Preferential Trade Agreements: Session 9, Competition and Other Restrictive Business Practices

Richard A. Posner, Chapters 1 and 2, ANTITRUST LAW 2001

OECD, “The Relationship Between Regional Trade Agreements and the Multilateral Trading System: Competition”, TD/TC/WP(2002)19/FINAL (May 2002)

Jane Rennie, “Competition Regulation In Safta, Ausfta And Tafta: A Spaghetti Bowl Of Competition Provisions,” Int. T.L.R. 2007, 13(2), 30-38

JPEPA, Chapter 12 and 13

US Singapore Free Trade Agreement, Chapter 12 and 15

Comments

[Gerard Joseph M. Jumamil]

“Like many businessmen of genius, he learned that free competition was wasteful, monopoly efficient. And so he simply set about achieving that efficient monopoly.” – Mario Puzo, Italian-American Novelist

The conventional layman conception of monopoly revolves around the inhibiting price of a product made available to consumers by a monopolist. As Richard A. Posner has stated in his discussion of antitrust law, such perception illustrates “the often sharp divergence between lay economic intuition and economic analysis.”

The development of economic theory with respect to monopoly has lead to the deconstruction of the classical notion of monopoly as a restrictive business practice. It has been proposed, with substantial economic justification, that a monopoly established and sustained for reasons related to efficiency is not necessarily anti-competitive. In fact, one can argue that a monopoly pursued for efficiency gains is a product of free competition, wherein market forces have allowed a player to achieve price dominance through means that seek to attain a superior degree of efficiency.

This development, however, seems to beg the question – How is one to determine that a monopoly is created and maintained for efficiency?

In this light, it has become imperative for a government to establish a structural mechanism within the sphere of domestic law that allows for proper verification of the existence and purpose of monopolies. Moreover, the formation of a structural mechanism seeks to effectively address the restrictive consequences of a monopoly in the event that it is established and sustained for reasons not related to efficiency.

The growth of international trade under the regime of globalization has reshaped the contours of this structural mechanism. With the recognition that anti-competitive practices in one state may adversely affect markets in other states, policies concerning competition have developed to accommodate multilateral and bilateral understandings to adequately address the potentially detrimental effects of these practices.

In the context of the GATT/WTO, several policy initiatives found expression in various legal documents that have been multilaterally agreed upon: (1) Article XVII of GATT 1994 (State Trading Enterprises), (2) GATS Article VIII (Monopolies and Exclusive Service Suppliers), (3) Article 40.2 of the TRIPS Agreement (Control of Anti-Competitive Practices in Contractual Licenses), (4) Article 9 of the TRIMS Agreement (Review by the Council for Trade in Goods), (5) the Agreement on Technical Barriers to Trade, and (6) the Agreement on the Application of Sanitary and Phytosanitary Measures.

Moreover, it is important to note that various regional and preferential trade agreements have been concluded between states, wherein provisions regarding restrictive business practices and other competition-related stipulations are incorporated. This is of considerable importance as restrictive business practices that have international trade dimensions may be effectively addressed if viewed from specific geographical and economic relations contexts. As stated by Jane Rennie in her discussion on competition regulation, “[a]t a macro level, framework laws such as these allow the FTAs to remain responsive to individual diversity. At a micro level, they mask variations of competition law which might otherwise prevent agreement being reached. This enables the parties to accommodate legal and institutional differences in competition prerogatives.”

The role of preferential trade agreements in relation to competition policies and laws will continue to grow and develop as these agreements take on a more meaningful function in the process of context-based development. The recognition of these preferential trade agreements as fundamental stepping-stones for the attainment of a truly globalized economy will only be strengthened if these agreements remain true to its goal of facilitating and enhancing international trade amidst the different economic and trade issues that persist and emerge.

[Anthony Raphael V. Jacoba]

At the end of the 20th Century Microsoft Corporation had a major battle with the Federal Government of the United States. The biggest complaint against Microsoft was not because it was making its consumers unhappy. In fact, it was quite the opposite. The consumers were so drawn to the computer giant, that it was able to establish itself in the US market as a virtual monopoly.

Through the giant Microsoft Operating System, also known as Windows, Microsoft was able to capture an even bigger market share by bundling its other software products with it (Windows Media Player, Internet Explorer). This bundling led to the detriment of other software producers like Netscape, Opera, and the like (at least in the case of internet browsers). These software producers cried foul, thus, a case for violation of the Sherman Antitrust Act (26 Stat. 209, 15 U.S.C. Sec. 1-7 [1980]) was filed against Microsoft Corporation. The Sherman Act provides, among others, that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

The initial salvo seemed to be successful on the part of the Federal Government when the judge ruled that Microsoft will be split into two, one in charge of Windows and the other for its software components. It seems then that, for the time being at least, a veritable giant was slain, and the medium used was the “Shermanator” (a combination of the Sherman Act and the Terminator, used with efficacy by a character in the American Pie movie series although in a different context).
The fairy tale ending was short-lived, however. Subsequent developments in the case reduced the punishment to a slap in the wrist. Ultimately, Microsoft settled by agreeing to open its Code (the program used in developing the Windows software) to make it easier for other software developers to integrate their programming with Windows. Thus, removing, theoretically, the advantage of Microsoft software vis-à-vis its counterparts from other corporations.

This type of legal battle is unfamiliar in the Philippines. If the country has a Sherman Antitrust Act, or something equivalent, it would have been the first weapon used by the Arroyo government in its fight against the MERALCO monopoly of Luzon power. Alas, the country does not have an equivalent law. MERALCO, therefore, was able to take advantage of this by executing bilateral agreements with its sister companies to purchase power from the former outside of the Wholesale Electricity Spot Market (WESM) regime. As such, MERALCO was able to take advantage of this whole in the EPIRA law to the detriment of other power producers and, ultimately, the public. Hence, the legal regime in the Philippines was unable to address contracts that restrained trade or commerce in the country. Fortunately, the government is not without its remedies. Through the use of its GOCC’s the government was able to bring down the Lopez monopoly in the MERALCO power cartel, which led to the sale of the latter of most of its stockholdings in the disputed corporation. That, however, is another story altogether.

This snapshot of US and Philippine experience, or lack thereof in the latter’s case, on antitrust cases is now put on the foreground of Regional Trade Agreements (or its variants) entered into by the Philippines. Jane Rennie’s attempt to counter the Spaghetti Bowl theory of Jagdish Bagwathi in the context of Competition provisions in RTAs will be useful in predicting the future developments of antitrust laws in the country. Rennie boldly asserted that “…the fact remains that FTA competition provisions are more like the "building blocks" than the "stumbling blocks" of Bhagwati's conception.” This position is buttressed by Rennie’s analysis of the different categories of competition obligations identified in the FTA’s included in her paper.

The first two categories, that of establishing “general obligations” and provisions that are “nominally FTA-specific,” according to Rennie contribute to competition culture and is not discriminatory. Only the third category, which is “country-pair specific,” was posited to be discriminatory. An example of this type of obligation is a commitment to eliminate anti-dumping measures. Rennie asserted that “(t)he overall distortionary impact of this category is limited by its narrow ambit and the enduring popularity of trade remedies.” Further, since there are only three FTAs worldwide that fall within this category, then, in the overall scheme of things FTA competition provisions enhance global trade as opposed to undermining it.

In the JPEPA, an economic agreement entered into by the Philippines with Japan; there exist provisions on competition that falls within the first category, that of general obligations. Article 135, paragraph 1, under Chapter 12, of the JPEPA contains a commitment on the parties to “take measures which it considers appropriate to promote competition by addressing anticompetitive activities, in order to facilitate trade and investment flows between the Parties and the efficient functioning of its market. Any such measures shall be taken in conformity with the principles of transparency, non-discrimination and procedural fairness.” Furthermore, paragraph 2 of the same article provides that “(e)ach party shall, when necessary, review and improve or adopt laws and regulations to effectively promote competition by addressing anti-competitive activities.” These types of provisions, according to Rennie, are “tantamount to unilateral commitments,” such that it is hard to partition the compliance thereof between the members of the agreement and the non-members.
There is another benefit that can be derived from executing agreements with these types of clauses. On the part of the Philippine government, there exists an excuse to legislate laws addressing these types of concerns. In the Philippine context, where anti-competition laws are lost and forgotten, this benefit is magnified tenfold. Countries like the Philippines, which are deprived of strong consumer lobbyists, would no longer be hostage to its producers if the provisions in the agreement are complied with in good faith. The development of anti-competition laws will further be facilitated if the agreement contains provisions on cooperation “in the field of promoting competition by addressing anti-competitive activities, subject to their respective available resources,” which is fortunately present in Article 136 paragraph 1 of the JPEPA.

In sum, therefore, Hufbauer and Kotschwar’s thesis that trade liberalization provide for the gain catch-up benefits holds truer in the case of competition provisions contained in RTAs (which is the current popular iteration of trade liberalization). Not only would developing countries “catch-up” with production schemes that were tried and tested for different goods and services, the same is also true for statutes that developed quite rapidly in first world countries but was otherwise forgotten in developing countries. Assuming, arguendo, that antitrust laws are indeed good for the consumers and for the market in general, then entering into RTA’s that encourage the development of antitrust or anti-competition laws is a win-win situation to the point that competition provisions should be first in the agenda of future RTAs that the county will enter into with other states. Perhaps, only then, can the problem of MERALCO’s monopoly be truly addressed.

[Anthony Raphael V. Jacoba]

At the end of the 20th Century Microsoft Corporation had a major battle with the Federal Government of the United States. The biggest complaint against Microsoft was not because it was making its consumers unhappy. In fact, it was quite the opposite. The consumers were so drawn to the computer giant, that it was able to establish itself in the US market as a virtual monopoly.

Through the giant Microsoft Operating System, also known as Windows, Microsoft was able to capture an even bigger market share by bundling its other software products with it (Windows Media Player, Internet Explorer). This bundling led to the detriment of other software producers like Netscape, Opera, and the like (at least in the case of internet browsers). These software producers cried foul, thus, a case for violation of the Sherman Antitrust Act (26 Stat. 209, 15 U.S.C. Sec. 1-7 [1980]) was filed against Microsoft Corporation. The Sherman Act provides, among others, that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

The initial salvo seemed to be successful on the part of the Federal Government when the judge ruled that Microsoft will be split into two, one in charge of Windows and the other for its software components. It seems then that, for the time being at least, a veritable giant was slain, and the medium used was the “Shermanator” (a combination of the Sherman Act and the Terminator, used with efficacy by a character in the American Pie movie series although in a different context).
The fairy tale ending was short-lived, however. Subsequent developments in the case reduced the punishment to a slap in the wrist. Ultimately, Microsoft settled by agreeing to open its Code (the program used in developing the Windows software) to make it easier for other software developers to integrate their programming with Windows. Thus, removing, theoretically, the advantage of Microsoft software vis-à-vis its counterparts from other corporations.

This type of legal battle is unfamiliar in the Philippines. If the country has a Sherman Antitrust Act, or something equivalent, it would have been the first weapon used by the Arroyo government in its fight against the MERALCO monopoly of Luzon power. Alas, the country does not have an equivalent law. MERALCO, therefore, was able to take advantage of this by executing bilateral agreements with its sister companies to purchase power from the former outside of the Wholesale Electricity Spot Market (WESM) regime. As such, MERALCO was able to take advantage of this whole in the EPIRA law to the detriment of other power producers and, ultimately, the public. Hence, the legal regime in the Philippines was unable to address contracts that restrained trade or commerce in the country. Fortunately, the government is not without its remedies. Through the use of its GOCC’s the government was able to bring down the Lopez monopoly in the MERALCO power cartel, which led to the sale of the latter of most of its stockholdings in the disputed corporation. That, however, is another story altogether.

This snapshot of US and Philippine experience, or lack thereof in the latter’s case, on antitrust cases is now put on the foreground of Regional Trade Agreements (or its variants) entered into by the Philippines. Jane Rennie’s attempt to counter the Spaghetti Bowl theory of Jagdish Bagwathi in the context of Competition provisions in RTAs will be useful in predicting the future developments of antitrust laws in the country. Rennie boldly asserted that “…the fact remains that FTA competition provisions are more like the "building blocks" than the "stumbling blocks" of Bhagwati's conception.” This position is buttressed by Rennie’s analysis of the different categories of competition obligations identified in the FTA’s included in her paper.

The first two categories, that of establishing “general obligations” and provisions that are “nominally FTA-specific,” according to Rennie contribute to competition culture and is not discriminatory. Only the third category, which is “country-pair specific,” was posited to be discriminatory. An example of this type of obligation is a commitment to eliminate anti-dumping measures. Rennie asserted that “(t)he overall distortionary impact of this category is limited by its narrow ambit and the enduring popularity of trade remedies.” Further, since there are only three FTAs worldwide that fall within this category, then, in the overall scheme of things FTA competition provisions enhance global trade as opposed to undermining it.

In the JPEPA, an economic agreement entered into by the Philippines with Japan; there exist provisions on competition that falls within the first category, that of general obligations. Article 135, paragraph 1, under Chapter 12, of the JPEPA contains a commitment on the parties to “take measures which it considers appropriate to promote competition by addressing anticompetitive activities, in order to facilitate trade and investment flows between the Parties and the efficient functioning of its market. Any such measures shall be taken in conformity with the principles of transparency, non-discrimination and procedural fairness.” Furthermore, paragraph 2 of the same article provides that “(e)ach party shall, when necessary, review and improve or adopt laws and regulations to effectively promote competition by addressing anti-competitive activities.” These types of provisions, according to Rennie, are “tantamount to unilateral commitments,” such that it is hard to partition the compliance thereof between the members of the agreement and the non-members.

There is another benefit that can be derived from executing agreements with these types of clauses. On the part of the Philippine government, there exists an excuse to legislate laws addressing these types of concerns. In the Philippine context, where anti-competition laws are lost and forgotten, this benefit is magnified tenfold. Countries like the Philippines, which are deprived of strong consumer lobbyists, would no longer be hostage to its producers if the provisions in the agreement are complied with in good faith. The development of anti-competition laws will further be facilitated if the agreement contains provisions on cooperation “in the field of promoting competition by addressing anti-competitive activities, subject to their respective available resources,” which is fortunately present in Article 136 paragraph 1 of the JPEPA.

In sum, therefore, Hufbauer and Kotschwar’s thesis that trade liberalization provide for the gain catch-up benefits holds truer in the case of competition provisions contained in RTAs (which is the current popular iteration of trade liberalization). Not only would developing countries “catch-up” with production schemes that were tried and tested for different goods and services, the same is also true for statutes that developed quite rapidly in first world countries but was otherwise forgotten in developing countries. Assuming, arguendo, that antitrust laws are indeed good for the consumers and for the market in general, then entering into RTA’s that encourage the development of antitrust or anti-competition laws is a win-win situation to the point that competition provisions should be first in the agenda of future RTAs that the county will enter into with other states. Perhaps, only then, can the problem of MERALCO’s monopoly be truly addressed.

[Patricia Miranda]

Of course there is a problem – a problem of trust. Especially when trusts, or those great industrial combinations with the purpose of reducing competition and controlling prices, imaginatively engage in anti-competitive behavior that negatively affect international trade, consequently offsetting whatever benefits that may arise out of trade liberalization. In the long run, there are no winners in a marketplace attended by anti-competitive conduct that, in simple terms, amount to methods far better suited within a Roman amphitheater. The resulting lack of efficiency may be ordinarily manifested by the following signs: (a) rising product costs; (b) defective or poor-quality goods flooding the market; and (c) the stagnation of research and development. Hence, according to Judge Posner, antitrust policies that try to maintain a free market, where an ideal allocation of economic resources is achieved through competition between and among enterprises, are ultimately made with goal of optimal efficiency in mind.

According to Matsushita et al., competition policy and the WTO share the same objective, that is, an economic system based on market economy (even if there is no explicit GATT or WTO agreements on the issue of competition policy). As gleaned from the readings, implementing economically sound competition policies that help disperse existing illegal trusts should not be understood as an undue interference in business practices or natural law, which is what I had initially thought. Likewise, competition should not be viewed as a mere artificial creation either, but rather, it is the removal of those obstacles that impede a healthy market environment. Competition can then become a “stimulant”, to borrow the evocative language of business writer and educator Rosabeth Kanter, for a more effective and progressive body industrial.

Addressing possible problem spots within the international market is always a challenge, the author Rennie in her article on competition regulation, posits that an all-encompassing agreement has yet to be made regarding the most desirable way to minimize the competition-related stumbling blocks to free trade. Despite this, there remains a good number of proposals from various sectors representing a “continuum of interventions by governments.” Rennie describes this continuum in what could be best illustrated by a seamless scale – on one end, there are “framework laws” which are flexible commitments to enact or enforce competition laws through cooperation; while strong advocacies for very detailed and specific rules are on the opposite end. The middle portion encompasses the realm of more moderate proposals for harmonization, which could contain a combination of general and specific obligations.

Using Rennie’s framework in understanding the various options available, I find that the manner by which governments have addressed the problem of monopolistic or abusive conduct can be better threshed out. The Japan-Philippine Economic Partnership Agreement (JPEPA) and the US-Singapore Free Trade Agreement are of particular relevance and interest – the documents integrate competition-related chapters within their texts, beginning with general statements regarding the desirability of cooperation and economically sound competition policies; and, conversely, the repugnance for unfair competition that tends to restrict trade. As these are indicative of declarations of intent, the OECD paper points out that the general tenor of different FTAs suggests that there is a broad consensus on the importance of having competition-related provisions in preferential trade agreements.

Nevertheless, while collective sentiments regarding the prevention of anti-competitive practices may be similar, no singular approach used. Take, for example, some parts of the following Agreements: between the JPEPA and the US-Singapore FTA, the latter is markedly more complex as it goes beyond mere declarations of principle and, in a footnote to Article 12.2, commits Singapore to enact a new law that will proscribe anti-competitive business conduct and establish an authority to enforce such laws. Further research revealed that Singapore did enact a Competition Act in 2004 while a subsequent Competition Commission, or the statutory body that administers and enforces the competition laws, was created and launched in August 2005. (See http://www.singaporelaw.sg/content/FreeTrade.html) Furthermore, the US-Singapore FTA contains specific provisions to ensure regulatory transparency through information requests (Art. 12.5) which is an essential concern especially in the case of service industries, such as those of the US and Singapore, to better navigate through the confusing maze of government regulation. Lastly, while both Agreements rely heavily on the notion of cooperation to lessen competition-related barriers to trade, it is observed that the phraseology of JPEPA remains vague – no mutually agreed competition rules are specified beyond the reference to appropriate “measures.”

Applying Rennie’s continuum framework, it is submitted that the more detailed framework provided by the US-Singapore FTA hovers somewhere near the middle ground – the text is a mix of general statements and the specific obligations required. Conversely, JPEPA veers towards that end which encompasses exhortations on the need for trade facilitation and efficiency, as the Agreement leaves the Parties to enact measures needed to combat anti-competitive activities in a manner they see fit. Despite the noted ambiguity, this may prove strategic since it allows the Parties greater opportunities to apply discernment and skill – that is, taking unique national experiences into consideration – in areas of decision-making. Hence, positioning Agreements on Rennie’s continuum serves as an indicator on which paths governments are taking in relation to competition policy, which further drives home Rennie's observation that FTAs are not homogenous in nature.

In sum, JPEPA and the US-Singapore FTA are just two examples of the preferential trade deals that continue to proliferate regionally and cross-regionally – quietly filling in the gaps of those issues that cannot, as yet, be fully addressed by the GATT-WTO regime. Competition policies are essentially policies of development as they deal with issues of growth, prosperity and advancement through technological and structural change. In this vein, I submit that PTAs (or at least those that I have already come across) are intrinsically based on a very reasonable premise: that the provisions on competition are not implying that governments should coerce business entities to compete in a simulated market environment, but merely that no merchant is allowed to “kill the competition.”

[Lorybeth R. Baldrias-Serrano]

TRUSTING ANTI-TRUST LAWS: Towards Comprehensive and Globally-Harmonized Competition Regulations

Competition regulation, as Jane Rennie in her article on competition regulation puts it, is one area over which governments are eager to extend coverage. She has pointed out that beyond a spaghetti bowl of different provisions on competition in various PTAs, there are still differences in implementation of said provisions. Such differences are attributable to discrepancies in regulatory styles – variations, which are understandable, taking into account the different economic and market conditions in each state. Yet, currently, harmonization of competition laws worldwide is being undertaken. While this is generally a good thing, is such harmonization of competition laws a realistic objective, for the Philippines especially? Is liberalization and/or harmonization of competition laws even the answer to truly preventing private participants from raising barriers to entry in a local market?

Competition laws, as known in Europe and other countries with similar legal systems, or anti-trust laws, as known in the US, are those that regulate trade and prevent the formation of monopolies. They have, as objectives identified in Posner’s chapter on the Costs and Benefits of Monopoly, the prevention of manipulation of supply by entities through controlling the price of its goods and services or by merging with or acquiring competitors in their respective industries. Thus, protecting the interests of consumers (consumer welfare) and ensuring that entrepreneurs have an opportunity to compete in the market economy are important goals, regardless of variations in substance and practice of competition law from one jurisdiction to another.

From the very nature of competition laws, economic considerations and information, most or combinations of which are peculiar to a jurisdiction alone need to be taken into consideration. Based on this, I believe, it is only possible to harmonize competition laws of various jurisdictions to a certain extent. Assuming arguendo that competition laws of various states and provisions on competition regulations in PTAs can indeed be harmonized, the implementation would always have to differ. Thus, aside from the common objectives of competition regulations, a “global roll-out” of competition regulations cannot exist in the true sense of the term. I believe this is something that even the WTO has recognized when it did not include competition policy (interplay of domestic and international competition policy instruments with international trade) as part of the Doha Ministerial Declaration work agenda. Even they must have recognized that apart from a global competition policy, it would be difficult indeed to have harmonized competition policy instruments. Till a single global economy comes into fore, harmonized competition policy instruments would hardly be feasible. Considering the present state of markets worldwide, we would just have to contend with the spaghetti bowl of competition provisions in various PTAs and municipal pieces of legislation.

Despite the difficulty of a truly harmonized global competition law regime, our country still has to catch up, by at least adhering to similar competition policies as embodied in our domestic legislation. Yet again, sadly, the Philippines is left behind for in this country, there is almost nothing to harmonize with the rest of the world as regards competition regulations. The country has yet to enact a general competition law based on a continued accumulation of relevant and accurate economic and business data as well as thorough the formulation of competition policy based on studies of the economy and its various sectors, sub-sectors and industries. Currently, we have bits and pieces of competition regulation in Articles 186 of the RPC (which deals with monopolies and combinations in restraint of trade), and Republic Act No. 8479 (otherwise known as the Downstream Oil Industry Deregulation Act of 1998, which deals with deregulation, price control and competition in the downstream oil industry) enacted after its predecessor RA 8180 was struck down by the courts in various cases for being unconstitutional. In spite of the existence of these pieces of legislation, Philippine competition regulations are utterly insufficient to meet the ends of competition policy. Indeed, the enactment of laws to implement such policies, and the judicial determination of the constitutional validity of those policies and laws cannot be overemphasized.

In this light, I think entering into a PTA such as the JPEPA would actually be helpful to the Philippines in catching up with global competition policy. A particular provision in the JPEPA encourages the development of competition legislation, to wit: “Each Party shall, when necessary, review and improve or adopt laws and regulations to effectively promote competition by addressing anti-competitive activities.” In addition, Chapter 13 of the JPEPA mandates the creation of a Sub-Committee on Improvement of the Business Environment, as well as a Consultative Group on Improvement of the Business Environment. Furthermore, each party is mandated, in accordance with its laws and regulations, take appropriate measures to further improve the business environment for the persons of the other Party conducting their business activities in the Area of the former Party .

The lack of competition regulations in the Philippines reminds me of incidents involving the entry of new products or brands into the Philippine market. In 1981, amidst a Colgate-dominated Philippine toothpaste market, Crest, the number one toothpaste brand in the US, was launched by Procter & Gamble in the Philippines. Notwithstanding the launch and hype of the Crest launch in tri-media, it was an altogether different story in the trade as consumers were “prevented” from trying their first tube of Crest toothpaste. In many supermarkets in the country, right after shoppers purchased their first boxes of Crest toothpaste, there were Colgate promo girls waiting outside the supermarket selling area with a “Get two boxes of Colgate in exchange for your box of Crest toothpaste” promo. Of course, that was a bait too alluring for any pragmatic shopper. End result was that the Crest launch flaked, as the product, albeit its alleged superior quality was not even able to experience its first moment of truth with Filipino consumers.

That story was among the first ones narrated to me by my then-trainors, more senior managers in P&G who were able to bear witness to the anti-competitive practice. While it may not be the perfect example of a monopolistic practice in the sense of globally, harmonized competition policy as presently envisioned or espoused by PTAs, it stuck to my mind and was reminded about it as I read about competition law and restrictive business practices. While that incident is not price manipulation nor does it contemplate a merger with a competitor so as to create a monopoly, while it does not involve a local player preventing a foreign entity from entering the local market (as it involves two multinational companies, one of whom was fortunate enough to have been the first-mover in the local market), I believe the incident is quite relevant in a discussion about competition law. Certainly, that incident is just one of the many instances in actual trade, which exemplifies a restrictive business practice. If one were to think about the end-goals of consumer welfare and ensuring opportunity to entrepreneurs, that would be encompassed by competition regulation, wouldn’t it?

In 1981, and even now, there is perhaps no redress for the failure of the Crest launch due to the lack of competition regulation. Moreover, the manufacturing sector in the Philippines, even after decades of trade liberalization, is still characterized by heavy protection and high concentration. Liberalization does not, by itself, guarantee competition and that the absence of competition laws would make it difficult to control possible abuses of their dominant positions by large firms or those which have had the advantage of being the first-movers in the Philippine market.

Noticeably, restrictive business practices, despite their prevalence in the trade, are not thoroughly addressed even by global competition policy. Restrictive Business Practices are defined by businessdictionary.com as the abuse of dominant market position by private or public sector producers in preventing or restricting entry of new suppliers, or otherwise restraining fair and open competition. RBP include apportioning of customers or markets among themselves, collusion to fix prices, and/or discriminatory pricing. In the OECD article on competition policy in multilateral and regional trade agreements, “Restrictive Business Practices”, prevent, on the part of private or commercial public enterprises, business practices affecting international trade which restrain competition, limit access to markets or foster monopolistic control”. Noticeably, the focus is only on business practices, which affect international trade; I don’t think there is anything as of yet which would govern anti-competitive practices of multinational corporations against each other, especially if such practice would mean preventing another from penetrating the local market of an economy which it already has a monopoly of. Reality is, however, multinational (manufacturing) companies are majority of the players in global trade nowadays. If genuine competition for consumer welfare were sought to be achieved, competition policy should also include regulation of anti-competitive practices similar to the above-mentioned example.

In sum, after having reflected on the reading materials and on the state of the trade / the market as I have previously been exposed to it, especially in the Philippines, I have come to two conclusions: 1.) Only a harmonization of competition policy across economies is feasible; harmonization of competition regulations as of this stage is still a hazy possibility. 2.) Beyond harmonization of competition regulations, global competition policy should also be comprehensive enough to cover realities in trade.

[Anna Theresa L. Licaros]

Competition policy has always been a part of the world economic agenda – and rightly so. Again, the fixation in codifying commitments has permeated even the realm of fair play While its development may not have been as systematic or as pronounced as others, it finds most of its core principles – such as non-discrimination, transparency, consultation and cooperation arrangements – embodied in the WTO’s own provisions. Being able to locate these principles within the overarching framework of the WTO has its advantages. One of these is the likelihood that competition policies will be able to find a secure place in the economic frameworks of the member states. Another is that in enacting competition policies, the states are more likely to act in compliance with their GATT and WTO obligations rather than in contravention to it. The challenge is for states to be able to operationalize these general principles by means of unilateral acts (domestic legislation on competition policy) and bilateral relations (preferential trade agreements that have provisions on competition and other practices restrictive to trade.)

Policy has already ceased to be a purely domestic concern in this day and age of policy alignment. According to the OECD paper, competition provisions in regional trade agreements show two trends – on one hand, some parties prefer to agree on general obligations with respect to taking action against anti-competitive activities leaving parties to legislate their own standards and rules. This type of approach can be seen in the JPEPA where parties are left to take appropriate measures to achieve the objectives of improving the business environment and promoting competition. The second trend shows a higher degree of coordination of standards and rules on competition. The OECD paper observed that this is usually seen where there are strong supranational institutions that take on the task of enforcing these specific and uniform competition rules.

Evaluating the US-Singapore FTA, it can be seen that it is neither here nor there given that it has a mix of both general and specific commitments. In the area of government enterprises it can be seen that Singapore has a significantly more obligations than the United States and perhaps this arises from a number of reasons. Perhaps it is because the current rules and standards of the United States is what the parties have agreed to adopt, such that it is Singapore that has to make these commitments to harmonize their laws with that of the US’s. Or it could just be that the United States’ commitment under 12.3.2(c) is the functional equivalent of Singapore’s commitments under 12.3.2(d), (e), (f) and (g). Whatever it may be, the US-Singapore FTA is an example of just how much free reign is given to states when they enter into preferential trade agreements with other states and agree on competition policies.

Posner offers a good view of antitrust policy as having efficiency as its ultimate goal and competition as a mediate goal that gets us close enough to the ultimate goal. The view enables us to account for certain seeming contradictions. For example, the idea that a strong antitrust policy and program necessarily means fostering competition and diffusing monopolies, while on the other hand, there is the possibility of having a situation wherein it would be more efficient to have a monopoly servicing an extremely small market. By stressing that efficiency is the ultimate goal of antitrust legislation Courts are also instructed as to how they are to deal with ever-creative cartels. It is a good perspective to take because it forces those who are at the helm of dispute settlement arising from allegedly anti-competitive practices to reevaluate concerted economic activities based on their consistency with the goal of efficiency and not just hastily attack everything that remotely looks traditionally anti-competitive or leaned towards cartelization.

A good test to determine whether the goal of efficiency is what is pursued is to look at what constitutes as legitimate or acceptable conduct as set forth in preferential trade agreements. In the US-Singapore FTA, they use the standard of “normal commercial considerations.” An example of this is a supply and demand condition (under Article 12.3.4) – presumably one that is empirically demonstrable. Another example is to act with regard to price, quality, availability, marketability, transportation, and other terms and conditions of purchase or sale (under Article 12.3.2 (d)(i)). Under the FTA, the privately-owned designated monopoly and any government monopoly must act in accordance with this standard for its conduct to be acceptable.

It is submitted that this standard is reflective of the efficiency goal because under normal commercial considerations the player would be interested in reducing its costs by being efficient in its production and sale of the good or service. It is only in a competitive market that efficiency can be achieved – or so it is usually the case. However, also Posner calls attention to instances when monopolies can also be efficient. In doing this, he is not really arguing against a competition policy but he is trying to refine sensibilities towards the possible range of conduct or activities that might have to be tested under the competition policy. One of his criticisms is that enforcement of competition policy tends to be constricted by a myopic view of what constitutes anti-competitive activity and how the same is dictated by a fixation on competition being the end goal instead of efficiency. The same is well-taken because policy is pointless if it cannot be enforced. Considering that many preferential trade agreements still relegate enforcement and sanctioning to the individual states who are parties to them, there is still much room for diversity in opinion as to what type of activity would actually achieve efficiency. Not all tribunals have the same qualifications or expertise that would predispose them to making the correct assessment.

The possible responses to this area of difficulty are numerous. It could be to tweak existing competition policy domestically – even in the absence of an agreement – so as to enlighten the eventual decision-maker. There is much incentive for states, specially developing nations to unilaterally engage in legislating antitrust laws and a solid and clear competition policy. Not only would it serve a consumer-protection purpose, it would also be quite enticing to potential investors. Theoretically, the clearer the law is on the matter, the more predictable decisions would be.

Another option is to step up in the cooperation towards curbing anti-competitive practices. Through cooperation, resources are pooled and the participation by the other state-party to the agreement in the enforcement of the policy affords the latter a chance to see that things are done correctly and according to the agreement.

Yet another option (and this is seen both in the JPEPA and in the US-Singapore FTA) is to have consultative groups that would advise the state-parties about the consistency of their actions with the agreement and give them a chance to factor in recommendations and do last-minute damage control before the proverbial “it” hits the fan. The advantage of having a structure to address a range of disagreements (as seen in the JPEPA) that designates particular bodies to address mere observations and concerns to actual disputes is that the power to settle disagreements is diffused. This diffusion allows for greater specialization and the use of more tailored approaches that a single dispute settlement body – or heaven forbid an already burdened domestic court – might not have. The JPEPA thus has a transparency and information requests provision and a provision on consultations – both function to deal with the pre-case or controversy stage. In the event that dispute still arises, the agreement has a provision on dispute settlement which excludes certain issues that can be addressed by the other provisions.

Ultimately, the preferential trade agreements are good vehicles to flesh out where the WTO and the GATT stopped short. The latter are good overarching instruments that lay down the foundation for other instruments to build competition policy on. As a final note, there is another standard in determining acceptable conduct are also seen in the US-Singapore FTA and t is “non-discriminatory treatment.” This ultimately echoes the general principles of “national treatment” and “most favored nation” enshrined in the WTO and the GATT. More than the goal of efficiency, these standards are testament to the goal of fairness and equality which is the canonized roads towards free trade. Competitors must play fair and in the end, stand or fall on their own merits.

[Romulo P. Ramirez]

The World Trade Organization and the General Agreement on Trade and Tariff were established with the objective of creating a regime of world trade free from discrimination and anti-competitive measures imposed by national economies. This objective is embodied in the most favored nation clause and the national treatment clause of GATT 94.

In compliance therefore with the national treatment clause, it is but necessary that the promotion of competition be part of the entire gamut of regulations that should form part of any trade agreements, whether they be bilateral, regional, plutilateral, or multilateral. After all competition, as a general rule, increases the efficiencies in the system and thus reduces over-all costs of traded products. On the other hand, the existence of anti-competitive measures reduces the overall efficiencies and adds unnecessary costs that are shouldered by consumers.

The problem, however, as pointed out in the various articles assigned for this part of the course, is the fact that there does not seem to be any uniform standards or rules which may be used as a guide in crafting provisions to cover competition regulations. The WTO or the GATT does not contain specific provisions on this matter. As a matter of fact and as pointed out in the various articles, competitive regulations were not adopted by the earlier agreements on international trade. Instead, what were adopted were piecemeal regulations. What is available are what is referred to by Jane Rennie article as “framework laws” or those characterized by statements of principles or exhortations. The advantage with this kind of formulation is that parties to the agreement are allowed maximum flexibility and responsiveness in addressing situations peculiar to each. For so long as there is a recognition of the desirability of competition laws and regulating anti-competitive business practices, the general objective of eventually arriving at the collective goal may be achieved.

I agree with the observation made by Rennie that the “rules” on competitive regulations are at its evolutionary stage. Over time, the need to be more specific in terms of what the rules and regulations would be should will be obvious to all. In the meantime, the general nature of the “framework law” continues to be a good baseline in terms of recognition accorded to the need to regulate competition or, more accurately, anti-competitive regulations. As already pointed out, the baseline is so broad that parties to a trade agreement are given latitude to figure out how each party can respond in any given circumstance. As the trade relationship “matures” as in the case of the EU, more appropriate regulations can be crafted.

There is however the recurring acceptance of what is referred to as the “core competition principles” of transparency, non-discrimination, and procedural fairness. These principles while very general in nature are what may be referred to as conditioning principles. As noted by Rennie, these principles are “geared towards the creation of a competition culture within a country, something which cannot be implemented on a case-by-case basis or oriented towards dealings with specific countries, but must be comprehensively instituted, organic even”. There is that hope that a State will eventually progressed thru the other end of the spectrum of competition regulations adopted between Australia and New Zealand or by the EU.

The need to include coordination, cooperation, and consultation as part and parcel of any competition regulation is indeed very critical. After all, the resolution of any conflict, disagreement, or dispute is through dialogue. The most essential element of any agreement is after all good faith. and for so long as each party is prepared to consult with each other, resolution to any particular issue is not difficult to craft.