the 2006 takeover by Banco de Oro of Equitable PCI Bank, which is the largest bank merger in local history; the preceding takeover by Equitable Bank of the larger PCI Bank in 1999; the takeover by the Bank of the Philippine Islands of the Far East Bank and Trust Co. and DBS Bank Philippines in 2000.

Another big merger was that of Philip Morris International and Fortune Tobacco Co. and the absorption by Aboitiz Transport Systems Corp. of its subsidiary —the logistics firm Zoom in Packages.

Following the global merger of Merck & Co. Inc. and Schering-Plough Corp., their local counterparts MSD and Schering Plough (Philippines) also began the process of integrating their respective businesses in the country, Agra and Rañola said.

Other notable domestic mergers were those of Aboitiz, William Lines, and Gothong Lines, all shipping companies, into WG&A Super Ferry; the acquisition by PLST of the local Internet service provider Sequel Net; and the Lopez conglomerate consisting of ABS-CBN, Bayantel, Meralco, Sky Cable and Sun Cable, Manila Water Co. and the newspaper Manila Chronicle.

The policy paper noted that mergers and corporate consolidations in rich countries have a significant effect on developing economies like the Philippines, where the local subsidiaries of foreign corporate giants could engage in similar moves, leaving local consumers unprotected from such anti-competition practices.

It noted for instance the possible cartelization of the pharmaceuticals sector on account of the mergers of US drugs manufacturers.

A 1999 study by Ajit Singh and Rahul Dhumale of the University of Cambridge highlighted, they said, the importance of a competition policy in developing countries in the face of the global merger wave.

This University of Cambridge study shows that the large incidence of cross-border takeovers and mergers has a “competition-reducing effect,” which developing countries will find difficult to stop, said Agra and Rañola.

They noted that in response to these developments in the corporate world, two bills have been filed by Senate President Juan Ponce Enrile and Sen. Miriam Defensor Santiago that aim to penalize questionable mergers.

Enrile’s Senate Bill 123 penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free market competition.

The Enrile bill also prohibits stock or asset acquisitions, grant of proxies or voting rights, and board membership in two or more corporations that have the effect of substantially reducing competition or tending to create a monopoly.

On the other hand, Santiago’s Senate Bill 1835 amends certain provisions of the Revised Penal Code against monopolies by prescribing criminal penalties and fines on corporation of persons taking part in any monopoly or combinations of practices in restraint of trade.

Agra and Rañola noted, however, that Congress needs to address other equally important concerns regarding mergers and consolidations.

They recommended, for one, a law calling for the review of proposed mergers and consolidations before they are approved to check against abuses.

“A threshold should be set to determine when and under what conditions an enterprise is said to be enjoying a ‘dominant market position,’” they noted. “Arrangements that do not comply with fair competition guidelines and those that significantly limit competition should not be allowed.”

They said the SEC should be allowed to take remedial action, and impose penalties and sanctions against existing merged corporations that are engaging in anti-competitive practices.

Agra and Rañola also proposed the simplification of the current legal mechanisms available to interested parties for them to obtain relief or file injunctions against questionable mergers without going through a protracted litigation process.

In its paper on corporate mergers and consolidations, Forensic Solutions noted that anti-trust legislation is not new in the Philippine legal landscape as the Constitution and local jurisprudence already address such concerns.

It noted that the Supreme Court has already issued several rulings on mergers, including the landmark Gokongwei vs SEC case, in which the high tribunal stated that the inclusion of John Gokongwei, who owns a substantial stake in the food company CFC-Robina, in the board of its rival San Miguel Corp., could lead to an anti-competitive situation.

The Revised Penal Code, Civil Code, Corporation Code, Anti-Monopoly Law (Republic Act 3247), Revised Securities Act, Intellectual Property Code, Price Act, Consumer Act, Downstream Oil Deregulation Act, Anti-Dumping Act, and Electric Power Industry Reform Act also contain various provisions against restraint of trade, cartels and other anti-competition practices. –Daily Tribune