Balancing competitive markets and public interest
by Atty. Johannes Benjamin R. Bernabe
April 10, 2019
A debate which remains unsettled within not only the Philippine Competition Commission (PCC), but in other competition authorities around the world as well, is the extent to which “public interest” should influence the decisions and policies made by these agencies. While the answer may seem obvious, there are nuances that make a straightforward resolution more elusive than what meets the eye.
To be clear, public interest in this context refers to considerations broader than market competition and consumer welfare as explicitly espoused in the Philippine Competition Act. The public interest discussed in this article partakes of the nature of certain policy objectives such as, among others, health, employment, national security and sustainable development through the adoption of environmentally sensitive measures. These policy objectives may not be synonymous with, but could generally pass as forming part of that notion called public interest. They are not expressly provided or mentioned in the PCA, but are widely-accepted enough to be arguably implicitly embedded in any government agency’s framework for implementation of its legal mandate. Or should they?
A competition authority from a developing country similarly situated as the Philippines, in this case the South African Competition Commission (SACC), invoked public interest when it imposed conditions on its clearance of the merger between two agrochemical giants, Monsanto and Bayer, last year. In its decision, SACC required the prospective buyer of assets (to be divested as a result of the merger clearance) to license the use of such assets to a South African entity with Black Economic Empowerment (BEE) credentials. (N.B. BEE is a program of the South African government that gives its black citizens privileges and preference in economic opportunities over white citizens.) This condition was required as part of the public interest in ensuring that South Africa will directly benefit from the divestiture of the global businesses of Bayer.
The PCC itself had the possibility to take into account public interest when it reviewed the acquisition by Japan Tobacco International Philippines Inc.’s of Mighty (Tobacco) Corp. in 2018. Merger review typically focuses on the ability of the merging firms to increase the price of the relevant products after their transaction. In this case, an issue that was raised was whether the merged entities’ ability to raise prices should matter, given that the products concerned were cigarettes and tobacco products, which are recognized health risks. In other words, even if the merger would result in higher prices for cigarettes, given the public interest of ensuring the health of the nation’s citizenry, should the PCC prohibit the merger? The Commission decided —rightly so—not to take this public interest issue into account when deciding the case, on the reasoning that its analysis should be limited to the generally accepted competition assessment tool kit. Moreover, the Commission firmly believed that in this case, there are other more appropriate policy instruments available to the government in addressing its public health objectives.
There will certainly arise other situations in the future when the Commission will be compelled to carefully balance competition law enforcement against the broader public interest. Much advice has been given about the need for young competition agencies like the PCC to stick to evidence-based competition analysis when evaluating the likely effects of mergers, and to dispense with public interest considerations when ruling on cases. Supposedly, a more robust analysis that relies on the application of competition disciplines will better withstand legal challenge and lend more credibility to the Commission’s decisions. Further, this school of thought suggests that reliance on amorphous public interest reasons as basis for its decisions gives rise to too much subjectivity and lack of predictability in what is already conceded to be a field of law that depends heavily on economic context.
On the other hand, turning a blind eye to public interest could lead the PCC to being trapped in an ivory tower, where it limits its perspective solely to competition issues, while the rest of the world turns. Clearly, the Commission has to be able to balance its primordial duty to uphold competition and consumer welfare, while at the same time having the requisite sensitivity to issues that afflict the world outside the markets it examines.
Toward this end, the Commission should continue to hone this dual awareness in its less contentious policy advisory role where it provides inputs to proposed laws and regulations of the legislature and other government agencies. For instance, bills that suggest incentives to facilitate the development of certain economic activities are often referred to the PCC. Incentives or subsidies are traditionally seen as capable of distorting the playing field and thus liable to raise competition concerns, and yet, these must be assessed vis-à-vis other policy objectives such as the need to promote clean energy to address climate change.
In time, the PCC should get the balance of interests right.
Commissioner Bernabe served as adviser to the Senate and the House of Representatives in the drafting of, and deliberations on, the Philippine Competition Act. A lawyer by profession, he was a senior fellow at the Geneva-based International Centre for Trade and Sustainable Development and served as the Philippines’s lead trade negotiator on select issues at the World Trade Organization, also in Geneva, Switzerland.
(Originally published on Business Mirror’s Competition Matters column on April 10, 2019 here.)