UNFAIR TRADE PRACTICESKEY FINDINGS OF SURVEY, ANALYSIS AND RECOMMENDATIONSTHE CASE OF THE PHILIPPINESKathrina G. Gonzales, Maureen Ane D. Rosellon, and Josef T. Yap12 September 2012

Distribution of respondents by sector Survey respondents

SectorNo. of RespondentsPercentBusiness2562.5Business associations717.5Consumer410.0Government410.0TOTAL40100

Which practices do you think are unfair trade practices?

Misleading Advertisement had highest response in this query.

Unfair trade practicesBusinessBusiness associationsConsumerGovernmentTotalPercentPercentPercentPercentPercentUnfair pricing76.085.710075.080.0Predatory pricing48.085.710050.060.0Tied selling60.057.110075.065.0Coercive dealing56.057.110050.060.0Misleading advertisement84.010010075.087.5Refusal to deal52.042.910025.052.5Resale price maintenance28.042.975.0032.5Discriminatory dealing60.085.710075.070.0Unreasonably high price64.010010050.072.5Systematic obstruction of competition64.071.4010050.067.5Fidelity rebates24.028.675.025.030.0Margin squeeze36.071.475.050.047.5Abuse of IPR, including harming other businesses reputation60.085.710075.070.0

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 practicesBusinessBusiness associationsConsumerGovernmentTotalPercentPercentPercentPercentPercentUnfair pricing48.042.950.010052.6Predatory pricing8.057.150.050.025.0Tied selling20.071.425.075.035.0Coercive dealing20.014.325.050.022.5Misleading advertisement32.071.475.075.047.5Refusal to deal8.028.675.025.020.0Resale price maintenance8.028.625.0012.5Discriminatory dealing20.028.625.050.025.0Unreasonably high price20.071.475.075.040.0Systematic obstruction of competition24.028.625.0022.5Fidelity rebates12.028.650.0017.5Margin squeeze12.028.60012.5Abuse of IPR, including harming other businesses reputation24.028.625.075.030.0

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

ResponseBusinessBusiness associationsConsumerGovernmentTotalFrequencyPercentFrequency PercentFrequencyPercentFrequencyPercentFrequencyPercentInsignificantly14.000125.00025.0Moderately1456.0114.3250.0125.01947.5Highly936.0457.100125.01435.0Extremely00.0228.6125.00012.5Dont know/cant say14.000020.0125.0410.0No answer000000125.012.5

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

Chart1

1614.32550

7671.47550

814.300

Business

Business associations

Consumer

Government

Sheet1

BusinessBusiness associationsConsumerGovernment

Yes1614.32550

No7671.47550

No answer814.300

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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

Chart1

8071.410075

4000

12000

3.828.6025

Business

Business associations

Consumer

Government

Sheet1

BusinessBusiness associationsConsumerGovernment

Yes8071.410075

No4000

Dont know/cant say12000

No answer3.828.6025

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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

Chart1

40250

520250

3257.12550

414.32525

0000

828.6025

Business

Business associations

Consumer

Government

Sheet1

BusinessBusiness associationsConsumerGovernment

Insignificant40250

Moderately520250

Significantly3257.12550

Extremely414.32525

Dont know/cant say0000

No answer828.6025

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What do you think is the cause of such UTPs?

Existence of Monopoly has highest frequency although not majority

Causes of UTPsBusinessBusiness associationsConsumerGovernmentTotalFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentDiscrepancy in the bargaining power of relevant parties832.0342.9250.0001332.5Information asymmetry312.0228.6250.000717.5The existence of monopoly1040.0571.4250.0001742.5Absence of the relevant laws and institutions416.0457.1375.0125.001230.0All of the above1144.0114.3250.0125.001537.5Others28.0114.300250.00512.5Dont know14.000000012.5

Name any such rules, regulations, or laws you know.

Business Firms are generally not aware of important laws related to UTPs

BusinessBusiness and Consumer associationsGovernmentno return no exchangeprice ceilingeveryone should follow same standard or set priceprice tag lawintellectual property lawCOA rulesanti-cartel/anti-monopolyConsumer Welfare Actoil deregulation lawcheaper medicine lawIPO codeDOJ/DTI rulesrevised penal codeRepublic Act 7394 - Consumer Act of the PhilippinesIPO codeprice tag lawcivil code of the Philippinesgeneral banking lawrevised 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 SMEs in particular/protect consumer welfare and competitive process in our country?

Business firms seem to be ambivalent about UTPs

ResponseBusinessBusiness associationsConsumerGovernmentTotalFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentYes1144.00000375.01435.0No416.07100375.0125.01537.5Dont know312.000125.000410.0No answer728.0000000615.0

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.

ResponseBusinessBusiness associationsConsumerGovernmentTotalFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentFrequencyPercentYes1872.071004100375.03280.0No312.000000037.5Others0000000000No answer416.00000125.0512.5

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

ResponseBusinessGovernmentFrequencyPercentFrequencyPercentYes 14.0250.0No936.0125.0Depends on circumstances1144.000No answer416.0125.0Total251004100

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

ResponseBusinessBusiness associationConsumerGovernmentFrequencyPercentFrequencyPercentFrequency PercentFrequencyPercentYes 28.0342.9375.0250.0No1248.00000125.0Depends on circumstances1144.0342.9125.000Dont understand00000000No answer00114.300125.0Total25100710041004100

Key FindingsMany respondents indicate that UTPs are moderately to highly widespreadOverwhelming 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 FindingsAdequate laws to address B2C casesNot many cases are filed: only 3,249 in 2010 and 4,720 in 2011Case study on misleading advertisement: DTI-National Capital Regions 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 2008.Capacity of DTI to implement law is limited

FGD inputsFGD participants: representatives from the government, consumer and industry associationsOn low awareness on laws for UTPs: Firms/establishments may not be as aware as the officers of industry associationsThere 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 welfarePossible private sector initiative: an industry association may at first mediate if a member firm is reported to be practicing unfair business acts

Policy RecommendationsGreater information dissemination on existing laws related to UTPsEnhance capacity of Department of Trade and Industry to handle UTP casesAllow industry associations to mediate UTP cases among their members but provide associations with capacityCloser coordination between business organizations and consumer groups and governmentIs the private sector its own worst enemy? Lack of culture of competitionCompetition policy and competition law

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**Most Practiced UTPs. 35 out 40 respondents (87.5 percent) consider misleading advertisement as the most prevalent UTP. Apart from misleading advertisement, over 70 percent of all respondents perceive unfair pricing, unreasonably high price, discriminatory dealings, and abuse of intellectual property rights (IPRs) to be a UTP. Systematic obstruction of competition figured prominently among the respondent firms and the business associations.

*Most encountered UTPs. 53 percent answered with unfair pricing. This was the response with greatest frequency for both the business firms and government offices. This is not unexpected because changes in pricing can easily be felt as compared to other UTPs.

*How widespread UTPs are? 14 out of the 25 of the business sector respondents see UTPs in their normal business as moderately widespread while another 9 consider them to be highly widespread. In the case of business associations, 2 of the 7 actually indicated extremely widespread as their response while 58 percent observe that UTPs are highly widespread.

These responses give rise to the following observations: i) there is strength in unity meaning that business groups tend to give bolder answers than individual firms; and ii) the private sector considers UTPs as a problem.Meanwhile, one consumer group considers UTPs as insignificantly widespread while two of the four believe that UTPs are moderately widespread. One out of the four respondents from the government sector either does not know or cannot say how widespread UTPs are in the Philippines and one had no answer. This indicates that the government does not consider UTPs as a priority.

*Resolving UTPs. A great majority of respondents 72.5 percent believes that UTPs are still prevailing or have not yet been resolved.

What should be a source of concern is that two of the four government agencies who participated in the survey answered that they believe the UTPs have been resolved*Resolving UTPs. A great majority of respondents 72.5 percent believes that UTPs are still prevailing or have not yet been resolved.

What should be a source of concern is that two of the four government agencies who participated in the survey answered that they believe the UTPs have been resolved*Resolving UTPs. A great majority of respondents 72.5 percent believes that UTPs are still prevailing or have not yet been resolved.

What should be a source of concern is that two of the four government agencies who participated in the survey answered that they believe the UTPs have been resolved*Primary Source of UTPs. 17 of the 40 respondents responded the existence of monopoly. 15 of the respondents also believe that all of the above cause UTPs. Interestingly, business and consumer groups also cite the absence of relevant laws and institutions as a primary cause of UTPs.Only 4 out of the 25 respondents from the business firms cited the absence of relevant laws and institutions as a cause. One reason is that 21 of the 25 are not aware of rules, regulations or laws related to UTPs or simply answered do not know. As would be expected, business and consumer associations are generally aware of the laws since 100 percent and 75 percent of them, respectively, said yes.

*Awareness of UTPs laws or rules. The respondents provided the laws or rules that they are aware of. It is clear from the responses that respondents from the business firms are not aware of the important laws that are related to UTPs. Meanwhile, business and consumer associations cited many of the relevant laws.

*Existing rules, regulations or laws. 11 out of the 25 business sector respondents think that the existing rules, regulations or laws are doing sufficient job to check all UTPs with some respondents commented that monitoring of these rules should be established and stricter implementation should be followed. *On the business and consumer associations side, all 11 respondents recommend having laws or regulations enacted specifically to check UTPs and to protect them more effectively.*When asked if they will be willing to sign investigation reports as a third party which deals with UTPs in court, there seems to be a lot of hedging on the part of business firms since only one respondent gave an outright yes. Nine of the 25 indicated no although 11 answered that it depended on the circumstances. This proves the reluctance of the private sector to cooperate in investigations against UTPs. *While three of the seven business associations indicated outright willingness, three also stated that it depended on the circumstances. Twelve of the 25 business firms even declined to participate.*****