UNFAIR TRADE PRACTICES KEY FINDINGS OF SURVEY, ANALYSIS AND RECOMMENDATIONS THE CASE OF THE PHILIPPINES Kathrina G. Gonzales, Maureen Ane D. Rosellon, and Josef T. Yap 12 September 2012

Distribution of respondents by sector Sector No. of RespondentsPercent Business Business associations Consumer Government TOTAL40100 ● Survey respondents

Which practices do you think are unfair trade practices? Misleading Advertisement had highest response in this query. Unfair trade practices Business Business associations ConsumerGovernmentTotal Percent Unfair pricing Predatory pricing Tied selling Coercive dealing Misleading advertisement Refusal to deal Resale price maintenance Discriminatory dealing Unreasonably high price Systematic obstruction of competition Fidelity rebates Margin squeeze Abuse of IPR, including harming other businesses reputation

Which of these practices have you ever come across in the course of doing business/in the markets where you shop and/or as regards the products/services you buy/in your country? ● However it seems Unfair Pricing is the UTP that is most encountered Unfair trade practices Business Business associations ConsumerGovernmentTotal Percent Unfair pricing Predatory pricing Tied selling Coercive dealing Misleading advertisement Refusal to deal Resale price maintenance Discriminatory dealing Unreasonably high price Systematic obstruction of competition Fidelity rebates Margin squeeze Abuse of IPR, including harming other businesses reputation

How widespread are these UTPs in the normal business/in the markets where you shop and/or as regards the products/services you buy/use in our country? UTPs are considered to be moderately to highly widespread Response Business Business associations ConsumerGovernmentTotal FrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercent Insignificantly Moderately Highly Extremely Don’t know/can’t say No answer

Do such practices still prevail or they have been resolved? (in percent) ● General Perception is that UTPs still prevail

Do you think these UTPs are negatively affecting the business, especially small and medium-sized enterprises (SMEs)/ the consumer interests/ business environment in our country in any way? (in percent) ● General Perception that impact of UTPs is negative

To what extent do you think that the business/ consumer/overall business environment in our country is affected by the existence of such practices? (in percent)? And the impact of UTPs is moderate to significant

What do you think is the cause of such UTPs? ○ Existence of Monopoly has highest frequency although not majority Causes of UTPsBusinessBusiness associationsConsumerGovernmentTotal FrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercent Discrepancy in the bargaining power of relevant parties Information asymmetry The existence of monopoly Absence of the relevant laws and institutions All of the above Others Don’t know

Name any such rules, regulations, or laws you know. ○Business Firms are generally not aware of important laws related to UTPs Business Business and Consumer associations Government  no return no exchange  price ceiling  everyone should follow same standard or set price  price tag law  intellectual property law  COA rules  anti-cartel/anti-monopoly  Consumer Welfare Act  oil deregulation law  cheaper medicine law  IPO code  DOJ/DTI rules  revised penal code  Republic Act Consumer Act of the Philippines  IPO code  price tag law  civil code of the Philippines  general banking law  revised penal code

Do you think that the existing rules, regulations or laws do a sufficient job to check all unfair trade practices and protect the legitimate rights and interests of the business in general and those of SME’s in particular/protect consumer welfare and competitive process in our country? ○ Business firms seem to be ambivalent about UTPs Response BusinessBusiness associationsConsumerGovernmentTotal FrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercent Yes No Don’t know No answer

Do you recommend that a law or regulation should be enacted specifically to check these practices and protect the consumer more effectively? ○ Business and Consumer Associations are apparently more proactive. Response BusinessBusiness associationsConsumerGovernmentTotal FrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercent Yes No Others No answer

Will you be willing to sign investigation reports as third parties or testify for the Department of Trade and Industry (DTI)/the court if necessary or requested by them? ○ There is apparent reluctance on the part of firms to counter UTPs Response BusinessGovernment FrequencyPercentFrequencyPercent Yes No Depends on circumstances No answer Total251004

Will you be ready to cooperate with investigator(s) of the DTI during the investigation process or with the court during hearings? There is apparent reluctance on the part of firms to counter UTPs Response BusinessBusiness associationConsumerGovernment FrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercent Yes No Depends on circumstances Don’t understand No answer Total

Key Findings Many respondents indicate that UTPs are moderately to highly widespread Overwhelming majority believes that UTPs have adverse impacts on business transactions and consumer welfare. Not many are aware of the legal remedies against UTPs. Business firms interviewed are reluctant to participate in legal action against UTPs. Reluctance implies either of two things: 1) there are gaps in the legal infrastructure to address B2B UTPs; 2) While businesses are aware of the adverse impacts of UTPs, they do not seek to “rock the boat”.

Key Findings Adequate laws to address B2C cases Not many cases are filed: only 3,249 in 2010 and 4,720 in 2011 Case study on misleading advertisement: “DTI- National Capital Region’s records show that numerous administrative complaints have been filed against Aowa Electronic Philippines, Inc. by different consumers, or a total of at least two hundred and seventy-three (273) from the year 2001 until 2007.” Case was filed only in Capacity of DTI to implement law is limited

FGD inputs FGD participants: representatives from the government, consumer and industry associations On low awareness on laws for UTPs: Firms/establishments may not be as aware as the officers of industry associations There is no specific agency or department that handles B2B complaints; Available legal remedy for B2B UTPs – The Consumer Act allows the Department of Trade and Industry to act on B2B complaints if these can be shown to impact on consumer welfare Possible private sector initiative: an industry association may at first mediate if a member firm is reported to be practicing unfair business acts

Policy Recommendations Greater information dissemination on existing laws related to UTPs Enhance capacity of Department of Trade and Industry to handle UTP cases Allow industry associations to mediate UTP cases among their members but provide associations with capacity Closer coordination between business organizations and consumer groups and government Is the private sector its own worst enemy? Lack of culture of competition Competition policy and competition law

감사합니다 Maraming Salamat!!! Terima Kasih ขอบคุณครับ ありがとう Cảm ơn rất nhiều ຂອບໃຈຫລາຍໆ 謝謝你。 THANK YOU !!!