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Republic of the Philippines

Philippine Competition Commission

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Philippine Competition Commissionon

Challenges and Reflections in Merger Control

ChairmanArsenio M. Balisacan, PhD

Intergovernmental Group of Experts

on Competition Law and Policy2017 UNCTAD Roundtable

Geneva, Switzerland │6July 2017

Good afternoon, everyone.

Before I share the Philippines’ challenges and reflections on merger control, allow me to give a brief background about the Philippine economic context and merger control regime. In the recent years, the Philippine economy has done remarkably well, registering a 6.3 percent GDP growth average in seven years, the highest recorded moving-average for the last 40 years. This has also placed the economy among the fastest-growing emerging economies in the world.However, the Philippines’ continuing, albeit huge, challenge is sustaining the growth momentum in the medium to long term and making the country’s economic growth more inclusive so that poverty reduction will be faster and rising prosperity will be felt deeper across the social spectrum.

Recent years have seen the implementation of various policy and institutional reforms. These reforms have helped create a business climate leading to the economic momentum witnessed today. The first competition bill in the country was filed in the Philippine Congress in the early 1990s. The Philippine Competition Act was signed into law in July 2015 and became effective in August 2015. Between February and March 2016, the members of the Philippine Competition Commission (PCC) assumed office after having been appointed by the Philippine President. To address the uncertainty felt by the investors during this time, the PCC issued transitory rules on mergers and acquisitions. In June 2016, the PCA’s Implementing Rules and Regulations (IRR) became effective.

Under the IRR, the threshold for notification is Php1B or roughly USD20M.

Challenges

We have classified our challenges into three major categories: legal environment, business environment, and capacity constraints.

Legal Environment.

After the enactment of the law, the first challenge was how to implement it in a legal environment that had scant foundations on competition law. There were no existing rules or jurisprudence to draw from or which could provide guidance on how the specific provisions of the PCA will be implemented. It thus became incumbent upon the PCC to formulate implementing rules and regulations within a short period of time to provide clearer guidance on how the law is to be implemented. In drafting the implementing rules, the PCC also tackled challenges in adopting best practices from mature jurisdictions that are suitable to and consistent with the Philippine legal system.

The Commission encountered resistance from notifying parties in providing information for purposes of merger review. Despite assurances given by the PCC of protection of confidential information, notifiers as well as third party informants/resource persons declined to divulge further information due to the lack of specific implementing rules on data protection and security.

Barely four months from the start of its operations, PCCwas challenged before the courts by two industry leaders in the Philippines. The companies filed separate cases against the PCC seeking to prevent it from conducting any further review of a multi-billion acquisition. Due to unfamiliarity with competition law and the implications of PCC’s mandate, the court ended up issuing an injunction order against the PCC, restraining it from proceeding with its mandatory assessment of said acquisition. The PCChas asked the Supreme Court to set aside the injunction.

Competition Environment

Stakeholders’ Perception

Stakeholders expressed concern that the merger review process is but another dilatory bureaucratic step that impedes efficient conduct of business. In particular, business raised questions on the propriety of the One Billion Peso threshold which they found too low given the value of current transactions.

Recognizing that the foregoing concerns arose due in part to the lack of understanding of the objectives of merger notification and review, the PCC staff focused on improving its interfaces with the parties, the market players and the legal professionals. The PCC encouraged notification parties to attend a pre-notification consultation with our Mergers and Acquisitions Office in order to help them with their filings at the Commission.

We also conducted a review of businesses in the Philippines and found the Notification Threshold to be reasonable relative to other jurisdictions and economies, such as South Africa, Canada, and the United States. At the end of the day, the One Billion threshold will only affect less than one percent of the businesses in the country.

Underdeveloped cooperation and coordination with other sector regulators, government agencies, and market players

There remaingovernment and market players that do not yet fully understand what the PCC’s role is. This becomes a challenge when PCC needs to engage with them during merger reviews. Some government agencies are hesitant to provide data/information requested by the PCC for review, or issue rules and regulations that do not consider the potential effects on market competition. The PCC has also been publicly accused of usurping the jurisdiction of other sector regulators.

To address this, the PCC has initiated efforts to enter into Memoranda of Agreement with other regulators on information sharing, cooperation, and coordination obligations. These agreements are aimed at facilitating cooperation of other government agencies in implementing the policy objectives of the PCA.

PCC was also able to mainstream competition policy in the national government’s development agenda through the inclusion of a chapter on competition in the government’s medium-term development blueprint, the Philippine Development Plan (PDP) for 2017-2022. Chapter 16 of the PDP elaborates on, among others, the promotion of market competition to achieve consumer welfare and market efficiencies.

Capacity Constraints

Internal

Implementing antitrust polices in the Philippines is constrained by lack of technical and administrative capacities. No one in the PCC had prior experience in competition law. PCC’s lawyers have had to surmount a steep learning curve, especially on merger control. The challenge was reviewing the mergers and acquisitions given limited manpower, the novelty of PCA, and limited information on the concerned industries. In this regard, the assistance provided by PCC’s development partners in capacity building was a huge help to the Commission in undertaking comprehensive and credible reviews of all notified mergers and acquisitions. The PCC faces zero backlog of merger cases to review. The PCC has also issued substantive guidelines on merger assessment.

External

Since competition law is new in the Philippines, there is little familiarity and understanding of this field. There are also no local experts. Thus, in addition to organizational capacity building, there is a strong and urgent need to build capacity in our stakeholders – business sector, judiciary, legal practitioners, and academe. To this end, the PCC has initiated discussions with several local and international universities for the development of a program in Law and Economics.

Reflections

In a little more than one year of existence, the PCC has learned several lessons and gleaned insights on how to provide businesses with more efficient service when it comes to merger control.

Legal Environment

Every new competition agency with no previous competition regime will face as its first challenge, the details of implementation. The pressures that will come from stakeholders will range from delaying implementation, to promulgating rules immediately, to cherry-picking favorable best practices from foreign jurisdictions. A new agency must be steadfast in pursuing its objectives and not allow itself to be intimidated by such pressures. With respect to the adoption of implementing rules, the agency must be able to discern the nuances of competition regimes and tailor-fit them to the unique needs of its jurisdiction. This strategy will be instrumental in facilitating the process of reshaping the legal environment to accommodate competition law.

It is therefore imperative for a new agency to establish a rational, consistent, credible and dependable system. In the context of merger control, this includes having clear policies on the merger review procedures, rules on confidentiality, data protection and security.

Competition Environment

In a business environment where competition is almost non-existent, advocacy efforts play a significant role. A new agency must aim to popularize the concept and benefits of competition in both business and consumer circles. The buy-in of stakeholders is necessary to gain their cooperation in the merger review process.

Regular engagement with stakeholders especially in the early years of the agency will help hasten this. In the context of merger control, it is useful to conduct both case-specific and general consultations on ways to improve the merger review process.

Capacity Constraints

A new agency must continuously build the capacity of its staff and keep them up to date on trends to ensure that the conduct of the merger reviews is of the highest standard. Considering the huge impact of mergers to domestic and international trade in the Philippine economy, it is important for PCC’s work in merger control to be relevant and effective.

Finally, we believe that capacity building is also essential in ensuring that agency officials and staff maintain a high sense of integrity and professionalism.

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