Toward a National Competition Policy for the Philippines edited by Erlinda M. Medalla Philippine APEC Study Center Network PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas Copyright 2002 by the Philippine APEC Study Center Network (PASCN) and the Philippine Institute for Development Studies (PIDS) Printed in the Philippines. All rights reserved. The findings, interpretations and conclusions in this volume are those of the authors and do not necessarily reflect those of PASCN and PIDS and other institutions associated with the PASCN project on competition policy. The publication of this volume was funded by PASCN and PIDS. The members of PASCN include: Asian Institute of Management, Ateneo de Manila University, Central Luzon State University, De La Salle University, Foreign Service Institute, Mindanao State University, Philippine Institute for Development Studies (Lead Agency and Secretariat), Silliman University, University of Asia and the Pacific, University of San Carlos, University of the Philippines, and Xavier University. Please address all inquiries to: PHILIPPINE APEC STUDY CENTER NETWORK SECRETARIAT PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES NEDA sa Makati Building 106 Amorsolo St., Legaspi Village 1229 Makati City, Philippines Tel. no.: PASCN (63-2) 8939588, 8925817; PIDS (63-2) 8935705, 8924059 Fax no.: PASCN (63-2) 8939588; PIDS (63-2) 8939589, 8161091 E-mail: [email protected]; [email protected] URL: http://pascn.pids.gov.ph; http://www.pids.gov.ph ISBN 971-564-052-4 RP 09-02-500 Cover and book design by Joel C. Lozare for Graphico Media, Inc. Typesetting and Layout by Mandy F. Javillonar for Graphico Media, Inc. TABLE OF CONTENTS FOREWORD ............................................................................................................xvii CHAPTER 1 Overview and Integrative Report Erlinda M. Medalla Introduction....................................................................................................... 1 Objectives and Role of Competition Policy ...................................................... 4 Implications and Findings from the Sector Studies ......................................... 9 Elements of a Rational Competition Policy for the Philippines and Recommendations for an Antitrust Legislation ............................... 16 Concluding Remarks: Issues in Competition Policy and Other Considerations ....................................................................... 24 Bibliography.................................................................................................... 30 CHAPTER 2 The State of Competition in the Philippine Manufacturing Industry Rafaelita A. Mercado-Aldaba Abstract ........................................................................................................... 33 Introduction..................................................................................................... 34 Theoretical Underpinnings of Competition Policy ........................................ 35 Review of Literature........................................................................................ 40 Assessment of the Overall Performance of the Manufacturing Sector Before and After Trade Policy Reforms .................................................. 44 Analysis of Industry Structure and Competition in the Manufacturing Sector ................................................................... 49 Conclusions and Policy Recommendations .................................................... 59 Bibliography.................................................................................................... 61 CHAPTER 3 Of Cartels and Collusion: An Analysis of the Philippine Cement Industry Rafaelita A. Mercado-Aldaba Abstract ........................................................................................................... 65 Introduction..................................................................................................... 66 Basic Concepts and Theories .......................................................................... 67 An Overview of the Philippine Cement Industry ........................................... 71 Competition Analysis ..................................................................................... 73 Conclusions and Policy Recommendations .................................................... 94 Bibliography.................................................................................................... 97 v CHAPTER 4 Competition Policy and the Philippine Downstream Oil Industry Peter Lee U Abstract ........................................................................................................... 99 Introduction................................................................................................... 100 RA 8180 and Tatad vs. Viray ....................................................................... 111 Price Setting in Philippine Gasoline: Law of One Price or Collusion? ............................................................ 121 To Exchange or Not To: A National Oil Exchange?.................................... 131 Deregulation Experiences and Lessons from Other Countries .................... 139 Summary and Conclusions ........................................................................... 149 Bibliography.................................................................................................. 150 Appendices .................................................................................................... 152 CHAPTER 5 Competition in Philippine Telecommunications: A Survey of the Critical Issues Ramonette B. Serafica Abstract ......................................................................................................... 157 Introduction................................................................................................... 158 The Role of Competition Policy in Philippine Telecommunications ....................................................... 158 The Market Environment of Philippine Telecommunications..................... 160 The Nature of Competition at the Local Level: Three (3) Cases ................. 167 Postliberalization: Issues and Concerns ....................................................... 172 Threats to Competition ................................................................................. 176 Recommendations ......................................................................................... 181 Bibliography.................................................................................................. 183 Appendices .................................................................................................... 184 CHAPTER 6 The State of Competition and Market Structure of the Philippine Air Transport Industry Myrna S. Austria Abstract ......................................................................................................... 189 Introduction................................................................................................... 190 Contestability of Markets: Its Applicability to the Air Transport Industry ................................................................ 191 Regulatory Framework for International Air Services ................................. 193 Policy and Regulatory Regimes of the Philippine Air Transport Industry .............................................. 201 vi Regulatory and Policy Regimes: Their Effects on the State of Competition and Market Structure .......................................... 206 The Role of CAB in a Deregulated Environment ........................................ 231 Implementing Guidelines for EO 219 .......................................................... 231 Areas for Competition Policy ....................................................................... 236 Summary and Conclusions ........................................................................... 240 Bibliography.................................................................................................. 241 Appendices .................................................................................................... 242 CHAPTER 7 Analysis of the State of Competition and Market Structure of the Banking and Insurance Sectors Melanie S. Milo Abstract ......................................................................................................... 253 Introduction................................................................................................... 254 Regulatory Framework ................................................................................. 255 Trends in Market Structure and Performance .............................................. 276 Competition Policy Issues in the Financial Sector ....................................... 291 Some Conclusions ......................................................................................... 302 Bibliography.................................................................................................. 303 CHAPTER 8 Government Policies and Regulations: Interface with Competition Policy Erlinda M. Medalla Abstract ......................................................................................................... 307 Introduction................................................................................................... 308 Philippine Trade Policy and Competition ...................................................