PATALINGHUG

Competition Policy, Technology Policy,

and Philippine Industrial Competitiveness

Epictetus E. Patalinghug

Abstract
The disappointing performance of the Philippine
industrial sector in the past five decades has been attributed
to several factors such as the lack of a stable macroeconomic
environment, poor infrastructure, low productivity, low
savings rate, and an overvalued currency.
This paper attempts to summarize the link
between competition policy, technology policy, and
industrial policy, and suggests direction for future
industrial policy. It gives a brief discussion on recent
Philippine industrial development; analyzes the scope and
elements of competition policy; and gives an assessment
of industrial policy in the Philippines.

Introduction
The disappointing performance of the Philippine
industrial sector in the past five decades has been attributed
to several factors such as the lack of a stable macroeconomic
environment, poor infrastructure, low labor productivity,
low savings rate, and an overvalued exchange rate. Export,
investment, and growth performance of the sector have
likewise failed very poorly relative to its ASEAN neighbors.
The Philippine industrial structure used to be
highly protected and its capital-intensive bias led to
absorption of only a small fraction of the labor force, while

SOCIAL SCIENCE DILIMAN (January-June 2000) 1:1, pp. 31-59

31

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

the agriculture and services sectors absorbed the bulk of the labor force.
This traditional industrial structure was directly responsible for the absence
of a strong export growth in non-traditional manufactures.
In the past, several studies had identified the adverse effects of the
import-substitution strategy that was anchored on high tariff, quantitative
restriction, and overvalued exchange rate. No structural change took place
and a high degree of concentration in manufacturing activities existed.
Incentive availment was dominated by firms located in Metro Manila, and
the incentive structure was biased against labor-intensive firms.
However, in 1993-1998, policy reforms aimed at increasing the
competitiveness and efficiency of the industrial sector were initiated. Liberal
foreign investment laws were implemented, and the foreign exchange market
was deregulated. Airline, banking, telecommunications, and oil industries
were liberalized; privatization of public enterprises was encouraged; and
tariff rates were rationalized. Evidently, the macroeconomic environment
tremendously improved during this period. And infrastructure development
was gradually addressed through build, operate and transfer (BOT) schemes.
But the problems of overvalued exchange rate, low savings rate and poor
productivity have remained. The goal to reorient the economy towards
investments, trade and exports is gradually being addressed by the
government. In addition, the Medium-Term Philippine Development
Plan (MTPDP) has specified the need to attain international competitiveness
in selected industries.
This paper attempts to summarize the link between competition
policy, technology policy, and industrial policy and suggests direction for
future industrial policy. Section II gives a brief discussion on recent
Philippine industrial development. Section III provides an overview of
Philippine competition policy. Section IV discusses technology policy.
Section V explains the link between productivity and technology. Section
VI gives an assessment of industrial policy. Section VII surveys the literature
on industry analysis. Section VIII suggests direction for competition policy
and industrial policy. And Section IX gives the concluding comments.

32

PATALINGHUG

Industrial sector performance

Industrial planning is a major component of the integrated national
physical development plan which aims to rectify interregional disparity by
a fully market-driven development. Industrial promotion through effective
use of regional resources will not only rectify regional disparities but will
likewise make economic development plans consistent with physical
development and land-use plans. The contribution of the industrial sector
to economic growth and development can be maximized given an integrated
national physical planning framework. This kind of comprehensive planning
must provide a road map to develop industrial competitiveness and avoid
policies that tend to (a) develop capital-intensive industries in labor-surplus
regions, (b) favor urban locations over rural areas, and (c) promote largescale import substituting industries at the expense of export-oriented small
and medium enterprises.
The industrial sector grew at 3.2 percent during the l987-l992
period and at 4.7 percent during the 1993-1998 period. It was targeted
to grow at an average annual rate of 7.3 percent for the 1993-1998 period.
The industrial sector contributed 35.1 percent of gross domestic product
(GDP) and accounted, on the average, for 15.5 percent of total employment
from 1987 to 1992. The share of the industrial sector in GDP was targeted
at 36 percent in 1998, but its actual share was 35.2 percent. Within the
industrial sector, manufacturing grew at an increasing trend from 1992 to
1995, but increased at a decreasing rate between 1995 and 1997 and had

Table 1. Gross domestic product: industrial sector

(growth rates, in percent)

Program

Industry
Mining and Quarrying
Manufacturing
Construction
Electricity, Gas & Water
GDP

19871992

1993

1994

1995

1996

1997

1998

3.2
-1.0
3.6
6.9
1.9
3.3

1.6
0.7
0.7
5.7
2.9
2.1

5.8
-7.0
5.0
8.9
13.9
4.4

6.7
-6.8
6.8
6.5
13.0
4.8

6.4
1.3
5.6
10.9
7.5
5.5

6.1
1.7
4.2
16.2
4.8
5.2

-1.7
1.8
-1.1
-8.1
4.4
-0.5

Source: The Presidents Socio Economic Report, 1994, 1995, 1996, 1997, and 1998 MediumTerm Philippine Development Plan, 1993-1998

33

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

negative growth in 1998. The utilities sector followed the same pattern,
but grew at a higher level than manufacturing. However, the growth of all
industry subsectors slowed down abruptly in 1998 due to the effect of the
Asian financial crisis. The most hard-hit sector was construction (see Table
1). Although the economic plan (e.g., Medium-Term Philippine
Development Plan, 1993-1998) promotes the production of high-valued
commodities for the domestic and export markets, the export performance
between 1997 and 1998 indicates that the Philippines top-three exports
are concentrated in low value-added commodities. Furthermore, it is likewise
interesting to point out that Philippine merchandise exports are
concentrated in three products (garments, semiconductors, and electrical
machinery) which are vulnerable to instability in the export market.

An overview of Philippine competition policy

Competition policy consists of measures intended to promote a
more competitive environment as well as measures designed to prevent a
reduction in competition. Examples of measures intended to promote a
more competitive environment are policies to ease entry into the banking
industry, and policies to encourage more players in the shipping, airline,
and oil industries. Examples of measures designed to prevent a reduction
in competition are policies to discourage mega-mergers in deregulated
industries and policies against unfair business practices in liberalized
industries. There are two major views on competition policy. One view
advocates that competition policy should be directed towards modifying
market structures and imposing constraints on a firms behavior. The other
view argues that competition policy is unnecessary because efficiency prevails
regardless of market structure. The first view advocates breaking up or
regulating monopolies which are protected by entry barriers or preventing
firms from holding dominant market position through mergers. The second
view argues that policy should be focused on factors which make it difficult
for new entrants to compete with established firms. The first view exemplifies
the move to establish a national framework for competition policy. This
view believes that there is a need to establish a national competition policy
to prevent firms from undertaking anti-competitive practices.
Economies that have established an effective competition policy have
embraced both market-structure view and efficiency view of competition
policy. Thus, competition policy should cover all measures (laws, regulations,

34

PATALINGHUG

procedures, and policies) that directly or indirectly influence firm behavior,

managerial decision-making, and industry structure. The absence of
government intervention does not necessarily guarantee a more competitive
market environment because anti-competitive and unfair business practices
might emerge. Competition policy therefore aims at ensuring that as
government barriers go down, business barriers do not go up.
An effective competition policy must have the following elements:
(a) policy towards monopoly, (b) policy towards mergers, (c) policy towards
restrictive and anti-competitive practices, (d) policy towards state entry
barriers, and (e) policy towards consumer protection.
The 1987 Philippine Constitution prohibits anti-competitive
practices. It applies the rule of reason on monopolies. Monopolies are
not prohibited per se, but only when the public interest so requires.
Combinations in restraint of trade and unfair competition are prohibited
without exception. However, the 1987 Constitution provides no imposable
sanctions for violations of this provision.
Article 186 of the Revised Penal Code (1930) describes the acts
punishable, such as monopolies and combinations in restraint of trade,
and the penalties imposable, such as imprisonment or fine ranging from
two hundred to six thousand pesos (or both). Article 186 of the Revised
Penal Code is similar to Section 2 of the Sherman Act (1890) which was a
major legislation that brought competition law into the limelight in the
U.S.
Other special laws and statutes contain provisions dealing with
competition policy. For instance, Republic Act 3247 (An Act to Prohibit
Monopolies and Combinations in Restraint of Trade, 1961) provides for
recovery of treble damages for civil liability arising from anti-competitive
behavior. Republic Act 165 (Patent Law, 1947) and Republic Act 166
(Trademark Law, 1947) describe the appropriate civil action which can be
resorted to, and the penalties imposable. Under the Patent Law, a person
possessing rights to the patented invention can bring a civil action before
the Regional Trial Court to recover from the infringer damages sustained
by reason of the infringement of his rights. And under the Trademark Law,
any person possessing exclusive use of a registered mark or trade-name may
recover damages from the infringer in a civil action before a proper Regional
Trial Court. Presidential Decree 49 (Copyright Law, 1972) penalizes

35

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

copyright infringement; Republic Act 386 (Civil Code of the Philippines,

1949) stipulates the collection of damages arising from unfair competition.
Republic Act 7581 (The Price Act, 1991) protects the consumers by
stipulating price manipulation (hoarding, profiteering, and cartels) as illegal
acts. And Republic Act 7394 (The Consumer Act of the Philippines,
1932) imposes penalties for such behavior as deceptive, unfair and
unconscionable sales practices in both goods and credit transactions.
The Philippine Corporation Code (1980) provides rules and
procedures to approve all combinations, mergers, and consolidations. The
danger of anti-competitive mergers or acquisitions that substantially lessen
competition is not a major regulatory issue at the Securities and Exchange
Commission (SEC). In the first place, the threat of fines for non-compliance
with annual corporate financial reports is not binding because the penalties
are negligible compared to the value firms are willing to pay to keep
confidential data from public scrutiny. The attitude in the SEC seems to
imply that the efficiency or synergy advantages of mergers more than
compensate for their competitive risks. Furthermore, SEC does not have
the legal mandate to challenge mergers unless it can prove that it is against
public interest. Greater emphasis is placed on allowing friendly mergers
and acquisitions that take place in the market voluntarily. A soft attitude
prevails in SECs implementation of merger policy: unless evidence against
public interest exists, merger applications are automatically approved. It
may take a while for this attitude to change. The era for greater emphasis
on analysis of the potential effects of mergers on competition, or emphasis
on procedure for pre-merger evaluation will have to wait until an effective
competition policy is established in the Philippines.
Existing competition laws are inadequate and ineffective because
the imposable fines are negligible; they are mostly penal in nature which
requires a quantum of evidence to prosecute; there is a lack of jurisprudence
on competition law; and there is no central agency to oversee the
implementation of competition law in the Philippines. However, there are
legislative proposals in Congress to establish a Fair Trade Commissionan
independent body that will act as a central entity to implement competition
laws and policies. There are two options being considered: (1) to establish
the Fair Trade Commission, and (2) to maintain the existing multi-agency
set-up, but ensure close coordination among them. Those favoring the
first option argue that responsibility is too diffused; accountability is too
difficult to locate; and there is a lack of expertise in the appreciation and

36

PATALINGHUG

implementation of competition laws under the existing set-up (Free Trade

Asia Consulting, 1996). On the other hand, those that favor the second
option argue that the different implementing agencies have no overlapping
functions, have the necessary capacity and capability, and simply require
close coordination to secure the smooth implementation of competition
laws (Santos, 1995).

Technology policy
Technology policy is usually defined as the management and
generation of scientific and technological knowledge which can be used to
address specific problems related to the production and delivery of
economic, health and social goods and services. Programs and projects
based on an effective technology policy allow firms to produce and market
new products and services, increase their abilities to undertake innovations,
increase their market value, enhance their competitiveness, and raise their
productivity. The following discussion describes efforts by the Philippine
government to formulate and implement a technology policy.
The Department of Science and Technology (DOST) introduced
the Science and Technology Master Plan (STMP) in 1990 which set the
goals and objectives for the Science and Technology (S & T) sector, and
provided a framework for the effective coordination of S & T projects and
programs consistent with national development policies. STMP cited the
following major problems in the S & T sector: (1) underutilization of S &
T for development as reflected in the low quality, and low productivity of
the production sector and heavy dependence on imports; (2) underinvestment in S & T development in terms of manpower training,
technological services, research and development (R & D) facilities and
financial resources; and (3) weak linkages between technology generation,
adaptation and utilization.
There has been a general failure to use technology to gain
competitive advantage. Resource-based exports (timber, copper) are basically
in raw material or unprocessed form. Traditional agricultural exports
(coconut, sugar, and banana) are also exported without infusing technologybased processing in the value-added chain. The shift from primary exports
(e.g., coconut, sugar) to manufactured exports (e.g., garments, electronics)
has simply reflected the changing factor composition of exports (that is,

37

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

from resource-intensive to labor-intensive). The shift from labor-intensive

to skill-or technology-intensive manufactured exports has not yet occurred.
The three main strategies of the STMP are: (1) modernization of
the production sector through massive technology transfer from domestic
and foreign sources; (2) upgrading of R & D capability through intensive
activities in high priority sectors; and (3) development of S & T
infrastructure, including institution building, manpower development and
development of S & T culture.
The Comprehensive Technology Transfer and Commercialization
(CTTC) program was initiated in 1990 as part of STMP to disseminate
and commercialize locally developed technologies. But there was a lack of
locally developed commercializable technologies. In 1995, DOST reported
that CTTC was able to commercialize 7 new technologies such as soya ice
cream, sambong tablets, cassava chips processing and production of
hydrogenerated oil. There was little government-private sector joint research
ventures, and government budgetary constraints made it impossible to
implement the S & T infrastructure projects.
The Medium-Term Philippine Development Plan, 1993-1998 has
targeted an increase in R & D expenditures from 0.24 percent of GNP in
1992 to one percent of GNP in 1998. However, the priority activities in
support of this goal have not been adequately implemented. For instance,
activities such as (1) modernization of production facilities in technologybased industries; (2) global technology search to acquire foreign technology
in the priority areas; (3) provision of S & T services (e.g., standards, quality
control, chemical and physical analysis, etc.); and (4) transfer and
commercialization of technologies for the development of competitive
industries are yet to be visibly felt in the industrial sector. One difficulty
of satisfying the S & T goal of the MTPDP is the lack of consensus in the
Philippine government of what industries qualify in the category of priority
areas or competitive industries. Section VIII of this paper will attempt
to address this issue.
In 1993, DOST came up with the Science and Technology Agenda
for National Development (STAND), a successor to STMP. STANDs
objective was to help realize the vision of Philippines 2000 by focusing S
& T activities on export niches identified by the private sector. While
STMP identified fifteen priority sectors (Table 2), STAND identified seven

38

PATALINGHUG

Table 2. STMP priority sectors

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Source:

Agriculture
Aquaculture and Marine Fisheries
Forestry and Natural Resources
Metals and Engineering
Textile Industry
Mining and Minerals
Process Industry
Food and Feed Industry
Energy
Transportation
Construction Industry
Information Technology
Electronics, Instrumentation and Control
Emerging Technologies
Pharmaceutical

Science and Technology Master Plan, Department of Science and Technology

(Manila, 1990).

export winners, eleven basic domestic needs, three support industries, and
the coconut industry (Table 3). Specific products and processes are being
identified for research and development in the STAND through programs
coordinated by DOST-approved product managers working in consultation
with academe, government and private sector. The assistance of experts
from private organizations (local and foreign) has been enlisted by DOST
under UNDP funding support. A UNDP-assisted project, Achieving
International Competitiveness Through Technology Development and
Transfer was undertaken for DOST by outside experts in 1995. The
most current program for DOST to build scientific and technological
capability refers to the Engineering and Science Education Project (ESEP)
which was supported by a program loan from the World Bank. It is
envisioned to build and upgrade scientific and engineering expertise and
facilities in selected engineering and science institutions. The ESEP includes
a Management of Technology (MOT) program which attempts to build
and upgrade managerial expertise of scientific and technical decision makers.
In addition, it provides assistance for the upgrading of science and
mathematics teaching in selected secondary schools in the Philippines.
ESEP was terminated in 1999 and replaced by a new program called Virtual
Center for Technology Innovation (VCTI) which is designed to serve as a
networking mechanism between industry, academe, and government R & D
institutes.

39

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

Table 3. STAND priority list

A.

Export Winners
1.
Computer Software
2.
Fashion Accessories
3.
Marine Products
4.
Fruits
5.
Gifts, Toys and Housewares
6.
Furniture
7.
Metals Fabrication

B.

Basic Domestic Needs

1.
Food
2.
Housing
3.
Health and Nutrition
4.
Clothing
5.
Environment
6.
Energy
7.
Transport
8.
Telecommunications
9.
Defense
10. Manpower
11. Disaster/Hazard Mitigation

C.

Support Industries
1.
Packaging
2.
Metals
3.
Chemicals

D.

Coconut Industry
1.
Production
2.
Processing
3.
Development of New Products

Source:

Science and Technology Agenda for National Development, Department of

Science and Technology (Manila, 1993).

Productivity and technology

The preceding section explains that the use of technology can bring
sustainable productivity gains to Philippine firms. This is so because changes
in production technologies allow firms to produce existing and new products
with shorter production times, lower production cost, higher product
quality, on-time product delivery, and responsive after-sales services to more
demanding customers.

40

PATALINGHUG

Nelson (1981) raised objections to the orthodox economic literature

because it assumes competitive equilibrium and ignores the disequilibrium
features of long-run dynamic processes. He likewise objects to the
assumption in most productivity models that technological knowledge is
public good which is not consistent with the following observations: (1)
substantial uncertainty faced by firms which try to create or evaluate new
technologies, and (2) considerable inter-firm differences in the technologies
they create and adopt. He suggests that further productivity studies focus
on the research question: Why do certain industries experience much
faster productivity growth than others? This question can be addressed,
according to Nelson (1981), by investigating the factors affecting
productivity at the level of the firm, and the sources of productivity
differences among firms. Another area where new direction in productivity
research needs some reorientation deals with the role of uncertainty,
incentives and property rights on the relationship between R & D and
productivity growth.
Several productivity estimates are made in the Philippine setting.
Hooley (1985) explained that the decline in total factor productivity between
1956 and 1980 could be attributed to several factors; one of these factors
is the absence of R & D in industry. He also raised the issue of the
implementation of an inappropriate industry targeting policy that favored
poorly performing capital-intensive industries instead of exploiting the
efficiencies of labor-using import-substituting industries. The limited
evidence on Philippine manufacturing consistently points to a failure in
policy and in practice for Philippine industries which did not seriously
consider the technology factor in achieving long-run competitive advantage.
Fabella (1993) analyzed the productivity performance between the
Philippines, Taiwan and South Korea. He observed that the absolute growth
rate of productivity in Taiwan and South Korea was three times and five
times that of the Philippines, respectively. The predicament of low
investment growth leads to low productivity and poor competitiveness.
Thus, sustainable growth is not guaranteed unless the complementarities
of capital investment and technological advance are demonstrated. Intal
(1991) analyzed the role of labor productivity, real exchange rate, and
infrastructure in the countrys poor export and growth performance. In
terms of trends in labor productivity, the Philippines lags behind China,
Indonesia, Malaysia, Singapore and Thailand. The World Bank (1993)
attributed the so-called rapid productivity growth among the highly
performing Asian economies (HPAEs) to better technology, innovations

41

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

on the shop floor, gains from specialization and better organization. But
empirical estimates of technical change showed that Indonesia, South Korea,
Malaysia, and Singapore were not characterized as shifting rapidly from
average practice to best practice. Freeman (1994) expressed his disappointment
that the World Bank (1993) study on the East Asian Miracle has little to
say about technology policy or how new technology was adopted in these
economies.
The importance of building S & T infrastructure was stressed in
STMP. However, the need to improve the effectiveness of adoption and
commercialization of new technologies is equally desirable. Encouragement
of developing technological capabilities within firms will probably require
the use of incentives to enhance increased collaborative activities between
corporate R & D and academic research. Technology importation is not
simply a purchase of production inputs and the licensing of production
know-how; it also requires a strong capacity for reverse engineering including
some informal tinkering type of R & D in the shop floor of small
entrepreneurs and innovators. Thus, simply importing technology does
not transfer know-how. A combination of technology importation, inhouse training, learning by doing, and corporate R & D is needed.
The framework to be used in assessing the relationship between
industrial productivity and technology must start with data on total
employment, scientific personnel, research intensity, capital intensity and
employment concentration in Philippine industries. The object is to
evaluate the laboratory foundations, rather than simply employment, in
the different industries. The hypothesis is that rapid expansion in a given
industry could be attributed to the scientific investments or laboratory
foundations it made in earlier periods. Each industry analysis must attempt
to verify the applicability of this hypothesis in the Philippine experience.

Industrial policy
The most important issue in industrial policy is the level and scope
of government intervention. Policy analysts disagree on what policies are
needed to achieve technological and economic development.
There are two views of industrial policy. One view argues that the
main elements of industrial policy intervention in developing countries

42

PATALINGHUG

should be limited to providing the fundamental conditions such as

maintaining a stable macroeconomic environment, limiting price
distortions, investing in education and health, investing in infrastructure,
and ensuring public order and safety (Krugman, 1984; World Bank, 1993).
The other view argues for selective intervention in major sectors to make
these sectors competitive through the use of incentives such as subsidies,
tariff protection, directed credit, tax exemptions, foreign-exchange allocation
and accelerated depreciation allowance (Amsden, 1989; Wade, 1990).
Critics of the selective intervention approach (Medalla, et al., 1995; World
Bank, 1993; Krugman, 1984) argue that the policy of industrial targeting
is not effective. On the other hand, proponents of the selective intervention
approach (Amsden, 1989; Wade, 1990) argue that even if markets exist
and work well, they may produce terrible results. Thus, government
intervention is required to break the numerous barriers faced by developing
countries aspiring to become industrializing economies.
The government should likewise identify and foster the growth of
strategic industries because without active government support, private
firms will find it increasingly difficult to achieve market viability in a highly
risky and competitive environment. Nevertheless, it has been shown
(Kirkpatrick, Lee, & Nixson, 1984) that most economies (both developing
and industrialized) use wide-ranging and extensive policy measures to
intervene in the industrial sector (e.g., regulations on location of production,
quality standards, prices of products, production volume, type of ownership,
nature of market competition, etc.). It has also been pointed out
(Kirkpatrick, Lee, & Nixson, 1984) that many of these industrial policy
measures could have offsetting effects on the attainment of other
development objectives. For instance, a regional dispersal policy may
promote industrial growth in the depressed areas but it induces the
establishment of new industries in a high-cost area; national government
offers tax incentives in regional industrial centers, but this deprives local
government units (LGUs) of additional tax revenues; fiscal incentives may
attract investments, but its non-neutral effect on factor prices may encourage
capital-intensive methods of production; or incentives may not have a
substantial effect on the overall level of investment, but they influence the
composition of total investment in favor of manufacturing and against
agriculture (Patalinghug, 1991). The main argument in favor of government
intervention is the presence of market failure. But government interventions
are more likely to fail in the absence of (1) competent and honest civil
service, (2) performance-based standards of success, (3) governments ability

43

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

to discipline big business, (4) stable macroeconomic environment, and (5)

consistent government policy. For industrial policy to be effective, a
combination of market discipline and government efficiency is desirable.
Market-failure argument has likewise been used in support of basic research,
science and engineering education programs, and R & D expenditures in
emerging technologies. Policies designed (1) to improve the flow of
technological information and to improve competence of firms in priority
industries, and (2) to maintain or attain competitive advantage of identified
industries vis--vis its competitors are interventionist. Intervention policies
aimed at correcting market failure should not simply be used to compensate
for market failure when it occurs but to develop a competitive industrial
sector because markets often work well and produce terrible results.
The Philippines does not have an integrated industrial development
plan. However, implicit or ad-hoc industrial plans can be deduced from
hodge-podge programs of various government agencies attempting to
address the issue of growth and competitiveness of Philippine-based
industries. An example of an attempt at industry classification is found in
the Medium-Term Philippine Development Plan: 1993-1998 (a document
prepared by the National Economic and Development Authority or NEDA)
which identifies three groups of priority industries: (a) industries with
strong competitive potential, (b) basic industries, and (c) industries critical
to agri-industrial development (Table 4). Another classification is made
by the Department of Trade and Industry (DTI) which identifies 14 export
winners in its Medium-Term National Export Development Program: 19931998. DTI has recently added 16 emerging exports to its original lists of
14 export winners (Table 5). Another industry priority list is found in
the Science and Technology Master Plan (STMP) of the Department of Science
and Technology (DOST) which enumerates 15 priority sectors (Table 2).
DOSTs Science and Technology Agenda for National Development (STAND),
the successor of STMP, groups priority industries into four categories: export
winners, basic domestic needs, support industries and coconut industry
(Table 3). In addition, the Development Bank of the Philippines (DBP)
identifies priority subsectors for restructuring (Table 6). And the Board of
Investments (BOI) 1997 Investment Priorities Plan (IPP) classifies priority
industries into six major groups: export-oriented industries, catalytic
industries, industries undergoing industrial adjustments, support activities,
mandatory inclusions, and priority investment areas for the Autonomous
Region in Muslim Mindanao or ARMM.

44

PATALINGHUG

Table 4. MTPDPs priority industries

A.

Goods and Services with Strong Competitive Potential

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

B.

Basic Industries
1.
2.
3.
4.

C.

Rice
Corn
Sugar
Coconut

Commodities and Industries Critical to Agri-Industrial Development

1.
2.
3.
4.

Source:

Animal Feed Ingredients

Cutflowers
Livestock and Poultry
Fresh and Processed Fruits
Fresh and Processed Vegetables
Garments
Electronics (Hardware and Software)
Gifts, Toys and Housewares
Fisheries and Marine Products
Metal Engineering Products

Basic Metals
Chemical and Chemical Products
Electricity and Gas
Petroleum Products

Medium-Term Philippine Development Plan: 1993-1998

In 1995, Philippines 2000 identified product niches (Table 7)

under the following categories: (a) basic commodities, (b) critical industries,
(c) goods and services, and (d) tourism. If anything, this evidently adds to
a long (if not confusing) list of identified or priority industries. The
leapfrogging strategy (Philippines 2000) was soon replaced by the pole
vaulting strategy which identifies 9 must do programs involving at least
12 sectors (Table 8).
In 1996, President Fidel V. Ramos issued Executive Order No.
380 (1996) creating the Industry Development Council (IDC) composed
of government and private sector representatives. In addition, Executive
Order 98 (1993) and Republic Act 7844 (Export Development Act of
1994) created the Export Development Council (EDC) responsible for
monitoring the performance of the countrys export winners and for drafting
the Philippine Export Development Plan (PEDP). Some of IDCs main

45

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

Table 5. National Export Development Program priority list

A.

Export Winners1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

B.

Electronics
Garments
Processed Fruits
Construction Services
Marble Tiles
Computer Services
Ceramics
Jewelry
Shrimps and Prawns
Carrageenan/Seaweeds
Gifts and Housewares
Professional Services
Furniture
Metal Compound

Emerging Exports2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Bio-technology
Activated Carbon
Copper Wires
Education Services
Explosives and Pyrotechnics
Fertilizers
Footwear
Fresh Fruits
Healthcare Services
Leathergoods
Motor Vehicle Parts
Oleochemicals
Specialty Paper
Petrochemicals
Specialty Steel
Tree Plantation

Sources: 1Department of Trade and Industry, Medium-Term National Export Development

Program: 1993-1998
2
Department of Trade and Industry, Bureau of Export Trade Promotion

functions are: (1) to formulate policies on the rationalization of the

governments industry promotion and development programs; (2) to
periodically review and assess the performance, problems, and prospects of
the countrys industries; and (3) to recommend to Congress any legislation
that will contribute to the development of Philippine products. IDC is
likewise tasked to draft the Industrial Development Plan of the Philippines
(IDPP).

46

PATALINGHUG

Table 6. DBP priority subsectors for restructuring

A.

First Priority
1.
2.
3.
4.
5.
6.
7.
8.

B.

Second Priority
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Source:

Wood and Wood-Based Products

Canned/Preserved Fruit, Fruit Juices and Vegetables
Canned and Preserved Fish
Electronic Appliances/Housewares
Cocoa/Chocolate/Confectionery
Spinning and Weaving
Knitting Mills
Plastic Products

Rubber N.E.C. and Rubber Footwear

Cigarettes
Coffee Roasting and Processing
Footwear N.E.C.
Steelworks and Rolling Mills
Fabricated Metals N.E.C.
Toys, excluding rubber toys
Soap and Cosmetics
Tires and Tubes
Pottery, China
Glass and Glass Products

Development Bank of the Philippines, Philippine Industrial Restructuring

Programme: Subsector Strategy Study (September 1993).

In 1997, a document was drafted for BOI and IDC entitled,

Industrial Development Plan of the Philippines: A Preliminary Report.
The IDC criteria for the inclusion of specific industries are: (a) actual or
latent industry competitiveness; (b) industry size; and (c) impact on jobs.
The selected industries are: (1) industrial tree plantation, (2) natural rubber,
(3) fertilizer, (4) copper, (5) petrochemical, (6) iron and steel, (7)
cocochemical, (8) fresh fruits, and (9) motor vehicles and car parts. The
final IDPP could not be drafted because the number of industries to be
included kept rising.
In 1999, a new council was created under the DTI called the
Domestic Trade Development Council (DTDC) which takes care of the
retail trade industry (presumed to be left out in the IDC and EDC
structures).

47

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

Table 7. Identified product niches

A.

Basic Commodities
1.
2.

B.

Critical Industries
1.
2.
3.
4.
5.

C.

20.
21.
22.
23.
24.
25.
26.
27.

48

Animal Feed Ingredient

Cutflowers
Fiber (abaca, ramie, salago, maguey)
Fisheries
Sugar
Coconut
Cattle
Carabao
Dairy
Swine
Poultry
Fruits (tomatoes, pineapple, banana, mango)
Vegetables
Legumes (mongo)
Nuts (peanuts)
Essential Oils (citronella)
Jewelry
Fashion Accessories
Metal Engineering Products (machinery & equipment, tool & dye,
and metal components)
Shipbuilding and Repairs
Processed Fruits ad Vegetables
Marine Products (prawn, seaweed, and carageenan)
Gifts, Toys and Housewares
Furniture
Textile and Filament (silk)
Garments
Electronics (hardware and software)

Tourism
1.
2.

Source:

Basic Metals
Chemicals and Chemical Products
Electricity
Gas
Petrochemicals

Goods and Services

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

D.

Rice
Corn

Resorts, Hotels and Inns

Tourism Services (transport, shipping, food and entertainment facilities)

Philippines 2000: A Vision for the Nation, Revised Edition, 1995.

PATALINGHUG

Table 8. National Development Summit Must Do Programs

Program

1.
2.
3.

Food Basket in East Asia

Financial Center in East Asia
Knowledge Center in the Asia-Pacific

4.
5.

Maritime Power in East Asia

Telecommunications, Transportation,
and Tourism Hub in the Asia-Pacific
Energy Exporter in East Asia
Shopping Paradise in East Asia
Medical Center in East Asia
Center of Culture and the Arts in Asia

6.
7.
8.
9.

Source:

Sector

Food
Banking
Education/
Information Technology
Shipping
Telecommunications,
Transportation and Tourism
Energy
Retail Trade
Health Services
Entertainment/Tourism

National Development Summit, Pole-Vaulting Strategy for the 21st Century,

June 8-9, 1997.

The experience of East Asia (World Bank, 1993) points to the key
role in decision making of what is called deliberation councils which
provide a forum for formulation and implementation of government policies
as well as for consensus building. Both IDC and EDC are the Philippines
institutional counterparts to East Asias deliberation councils. To be an
effective mechanism: (1) IDC and EDC should be merged into one entity;
(2) the merged council should include all the key players in the sector
(e.g., Japans Industrial Structure Council includes labor leaders, academics,
journalists, and consumer advocates, in addition to government officials
and business leaders); (3) council decisions must be reached by rules of
consensus; (4) government representatives must be honest, competent and
possess bargaining authority; and (5) government should implement council
decisions without any major amendments.

Survey of industry studies

Several industry studies provide some economic analysis of industry
structure and regulatory policies affecting the industry. For instance,
Balisacan (1990) analyzed the structure and regulatory policies supporting
the inter-island shipping industry. He concluded that the shipping cost
structure can be attributed to the cartel-like behavior of the inter-island
shipping industry and the regulatory policies of the government that restrict

49

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

market entry and prevent a competitive price determination of sea cargo,

passenger service, and port handling services. He recommended that the
industry be deregulated from MARINA (Maritime Industry Authority) in
order to encourage competition among existing firms and to attract new
entrants.
Saldana (1990) examined the impact of government policies and
corporate response on consumer welfare in the flour milling industry. The
industrial policies used by the government to regulate the industry were
price control, entry restriction, and import control. He concluded that
government rent-seeking policies led to larger consumer losses. Government
directly imposed huge consumer losses due to the inefficiencies of its wheat
monopoly up to 1985.
Sanchez (1990) compared the performance of the textile industry
in the Philippines and Thailand. The Philippines started its large-scale
manufacturing as early as 1906. Thailand started its modern textile
company only in the 1950s. In terms of output growth, Thailand
outperformed the Philippines during the period from 1975 to 1984.
Thailands output grew by 9.78 percent during this period, while that of
the Philippines managed to grow by a negligible 0.56 percent. In terms of
total factor productivity, Thailand grew by 2.93 percent while the
Philippines grew by only 1.7 percent during the same period. Thailands
textile export grew by 18 percent compared to the Philippines 8 percent.
Sanchez concluded that the superior performance of Thailand was due to
its ability to acquire technical knowledge through joint ventures with foreign
investors who were actively engaged in textile production in their home
countries. A heavy protection on the Philippine textile industry discouraged
the ability to compete internationally.
Abenoja and Lapid (1991) examined the determinants of market
structure in Philippine manufacturing. They concluded that the Philippine
manufacturing sector is highly concentrated (having a weighted average
concentration ratio of 73 percent). The study suggested that government
policies to deconcentrate manufacturing industries will generate
employment, redistribute income, and increase demand for manufactured
goods.
SGV (1992) developed detailed case studies of six industries, namely
telecommunications, man-made fibers, glass, cement, iron and steel, and

50

PATALINGHUG

passenger cars. It concluded that government policies erected entry barriers

and favored the position of the leading firms in these six industries. The
study recommended to open these industries to competition, provided
that the timing of such liberalization be examined to minimize dislocation
and disruption in these industries.
Patalinghug (1996) analyzed the size, structure, prospects and
problems facing the retail trade industry. The retail trade sector contributed
on the average 10.4 percent of GDP from 1981 to 1994. It grew at an
average annual growth rate of 6 percent during the same period. In the
department store and supermarket subsectors, Uniwide was the top retailer
in 1995 (in terms of sales), followed by SM and Ever-Gotesco. But in
terms of net income, SM was the most profitable retailer in 1995. The
study suggested that local retailers must gear up to the inevitability of
global competition, and must begin to implement strategic moves and
survival strategies in a highly competitive industry environment.
Serafica (1996) analyzed the relationship between policy reform
and industry cost structure in the telecommunications industry. The study
used two different approaches to study the pre- and post-reform industry
cost structures. It concluded that cost conditions prevailing prior to the
liberalization of the industry did not justify monopoly provision of telephone
service to the extent enjoyed by the Philippine Long Distance Company.
In the post-reform situation, the conclusion was that small-scale entry
under a service-area scheme is not profitable because economies of scale
cannot be exploited by new entrants whose market size is constrained.
Having a small network of subscribers also weakens the bargaining power
of each new entrant vis-a-vis the dominant incumbent firm in terms of
negotiating tariffs and interconnection arrangements because the latter has
little incentive to grant favorable terms to a minor market player.

Direction for competition policy and industrial policy

Future prospects for competition policy in the Philippines are good.
Average overall nominal tariff has dropped sharply from 42 percent in 1981
to 13.43 percent in 1997. It is expected to drop further to only 8.21percent
by year 2000. Average nominal tariff for manufacturing will decline from
13.96 percent in 1995 to 7.47 percent in year 2000. The import
liberalization program has lifted import restrictions that reduced the number

51

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

of items under import restrictions from 1829 in 1983 to 609 in 1988. In

1992, only 164 items remained to be restricted. This import liberalization
policy lifted import restrictions from 33 percent of total commodity lines
in 1983 to 2.9 percent of total commodity lines in 1992. Tariff rates will
come down to a uniform 5 percent by year 2004. Effective protection
rates (EPR) have declined from 49.3 percent in 1985 to 31.3 percent in
1995 which also improved the efficiency performance of some protected
industries.
The establishment and fostering of an effective competition policy
is an important agenda for the future. But it requires effective legislation
that provides substantive authority to assess pre-merger notification, regulate
natural monopolies, determine misuse of market power by large firms, and
monitor restrictive and anti-competitive practices. A shift from industryspecific regulation to a comprehensive competition policy framework is
needed. In addition, an effective competition law regime requires clear
objectives: efficiency or equity. As we have seen in the privatization
experience, long-term efficiency was being sacrificed to achieve short-term
revenue gains. And finally, an effective competition policy in the Philippine
setting requires a widely respected institution to be accepted as impartial
adjudicators. Institutional credibility must go along with adequate resources
in terms of funds, skills, training, and technology for these agencies. In
setting the agenda for future competition policy, the Philippines must aim
at satisfying these requirements for an effective competition law regime.
After discussing the state of competition, industrial and technology
policy in the Philippines, the need to set direction for industrial policy in
the future is in order. Our task of reaching a common consensus on the
nature and substance of industrial policy is more difficult compared to the
successful experience of South Korea and Japan because of the following
circumstances: (1) critical executive departments espouse different views
on industrial policyNEDA adheres to the fundamental intervention
approach, while DTI advocates for the adoption of the selective intervention
approach; (2) different agencies have varying lists of industries considered
priority or strategic; (3) there is no existing coordinative mechanism
where competition policy, technology policy, trade policy, and industrial
policy can be integrated successfully by rationalizing the long-term plans
of various industries and minimizing conflicts among the firms; (4) the
structure of our version of deliberation councils has a built-in tendency
for creating conflict rather than arriving at a consensus because of the

52

PATALINGHUG

political nature of allocating foregone revenues and administering incentive

programs to two different industry groupsexport-oriented and domesticoriented industries; (5) there is a perceived bias against the vertically
integrated business conglomerates in the formulation and implementation
of catching-up strategies in high-technology fields; (6) a system of incentives
based on performance rather than one based on entry is not in place. This
implies that tariffs and taxes on imported inputs for export production
must be paid at the time of importation and then rebated at the time of
export; and (7) a proactive management information system of firms availing
of incentives does not exist. This explains why measuring impacts of incentive
system, monitoring of performance, and imposing penalties on nonachievers are difficult to implement (Patalinghug, 1992).
Since consensus building is crucial in undertaking an effective
industrial policy, opportunities for arriving at a compromise exist. A review
of the various lists of priority industries in different agencies indicates a list
of industries that are commonly listed.
Table 9 presents a priority list of industries commonly listed in
most government agencies. The criterion for choosing the first priority
list is that they are commonly listed as priority or industries with strong
competitive potential by at least five different government agencies. The
first priority industries are: (1) fresh and processed fruits; (2) metal
engineering products; (3) fisheries and marine products; (4) gifts, toys,
and housewares; (5) electronics; (6) feed, poultry and livestock; (7) coconut;

Table 9. Industries commonly listed in various priority lists

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Source:

Fresh and Processed Fruits

Metal Engineering Products
Fisheries and Marine Products
Gifts, Toys, and Housewares
Electronics
Feed, Poultry, and Livestock
Coconut
Garments
Chemicals
Furniture

Authors own calculation.

53

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

(8) garments; (9) chemicals; and (10) furniture. The industries in the
first-priority list provide a basis for compromise, acceptability, and consensus
among the different sectors whose cooperation is necessary for such a difficult
task.
The second priority list is composed of: (1) jewelry, (2) textiles,
(3) automotive parts and components, (4) rice, (5) electricity and gas, (6)
telecommunications, (7) cosmetics, (8) petroleum, and (9) machinery and
equipment. These industries are commonly listed in the priority lists of at
least three different government agencies. Some of these industries are
probably given top priority by policy makers because they are politicallysensitive commodities. Rice, electricity, and petroleum belong to this
category. There are industries which are in the low-priority list of all
government agencies but which are considered by a few as strategic. Iron
and steel industry belongs to this category. Another industry considered
basic by some government agencies is sugar. It does not fit the category
of a strategic industry. Sugar (like rice, petroleum and electricity) aptly
belongs to the politically sensitive category. If resources allow to study
these industries in the future, the focus of comprehensive analyses on rice
and sugar will probably be on explaining why we lost our competitiveness
in these industries. In the case of iron and steel, the focus might be: Is it
worth investing in an industry where we never showed any actual (or
potential) competitiveness?
If we consider NEDAs definition of strategic industries, our first
priority list in Table 9 contains none. Despite R. A. 7103 (Iron and Steel
Act), iron and steels actual or potential export competitiveness has never
been demonstrated by any of the studies reviewed. R. A. 7103 simply
assumes that iron and steel is crucial to the countrys industrialization
because of its potential linkages with other industries in the production
system. Maybe the telecommunications industry is in the same position
because it was included in DTIs 1991 list of strategic industries.
The flying-geese hypotheses of economic development will
support the industries included in the first priority list. The experience of
South Korea, Taiwan and Singapore in the sixties and the seventies showed
that they moved from labor-intensive manufactured exports to skill-andtechnology-intensive manufactured exports in their industrialization process.

54

PATALINGHUG

The nature and direction of industrial policy must explain the role
of technology in inter-firm and inter-industry productivity differences.
The government is probably in the best position to create a public-private
undertaking of scanning world technology trends and to use these results
for directing industrial growth patterns. In the Japanese economic system,
this role of a quarterback or economic chief of staff is successfully
administered by the Ministry of International Trade and Industry (MITI).
The scope of each industry analysis must be as comprehensive as the study
undertaken by the M.I.T Commission for Industrial Productivity (see
Dertouzos, et al., 1989) which focused on detailed analyses of eight U.S.
industries where it has (or used to have) export competitiveness. The
governments list of strategic industries (either DTIs or NEDAs) has simply
focused on heavy industries or industries with high value-added. But this
is based on mistaken belief among policy makers that high value added is
synonymous with high technology (Krugman, 1994). Table 10 shows
that the Philippine industries with high value-added per worker are the
capital-intensive industries (e.g., steel, petroleum, etc.). Thus, the
traditional approach of defining strategic industries will exclude hightechnology industries like electronics. The procedure used in this study
for coming up with a list of priority industries is not subject to this capitalintensity bias of defining strategic industries. The priority list includes
light, heavy, capital-intensive, and technology-intensive industries. But
the bottomline of this priority list is that they are the industries with the
capability to maintain or attain a competitive position that is superior to
that of their competitorsat a certain stage of economic development.
Finally, an integrated approach to industrial policy formulation
and implementation is suggested. This means that Table 9 (List of Industries
Commonly Listed in Various Priority List) must be made consistent with
our international commitments (e.g., WTO, APEC, and AFTA). In WTOs
General Agreement on Trade and Services (GATS), the Philippines has
committed the following sectors: financial services, tourism,
telecommunications, and transportation services (air, land, maritime, and
rail transport). On the other hand, the Philippines has prioritized the
following areas for liberalization under the ASEAN Framework Agreement
on Services (AFAS): professional services, financial services, transportation,
tourism, construction, and telecommunications. The list of industries to
be chosen for accelerated APEC sectoral liberalization, for CEPT-AFTA,
and for WTO-GATS must be guided by the policy framework commonly
agreed by policy makers which implicitly or explicitly identifies strategies

55

COMPETITION POLICY, TECHNOLOGY POLICY, AND PHILIPPINE INDUSTRIAL COMPETITIVENESS

Table 10. Value added per worker, 1995 (in thousand pesos)
Industry

Value Added Per Worker

Petroleum and Coal

Food
Beverages and Tobacco
Chemicals and Chemical Products
Basic Metals
Textile
Electrical Machinery

Source of Basic Data:

11,071
437
352
284
204
100
95

1999 Philippine Statistical Yearbook (Manila: NCSB, 1999).

and policies (fundamental-intervention approach) to attain competitiveness

or specific industries, product clusters or sectors (selective-intervention
approach) which ought to be promoted because they possess actual or
potential comparative advantage for the Philippine economy.

Conclusions
This paper attempts to describe the link between competition
policy, technology policy, and industrial policy. Existing competition laws
are inadequate and ineffective because the imposable fines are negligible
and there is no central agency to oversee the implementation of competition
law in the Philippines. Attempts to formulate and implement a technology
policy have been made, but the policy changes its focus everytime a new
political order takes power. And the direction of industrial policy is not
clear. Some policy pronouncements of DTI and BOI reflect the selective
intervention view of industrial policy. On the other hand, the dominant
view at NEDA is more sympathetic to the fundamental intervention view
of industrial policy.
Three major recommendations are made in this paper. First, the
establishment of an effective competition policy is suggested. This can be
done by setting up a legal and regulatory framework via legislation. Second,
a more effective and consistent technology policy can be implemented by
avoiding the creation of new programs and projects everytime a new
government takes power. Moreover, funding should be focused on R & D

56

PATALINGHUG

activities rather than on general administrative services. And third, an

integrated approach to industrial policy formulation is suggested. This
requires a consensus on coming up with a list of preferred industries that
are consistent with our international commitments in AFTA, APEC, and
WTO.

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Date received: 22 February 2000

Dr. Patalinghug is Professor of Economics and Management at the College of Business
Administration, University of the Philippines Diliman. This paper has benefited from
informal discussions on technology policy with officials from Department of Science and
Technology (DOST). In addition, the authors brief stint at the Tariff Commission exposed
him to the literature and public policy debate on competition policy. The views expressed
in this paper are those of the author and do not necessarily reflect the views of any other
individual or organization.

59