Hon. Ramon B. Magsaysay, Jr.

October 24, 2000 HON. RAMON B. MAGSAYSAY, JR. SENATOR Philippine Senate M a n i l a Dear Senator Magsaysay Jr.: In connection with the following Senate Bills: Senate Bill No . 150, entitled : An Act Creating The Fair Trade Commission, Prescribing Its Powers and Functions In Regulating Trade Competition and Monopolies and For Other Purposes; CEASaT Senate Bill No . 1792, entitled : An Act Prohibiting Monopolies, Attempt To Monopolize 'An Industry' Or Line Of Commerce, Manipulation Of Prices Of Commodities, Asset Acquisition And Interlocking Memberships In The Board Of Directors Of Competing Corporate Bodies And Price Discrimination Among Customers, Providing Penalties Therefore, And For Other Purposes ; and Senate Bill No . 862, entitled : An Act Providing For A More Effective Implementation Of The Constitutional Mandate Against Monopolies, Combinations In Restraint Of Trade And Unfair Competition By Re-Defining And Strengthening Existing Laws, Processes And For Other Purposes . please be informed that while we share the concerns of the proponents of the Bills, we have reservations on how these bills can be consolidated unless certain basic issues are resolved; such as: 1. Are we inclined to adopt the US anti-trust legislation or the European restrictive business practice approach as reflected in the Treaty of Rome of the European Union? Whatever approach is adopted, there must be benchmarks whereby a particular company can be presumed to have enough market share to engage in monopolistic practices. Bigness by itself cannot be the sole gauge to determine possible abuse of market power. 2. In the past we have relied on price control to correct abuses of combinations intended to cartelize a particular market. More and more, price control is being replaced by market mechanism safeguards, such as the proposed legislations which will prevent the abuse of market power. We already have an existing price control law so may be it may not be necessary to recreate the same in an anti-trust legislation. 3. Most countries have separate legislations for anti-trust and consumer protection because the premises of the former is abuse of market power, while the latter is premised not only on the abuse of market power but includes environmental and health concerns. Right now we already have consumer protection laws. We might want to continue such separation. 4. Do we create a new institution to implement the legislation or can the same be implemented by existing departments. In some countries, the economic study of particular industry can be done within the Department of Trade and Industry and the prosecution side for violations can be done by the Department of Justice. Congress might want to look into the current function of the Bureau of Trade Regulation and increase the same. It is worth mentioning that the present policy of the government is to streamline the bureaucracy by reducing the present government workforce apparently to reduce the overwhelming budgetary deficit. The creation of a new government agency at this point of time with certainly not be a good move towards this goal. Thus, instead of creating a new agency, it would be more practical to vest the authority of said proposed agency, with the Department of Trade and Industry and at the same time, strengthen the present prosecution arm of the Government, the Department of Justice, for it to effectively enforce the present provisions of the Revised Penal Code punishing illegal monopolies and combinations in restraint of trade. After resolving the above matters of principles, we also have reservation on matters relating to interlocking directors, parent-subsidiary corporate relationship and stock ownership in different corporations which are prohibited in Senate Bill Nos. 1792 & 862 because of the following business realities: FIRST: It is not unusual to find directors occupying the same positions in another corporation. Usually, we often find " interlocking directors " in a parent-subsidiary relationship between corporations wherein they transact business with one another on a regular basis for some legitimate business reasons, not only because one has big investments therein but also because their services may have proven to be valuable and efficient. Because of this business reality, it would be impractical to " absolutely " prevent interlocking directorship. The people who are sought to be prohibited from sitting in the board may be the same people who contributed to the competence or technical expertise that result to the growth of the business. SECOND: At present there are certain business activities wherein only few investors are willing or capable of investing into and which can be undertaken by only few moneyed or competent investors. Prohibiting " stock ownership " in different corporations might shy away willing investors who have capability of investing and whose efficient management skills, competence or technical expertise can contribute to economic recovery of the country. Such an idea would discourage existing big corporations from forming business subsidiaries and therefore would run counter to the policy of the government to liberalize business inorder to promote investments in this country. THIRD: It is well-recognized fact that a person has the right to choose his business associates. Thus, the formation of a " close corporation " is given a special recognition under the Corporation Code, taking into consideration that close corporations have special legitimate needs different from those widely held corporations, relaxing in their favor some of the general rules and requirements applicable to all business corporations. Where business associates belong to a small, closely-knit group, like a family, they usually prefer to keep the organization exclusive and would not welcome strangers. Since it is through their efforts and managerial skills that they expect the business to grow and prosper, it is quite understandable that they would not trust outsiders to come in and interfere with their management thereof, and much less share whatever fortune, big or small that business may bring. Thus recognizing the unique quality and legitimate needs of " close corporations ," the Corporation Code allows investors to form " close corporations " limiting the shareholders to members of the family or close business associates with whom they have " trust and confidence ". Under Section 96 of the Corporation Code, any corporation may be incorporated as a close corporation, EXCEPT the following: mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest pursuant to Section 140 of the Code . IAEcCa Because of the above realities of business expediences, we believe it would be impractical to adopt laws on monopolies of general application to all sectors of the economy. Consideration of the above business realities, we believe, are indispensable. The people that would be affected by the Bill are moneyed investors who can venture in any business they thought would be profitable and whose efficient management skills, competence or technical expertise could improve business activities in the country. It is also worth mentioning that the Philippine Constitution itself mandates to regulate or prohibit monopolies ONLY when the public interest so requires . The Philippine Constitution provides: "The State shall regulate or prohibit monopolies when the public interest so requires .No combination or restraint of trade or unfair competition shall be allowed." (Emphasis supplied) In recommending to the Batasang Pambansa corporations, business or industries to be declared vested with a public interest and in formulating proposals for limitations on stock ownership, the National Economic and Development Authority shall consider the type and nature of the industry, the size of enterprise, the economies of scale, the geographic location, the extent of Filipino ownership, the labor intensity of the activity, the export potential, as well as other facts which are germane to the rationalization and promotion of business and industry. (emphasis supplied) Under the country's present economic situation, we believe it is not the opportune time to absolutely prohibit interlocking directorship, parent-subsidiary relationships or formation of close corporations. What is needed is an Anti-Trust Law which will initially focus on the prevention of cartels on basic products and industries (e.g. rice, corn, fish) which are of utmost importance to national interest. Further, the present trend on corporate mergers being encouraged by governmental regulators, should also be taken into consideration. It is to be noted that corporate combinations, as well as voting trust agreements, are expressly allowed under the Corporation Code. Being allowed under existing laws, the presumption of regularity of those transactions should always be adhered to, provided that pertinent statutory procedures/requirements are complied with in carrying out those transactions. We hope the above comments can assist in your deliberation. Very truly yours, (SGD.) LILIA R. BAUTISTA Chairperson