The Philippines is set to have a comprehensive competition law, more than twenty years after the first bill was introduced in its Congress. On June 10, the Senate and House of Representatives ratified the proposed Philippine Competition Act (the Act), which establishes a national competition policy, revamps merger control requirements, and increases fines by as much as 24,900 percent. The Act will now be sent to President Benigno Aquino III for his signature, after which it will become law. This has been a priority of the Aquino administration.
What Acts Are Prohibited?
Current Philippine laws contain general prohibitions on anti-competitive behavior. For example, the Revised Penal Code broadly prohibits combinations in restraint of trade and unlawful monopolies, but does not give examples or guidelines for determining what makes an act anti-competitive. In contrast, the Act describes specific agreements such as dividing territories, price fixing and limiting production. It also identifies abuses of dominant position, such as dumping, bundling and price discrimination. Furthermore, the Act provides guidelines on identifying the relevant market and determining market dominance.
Notably, the Act covers acts outside the Philippines where these have direct, substantial and reasonably foreseeable effects in the country.
What Are the Powers of the Fair Competition Commission?
The Act establishes the Fair Competition Commission (Commission), an independent quasi-judicial body with primary jurisdiction to implement the Act. Among others, it has the power to:
- launch its own investigation of anti-competitive acts;
- review proposed mergers and acquisitions, and prohibit those that substantially lessen competition in the relevant market; and
- issue orders for divestment or corporate reorganization, or disgorgement of excess profits from anti-competitive acts.
What Are the New Merger Control Requirements?
Currently, all applications for merger and consolidation must be filed with the Securities and Exchange Commission (SEC), who will then notify the Department of Justice (DOJ). The DOJ reviews the transaction and informs the SEC if there is found to be any possible violation of competition laws.
The Act imposes new merger control requirements and gives more specific guidance. It sets a threshold amount of PHP 1 billion (approx. US$22 million) for compulsory notifications of mergers or acquisitions, subject to sector-specific criteria that the Commission may promulgate. The parties to a covered transaction may consummate their agreement only after 30 days from providing the notification. However, if the Commission requests further information within this 30-day period, the Commission will have up to 90 days to review the transaction. The Commission may prohibit the merger or acquisition, require modifications to the transaction, or oblige the parties to enter into legally enforceable agreements that it may specify.
The merger or acquisition agreement shall be considered void if the parties fail to provide the required notification, and the parties may also be fined one to five percent of the value of the transaction.
Can We Ask for a Binding Ruling?
To encourage voluntary compliance, any party in doubt as to whether a planned act will violate the Act may request that the Commission issue a binding ruling. In the case of an adverse binding ruling, the affected party will not be subject to administrative, civil or criminal action, and will be given up to 90 days to comply with the Commission’s ruling.
How Have the Fines and Penalties Changed?
Administrative fines under the current law are capped at PHP 1 million (US$22,000). The Act raises the limit by 24,900 percent to PHP 250 million (approx. US$5.5 million). The fine may be tripled if the violation involves basic or key commodities such as milk, detergent, fertilizer, cement, electrical supplies or drugs.
Entering into anti-competitive agreements will also be considered a criminal offense, attracting fines of up to PHP 250 million (approx. US$5.5 million), a 12,400 percent increase from the current maximum PHP 2 million (US$45,000) under current law. Officers, directors and managerial employees of corporate violators can be imprisoned for up to seven years under the Act.
An entity may be immune from suit or may avail itself of a reduced fine under a leniency program in exchange for voluntary disclosure of anti-competitive acts.
How You Can Prepare
Companies selling goods and services in the Philippines may wish to review if their distributor contracts, pricing strategies or interactions with competitors may violate the Act. Likewise, they should roll out or strengthen competition compliance training programs for employees, including those based outside the Philippines who make decisions affecting the country. An enterprise seeking to enter the Philippine market via a merger or a share or asset sale should also include any required merger control notifications in its timetable.