By Arsenio M. Balisacan, PhD, March 20 2019; Business Mirror
Image Credit to Official Gazette
In the past several decades, serious observers of the Philippine economy have noted how state policies have acted as barriers to the country’s achievement of its desired development outcomes. Time and again, the country has shot itself in the foot just as economic growth was about to take off.
Our experience in leveling the playing field across different industries or sectors most clearly demonstrates this. Many times, misguided state interventions have wreaked havoc on the dynamic forces of competition. For instance, costly subsidies, tax breaks, and regulations impede or discourage the entry of investors. These have prevented more efficient and innovative players from coming in and dislodging the inefficient incumbents. The consequences for the consuming public are high-priced and low-quality goods and services.
The data bear this out. Comparative indices show that the Philippines has higher levels of competition and investment restrictiveness than most other countries, as shown in a recent World Bank report (2019) and an Organisation for Economic Co-operation and Development report (2017). The World Bank report also points out administrative burdens to start-ups, state ownership, and barriers to trade and investment as factors that significantly hinder competitive forces in the market.
The 2018 Global Competitiveness Report of the World Economic Forum shows that out of 140 economies, the Philippines ranks 65th in terms of not distorting competition through subsidies or tax breaks. We are ahead of Vietnam (94th), but well behind Singapore (1st), Malaysia (18th), Indonesia (34th) and Thailand (57th).
To address these issues, the Philippine Competition Commission (PCC) has been working with the National Economic and Development Authority (Neda) to formulate the National Competition Policy (NCP). The Governance Commission for GOCCs, the Department of Justice-Office for Competition, and the Department of Trade and Industry, as well as private- sector representatives, have helped to come up with a draft NCP that is hoped to truly reflect what lawmakers envisioned when they enacted the Philippine Competition Act (PCA).
Guided by the Competition Chapter of the Philippine Development Plan (PDP) 2017-2022, the NCP, proposed to be issued as an executive order, will serve as a framework that would steer state policies and administrative regulations toward the promotion of robust and fair market competition. It rests on three fundamental pillars: (1) the effective implementation of the PCA, (2) the enactment of pro-competitive government regulations and (3) the internalization of the principle of competitive neutrality.
At its core, the NCP ensures that the entire government policy architecture will enact reforms that complement the PCC’s efforts so that there is a greater likelihood of achieving the development objectives set forth in the PCA and in the PDP.
With the NCP in place, healthy market outcomes such as the promotion of market efficiency and enhancement of consumer welfare will now have to be considered in the design of public policies and interventions. This means the government can restrict competition only when it is the only available means to satisfy public policy objectives or when the benefits to consumer welfare are shown to be greater than the costs.
Competitive neutrality, the principle obliging state-owned enterprises to compete on a level playing field with firms in the private sector, is enshrined in the NCP. Toward this end, oversight agencies must examine possible conflicts of interest in an SOE’s proprietary and regulatory roles, and determine whether state subsidies or interventions affect the investment environment. Upon detection of possible competition issues, agencies must adopt measures to address these.
The covered agencies are directed to coordinate with the PCC regarding efforts to promote effective competition in their own jurisdictions and in fulfilling their own mandates. This is in line with the PCC’s holistic strategy for mainstreaming a culture of competition.
The forthcoming adoption and implementation of the NCP is a credible signal that the government is serious and committed to addressing the numerous bottlenecks that harm the country’s competitive landscape. Already a momentum for change and sustaining our economic growth trajectory has been created with the recent passage of the laws on rice tariffication and mobile-number portability—two significant and pro-competitive reforms.
Furthermore, deepening regulatory reforms is critical to sustaining the investor confidence that we have gained in the past few years. In addition to our ambitious infrastructure program, creating a level playing field can only make the country more attractive as an investment destination.
As we put in place all this transformation, our fervent hope is that the phrase “government policies with unintended consequences” will become a thing of the past. The time is ripe for an effective national competition policy.