Hon. Gloria Macapagal-Arroyo

January 25, 1993 Hon. Gloria Macapagal-Arroyo Senate 3rd Floor, East Wing, VELCO Centre Bldg.,cor. 13th Street and Chicago Street, Port Area, Manila M a d a m : This refers to the letter of your Office dated January 7, 1993 which we received only on January 19, 1993 requesting comments on Senate Bill No. 845, entitled "AN ACT TO REEXAMINE, REALIGN, AND RECAST INTO THE REQUIREMENTS OF THE CONSTITUTION THE LAWS PROHIBITING MONOPOLIES, COMBINATIONS IN RESTRAINT OF TRADE AND UNFAIR COMPETITION, AND FOR OTHER PURPOSES". Modern laws have time and again been geared towards correcting such acts and practices tending to promote illegal monopoly and restraint of trade. The Intention of the Bill in laudable as it is designed to promote and preserve healthy business competition in a free enterprise and is in keeping with the provisions of the Constitution and the policy of the government to encourage business competition. However, while the introduction of the Bill deserves support considering that there are reports of alleged business cartels of certain industries or basic commodities by some businessmen, the proponents of the Bill should also take into consideration the present urgent need of capital investment in the economic development of the country. At present there are certain business activities wherein no investors are willing or capable of investing and which can be undertaken by only few moneyed or competent people. Enforcing very strict laws on the matter might shy away willing investors who has the capability of investing and whose efficient management skills, competence or technical expertise can contribute to economic recovery of the country. Because of this reality, it would be impractical to strictly enforce at present laws on monopolies of general application to all kinds of business activities. Such an idea might discourage formation of business subsidiaries by existing corporations and instead of encouraging investments, it may hamper capital market development of the country. Thus, the Philippine Constitution 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 on restraint of trade or unfair competition shall be allowed".(Emphasis supplied) Corollary thereto, Section 140 of the Corporation Code imposes upon the NEDA, the duty to make, from time to time, a determination of whether the corporate form of organization has been used to frustrate the provisions of the Constitution relative to national economy and patrimony, or of those applicable laws, and whenever it deems necessary, to recommend to the Batasang Pambansa (now Congress) the setting of maximum limits to family or group ownership of stock in corporations vested with public interest. The Code provides, thus: cdlex "SECTION 140. Stock ownership in certain corporations . Pursuant to the duties specified by Article XIV of the Constitution ,the National Economic and Development Authority shall, from time to time, make a determination of whether the corporate vehicle has been used by any corporation or by business or industry to frustrate the provisions thereof or of applicable laws, and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of its findings, including recommendations for their prevention or correction. Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations declared by it to be vested with a public interest pursuant to the provisions of this section, belonging to individuals or groups of individuals related to each other by consanguinity or affinity or by close business interest, or whenever it is necessary to achieve national objectives, prevent illegal monopolies or combinations in restraint of trade , or to implement national economic policies declared in laws, rules and regulations designed to promote the general welfare and foster economic development. In recommending to the Batasang Pambansa corporations, business or industries to be declared 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 aforecited provision the NEDA is thus entrusted to determine what businesses are vested with public interest. It is also worth mentioning that the Corporation Code allows the formation of "close corporations". It is a 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, and treats them under a separate title (Title XII), 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 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 cooperation, 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 the above-cited Section 140 of the Code. Likewise, we would like to comment on the creation of an Anti Trust Commission as provided for under Section 10 of the Bill. It is worth mentioning that the present policy of the government is to streamline the bureaucracy by reducing the present government work force apparently to reduce the overwhelming budgetary deficit. The creation of a new government agency at this point will certainly not be a good move towards this goal. Thus, instead of creating a new agency it would be more practical to authorize and strengthen the present prosecution arm of the Government to monitor and prosecute violations of the provisions of the Revised Penal Code relative to illegal monopolies and combinations in restraint of trade. prcd Very truly yours, (SGD) ROSARIO N. LOPEZ Chairman