Anti-trust body seeks level playing field for contractors

The Philippine Competition Commission ( PCC) is seeking to level the playing field in the local construction industry as it asked the Supreme Court to nullify the Philippine Contractors Accreditation Board ( PCAB)’ s nationality requirement in its current licensing scheme for contractors.

In its first amicus curiae brief filed before the SC last month, the PCC sent its expert opinion to an ongoing case between the Manila Water Co. Inc. and PCAB, wherein the antitrust authority highlighted the importance of relaxing existing restrictions in the construction industry.

With the construction industry playing an important role in economic development, the PCC said competition in the construction industry would result in improvements in production processes, leading to economic benefits for the country.

“It is a settled principle in economics that if there are many players in the market, healthy competition will ensue. Competition results in better quality products and competitive prices that will benefit the public,” PCC said.

PCAB, as the country’s authorized licensing body, currently issues two types of licenses to contractors – regular and special licenses.

Local firms can be granted a regular license, which gives them continuing authority to engage in many contracting activities throughout a one-year period.

Foreign firms, meanwhile, can only be granted a special license, and they will need to have a separate license for each contract activity.

“These conditions create a substantial difference in cost between foreign and local firms for securing licenses from PCAB,” the PCC said.

Under the PCAB rule that only domestic firms can get a regular license, PCC calculations showed a foreign contractor would have to spend 12 times more for license applications compared to a domestic contractor in a typical year in order to engage in the same level of activity.

“These conditions are not very encouraging for foreign contractors intending to participate in the construction industry,” PCC said.

“The nationality requirement [by PCAB] puts a substantial barrier to the entry of foreign contractors in the construction industry. Ease of entry into an industry is a positive sign of competitiveness,” it added.

In line with this separate licensing scheme, the PCC noted the low participation rates of foreign contractors in the Philippines which range from 10 to 15 percent.

The PCC found that few new licenses were issued and three-fourths

of the total licenses issued were merely renewals or amendments, indicating that the construction industry remained structurally unchanged.

When compared to its Southeast Asian counterparts like Vietnam, Malaysia, Cambodia, and Singapore which have uniform licensing requirements for both domestic and foreign companies, the PCC said the Philippines’ regulatory framework can be considered as “restrictive” due to its limited construction activities and equities available to foreign firms.

“The burdensome requirements could be hampering the entry of new participants, particularly, foreign firms, in the construction industry. It is indicative of how competition in this industry remained relatively stagnant in years,” the PCC said.

“The government must advocate a level playing field where no market participant is given undue advantages that would allow it to gain market share over otherwise more effective and efficient competitors,” it added.

The European Chamber of Commerce of the Philippines has long been lamenting restrictions on international contractors which it said has resulted in the Philippines missing out on a lot of opportunities in foreign investment and technology in the construction industry.

The PCC said it sought to intervene in the pending SC litigation to shed light on the effects of the PCAB regulation on competition. It noted, however, that the decision on whether to admit the information lies at the discretion of the court.

“PCC, as an amicus curiae or friend of the court, is not a party to the case and is not solicited by any party but has strong interest in the subject matter,” it said.

The PCAB- Manila Water case was elevated to the high court just weeks before the Philippine Competition Act was passed in July 2015.

The PCC said the SC ruling on this case is anticipated to make a significant impact on the Philippine construction industry considering that such ruling could either “open up and level the playing field for both domestic and foreign contractors, or preserve the unduly restrictive licensing regime imposed under the assailed regulation.”