AVID LEADS TALKS ON COMPETITION POLICY

Message from the President

Last year, during our first Thought Leadership Forum, we focused on perspectives of international competitiveness. Specifically, the Forum pointed out that healthy competition on a level playing field paves the way for true consumer welfare.

The challenge is how to accelerate our efforts toward further raising our capacities to become truly globally competitive. In this new era of trade liberalization and openness, the role of competition policy becomes more crucial. While opening the market can be a precondition for growth, it cannot by itself guarantee effective competition.

Adopting the theme “Advancing Competition Policy for Business Sustainability,” we bring together the best minds from Government, private business, and the academe to generate fresh ideas on how a sound competition policy and law can work to boost the global competitiveness of our economy. We tackle the following questions:

• Are we ready for a comprehensive competition law in the Philippines?
• What are the benefits of a competition law and policy to businesses and to consumers?
• Will the proposed competition legislations respond to our goal of increased international competitiveness?

Key to business sustainability is growth anchored on competition and competitiveness. Through the sharing of local and international experiences, we can build on the insights from this forum and design the best and most appropriate path towards the development of a comprehensive and coherent competition law and policy that will address industry competitiveness, market expansion goals, as well as consumer welfare issues.

The Speakers

What, How, and Why?

WHAT? A Comprehensive Competition Policy

The Philippine automotive industry is crucial to the Philippine economy, impacting on a wide range of related industries and on the mobility of people, products, and services. We are waking to the need for a coherent and comprehensive competition policy that will help establish a level playing field for all players in the automotive industry. On review by Government are proposed legislations that will elevate Philippine standards of competitiveness. “Traditional protectionist measures no longer work for the development and growth of the Philippine industry,” affirmed Dr. Rafaelita Aldaba. It is time to move towards more pro-market policies and uphold and protect the competition process. The challenge is to formulate more innovative measures to address issues of efficiency, trade liberalization, and consumer welfare, given the global environment that we operate in.

HOW? Rethink the Status Quo of Competition

Uphold innovation and consumer welfare

At the heart of the competition policy is consumer welfare. Effective competition motivates producers to offer the best quality products at the least cost. In order to remain relevant in a competitive environment, they must also bring innovation and efficiency to the forefront of their operations. This goes hand in hand with creating a market that can provide the needs of consumers. Atty. Rodolfo Salalima advocated pro-consumerism, which is “about meeting adequately and efficiently the demands of consumers in an area--to their satisfaction.” Where there is adequate competition consumers are afforded the right to make an informed choice. Cong. Tomas Apacible strongly noted, “All of us are consumers. We have to be more assertive of our rights (and) go after people who act against consumer protection.”

Include the Dynamics of Competition in Government Policy Thinking

The impact of policies on the status of competition in Philippine business has hardly been considered. Usec Maglaya observed that there is “no central administrative body or comprehensive legislation” to reinforce existing competition-related laws and policies and pursue competition policy advocacy.” Steps taken in this direction must address the lack of general understanding of competition policy, resource constraints, and the shortage of experts and skilled staff.

The consensus was that the issue of competition is long overdue. The wheels in government are turning to get the proposed Competition Law passed. Cong. Apacible reaffirmed the need for public support so that Government can effectively implement measures that will make competition a driver for growth.

Take down barriers to trade liberalization

Dr. Aldaba’s presentation on the local cement and automotive industries highlighted evidence that decades of protectionist policies have resulted in inefficiency and weak competition, to the detriment of consumers. The absence of competition due to the existing regulatory, structural, and behavior barriers prevent the economy from experiencing the full benefits of trade liberalization. The existence of a coherent and comprehensive competition policy will discipline firms against anti-competitive behavior.

WHY? In the Interest of Industry Growth and Consumer Welfare

In the past, the Philippine automotive industry was characterized by heavy government protection and regulation, import bans, and high tariffs. With government protection, the industry failed to grow and achieve economies of scale. The 90s saw the gradual reduction of government regulation and provisions towards trade liberalization. This shook the industry by paving the way for new globally competitive players to enter the market and offer consumers a wider range of models and price variants. However, trade and regulatory barriers have not been totally removed and becoming globally competitive remains a challenge.

A Backgrounder: Real experiences in the automotive, cement, and telecommunications industries

• With few substitutes and highly inelastic demand, market players in the cement industry are prone to collusion. Regulatory institutions had powers to control entry, allocate supply, and set prices and production quotas. This allowed a small number of firms to dominate the cement market. Despite the abolition of these institutions and the exposure of the industry to trade liberalization, domestic firms remain undisciplined. Consumers have suffered from the failure of cement prices to go down. The task of prosecuting the abuse of market power is difficult without an effective competition law.
• Since the 1960s, the telecommunications industry was subject to monopoly. Consumers were limited by the options offered and industry growth was stunted. The only way to improve was to allow more players to enter under a spirit of de-monopolization and de-regularization. Without a competition policy, firms have chosen to dominate the industry by buying out or merging with competitors. The industry remains highly concentrated and at risk of being dominated by major players.
  
  Having a comprehensive and coherent competition in place will result in:
  • Technical efficiency by producing more with less;
  • Allocative efficiency, where producers and investors receive correct market signals that move them to invest in sectors that yield the highest returns;
  • Dynamic efficiency where firms strive to maintain their competitiveness by investing in Research and Development (R&D), marketing, and management to keep abreast with changes in technology, preferences and products;
  • Increased consumer welfare, as consumers can avail of the widest possible choices of better quality products at lower prices;
  • Market regulation, inducing production and consumption at optimal levels and the least cost;
  • Equity, as reducing the economic power of certain sectors and providing the best products at the best prices intrinsically advance equity objectives.