Introducing Competition Law: Reaching out to the Filipino MSME Community Rachel Burgess, University of Southern Queensland Gwen De Vera, University of the Philippines
Overview Introduction to the Research Project (RB) Methodology (RB) MSMEs in the Philippines (GD) MSMEs and the Emerging Competition Law Landscape in the Philippines (GD) Risk Areas for MSMEs (RB) Awareness of PCA – Survey Results (RB) MSME Seminar and FGD (GD) Policy Recommendations (GD) Recommendations for Further Research (RB)
Introduction to the Research Project “Evaluating the level of awareness of the Competition Act in the Filipino MSME community” Research Grant awarded in 2017 Desk based research on MSMEs and competition law issues in the Philippines Field work: Survey APEC-funded project: Capacity Building for Small and Medium-sized Enterprises (SMEs) on Competition Policy and Law Ongoing involvement and support from: University of the Philippines (UP) Institute for Small Scale Industries (ISSI) UP Institute for Government and Law Reform (IGLR) Industry e.g. PCCI and Phil Export Outputs: Survey results report FGD and MSME Seminar – UP Paper published in UP Law Journal East Asia Academic Network on Competition Policy and Law (EANCP) conference held in Sydney Final research paper
Methodology
Survey Quantitative method - 10 question survey Based on Schaper - used in Australia Approximately 330 surveys collected UP-ISSI PCC PhilExport Supplemental questions – size of business, industry, gender of respondent, role of respondent Convenience sample only
MSMEs in the Philippines
Top 5 Industries Based on 2016 figures, the top five (5) industries in terms of number of MSMEs were: Wholesale and retail trade Accommodation and food service activities Manufacturing Other service activities Financial and insurance activities
MSME Contributions Based on 2016 figures, MSMEs – Generated a total of 4,879,179 jobs (against 2,831,729 for large enterprises) Accounted for 25% of the country’s total exports revenue Contributed to exports through subcontracting arrangements with large firms, or as suppliers to exporting companies
Definition of MSME The Magna Carta for Small Enterprises (as amended) established the following categories of enterprises: MSME Asset size Micro Not more than PhP3,000,000 (AUD75,000) Small PhP3,000,001.00 – PhP15,000,000 (AUD75,000 - 375,000) Medium PhP15,000,001 – PhP100,000,000 (AUD375,000 - 2.5million) Large More than PhP100,000,000 (>AUD2.5million)
Definition of MSME (cont) The Philippine Statistics Authority classifies MSMEs on the basis of number of employees as follows: MSME Number of employees Micro 1 - 9 Small 10 - 99 Medium 100 - 199 Large More than 200
MSME Development Promote the productivity and viability of MSMEs Reduction of business costs by directing government agencies to practice minimum regulation of MSMEs Registration Provision of financing Other government services and assistance The law also made it mandatory for all lending institutions to set aside a percentage of their loan portfolio for MSMEs
Institutional Framework for MSMEs Department of Trade and Industry (DTI) Negosyo Centers Small and Medium Enterprise Development Council (SMED Council) under the Department of Trade and Industry, later renamed to the Micro Small and Medium Enterprise Development Council (MSMED Council) Small Business Guarantee and Finance Corporation (SBGFC), attached to the DTI and under the administrative supervision of the SMED Council
MSMEs under the Philippine Development Plan 2017-2022 Five strategic goals under the MSMED Plan 2017-2022 improved business climate; improved access to finance; enhanced management and labor capacities; improved access to technology and innovation; and improved access to market
MSMEs and the Emerging Competition Landscape in the Philippines
Philippine Competition Act 2015 (PCA) PCA 2015 applies to MSMEs Applies to any person or entity engaged in any trade, industry and commerce in the Republic of the Philippines (PCA, Section 3) While no statutory exemption, offers specific safeguards against abuse of dominance for conduct involving directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers (PCA, Section 15g) Some agreements and conduct between competitors are automatically prohibited (price fixing and bid rigging) This means that MSMEs can fall foul of these provisions if they enter into agreements to price fix or rig bids with competitors Other types of agreements and conduct between competitors only breach the PCA if they have the object or effect of substantially preventing, restricting or lessening competition Where MSMEs have small market shares, agreements or conduct between them are unlikely to have the effect of ‘substantially preventing, restricting or lessening competition’ However, the agreement or conduct could still have the object of substantially preventing, restricting or lessening competition’
Philippine Competition Commission Recognise the importance of MSMEs – key stakeholder in Communications and Advocacy Strategy (PCC 2016 Annual Report) Advocacy efforts not yet focused on MSMEs Publications for SMEs: http://phcc.gov.ph/pcc-faqs-smes/
Risk areas for MSMEs
Risk areas for MSMEs Trade or industry associations Facilitating exchanges of commercially sensitive information Reaching agreements on prohibited matters during association meetings Making recommendations on pricing or output which are followed by members Other ASEAN Member States MSMEs have fallen foul of competition laws Mostly because of ignorance or a lack of understanding Often when meeting as part of a trade or industry association
Malaysia Most of early MyCC cases involved SMEs Cameron Highlands Floriculturist Association (CHFA) case (2012) Agreement reached at CHFA meeting: 10% increase in price of flowers announced in the press 150 members of CHFA reported to have ’agreed’ No fine imposed (first case) What is interesting? Announcement made in the press Good reasons for price increase – increases in cost of workers, fertilisers, plastics, wood Evidence? Minutes of meeting during which 10% price increase was agreed List of names of CHFA members
Singapore First seven infringement decisions involved SMEs Collusive Tendering (Bid-Rigging) for Termite Treatment in Singapore (2008) 6 pest control companies Approved to use ‘Agenda’ pesticide in Singapore (approved by the National Environment Agency) Bid rotation arrangement – the bidder whose ’turn’ it was to win would put in a bid, while the other 5 would put in a ’cover’ bid above the price to be quoted by the bidder whose turn it was to ‘win’ Minimum price issue – not addressed by CCS Fined S$263,000 (USD194,000) based on annual turnovers and level of cooperation What is interesting? Investigation commenced as result of complaint Concurrent raids on premises Information found at raid resulted in further raids at other company premises
Singapore (cont) Evidence? Emails found at premises “Hi Pat/Joseph, Could you quote for corrective treatment with Agenda for entire landscape areas … above $120,000. To install termite baiting station around the planters areas … above $48k. Thank you for your support owe you guys .” (emphasis added) Requests for information sent to project managers (who had received the bids) Interviews of personnel involved (oral evidence) In Singapore, bid rigging agreements are considered restrictive of competition by their very nature This is legislative position taken in the Philippine Competition Act
Vietnam Motor vehicle insurance case (2009) Price fixing agreement reached through Vietnamese Insurance Association (VIA) – 19 out of 25 members reached agreement (foreign companies refused to sign because contrary to their ‘home’ competition laws) What is interesting? Firms didn’t realise they were doing anything wrong. Thought it was okay to use a common formula to calculate insurance fees. Even posted the ‘agreement’ on their websites. Companies had been experiencing a price war in the form of insurance fee discounts and commission increases Evidence? Agreement was posted on website, publicly enforced compliance
Awareness of the PCA
APEC Study Capacity Building for Small Medium Enterprises on Competition Policy and Law Completed in 2017 Outputs: FAQs for SMEs Policy notes – Advocacy, Competition Enforcement, Levelling the Playing Field, Infrastructure Competition and SMEs, Lessons for SMEs, Government Restrictions Four key policy recommendations Priority Goal 4 – increase awareness and understanding of CPL issues
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