ANTI-TRUST CASE AGAINST NESTLE PHILIPPINES FILED IN RTC QC

SEN. VILLAR CALLS FOR THE PASSAGE OF AN ANTITRUST LAW (PART 1)

"Time to pass an antitrust law"
by
Sen. Manny B. Villar
BUSINESS MIRROR, Entrepreneur, 19 September 2011
(Original article available here)

First of two parts

"The time is ripe for the Philippines to enact a comprehensive antitrust law. Let me tell you why.

First, the global financial crisis of 2008, which plunged two-thirds of the world into recession and which continues to threaten the developed economies, has shifted the flow of capital into emerging markets, such as the Philippines, which are now leading economic growth and offering better returns for investments.

The Philippines can expect a bigger share of foreign investments as a result of this shift in capital flow because of its strategic location. It is close to China, which is aggressively investing in other countries not only to make money but to ensure adequate supplies of raw materials and intermediate goods for its own industries.

Second, the volatility in the prices of essential goods like oil and other food commodities, which must be imported. We have to import rice because of our inability to produce enough rice for domestic consumption. We also have to import wheat (for flour) because we don’t grow this cereal.

Third, there are so few players in many of our industries, providing the temptation and the environment for the operation of cartels and monopolies.

The hearings conducted by the Senate Committee on Economic Affairs, of which I’m chairman, and the Committee on Trade and Commerce, on several bills and a resolution proposing the enactment of an antitrust law underscored the relevance and the urgency of such legislation.

In particular, Senate Resolution 123, which I introduced, expresses concern about the undue advantage that cartels and monopolies pose over our micro, small and medium enterprises.

During the hearings, Trade and Industry Undersecretary Adrian Cristobal stressed that a competition or antitrust law would promote investments and facilitate trade between the Philippines and other countries. Attorney Lorna Patajo-Kapunan explained that antitrust provisions could be found in existing laws like the Revised Penal Code, New Civil Code and the Consumer Act of the Philippines.

However, these provisions do not provide for clear-cut guidelines or evidence to determine whether an act constitutes unfair competition, monopolistic behavior or restraint of trade.

Attorney Anthony Abad, managing director of the Trade Advisory Services of the Ateneo Center for International Economic Law, said it was fortunate that the 15th Congress was prioritizing the antitrust bill, enactment of which would have a transformative effect on the way business is done in the country.

The Constitution itself provides the basis for the enactment of an anti-trust law. Under Article XII, Section 19, the state is mandated to “regulate or prohibit monopolies when public interest so requires” and disallows “combinations in restraint of trade or unfair competition.” Section 22 of the same article provides: “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.”

Monopolies exist when one major company has enough power to dictate the prices, quality and selection of products and services, thereby becoming very powerful because competitions are not big enough to threaten that company.

On the other hand, a cartel is a group of companies producing the same product or service which, instead of competing with each other, agree to jointly control the price or supply of their common product or service, to the detriment of consumers.

Since consumers have no other product choices, monopolies or cartels can increase or decrease prices at will. In the end, the people who suffer most are those who already have low purchasing power like the minimum-wage earners or small entrepreneurs.

To this day, the Philippines does not have a comprehensive and developed legislation relating to antitrust and monopoly activities.

We need a comprehensive law that will give meaning to the principles of fair market and discourage monopolies, to afford our micro, small and medium enterprises the opportunity to participate in the growth of our economy.

The Senate Committees on Economic Affairs and on Trade and Commerce have come up with a draft bill, which consolidates Senate Bill 1 introduced by Senate President Juan Ponce Enrile together with Senators Ralph Recto and Antonio Trillanes; Senate Bill 123 by Sen. Serge Osmeña; Senate Bill 1838 by Sen. Miriam Santiago and my Senate Resolution 123.

The consolidated measure, when enacted into law, will encourage competition in the marketplace, help reduce prices and increase the quality of products or services for the benefit of consumers."

MORE ON THE COMPETITION AUTHORITY

"DOJ as competition authority"
by
Lito U. Gagni
BUSINESS MIRROR, Market Files, 20 September 2011
(Original article available here)

"CAN the Department of Justice (DOJ) pursue a similar line of complaint that the US DOJ advocated against a looming merger between AT&T and T-Mobile on issues of dominance that is now the subject of a controversy involving Philippine Long Distance Telephone Co. (PLDT) and Digital Telecom, which owns Sun Cellular? This merger issue, we believe, is at the heart of an executive order that sought to make DOJ as a competition authority.

As of yesterday, the state attorneys general of New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania have joined the US Justice Department in its suit against the proposed acquisition by AT&T of T-Mobile.

One needs only to look at what is happening in the US to determine that the proposed acquisition by PLDT of Sun Cellular would mean a 70-percent control of the frequency, the digital roadway, which smacks of dominance and goes against the grain of letting competition dictate the tempo of the business game. This is why it is important to look at what’s happening in the US in the business of telcos to know that PLDT’s acquisition of Sun would have the same impact as that of AT&T’s on T-Mobile and should, therefore, be an occasion for the DOJ to pursue its mandate as the competition authority.

No less than President Aquino sounded the alarm on the return of the monopolies. Remember that it was during the dark days of the monopoly of PLDT when 98 percent of the population was waiting for a line and 2  percent was waiting for a dial tone. This quotable quote from Singapore’s Lee Kwan Yew was what possibly moved then-President Fidel V. Ramos to open the telco industry to other players.

That opening of the telecom industry to other players is what allowed the Philippines to become an investment destination and now we are reaping the benefits of that Ramos vision to rid the sector of the monopolistic situation. As a result, thousands of jobs were created, with the business-process outsourcing industry leading the way. It is thus unfortunate to know that the telco sector is again being threatened by the PLDT-Sun deal. Perhaps, the DOJ can look at the options open to prevent a repeat of the problem. For starters, it may want to google the AT&T-T-Mobile deal and discover how US state attorneys are doing it.

xxx"

POINT OF LAW: ANTI-TRUST WORTHY?

"Is It Antitrust Worthy?"
by
Francis Ed Lim
PHILIPPINE DAILY INQUIRER, Point of Law, 15 September 2011
(Original article available here)

"Since President Aquino mentioned a new antitrust law in his first State of the Nation Address, much work has been done on the antitrust bills filed in Congress.

Legislative hearings have been concluded and proponents say that after decades of waiting (since the Eighth Congress, I’m told), we will finally have a unified, up-to-date and comprehensive antitrust or competition law.  

What are antitrust laws? Antitrust or competition laws are laws that regulate and maintain market competition by prohibiting or regulating anti-competitive behavior. Three acts that antitrust laws normally seek to prohibit are monopolies, cartel-like behavior and abuse of dominant market position.

In an economic sense, antitrust laws are in place to promote a freer market and more open trade, which will result in substantial efficiency and welfare gains for everyone.

A hot topic

The proposed acquisition of Digitel by PLDT has sparked even more interest on an antitrust law for the country. Globe, a competitor, argues that the transaction will lead to PLDT controlling close to 70 percent of the market and will eventually lead to higher prices and rates. However, PLDT and Digitel maintain that the deal will result in continued “unli” benefits, to use telco lingo, for consumers.

Aside from the PLDT-Digitel deal, Nestlé has its own antitrust controversy: Allegedly, it has been engaging in predatory pricing to drive out competition from the market. Expectedly, Nestlé contends that its products are not the cheapest in the market and that competition among lower-priced products remains intense.

Justice Secretary Leila de Lima also had reportedly ordered a review of antitrust cases filed against Fraport AG (Fraport), a German company, and its local partner Philippine International Air Terminals Co. (Piatco), in connection with the Ninoy Aquino International Airport Terminal 3.

Interestingly, perhaps in an attempt to respond to these antitrust controversies, the President issued Executive Order No. 45, which created an Office of the Competition Authority in the Department of Justice, to help enforce our antitrust laws.

Current law

This is not to say that our country has no antitrust laws at all. From myriad sources of law, one can find snippets of an anti-competition framework that serves as some sort of precedent for the current bill.

Foremost is Article XII, Section 19, of the Constitution, which mandates the State to regulate or prohibit monopolies when required by public interest and at all times to prohibit combinations in restraint of trade and other unfair competition practices.

There are implementing pieces of legislation, like the Revised Penal Code which, in Article 186, punishes monopolies and combinations in restraint of trade.

Meanwhile, the Civil Code under Article 28 authorizes the collection of damages arising from unfair competition in agricultural, industrial or commercial enterprises or in labor.

There are other laws that attempt to penalize anti-competition activities. However, with very few exceptions, many of these laws have but skeletal provisions and do not provide meaningful guidance to the market on how our competition policy should be implemented.

Salient features

What is clear from the bills (at least after the Senate and House committee hearings) is that they do not prohibit monopolies per se, perhaps taking their cue from the Constitution and our Asean neighbors.

At the core of the bills are more detailed provisions on anti-competitive agreements (like price-fixing, market allocation), abuse of dominant position (like predatory pricing), anti-competitive mergers and more detailed enforcement mechanism.

Unlike its Senate counterpart, the House version proposes to create a five-man Philippine Competition Commission as a single venue for anti-competition issues. Similarly, the House version proposes to adopt non-adversarial methods of enforcement, like a request for binding ruling to make the law more business-friendly.

Anti-antitrust law

There are, of course, those who are against an antitrust law. Some economists argue that the need for an antitrust law stems from the wrongful notion that an unhindered and unregulated market leads to coercive monopolies. They assert that no unfair monopoly can ever be created by means of free trade in a free market economy.

Surely, there are policy issues yet to be decided in the plenary sessions of both Houses before an antitrust law becomes part of our statute books.

A basic policy issue, of course, is whether we really need a new antitrust law. If so, do we adopt the American system or the European model? What acts should be outlawed and what type of enforcement mechanism should be adopted considering the stage of our economic development? Should the law go for a separate competition commission or just create an office in the DoJ? How should the competition authority interface with other government agencies, like the Department of Energy, Department of Trade and the Securities and Exchange Commission on antitrust-related matters that, by law, are currently under their jurisdiction?

The big question is, whether a new antitrust law will finally see the light of day or will the bills suffer the same fate as the preceding measures?

Your guess is as good as mine.

(The author, formerly the president and CEO of the Philippine Stock Exchange, is now the co-managingpartner and head of the corporate and special projects department of Accralaw. He may be contacted at felim@accralaw.com.)"

Nestle execs face trial

"A Climate of Uncertainty"
by Emil Jurado
MANILA STANDARD, To The Point, 06 September 2011
(Original article available here)

"***

Calls for the passage of an effective and all-embracing anti-trust law in the country appear to have received renewed interest in the wake of a resolution handed down by the Office of the Quezon City Prosecutor in a case filed against multi-national Nestle Philippines Inc.

In an August 15 resolution, City Prosecutor Donald Lee approved the recommendation of First Assistant City Prosecutor Meynardo Bautista Jr. that charges be filed in court against high officials and executives of NPI for violation of Article 186 of the Revised Penal Code.

This particular provision contains a prohibition against entering into, or being a party to, any contract or agreement, or from taking part in any conspiracy or combination in restraint of trade or commerce, for the purpose of preventing by artificial means, free competition.

Those recommended for indictment are NPI chairman and CEO John Martin Miller, Chief Finance Office Peter Oszek, Business Executive Manager Shahab Bacani, Regional Sales Manager Jose Ceballos and Area Sales Manager Elisa Lupena.

***

The case stemmed from complaints filed against Nestle by service Edge Distributors Inc. and FDU Forefront II Trading Corp. (FDI 2), two Filipino firms serving as distributors of Nestle products in Metro Manila.

The allegations against Nestle include predatory pricing, violation of the terms of distribution agreement between Nestle and the two distributors, unjust termination of the said agreement, imposition of inflexible price bulletins that resulted in huge losses to the distributors, unilateral withdrawal of promised marketing support, perjury and offering false testimony in evidence.

Investigations established the existence of a vertical agreement between Nestle and its distributors, wherein the former fixes the resale price of the products. The agreement compels the distributors to sell the goods only at the price dictated by Nestle, otherwise, their distributorship contract will be revoked.

The resolution also said that the respondents, who were then officials of Nestle Philippines, Inc., knowingly committed the crime or permitted or failed to prevent the commission of the said crime. Hence, they are criminally liable.

Nestle was also accused of fixing the resale price of its products and imposing upon its distributors that these prices be maintained. This is in violation of Article 18 of the Revised Penal Code, which says that price fixing is automatically illegal and there will be no valid justification to legitimate price-fixing agreement.

If I may read between the lines, I would say that the resolution represents a triumph not only of the two Filipino distributors, but also of the common Filipino consumer. This case sends a strong message to other multinationals that their abusive practices will not be tolerated. Significantly, it also encourages similarly situated Filipino distributors and marketing outfits that they can rely on the government to uphold and to protect their rights."

NESTLE PHILIPPINES: MONSTER MNC

"MONSTER MNC IS 100"
by Ducky Paredes
MALAYA, Business Insight, 05 September 2011
(Original article available here)

"PEOPLE and multinational corporations both have birthdays but with a big difference. Humans tend to become kinder as they approach the end of their time on earth; multinationals get to be more powerful and, as their reach expands, more dominant, exploitative and even criminally abusive. Not all, of course; as with humans, there are good and bad multinationals.

One multinational celebrated its hundredth year recently by bullying and throwing its weight around to the detriment, not just of its competitors, but also even of its own business partners.

At last, the multinational is getting its comeuppance. For starters, the force of the law, imperfect as it is in this country, seems to be working against the multinational. A judge is looking them over and entertaining complaints filed by Pinoys who were abused by the MNC and forced into a state of near-bankruptcy.

There is even more trouble due the MNC in the form of bills pending in the Senate and the House of Representatives intended to improve current laws against monopolistic behavior, predatory pricing and restraint of trade, sponsored by Senate President Juan Ponce Enrile, Senator Sergio Osmeña and Representative Rufus Rodriguez. .

The giant multinational, which is Nestle Philippines, Inc. (NPI), just turned 100 recently. Nestle, as with most other MNCs, celebrated its longevity by launching corporate social responsibility (CSR) projects backed up by lavish advertisements in print, radio, television and cinema showing how the multinational has been a good corporate citizen. In the case of Nestle in the Philippines, one wonders whether this the true picture of the company.

NPI’s festivities were somewhat rained on when the Office of the City Prosecutor of Quezon City issued a resolution on August 15 finding sufficient evidence to hold NPI for trial for violation of Article 186 of the Revised Penal Code.

This article penalizes any person "who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, which results in restraint of trade or commerce and prevents, by artificial means, free competition in the market."

The resolution found merit in the complaint filed by Nestle distributors FDI Forefront II Trading Corporation and Service Edge Distributors, Inc. that their agreements with Nestle were anti-competitive since they were obligated to sell Nestle products at the price fixed by NPI, regardless of the fact that the set price provided too thin a margin for the distributors to make a profit. Failure by the distributors to sell under these terms would result in the unilateral termination of their agreement with NPI. Their complaint pointed to a situation when NPI forced them to sell to a set of customers at a loss because of the fixed price set by NPI.

According to the QC Prosecutor’s resolution, "the act of Nestle in fixing the resale price maintenance for its products, imposing it on complainant is illegal, a per se violation of paragraph 1 of Article 186, Revised Penal Code which means that price fixing is automatically illegal and there will be no valid justification to legitimate price fixing agreement."

The resolution further stated that an analysis of the agreement shows that the act is also unlawful "because of its harmful anti-competitive effects against consumers and complainants, with no competitive economic benefits. Harmful to the consumers because Nestle exercised monopoly power of price fixing, the resale of its goods which means that consumers cannot buy the product at a lower price than that fixed by Nestle."

High ranking NPI executives, former Chief Executive Officer Doreswamy Nandkishore, current CEO John Martin Miller, Shahab Bahcani and Peter Noszek were impleaded for conspiring to commit anti-competitive acts as they were found to have knowingly committed the crime or to have permitted or failed to prevent the commission of the crime, and will stand trial before a Regional Trial Court of Quezon City.

The resolution is a welcome development, not only to the complainants, but to those who support the passage of an Anti-Trust Law, coming as it does on the heels of President Noynoy Aquino’s signing of Executive Order No. 45 giving full jurisdiction to the Department of Justice over matters related to competition and fair trade practices.

Lawyer Lorna P. Kapunan recalled the president’s assurance that the matter of monopolies and corporate bullying tactics was one of the first issues that he would look into. "His signing that E.O. shows that he is taking active steps to back up his promise," Kapunan said.

Nestle insiders say that the top honchos in the company’s main office in Switzerland are closely monitoring the woes that the local hundred-year-old outfit is experiencing. The rift between NPI and its distributors was reportedly on the agenda when the mother company’s chief executive Paul Burke and executive vice president Frits Van Dijk came all the way from Switzerland to meet with NPI officials (and also incidentally, to participate in the company’s centennial celebration).

Will the mother company in Switzerland do anything to convert the image of the centenarian company into a more grandfatherly one in its dealings with its business partners or will Nestle continue to exhibit the worst traits of a MNC monster?"