To the point: predatory pricing

Appeared in "To The Point" column, Manila Standard Today, by Emil Jurado, on 11 March 2011

"There’s this case filed recently by two Filipino-owned companies against a giant multinational company whose products the local firms distribute. The case bears watching. Service Edge Distribution Inc. and FDI Forefront II Trading Corp. sued Nestle for predatory pricing and perjury.

Predatory pricing is selling one’s products at very low prices to put competitors out of business or discourage them from entering the market. In this case, Nestle allegedly forced SEDI and FDI II to sell products at controlled prices, way below the actual cost of distributing the product, with threat of termination of contract if they failed to do so.

Santa Banana, it’s bad enough to take a low blow against competition. To do something like this to one’s own distributors is one for the books!

The case of perjury involves four top executives of the multinational company who allegedly presented false testimonies as evidence in their counter-affidavits to the complaints filed against them.

Cases such as these that involve not-so-aboveboard practices of some multinational companies doing business in the Philippines give urgency to the passage of an anti-trust law that will protect small and medium enterprises that are owned and managed by Filipinos.

In the Senate, pending are Bill 123 by Senator Serge Osmeña, Bill 1838 by Senator Miriam Defensor Santiago and Resolution 123 by Senator Manny Villar. These call for an inquiry into cartels and monopolies. There is another measure by Senate President Juan Ponce Enrile that prohibits price-fixing and price discrimination.

Representing the private sector in the Senate inquiry is lawyer Lorna Patajo Kapunan, who has brought public attention to the way some multinationals, for the longest time, have taken advantage of the absence of an implementing law that will stop their underhanded practices."

Also available online here.

Anti-trust issues fester

"Anti-trust issues fester"

by Willie S. Baun

Originally published on 08 March 2011, People's Journal, STREETLIGHTS, p. 4

Also available online here.

"WHENEVER a mall opens in a sleepy town, the local community is normally drawn to imaginings of bustling economic activity, hopefully jobs as well, including small businesses in the vicinity linking with the mall to supply it with backdoor goods and services.

But what if the mall owners and operators were a bunch of bullies only out to dominate the local market, or even drive smaller enterprises out of business? Or plague their suppliers with delayed payments and oppress their employees to meet unrealistic production targets?

What then if not just like the small town the Philippines were viewed as such by some giant multinational companies with absolutely no intention, apparently, to be apostles of fair trade helping to grow the domestic economy?

Noted lawyer and anti-trust advocate Lorna Patajo Kapunan has shown the MNC-victimized Filipino entrepreneurs, small and medium enterprise owners, and employees they can fight back – if only to arouse the government to look at their desperate straits.

This was brought to light recently when a client of Kapunan filed a case of predatory pricing and unfair trade practices against a Swiss food and beverage multinational. The client actually was a group of the distributors allegedly driven to bankruptcy by the MNC’s violation of free-market standards.

The group went straight to the Department of Trade and Industry for redress of numerous grievances only to be told, at the end of tedious documentations, that their case was ultra vires, “not within DTI jurisdiction.”

Admittedly, state agencies were at a loss about which bureau has jurisdiction of such cases, not to mention that the penalties for anti-trust and monopolistic conduct are “laughably negligible,” according to Kapunan.

Thankfully, relief is in sight of the distributors and similarly situated small businessmen. Parallel to relevant Senate measures, House Bill 1980 has been filed by Reps. Jack Ponce-Enrile, Rufus by Rodriguez, and (whadyanno?) Gloria Macapagal-Arroyo.

HB 1980 seeks to stiffly penalize “anti-competitive agreements, abuse of dominant power and anti-competitive mergers” and above all, the “establishment of the Philippine Fair Competition Commission.”

In virtual leap from immunity of restraints in trade, the bill threatens the MNC bullies with up to P750-million in fines if found to be in violation of anti-trust regulations.

Moreover, a fine shall be imposed in an amount double the gross proceeds gained by the violators or double the gross loss suffered by the plaintiffs. Damn right, Jose, from a nation of MNC-dependent distributors, the enactment of HB 1980 into law would call for standing ovation.

Kapunan and her clients, of course, deserve a big applause that, I believe, is bound to strike a resonant chord in the Senate and among the hundreds of thousands of small and medium entrepreneurs all over the country."

Special report: possible predatory pricing by Nestle Philippines?

"Is Nestle Phils guilty of predatory pricing?"
by Joel Pablo Salud, Editor, Philippines Graphic
Published online on 06 March 2011; available on the newsstands on 07 March 2011

"Special Report

NESTLÉ Philippines, a subsidiary of the world’s largest food conglomerate Nestlé International (2008 net profit: $16 billion), is facing charges of alleged predatory pricing before the Department of Trade and Industry (DTI).

Locking horns with Nestlé Philippines are its own distributors—Service Edge Distribution Inc. (Sedi) and FDI Forefront II Trading. Both alleged that the multinational corporation “caused them to incur P300 million in losses because of the strict controls and aggressive sales targets of Nestlé.”

According to Lorna Kapunan, legal counsel for the respondents: “The complaint alleged that the pricing policies of Nestlé constituted predatory pricing because Nestlé was selling its products at a very low price, intending to drive competitors out of the market or create a barrier of entry for potential new competitors.”

Predatory pricing

Predatory pricing, by definition, should not be confused with normal price competition. In a nutshell, predatory pricing is the slicing down of prices to levels way below competitive standards for the mere intention of cutting down competitors.

The practice of vertical price restraint pertains to the agreement between manufacturer and distributor on the setting of minimum price levels at which the product can be sold in the market.

Nestlé Philippines denied the allegations in the complaint, claiming that “the individual respondents did not do anything wrong; that the FDI issue is closed because of the quit claim; and that Sedi’s distribution agreement has been received,” according to the distributor’s counsel.

As such, following the legal technicalities that ensued, Nestlé argued in its motion to dismiss that “the DTI has no jurisdiction over the case because it is merely a civil suit masquerading as a regulatory case to escape the payment of filing fees.”

Furthermore, Nestlé insisted that respondents had failed to solidify a case of predatory pricing by “failing to hurdle the two-pronged test in the US case of Brooke v Brown.”

“We filed our oppositions on the two motions, arguing that the grounds cited in the motions to dismiss is best thrashed out in the trial on the merits and that the hearing officer only followed its mandate to arrive at a just resolution of the case in a speedy and expeditious manner,” counsel for the respondents said.

The hearing officer thereafter issued an order requiring the Bureau of Trade Regulation and Consumer Protection of the DTI to see if there is “probable cause” to file a formal charge against Nestlé.

“We filed a manifestation stating that a formal charge is to enforce the administrative liability and not criminal liability as implied by the term ‘probable cause,” counsel for the respondents explained. “We also informed the DTI that we have filed a criminal case in Quezon City to enforce the criminal liability of Nestle.”

Also last year, following an independent investigation of the case at hand, one of the country’s largest banks—Banco de Oro—hauled Nestlé Philippines in a P170-million legal debacle. To be concluded *This article is originally published in this week’s issue of The Philippines Graphic magazine, which hits newsstands Monday, March 7."

Remembering PNoy's SONA

State of the Nation Address
of His Excellency
Benigno S. Aquino III
President of the Philippines
to the Congress of the Philippines
Session Hall of the House of Representatives
July 26, 2010
[Batasan Pambansa Complex, Quezon City]

"According to our Constitution, it is the government's duty to ensure that the market is fair for all. No monopolies, no cartel that kill competition. We need an Anti-Trust Law that will give life to these principles, to afford Small- and Medium-Scale Enterprises the opportunity to participate in the growth of our economy."

Mr. President, let's hope you deliver on your promise for greater protection for the Filipino SMEs!

Full video of PNoy's SONA available on YouTube here.

Supermarket association attends Senate anti-trust public forum

"PAGASA at Senate Committee on Trade & Commerce"
By Wave Technologies, Inc., originally published 10 February 2011, at the Philippine Amalgamated Supermarket Association Incorporated website here.


Atty. Lorna Kapunan at the podium (Image from PAGASA site here)

"PAGASA [Philippine Amalgamated Supermarket Association Incorporated] was invited as an observer at the Senate Committee on Trade & Commerce, Committee on Economic Affairs and Special Oversight Committee on Eco. Affairs’ Lecture Forum: “Understanding Antitrust.” At the podium is Atty. Lorna P. Kapunan with her critique on existing and fragmented legislations on antitrust. Other presenters were DTI Usec. Zenaida C. Maglaya and Ateneo’s Atty. Anthony Abad. The forum was headed by Senate Pres. Juan Ponce Enrile and Senator Manuel Villar."

Highlights of proposed anti-trust bills

"Anti-trust"
by Ducky Paredes
Originally published in Malaya, 04 March 2011, BUSINESS INSIGHT.

"AFTER years of futile attempts, Congress seems to have generated the political will to enact an anti-trust law that would curb the abuses of big business, particularly giant foreign multinational companies that have been getting away with monopolistic and unfair trade practices.

Recently, the Senate Committee on Trade and Commerce held a forum for the discussion of laws aimed at preventing monopolies, combinations in restraint of trade, abuse of dominant power, and unfair competition practices.

The committee invited resource persons from the government and the private sector. They provided valuable inputs and shared their insights on prevailing anti-trust practices. Among them were Undersecretary Zeny Maglaya of the Department of Trade and Industry (DTI), lawyer Anthony Abad of the Ateneo Center for International Economic Law and consumer advocate Lorna Patajo-Kapunan, who is also a prominent law practitioner.

In particular, Kapunan made a presentation that, among other things, provided clear examples of the unfair trade practices of a foreign multinational that drove several of its Filipino distributors to bankruptcy, resulting in huge financial loses that forced them to lay off hundreds of employees.

Kapunan deplored the weaknesses, ambiguities and inadequacies of current laws "that not only subject our local businessmen to bullying and exploitation but actually encourage these practices because of the leniency of existing legislation."

She pointed out that the bullying behavior of large corporations exerts negative effects on the economy. "Just look at these distributors. They are entrepreneurs who were financially wiped out due to unethical business practices of their principals. Businesses have collapsed, jobs have been lost and many lives have become miserable. That is why we need carefully worded and well-crafted anti-trust legislation,’’ said the lady lawyer who has been engaged in a continuing and sustained campaign for the passage of such legislation.

Lucky for us consumers, as well as for these distributors, key members of the Senate are hot on enacting the needed laws. Precisely for that purpose, Senate President Juan Ponce Enrile filed Senate Bill 123, with Senators Ralph Recto and Antonio Trillanes as IV as co-authors.

Similar bills were also filed by Senator Miriam Defensor-Santiago (S. B. 1838), Sergio Osmeña III (S. B. 150), and Senator Panfilo Lacson (S. B. 1600). Senator Manny Villar has also sponsored Proposed Senate Resolution 123 urging inquiry into cartels and monopolies.

Similar measures have also been filed in the House of Representatives.

The most recent is a bill (in substitution of 12 other similar bills) by Cagayan Congressman Jackie Ponce-Enrile, with Cagayan de Oro City Congressman Rufus Rodriguez as main sponsors with more than 70 other co-authors.

The bill would create an independent Philippine Fair Competition Commission to regulate trade practices, promote ethical business conduct in the country and implement the national policy on fair trade competition. It would penalize anti-competitive agreements, abuse of dominant power and anti-competitive mergers.

So what exactly is an anti-trust law? It is one that aims to prevent the emergence of trusts which come in the form of "mergers, acquisition of control, or any act whereby companies, partnerships, shares, equity trusts, among others.

Assets are concentrated among competition, suppliers, customers or any other business entity." Such a situation is considered inimical to public interest as they usually lead to the rise of unlawful monopolies, combinations in restraint of trade, and unfair competition practices.

A monopoly emerges when a certain type of business or industry is concentrated in one group or in the hands of a few. It prevents the existence or the emergence of competition and can result in the control of prices, or the production and distribution of certain goods and commodities. Hence, even legitimate mergers of companies or business consolidations can lead to monopolies.

Combinations in restraint of trade, on the other hand, refer to "an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding company or other form of association." Its purpose is to restrict competition, monopolize the trading of a certain commodity, and control its pricing, production and distribution. This results in interference in the free flow of trade and commerce, to the prejudice of consumers. Thus is monopoly achieved.

Unfair competition arises when a dominant business resorts to such practices as price manipulation, spreading false information aimed at discrediting competition, monopolizing any merchandise or commodity, or conspiring with other persons to alter the price of certain goods in order to ruin competition and maintain or increase one’s dominance of the market.

Generally, an anti-trust law is intended to harmonize the legal and regulatory system governing the operation of business. It seeks not only to promote the welfare of consumer but also to prevent giant business firms from bullying and exploiting weaker and undercapitalized businesses, particularly the so-called SMEs or the small and medium enterprises.

Anti-trust legislation is anchored on provisions of the Philippine Constitution, particularly Sections 19 and 22 of Article XII. Section 19 provides that "The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed."

On the other hand, Section 22 calls for the enactment of laws that would impose civil and criminal penalties against parties who violate the prohibitions. This provision specifically states: "Acts which circumvent or negate any of the provisions of this article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law."

Why are others so eager to call for amendments to our constitution, when we have not yet even touched some of the tasks that it mandates for the State?"

*Original article also available online here.

Nestle: clean up your mess!

"Nestle Philippines' Centennial: Clean Up Your Mess!"

By EQ PostSentinel, originally published on 03 March 2011 here.

Excerpts:

"Nestle:1911-2011

In 2011, Nestlé will celebrate 100 years in the Philippines. One hundred years of service to the Filipino consumer is a great source of pride within our company and it is fitting that most of the Tanauan factory’s construction will take place during Nestlé Philippines’ centennial, signifying our continuing commitment to the country.” JohnMiller, Nestle Philippines CEO

John Miller:Current President and CEO of Nestle Philippines Inc.

Problems did not occur under him but being unfamiliar with the situation or perhaps covering his own ass, he does not want to “take the bull by the horns”. He allegedly lets his committee decide what should be done, whether right or wrong, especially with how they are trying to weasel their way out of problems. Could be guilty of sin of omission. Must step up and be morally upright to salvage reputation.From Consolidated Amalgamated

Why does NESTLE have such a bad corporate reputation in spite of its excellent products?

1) They try to muzzle the press.

With the aid of their large advertising budgets,Nestle Philippines media team work on mainstream media to recycle press releases and to suppress news that might adversely affect Nestle.

EXAMPLE:The news blackout on Milo Marathon tragedy.

Is it true that a man collapsed and died of heat stroke two days after in the recent 34th Milo Marathon eliminations last July 4 and Nestle is suppressing the news in mainstream media??? EQualizer Post :July 16

There has been no report on this tragedy in mainstream media!

2) They bully their trade customers.

In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers for entry by potential new competitors. In the Philippines, or in the crap that Nestle Philippines pulls, it's the distributors who are the victims of this nefarious practice.

Distributors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. Nestle is able to meet its quota while leaving its distributors losing money or worse borrowing money just to keep its business afloat. It's a vicious cycle and they can hardly raise prices above what the market would otherwise bear.

In many countries predatory pricing is considered anti-competitive and is illegal under anti-trust laws. It is usually difficult to prove that prices dropped because of deliberate predatory pricing rather than legitimate price competition. In any case, competitors may be driven out of the market before the case is ever heard.

In the short term predatory pricing through sharp discounting reduces profit margins, as would a price war and will cause profits to fall.

The only winner is that bird on the damned nest.

That is why the Department of Trade and Industry should step in. Down with these multinational buggers! From Consolidated Amalgamated "

*Read full article in the Equalizer here.