Johannes Benjamin R Bernabe took over the reins at the Philippine Competition Commission in early July after the former chairman, Arsenio M Balisacan, left to join the cabinet of the new administration. Time is of the essence for the antitrust authority chief to instigate change, as his term ends in January 2023. He’s not standing idle. The interim chair intends to focus on four key priorities and ensure a clean slate for a new chair and set of commissioners. Here he speaks to Freny Patel in an exclusive interview for Asia Business Law Journal
Asia Business Law Journal: Congratulations on your new role. How does it feel to take on the responsibility of interim chairman of the Philippine Competition Commission (PCC)? And what are your top three priorities?
Johannes Benjamin R Bernabe: My term as chair is only for a brief period of five months, and really for the purpose of completing the adjudication of pending cases before the PCC. There are at least four cases pending so far as enforcement activities are concerned involving tourism, health services, insurance and trade associations. There’s a reasonable urgency to conclude our adjudication of these cases because it would be difficult to pass these on to the next set of commissioners without them having proper institutional memory to guide them.
The high attrition rate at the commission also needs to be addressed. The Philippine salary standardisation programme is catching up with the preexisting salary scale resulting in high attrition, which is impacting the authority’s ability to hire good-quality and highly technical and competent staff. I wish to rectify the situation so that the next set of commissioners and the new chair will not have to contend with half-failed cops.
A third priority is to harmonise and address specific gaps in our rules, by either harmonising our rules or coming out with new regulations to fill these gaps.
My last priority is to continue our advocacy, which has gotten off to a good start. President Ferdinand Marcos Jr, in his inaugural address, cited the pharmaceutical sector, which fits nicely with our focus on the healthcare industry.
We have to ensure that legislation passed by the new congress is consistent with competition law. There’s always a risk that when you try to provide incentives or subsidies for businesses to grow, sometimes competition principles are set aside.
ABLJ: Considering the four outstanding enforcement cases that you would like to close, is there a possibility of your term being extended?
Bernabe: An extension is prohibited under the competition law so far as reappointment to the same position is concerned. Some legal experts interpret that the commissioner can be appointed as a chairman. In the past, when we had commissioners whose terms had expired, their extension was limited to the appointment of new commissioners.
ABLJ: Are you more confident about changes in the country’s legislation with former PCC chair Arsenio Balisacan having taken over as socioeconomic planning chief of the Philippine administration?
Bernabe: We would like to make sure that competition principles continue to be part of the mainstream thinking of legislators when discussing economic recovery packages. As former PCC chair, Balisacan has had broad exposure on how businesses operate, and the way economic policies are utilised to expand business operations in the Philippines.
While there will be further tax reforms and certain sectors will need to be prioritised or incentivised as engines for growth, I am confident that competition principles will be embedded in the proposed reforms before they are submitted to the legislature. In addition to the tax reform packages, there is the Internet Transactions Act and the Land Use Act, which were prioritised by President Marcos Jr.
ABLJ: As the PCC pushes for the inclusion of competition principles in the country’s economic recovery agenda, what key hurdles do you envisage that could impact your plans?
Bernabe: Primarily the lack of sufficient awareness of legislators because while many come from the same political families, they may not have the institutional memory or be a party to the debates when we were legislating competition law. Hence, it is important for us to continue our efforts in educating their staff and the new set of congressmen and senators on competition principles.
We also need to ensure that regulations at the local level do not discriminate between similarly situated business entities, considering that local government units issue business permits.
There is also the challenge of having to balance different policy objectives because legislators have a wide array of stakeholders, which include micro-small and medium-sized enterprises (MSMEs). To encourage their growth, they should be allowed to ride the digital wave, incorporating their operations, distribution, marketing and payment on digital platforms.
At the same time, we want to ensure that dominant incumbent digital players behave responsibly. We need to balance regulations that would discipline their activities, while not restricting their growth. We also want to ensure that we do not send a negative signal to the growth of the e-commerce market.
The challenge is having to balance the two objectives, which on the surface might seem contradictory, because on the one hand you are trying to promote e-commerce while on the other hand you are trying to ensure appropriate regulations from a competition perspective to rein in their behaviour. At the end of the day, you are really trying to promote long-term growth that is more dynamic in nature and will result in a long-term win-win situation for MSMEs, the e-commerce sector and the government as well.
ABLJ: Many regulators around the world are looking more closely into the digital sector. Is the PCC concerned over ‘big tech’ and its impact on the economy in terms of competition law?
Bernabe: We should be looking more closely at it. I have been pushing my fellow commissioners that we need to take a more proactive approach. For instance, when it comes to enforcement action, we are mindful that many of the activities or behaviour of the big tech companies are carried out in a cross-border manner across Europe, the US and Asia. If these are subject to sanctions by competition authorities or courts in the US or Europe, then it stands to reason that they should also be prohibited in the Philippines, or even subject to liability.
However, one has to be mindful that the economic context in which these rulings in the other more advanced jurisdictions were handed out should be on a similar footing to the context that exists in the Philippines. So, while the activities are the same, you want to also ensure that the market, the relevant market, and the conditions in that market, as well as the economy as a whole, have some semblance of similarity to justify mimicking those kinds of decisions that were undertaken by other countries.
The second point is, insofar as these big tech companies may be involved in mergers or acquisitions, we have to be more mindful that a static analytical approach will not suffice. In the past we’ve had mergers that we reviewed and looked at only in terms of a two-year, or at most perhaps a five-year window. For instance, in the case of when electronic money instruments might become more pervasive as a form of payment for e-commerce transactions, we have to start looking at the long view in terms of 10 years down the line because it becomes more difficult to discipline their behaviour once the 10 years have lapsed and they acquire a monopoly or have a dominant position in the market. Hence, the kind of analysis we undertake needs to be adjusted.
Finally, on merger thresholds for notifications, we have not encountered any situation in the digital space where the transaction has not been notified because it fell below the threshold. But we should probably be conscious of making some adjustments in terms of our notification rules when it comes to big tech or those in the information and technology sector. There are some companies that may have very little revenue for now, or their assets may not be properly valued, or undervalued to not exceed the notification threshold of the Philippines. To ensure transactions are caught, we might need to adjust our present thresholds.
ABLJ: When you say you might need to adjust your thresholds, is the PCC considering introducing deal-value thresholds?
Bernabe: We don’t have any concrete case where we can say that our notification thresholds were insufficient to capture the transaction for the purposes of review. Hence there is nothing to factor that kind of initiative. But the question is: should we actually wait for a concrete case to arise before we move for that kind of adjustment? It’s not a straight-cut answer because we have the power to weigh in and review transactions that have damaged the market. So that’s the counterbalance to the argument in favour of adjusting our current notification thresholds with due consideration to include the actual amount paid.
ABLJ: The PCC seems to spend more time reviewing mergers than investigating cartels. Do you feel there is a need for legislative change?
Bernabe: I don’t think we need a change in legislation. Rather, we need an increased budget so that we can have more resources for pursuing enforcement activities. The reference to doing more work on mergers reflects a situation in the past where the transitory period for enforcement was in place for the initial two years. And subsequently, we were still developing our rules and capacity to pursue investigation and enforcement.
Further, when the notification threshold was set at PHP1 billion (USD20 million), we were able to capture more transactions. Since the upward adjustment to the notification threshold, and parties approaching us to seek confirmation on whether a transaction is notifiable, the past two to three years have seen a reduction in the number of merger reviews undertaken.
We actually encounter more, or anticipate encountering more, enforcement activities rather than simply merger reviews, even when we take into account the two-year moratorium on the merger notification threshold that will expire in September this year.
ABLJ: Could you shed some light on how crucial the proposed adjustment in the merger thresholds is in September?
Bernabe: In the absence of any legislation extending the two-year moratorium, the Philippines will revert to the old transaction thresholds of PHP2.4 billion. This is crucial because we already know that most transactions that were problematic – meaning they were subjected to phase 2 review, or were the subject of a statement of concerns, or were subject to conditions prior to clearance – are well within the range of PHP2.5 billion to PHP10 billion.
We are missing the opportunity to look at these cases in that range because of the moratorium. It is possible that, as in the case of other competition authorities, we may find that only 5% to 10% of these transactions are problematic. And possibly within the 10% of problematic transactions, we may impose conditions on less than a handful of cases. But for the relevant geographic market where these problematic transactions operate, the conditions imposed may be of tremendous value.
When we blocked the transaction involving the acquisition of a sugar mill in the southern Luzon region, it may not have mattered to other parts of the country, but it was of tremendous importance to farmers in that area. They did let us know about that. Similarly, the pricing commitments we imposed on Grab when it acquired Uber, and the regulatory price caps imposed by the transport sector regulator, helped save consumers a certain amount of money.
We’re going to miss out if we continue with the moratorium placing the notification threshold at USD1 billion. I am hopeful that the law will expire without anyone doing anything about it, given that they will be busy with more important matters.
ABLJ: What are some of the other challenges you feel need to be addressed for the PCC to function better?
Bernabe: I am hopeful that President Marcos Jr will appoint really sound individuals as part of the next set of commissioners. As part of the amendment to the Philippine Competition Act, I’d like to add that perhaps one of the commissioners should come from the ranks, so that it sends a positive signal to our staff that if they do well and are competent, they can actually become commissioners. This also augurs well for the PCC because it means that someone will always carry with him or her the institutional memory of how enforcement and merger activities are conducted, or how the economic analysis should be done. This would be a huge benefit to the commission.
The PCC has built a sound culture of competition in the Philippines. Large businesses are aware of this, having been subjected to merger review or investigation on account of their dominance in their markets. Further steps need to be taken to include MSMEs, because they trigger complaints and enforcement action against other players in the market.
Secondly, we must ensure that those who have less to gain from the enforcement of competition law will be stifled in their efforts to try to mitigate the powers of the commission. This is common, as in other countries. There is a tendency for them to latch on to politicians, congressmen and senators. We need to counter those lobbies with effective, educational and advocative efforts to make sure that our legislators remain on the right side of the fence and are not swayed by what may seem to be compelling arguments for businesses.