End of construction cartels?

Posted by watchmen
September 7, 2020
Posted in OPINION

It is not often that we hear of news of the Solicitor General losing a case in the Supreme Court. The top government lawyer has been on a winning streak in sensational cases where partisan lines are sharply drawn and decisions are difficult to render. 

However, in a decision that it recently promulgated on a suit filed by Manila Water, the Supreme Court preferred the legal position of the Philippine Competition Commission (PCC) over that of the Solicitor General and the Philippine Contractors Accreditation Board (PCAB).

The Supreme Court said that it is illegal for PCAB to enact a rule that says that foreign construction companies are only entitled to a special contractors’ license when involved in a Philippine project.

This means that from now on foreign firms stand at parity with Philippine construction contractors in applying for regular contractors’ licenses.

The PCC is an anti-trust agency created during the PNoy administration. PCAB is the authorized licensing body that issues regular and special licenses to contractors.

Under the Implementing Rules and Regulations (IRR) of Republic Act No. 4566 enacted by PCAB, local firms may get a regular license, which allows them to engage in many contracting activities for a year, while foreign contractors must get a special license and separate licenses for each contract activity.

The Supreme Court, speaking through Justice Alexander Gesmundo, said that the construction industry is not one that the Constitution has reserved exclusively for Filipinos. Also, the laws passed by Congress do not proscribe foreigners from entering into the same projects as Filipinos in the field of construction.

Thus, setting the equity limit for a certain type of contractor’s license has no basis. The regulation only serves as a deterrent to the foreign players in the construction industry.

The conditions prior to the ruling were not encouraging for foreign contractors who have been wanting to participate in the construction industry.

The PCC position has been that the nationality requirement puts a substantial barrier to the entry of foreign contractors in the construction industry. The construction industry plays an important role in economic development because it builds the infrastructure of almost every other industry and the rest of the economy. This includes housing, transport, water, sanitation, and power.

The PCC presented 2016 data from the World Bank showing that among neighboring countries the Philippines has the most expensive construction cost per square meter for buildings.

For example, it normally costs US$900 per square meter to construct a standard high-rise apartment in Manila, compared with US$707 in Jakarta, and only US$465 in Kuala Lumpur. It costs US$815 per square meter to construct a standard shopping center in Manila, compared with US$594 in Jakarta, and only US$690 in Kuala Lumpur.

It is sound economic policy to allow many players in the market and trigger healthy competition among them. Competition breeds innovation, better quality products and competitive prices. The consuming public is the ultimate beneficiary.

This Supreme Court decision will have a significant impact on the Philippine construction industry. As pointed out, it does away with the restrictive licensing regime under PCAB rules. It will level the playing field for domestic and foreign contractors.

This also highlights the economic value of comprehensive anti-trust legislation with the PCC as overseer.

Prior to the PCC’s creation, the Philippines only had general antitrust laws scattered in a few provisions of the Revised Penal Code, the Civil Code, and some special laws that prohibit hoarding, profiteering, price fixing, illegal combinations, etc., in certain industries.

The trick, therefore, is for the judiciary to empower, and not disembowel, the PCC as we promote a free market economy and encourage business competition in the Philippines./WDJ

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