The Brillo’s Rule

Professor, author, writer, introvert, stroke survivor, chess/ham radio/table tennis and hiking/ultramarathon enthusiast // Research Interest in Concepts, Theories, Perspectives, Frameworks, Lakes, Development, Relativism, Qualitative Research, and Subjective Approaches // Fascinated by Lakes, Rivers/Streams/Waterfalls, Unusual Landscapes, and Historic Sites/Structures // This weblog serves as a repository for my work and activities. The Brillo’s Rule—read, think, imagine, and write—I force you!

Friday, September 9, 2011

The Nationalization and Liberalization of the Retail Trade Industry in the Philippines

Bing Baltazar C. Brillo

2011 Danyag: Journal of Humanities and Social Sciences, vol. 15, no. 1, pp. 55-67.

Abstract

The Philippine policy experience in the retail trade sector is distinct. Two radical policy shifts have occurred in the industry and the policy change took a circular path. In 1954, the Third Congress passed Republic Act (R.A.) 1180, the Retail Trade Nationalization Act, and in 2000, the Eleventh Congress enacted R.A. 8762, the Retail Trade Liberalization Act. The former was a change from an open to a protectionist policy, while the latter was a change from a protectionist to an open policy. Typically, any move to change an existing policy is always contentious and difficult. Those benefiting from the status quo would naturally take action to preserve their advantage; thus, policy change entails winners and losers. In examining the politics of policy change in the retail trade, this paper will utilize four factors— the context, the stakeholders and the cost benefit equation, policy rationalization, and presidential intervention and concessions— to systematically outline and explain the policy shifts that occurred.

Introduction

Broadly, policy change can be defined as a government activity where policy actors formally decide to repeal an existing policy to address public issues or concerns. The process of policy change involves engagement of political actors— institutional actors (such as the President, bureaucrats, senators, and congressmen), societal actors (such as business organizations, consumers groups, and civic groups), and international entities (such as international organizations and foreign governments). The interaction among them as well as the surrounding conditions determines the success or failure of policy change. Policy change can take two forms: policy modification and policy shift (Howlett and Ramesh 1995). Policy modification refers to an incremental change in the existing policy, usually through minor tinkering or adjustments. This form is evolutionary and typical, as the resulting policy is regarded as a continuation or expansion of past policies. On the other hand, policy shift refers to a substantial change that fundamentally alters the prevailing policy. This form is less frequent, but when it happens, it usually corresponds to a policy reversal or a complete break from the present policy. Policy shifts, as they are drastic in nature, are associated by some scholars to a major change in scientific thought in society or a paradigm shift (Kuhn 1962, Hall 1990).

In the Philippines, a sector of the economy that experienced radical policy shift is the retail trade. The retail trade is a significant industry, as it provides employment to thousands of Filipinos, substantial income to businessmen, taxes for the government, and services to consumers. Thus, it connects the other sectors of the economy to the public. Over the years, this industry has undergone policy changes. Policies were repealed in response to the demands of the times, as well as to the quest of societal forces pursuing their interests. The story of policy change in the retail trade in the Philippines is unique in that policy development in the industry has taken a circular path. Two drastic policy changes have occurred in the industry. Republic Act (R.A.) 1180 was enacted in 1954 by the Third Congress to regulate the retail trade industry, and a protectionist policy was established. R.A. 8762 was passed in 2000 by the Eleventh Congress to open the retail trade sector, and a liberalized policy was installed. The move to change the policy on both occasions was a lengthy process, as the attempt to alter the status quo encountered opposition. This paper is about understanding the politics of policy change, specifically the policy shift that occurred in R.A. 1180 and R.A. 8762.

Framework of Analysis

Policy change is contentious and difficult, as it is always easier to continue an existing policy than to replace or reform the policy (Howlett and Ramesh 1995). As the policy change process involves modifying an existing policy, those benefiting from the status quo would naturally take action to preserve their advantage. People affected by policy change are wary, as the move could mean drastic adjustments on their part, whether it is in their lifestyle, work or business. Policy change also exposes them to risk, as there is no guarantee that the shift in policy would be better for them and would not have detrimental effects or unintended consequences. There is also distrust in policy change as there are fears that politicians and powerful groups in society might use the occasion to advance their private interests at the expense of public interest. Thus, in any move to change policy there would always be challenges and opposition.

As policy change entails winners and losers, use of political skills, and management of policymaking, the process is driven by politics (Reich 2002). To methodically understand the politics behind the policy change process, several factors involved are delineated and examined.

The first factor is the context, which refers to the surrounding conditions behind the move for policy change. In particular, this pertains to the external political, economic, and social environment where the policymaking process takes place (Birkland 2001). The environment can obstruct or facilitate the mobilization of demand for the policy, as the varying conditions can create incentives for the policy actors to take action. Policy advocates must have the ability to recognize windows of opportunity presented by changing conditions. The historical context puts a premium on timing, as its correct reading can provide the ideal circumstance for setting the agenda of policy change as well as its success.

The second factor is the stakeholders and the costs and benefits equation, which refers to the delineation of stakeholders involved in the policymaking process. Stakeholders are political actors who try to influence the policy change process. They are defined as an individual or groups of individuals who have vested interest in the policy being promoted (Schmeer 1999). They can be classified as proponents and opponents of the move for policy change. Assessment of their interests, declared or conceivable, is critical, as they can affect the dynamics of the policy process. “Political analysis should identify whose toes will be stepped on, who expects their toes to be stepped on, and how different groups are likely to react when their toes are stepped on, or when they think their toes will be stepped on” (Reich 2002: 139). The stakeholders’ involvement in the pursuit of their interests sets the backdrop of the battleground of the policy change process.

The costs and benefits equation refers to the actual and perceived gains and losses among the stakeholders. Ascertaining the allocation of costs and benefits is essential, as the equation can reveal the potential source of conflicts as well as the feasibility of the move for policy change. One typical problem encountered by policy change advocates is what Mancur Olsen (1965) called a collective action dilemma. The dilemma happens when the costs are immediately felt and concentrated on a small group while the benefits have long-term impact and spread to a much larger group. This scenario creates strong incentives for the former and disincentives for the latter to mobilize for collective action. Moreover, the situation intensifies when the small group is highly organized, economically powerful, and politically well connected, while the larger group is not organized, is economically weak, and is politically less influential (Reich 2002).

The third factor, policy rationalization, refers to the arguments and counterarguments offered by policy actors to justify or dispute the change in policy, fortify their position, and persuade reluctant stakeholders. Arguments must be logical, supported by empirical evidence, and comprehensible to ordinary individuals to be credible and compelling. The rationale must also show that the policy is the correct and plausible solution to the problem, issue, or concern. In particular, it must demonstrate that the advantages far outweigh the disadvantages of the policy change. The key is to create an image that the policy serves the public well-being. Policy advocates not only must be cautious in presenting the issue and alternatives; they must also use language suitable for the public audience.

The fourth factor is presidential intervention and concessions. Presidential intervention refers to the capacity of the executive branch to use power, authority, and money to influence the policymaking process. The office of the President is able to use government machinery and funds to reward allies, pressure opponents, and entice uncommitted policy actors. In the Philippine context, the presidency is critical in policymaking. Since the birth of the first republic, the country has a tradition of strong chief executives (e.g., Aguinaldo, Quezon, and Marcos), and despite the changes of constitutions (1935, 1973, and 1987 Constitutions), the presidency has continued to be the most powerful office in politics (Agpalo 1962, Brillantes and Amarles-Ilago 1994, Gutierrez 1994, Caoili 2006, Velasco 2006).

Presidential resources can be employed in many ways. They can take a benign form, such as informational support to enhance expertise, particularly the capacity to articulate and defend the policy position, or an audacious form, such as “side payments” (e.g., assurance of budget allocation and release of public funds, appointment to lucrative government positions, or outright cash in the form of bonuses) to create incentives to directly influence the behavior of policy actors. Here, the policymaking process is considered a transaction, where bargains and exchanges take place among policy actors (Stein et al 2005). Each transaction entered into bears costs, and these costs are paid off through side payments (Haggard and McCubbins 2001). The use of side payments in a political environment where patronage politics persists and elections are expensive can entice actors to climb the bandwagon for or against the policy.

Concessions in policymaking refer to bargains and exchanges where the policy actors negotiate among themselves the content and the final form of the policy. The bargains and exchanges among policy actors are a give-and-take process that usually results in compromises, as policy proponents try to accommodate the demands of the opposition (Howlett and Ramesh 1995). Concessions are needed to persuade doubting lawmakers, to appease opposing lawmakers, and to erase fears on the side of the public. Concessions over the policy are made by either inserting stipulations, removing provisions, or attaching exemptions. The effect of the practice is twofold: one, it dilutes the policy, and two, it ensures the passage of the policy.

In democratic political systems, the move to change an existing policy goes through an institutionalized policymaking process. The process is an “open” political proceeding that is susceptible to the changing conditions, and domestic and external pressures. It is also the arena where the formal policy actors’ engagement takes place, as well as the place where the stakeholders try to influence policy decisions. Considering the elements comprising the process and conceding that in reality the politics of policy change is not a neat process, this paper will use the four factors to systematically outline and explain the two policy changes that occurred— the nationalization of the retail trade industry in the Philippines in 1954, and its liberalization in 2000. Moreover, the paper will utilize documentary and archival sources. The data will heavily rely on official legislative transcripts, including committee hearings, session proceedings, and bicameral conference committee deliberations. This mode of data collections will be supplemented by secondary documentary sources to fill in gaps and amplify reliability. As a limitation, the study purposely did not interview any of the politicians involved in the policy process. This decision was an offshoot of my previous attempts to interview politicians, where most of them indicated problems in recalling the events as well as counseled me that it is best to rely on the official records.

The Politics of Policy Change

Republic Act 1180

1. The Context

The Philippines after World War II was characterized by the rise of the nationalist movement. The era was associated with the public declaration for self-determination and nation-building. In the political-economic arena, the movement was equated with demands for economic protectionism; as there were calls in Government to assert its political independence by enacting “nationalistic” policies. The aftereffect was a deluge of nationalization bills filed in Congress. One of these bills that were perceived as contentious was the nationalization of the retail trade sector.

The initial significant move to nationalize the retail sector happened in 1934, when the Association for the Nationalization of the Retail Trade and the National Economic Protectionism Association were established. The former was a group whose sole purpose was to secure the passage of the law, and the latter was an organization designed to promote economic protectionism. Efforts of both associations to entice the government to pass a retail trade nationalization law, however, did not succeed, as President Manuel Quezon advised them to wait until the country gains independence. As the country was still under the United States’ control, he pointed out that foreign business elements in the country could easily block the move to pass any retail trade law (Agpalo 1962).

During the Constitutional Convention in 1934-1935, the Committee on Commerce headed by Salvador Araneta recommended the inclusion of a provision that only citizens of the Philippines and the United States would be allowed to engage in the retail business in the proposed Philippine Constitution (Agpalo 1962). Although considered popular among the delegates, there were differences of opinion as to how the recommendation should be carried out (Aruego 1949). As a consequence, a compromise was reached, where the nationalization of the retail trade would be coursed through the soon-to-be-created Philippine Congress. When Congress was convened, several bills proposing to nationalize the retail trade were introduced; however, not one of the bills was passed into law. The reasons, as pointed out by Agpalo (1962), were first, President Quezon counseled against the passage of such laws and second, the legislators feared international repercussions, particularly from the United States, China, and Japan (which at the time was poised to be a regional power).

Immediately after the end of the Japanese occupation in 1945, House Bill (H.B.) no. 355, a consolidated bill proposing to nationalize the retail trade in the Philippines, was proposed in Congress. Although the bill was passed by both the House of Representatives and the Senate, it did not become a law only because of the veto exercised by then President Sergio Osmena. He cited international implications, as other countries and the United Nations might see the Bill as discriminatory against their citizens living in the Philippines.

Another significant nationalization of the retail trade bill was H.B. no. 1241. The bill, which after 3 years (May 1950 to May 1953) of deliberations in Congress almost made it as a law, failed only because the House of Representatives ran out of time to tackle the amendments made by the Senate, as then President Quirino did not heed the request for a special session to salvage the bill. In justifying his inaction, the President said that the bill might bring about international implications for the country and might violate the constitution. These experiences led Agpalo (1962) to conclude that prior to 1953, except for the executive branch, which still was unreceptive to the proposal to nationalize the retail trade, there was already consensus among the legislators.

According to Agpalo (1962), the primary instigating factor that contributed directly to the move to nationalize the retail trade was the “irritating” factor in society at the time: Chinese control of the retail trade industry, which was undesirable per se, as the Chinese were the most numerous among the aliens engaged in the retail trade business in the country (Agoncillo 1990). For instance, the Bureau of the Census and Statistics (1953) in 1948 reported that of the total 12,274 alien retail trade establishments in the Philippines, 12,087 were run by Chinese, and the remaining 187 were operated by non-Chinese. This factor was intertwined with other ecological factors, such as the growth of the Filipino business elites who were interested in venturing to the retail trade and the rise of protectionist or nationalization legislation in the Philippines, where protectionism was deemed necessary to promote public interest.

After the presidential and congressional elections in 1953 where the Nationalista Party won overwhelmingly, the political dynamics changed direction vis-à-vis the nationalization of the retail trade. The elections resulted in the Third Congress and the Presidency being controlled by a single party. President Ramon Magsaysay, unlike his predecessors— President Quezon, Osmena, Manuel Roxas, and Elpidio Quirino— was more open to the nationalization of the retail trade; while both the Speaker of the House of Representatives Jose Laurel Jr. and Senate President Eulogio Rodriguez Sr. were in favor of economic protectionism. In addition, the opposition in Congress, particularly the members of the Liberal Party, was also sympathetic to the policy change. The similarity of position was typical as the two rival political parties were ideologically indistinguishable and members routinely practiced party-switching or “turncoatism” (Lande 1965, Liang 1971, Abinales and Amoroso 2005). Moreover, the attitude of most politicians was also molded by the public apprehension that a large portion of the total assets of the country was in the hands of aliens, giving them the power and wealth to effectively influence government decisions (Agoncillo 1990). For instance, in1948 the Bureau of the Census and Statistics (1953) revealed that Filipinos owned only 51.9 percent of the total assets of the country, and the rest was owned by foreigners. The commitment to economic nationalism was shown in the legislative-executive and bipartisan conference, where many lawmakers agreed to support the bill to nationalize the retail trade industry (Agpalo 1962).

On 17 May 1954 H.B. no. 2523— an Act to Regulate the Retail Trade— was formally introduced in the Third Congress. The Bill was referred to the Committee on Commerce and Industry in the House of Representatives, and afterwards to the Committee on Commerce and Industry in the Senate. The bill was finally approved by Congress on 20 May 1954. On 19 June 1954, President Magsaysay signed the bill into law, which became R.A. 1180— the Retail Trade Nationalization Act.

2. The Stakeholders

In the process of promoting policy change in the retail trade, the stakeholders took one of two positions: those who wanted the industry exclusively for Filipinos and those in favor of maintaining the status quo. The first group comprised those proposing a protectionist policy in the nationalization of the retail trade, while the second group opposed the change, and were for the continuation of an “open” retail trade industry.

The move to nationalize the retail trade was spearheaded by the groups within the sector, namely the Filipino Retail Merchants’ Association (FRMA), the Filipino Retail Business Movement (FRBM), the United Filipino Retailers and Cooperative Association (UFRCA), the Central Market Retailers’ Association (CMRA), Filipino Economic Emancipation Organization (FEEO), and the National Vendors’ Association (NVA). These groups were supported by two business umbrella organizations, the Philippine Chamber of Commerce (PCC) and the Philippine Chamber of Industries (PCI). The Bureau of Commerce was the main government agency in favor of policy change. On the other side, the principal groups opposed to policy change were the Chinese retailers’ organization, namely the Chinese General Chamber of Commerce (CGCC), and its umbrella association, the Federation of Chinese Chambers of Commerce (FCCC). The groups were supported externally by the Chinese government in Taiwan, and the American Chamber of Commerce (ACC) (Agpalo 1962).

As to the costs and benefits equation, the perceived gainers from the repeal of the policy were the Filipino retailers and investors, particularly moneyed Filipinos interested in breaking into the lucrative retail trade business. In contrast, the perceived losers from the policy change were the aliens engaged in the retail trade business, particularly the Chinese since they dominated the industry. The costs would be mainly endured by the aliens, as the proposal would completely prohibit them from continuing their existing businesses.

Both parties had the financial capacity to mount a sustained engagement. The Filipino retailers and investors’ advantage was that, being citizens, they could use their votes to influence the lawmakers. On the other side, the Chinese recourse was to seek help from their home country, as bringing their country into play could generate pressure on the Philippine Government.

3. Policy Rationalization

Arguments. The proponents of policy change argued that it was necessary to regulate the retail trade business. The fundamental premise for nationalizing the retail trade was that Chinese domination resulted in an industry controlled by aliens. This sentiment was reflected in the explanatory note of H.B. no. 2523:

Its purpose is to prevent persons who are not citizens of the Philippines from having a stranglehold upon our economic life. If the persons who control this vital artery of our economic life are those who owe no allegiance to this Republic, who have no profound devotion to our free institutions and who have no permanent stake in our people’s welfare, we are not really masters of our own destiny.

The retail trade sector was considered a critical sector in the economy as it links the producers with the consumers. As the consumers ultimately comprise the whole population, alien control of the industry was deemed unacceptable. This feeling led to the growing opinion among Filipinos that foreign control of the retail trade was economically unsound (Porter 1940). This situation brought about the call for the emancipation of the industry so that Filipinos could retrieve what was rightfully theirs, so to speak. The prevailing thinking, however, was that it would be difficult for Filipinos retailers alone to free the retail trade industry from Chinese control, as they would have no chance against alien competition. Thus, it was necessary for the government to come in and legislate a law.

Another idea that was used to promote policy change was the belief that aliens, rather than Filipinos, were enjoying the huge revenues from the retail trade industry. This reality was aggravated by the suspicion that the profits made by aliens were repatriated abroad to their home countries in violation of a Central Bank prohibition. In a sense, the practice was construed as benefiting aliens and foreign countries at the expense of Filipinos.

The theoretical justification was anchored on the concepts of self-determination and self-sufficiency, as both were taken as the guiding principle in the quest for development. The former requires the Government to make decisions based on its interest and free from foreign influence and dictates; while the latter stresses that the Government must make decisions that would promote autonomy in the country. The two are interconnected, as the perception at the time was that the only way for a country to acquire the capacity to make political decisions independently was for it to be economically self-reliant. The rationale implied that with the achievement of economic self-reliance, the Government would have the capacity to make critical decisions to ensure that the welfare of Filipinos was prioritized and served. The dictum in policymaking is that lawmakers must enact protectionist policies to safeguard the interest of the citizens. This translates into the call for nationalism in the economic realm, as protectionist policies were equated with pro-Filipino policies. The argument was captured in the rhetoric of Congressman Numeriano Babao during the committee hearings: “I ask that we [must] approve the bill on nationalization. This is good for everybody, and this is good for our people. This will improve them economically and will assure them progress and prosperity” (House of Representatives Committee on Commerce and Industry Hearings on the Nationalization of the Retail Trade held on February 9, 1954).

The “Filipinization” of the retail trade was popularly viewed as an expression of Philippine nationalism at the time. This prevailing opinion created pressure on lawmakers, as the perception was that anybody who would vote against the nationalization bill had to reckon with being branded pro-alien and anti-Filipino. In addition, the nationalization of the industry was also associated with national security. The logic was that a country could not be secure if its vital industries were controlled by aliens. This stance has prevailed since the 1940s. For instance, in arguing for the regulation of the retail trade industry, the Director of Commerce commented: “We respect the right of aliens [to] engaged in business here under our laws. But our sense of national security demands that we have in the hands of our nationals the essential instruments of our own economic well-being” (Porter 1940: 22).

Counterarguments. Resident aliens who opposed the policy reform argued that nationalization of the retail trade would violate the constitution, specifically the provision on equal protection and due process. They claimed that the policy proposal would lead to prejudice and result in the unlawful deprivation of properties of those affected. As resident aliens, they reminded the lawmakers that they had lived in and also contributed to progress in this country; hence, they were entitled to protection under Philippine laws. They also reminded the lawmakers that democracy implies open and free competition among citizens as well as aliens. The retail trade sector must adhere to this principle and regulating it would be discriminatory.

The opposition also warned that the policy change could create international problems and might send a wrong signal to the international business community. They cautioned that H.B. 2523 might scare away foreign investors and, worse, invite retaliation from other countries whose citizens would be affected. They also said that international agreements such as the Treaty of Amity between the Philippines and China might be violated. As the nationalization of the retail trade might not be consistent with the agreement, they argued that there could be serious repercussion to the economy, as China might attempt to get even. The contention was buttressed when the Chinese government in Taiwan made a strong diplomatic protest against the bill. The intent of the protest was to convince the Philippine government to halt its legislative proceedings or, if the bill was passed, to persuade President Magsaysay to veto it.

Moreover, the CGCC and FCCC also opposed the retail trade bill. For instance, during the final committee hearing on the bill, Peter Lim, representing the alien retailers, contended that “the disenfranchisement of alien retailers may leave a vacuum that may not be adequately supplied by efficient and qualified Filipino retailers” (House of Representatives Committee on Commerce and Industry Hearings on the Nationalization of the Retail Trade held on February 23, 1954). They believed that Filipinos alone could not fill the gap that would result from the prohibition. Thus, ultimately the consumers would bear the brunt of policy change. This warning was accompanied by the threat that the prohibition might result in indignation that could fuel violent anti-government activities among the Chinese.

4. Presidential Intervention and Concessions

Early on, President Magsaysay had manifested his support for the move to legislate the nationalization of the retail trade. His position was made clear when he endorsed the passage of the retail trade nationalization bill in the legislative-executive conference, and when he readily certified the bill as urgent in Congress, when requested by Speaker Laurel Jr. Going along with the President, the lawmakers took action to consolidate support for the bill by calling a bipartisan conference. The leaders of both majority and minority parties attended the conference to firm up the endorsement of H.B. 2523. In effect, the President provided the necessary endorsement for Congress to continue pushing for the bill.

The influence of the President over policymaking was evident in the outcome of the legislative-executive conference held on 7 May 1954. The conference was called amid the diplomatic protest made by the Chinese embassy to the Department of Foreign Affairs (DFA) over the nationalization of the retail trade. To relieve the pressures, President Magsaysay agreed to continue his support for the policy reform, provided the legislators push for a “weak” version of the bill, and leave out all other nationalization measures pending in Congress (Agpalo 1962). As a consequence, the leadership of both the Nationalista Party (such as Speaker J. Laurel, Speaker Pro-Tempore Daniel Romualdez, and Majority Floor Leader Arturo Tolentino) and Liberal Party (such as Gregorio Abogado, Floro Crisologo, and Ferdinand Marcos) in the House of Representatives readily acceded to the “request” of the President, as they agreed to push for a watered-down version of the bill and discard the 47 other nationalization bills introduced in the legislature.

Presidential influence again manifested itself when a small group of idealist legislators in the House of Representatives tried to replace H.B. no. 2523 with H.B. no.2518, an extreme version of the nationalization of the retail trade. H.B. no. 2518 was introduced to profoundly broaden the coverage of the nationalization bill to include wholesale trade in rice, flour, corn, sugar, copra, tobacco, abaca, and lumber in addition to retail trade (Agpalo 1962). As the substituted bill was unacceptable to President Magsaysay, the Speaker of the House of Representatives, Laurel Jr. called for a bi-partisan caucus among the legislators to resolve the matter and revert to the originally agreed-upon bill, H.B. no. 2523.

Pressures against the nationalization bills came internally from alien retailers, particularly the moneyed Chinese retailers, and externally from foreign governments, particularly the governments of China and the United States. Considering the seriousness of the situation, the policymakers made concessions. As the leadership of both Nationalista Party and Liberal Party are resolved in passing the nationalization of the retail trade, the majority and minority parties in Congress aligned themselves in urging that the law be accomplished with a minimum of discomfort possible to the affected aliens (Agpalo 1962). As a consequence, two provisions were incorporated into the bill:

1. A person who is not a citizen of the Philippines, or an association, partnership, or corporation not wholly owned by citizens of the Philippines, which is actually engaged in the said business on May, fifteen, nineteen hundred and fifty-four, shall be entitled to continue to engage therein, unless its license is forfeited in accordance herewith, until his death or voluntary retirement from said business, in the case of a natural person, and for a period of ten years from the date of the approval of this Act or until the expiration of the term of the association or partnership or of the corporate existence of the corporation, whichever event comes first, in the case of juridical persons.
2. Nothing contained in this Act shall in any way impair or abridge whatever rights may be granted to citizens and juridical entities of the United States of America under the Executive Agreement signed on July fourth, nineteen hundred and forty-six, between that country and the Republic of the Philippines (R.A. 1180, section 1, paragraph 1 and 2).

The first was a major concession made to directly appease all alien retailers, particularly the Chinese retailers, in the country by giving them a legitimate prospect to continue their business operation and ample time (as the law was to take effect ten years after its passage) to make adjustments (e.g., applying for Filipino citizenship) (Martinez-Santos 2000). The second was reached to make the law consistent with the Bell Trade Act of 1946, which provided for free-trade relations between the United States and the Philippines until 1954 (Agoncillo 1990), and its planned “renewal” (as the Act was subsequently replaced by Laurel-Langley Agreement in 1955). As the Bell Trade Act gave “parity” rights to the Americans investors and businesses in the Philippines, strong American pressure was exerted to incorporate the exempting provision in R.A. 1180 (Schirmer and Shalom 1987, Agoncillo 1990). As a consequence, the compromise was effective in ensuring the enactment of R.A. 1180; however, it significantly diluted the law.

Republic Act 8762

1. The Context

With the advent of the 1990s, the effectiveness as well as soundness of R.A. 1180 was questioned. First, the critics argued that the policy had outlived its usefulness. The law was designed to protect Filipino retailers from the dominance of Chinese immigrant retailers, who at the time controlled around 60 percent of the industry (Agpalo 1962). But with mass naturalization, in particular with Chinese marrying Filipinos, alien retailers became citizens. Hence, absorption of the Chinese ironically made the protectionist policy ineffectual against them. An unintended consequence of the assimilation process was that R.A. 1180 protected the Filipino Chinese that it originally intended to exclude, and shielded them against foreign competition.

Second, the critics argued that the policy did not translate into growth in the retail trade industry. The law was in tune with economic protectionism, where development was achieved through government intervention and regulations. In this strategy, the government needed to ensure that the retail trade industry was firmly under Filipino control. However, after four decades of implementing R.A. 1180, the Philippine retail sector could grow to only 10.9 percent of the gross domestic product (GDP) compared with the around 18 percent standard among Southeast Asian countries that had fully opened up their retail trade sector (Patalinhug 1996). The data showed that the Philippine retail trade industry was lagging behind and that there was more room for growth.

Both insights on R.A. 1180 were underpinned by the global paradigm shift in economic thinking. From the 1980s onward, neoliberalism had become the dominant economic philosophy, as most countries adopted liberal policies in their pursuit of development. Following the core liberal economic principles of deregulation, privatization, foreign investment, and free trade, the post-EDSA Philippine governments have steadily embraced policies such as lowering of tariff, loosening of foreign exchange controls, and opening the banking sector to foreign investments. Thus, it is logical to expect the retail trade industry to accept liberalization and thus follow the liberalization of the other sectors of the economy. Moreover, affiliation with the World Trade Organization (WTO) and the ASEAN Free Trade Area (AFTA) has strengthened the commitment of the Philippine government to liberalize the economy.
The Ramos administration, under the banner of “Philippines 2000,” pushed for liberalist policies to dismantle monopolies in telecommunications industry, airline and shipping industry, insurance industry, as well as measures liberalizing foreign-exchange (De Dios and Hutchcroft 2003, Almonte 2007). As in the other industries, the liberalization of the retail trade was also identified as a priority by the government and was communicated to Congress, as the retail sector was considered one of the last remaining economic protectionist mechanisms in the country. As a consequence, the formal move to repeal R.A. 1180 began in 1995, when the retail trade liberalization bill was first introduced in the legislature. The Committee on Trade and Commerce of both chambers held several hearings on the retail trade bill in 1995 and 1996. Since then, the bill has been successfully blocked every year in Congress. The outcome was attributed primarily to the stiff resistance from vested interests. As explained by Senator Sergio Osmena, the main proponent of the bill, that “a few retailing oligopolists have been waging a powerful lobby against the passage of the bill” (Transcript of the Senate Session Proceedings on Retail Trade Liberalization Act of 1998 held on September 21, 1999).
In 1998, the Estrada administration followed suit and continued the push for the repeal of R.A. 1180, as the economic managers (e.g., Jose Pardo, Felipe Medalla, and Mario Lamberte) of President Joseph Estrada called for the scrapping of the policy. They argued that reforming the retail trade law was long overdue, and the protectionist policy was no longer in tune with the times. For instance, the advent of internet retailing made it very difficult for countries to prevent foreign businesses from selling directly to their people. The economists from the National Economic Development Authority (NEDA) stressed that the timing for making drastic policy change was right. Opening up the remaining protectionist industry, the country would be sending a strong signal to the world that it was serious in embracing free trade and that the liberalist economic policies of the government had continuity and consistency— with the Estrada administration continuing the liberalization program of the previous regimes.

Taking the cue from the executive branch, the Eleventh Congress opened the committee hearings on 18 August 1998 in the Senate and 10 November 1998 in the House of Representatives. Senate Bill no.153 was heard by the Committee on Trade and Commerce, and House Bills no. 23, 172, 788, and 879 were heard jointly by the Committee on Trade and Industry, Committee on Economic Affairs, and Special Committee on Employment Generation. The Senate and House bills were reconciled and approved by the Bicameral Conference Committee on 9 February 2000 and passed by both Houses on 15 February 2000. The new law was formally signed by President Estrada on 7 March 2000, thus, becoming R.A. 8762— The Retail Trade Liberalization Act.

2. The Stakeholders

In the process of repealing the Retail Trade Nationalization Act, the stakeholders took one of two positions: those in favor of allowing foreign investors in the retail business and those who wanted to keep the retail trade sector exclusively to Filipinos. The first group comprised those proposing policy change and liberalization or opening of the retail trade, while the second group opposed the change, and advocated the continuation of the protectionist policy in the retail trade.

The executive agencies were at the forefront of the effort to promote policy change. Because the bill was sponsored by the administration, executive agencies such as the Department of Trade and Industry (DTI), the Department of Finance (DOF), NEDA, the Board of Investments (BOI), and the Philippine Institute for Development Studies (PIDS) actively participated in crafting and deliberating on the bill. The bill was supported by the main consumer group in the country, the Consumer Union of the Philippines (CUP); international business groups, such as the American Chamber of Commerce, the European Chamber of Commerce, and the Australian and New Zealand Chambers of Commerce; and local business groups, such as the Philippine Chamber of Commerce and Industry, and the Federation of Filipino-Chinese Chambers of Commerce and Industry. On the other side, the key opposing groups that actively participated in the policy deliberations were mostly retail business organizations and their affiliates, such as the Kilusan Tungo sa Pambansang Tangkilikan (KATAPAT), NEPA, Philippine Retailers Association (PRA), the Chamber of Filipino Retailers (CFR), the Philippine Association of Supermarkets, Inc. (PASI), the Philippine Franchise Association (PFA), and the National Market Vendors Cooperatives (NAMVESCO).

In the distribution of costs and benefits among the stakeholders, the perceived principal gainers from the repeal of the policy were the Filipino consumers, manufacturers, farmers, and small retailers, particularly the operators of “sari-sari stores” (small, neighborhood convenience stores). On the other hand, the perceived biggest losers with the entry of foreign retailers were the local medium-sized and big retailers. The costs would be borne solely by these groups, which would lose their monopoly of the local market and the government protection against direct foreign competition that they had been enjoying since 1954.

The perceived costs and benefits also created a dilemma. On one side, the losses would be immediately felt and concentrated on the medium-sized and large retail businesses; on the other side, the gains would take a longer period to be felt and would spread to a very broad mass of people. In effect, it was believed that the costs would be shouldered by a relatively small sector of the economy, while the benefits would be felt by the whole society itself, as anyone can be identified as a consumer. On the part of the Filipino retailers, the dynamics generated a strong motivation to mobilize collective action against the bill. Their collective action was deemed influential as the sector was known to be well-organized, financially well-off, and politically connected. This strength was exemplified by their capacity to block the bill a number of times since 1995 and by their passionate and well-orchestrated appeal during the legislative deliberations.

3. Policy Rationalization

Arguments. The proponents for policy change argued that the fundamental premise for repealing R.A. 1180 was that the protectionist policy resulted in an industry controlled by few players. The oligopoly created brought about the decline in the comparative and competitive advantage of the industry. Consequently, consumers were made to pay for the inefficiency of Filipino retailers, and this inefficiency translated into high prices and low-quality goods. To deal with the problem as well as to break the stranglehold of the cartel, the industry needed to be subjected to healthy competition. As there were not enough big local capitalists who were willing to invest and challenge the dominance of the few controlling players in the retail industry, it became necessary to invite foreign retailers. Thus, the retail trade business must be exposed to the full force of foreign competition— the more players, the better for the industry.

As the central justification for policy change, the promotion of competition in the retail trade industry was theoretically rationalized by the concept of a contestable market. In describing the concept, Lamberte of the PIDS stated: “It doesn’t matter whether you have two producers or one thousand producers or one producer. What is important is that one will behave like a competitor. And the only way we can force him to behave like a perfect competitor is to threaten him.” The theory implies that what is important is the presence of countervailing forces to guarantee competition and ensure efficiency among the players in the industry. NEDA Director General Medalla affirmed that an efficient operator forces other operators to be efficient as well. Here in the Philippines, liberalization in banking, telecommunications, shipping, and insurance showed beneficial impacts. For instance, in the telecommunication industry, the Philippine Long Distance Company (PLDT) that held a virtual monopoly in the past had become more efficient in the face of competition. Thus, the “transformation” of PLDT benefited the consumers as well as the company.

The liberalization of the retail trade sector was expected to help address the major economic problems facing the country. The net effect of the entry of foreign retailers could be an increase in economic activity and employment. For instance, the competition and the quest to gain market share would help bring down the prices of commodities. Lower prices of goods, if attained, could translate into less pressure from the demand for an increase in salaries and into more savings to the consumers. In addition, the pressure from competition would force local retailers to be efficient, innovative, and flexible. The presence of foreign players also could expose the retail sector to newer management systems and technology transfer. The archetype of this development is Jollibee, the local fast-food company that adopted and utilized the technology and expertise of McDonalds, its main competitor, to edge out the latter in the fast-food business. Another, the deficiency in local capital investment would be resolved by the influx of foreign capital. Domestic savings are too low to be the source of capitalization. Lastly, there would be reciprocity in opening the retail trade sector. It would follow that opening the economy would lead other countries to also open their market to Filipino products. Moreover, the entry of global retailers would enable them to identify locally produced products that could be sold in their other retail establishments around the world.

The small retailers, who comprised 96 percent, were the largest segment of the retail industry, and were projected to be minimally affected by the policy change. The sari-sari stores have distinct advantages over huge local retailers that the former could exploit when confronted by the influx of foreign retailers. Sari-sari stores are location-specific and occupy a special market niche based on convenience and unique services. For instance, sari-sari stores sell goods piecemeal (e.g., one can buy a stick of cigarette), and offer exceptional credit terms (e.g., payment is made after the buyer receives his salary). In addition, small retailers would also have more alternatives to source their goods. Sari-sari stores are clients of big retailers because their sourcing volume is too small to be serviced directly by manufacturers. The experience of Makro illustrates this case. Makro’s entry significantly improved the sourcing of cheaper supplies for sari-sari stores.

On the issue of constitutionality of the policy change, specifically the mandate that the economy should be effectively controlled by Filipinos, DOJ opinion no.155, dated December 24, 1998, signed by Secretary Serafin Cuevas, declared that the bill at hand had no constitutional infirmity. The DOJ found no legal or constitutional obstacle to the opening of the retail trade sector to foreign investors. Moreover, the DOJ also acknowledged that the policy change was within the powers of Congress to make, as the legislature has the authority and discretion, subject to those expressly reserved by the Constitution for Filipinos (public utilities, natural resources, mass media, and educational institutions), to determine the type or manner of investments open to foreigners.

Counterarguments. The opponents of the policy change argued that R.A. 1180 was still valid in the 1990s. They said that the retail trade industry, as a critical sector of the economy, must be protected against foreign competition and must be controlled by Filipinos who have a permanent stake in the well-being of the country. They also were skeptical of the outcome of competition, as they foresaw a one-sided contest. The entry of foreign retailers with their capital, and technological and other advantages could easily translate into uneven competition. For instance, they could use their financial muscle to resort to predatory pricing to eliminate competition. In addition, some in the opposition strongly believed that local retailers were still unprepared and needed some more time to get ready for competition. They suggested that Filipino retailers be given time to allow them to adjust.

For the opposition, pressing on with policy change would put many local retailers out of business. They predicted that massive displacements and closures would ensue, resulting in net job losses in the retail trade sector. The increase in unemployment would eclipse any gains in the reduction of prices of goods brought about by competition. To rationalize their position, they cited studies, such as “When Corporations Rule the World” by David Korten in support of the so-called “walmartization,” where the entry of mega global retailers in a particular locality causes sales of local stores to go down and local retail businesses to perish. They warned that the entry of foreign retailers would not automatically reduce prices, given the multitude of components that determine the price of goods (e.g., transportation cost, utilities, raw materials). If foreign retailers deemed the cost of operation high, then prices would not go down.

Others tried to block the liberalization of the retail trade industry on constitutional grounds. The main argument, as expressed by Congressman Enrico Aumentado, was that repealing the law would violate the Constitution, specifically Article 2, section 19, which says: “the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos;” Article 12, section 1, which says that “the State shall protect Filipino enterprises against unfair foreign competition and trade practices;” and section 10, which says “the congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly-owned by Filipinos.”

4. Presidential Intervention and Concessions

In the move to repeal R.A. 1180, President Estrada certified the bill as urgent in Congress. The position of the administration was formally conveyed to the lawmakers through a letter sent by Secretary Pardo, informing them that the President expected the bill to be prioritized by Congress. In line with the directive, the Government agencies, particularly DTI and NEDA, provided the information and materials needed in support of the passage of the bill. The materials were fed to the sponsoring lawmakers to enhance their knowledge and arguments during deliberations in Congress. The executive agencies also provided the working draft of the bill and served as “consultants” in the final drafting of the law. For instance, the BOI was in constant touch with the lawmakers from the committee hearings up to the Bicameral Conference Committee.

The influence of President Estrada was critical over the lawmakers. Despite the limitations imposed by the 1987 Constitution, the President continues to hold sway over Congress. In Philippine politics, traditionally the Presidency (a.k.a. the Chief Legislator) exercises strong influence over the legislature (Brillantes and Amarles-Ilago 1994, Gutierrez 1994, Velasco 2006). An example of this is the continuing influence of the President on the selection of leaders in both chambers of Congress. The person elected as the Speaker of the House or the Senate President usually has the blessings of the sitting President. Another is the legislators’ perennial practice of climbing on the President’s bandwagon by affiliating themselves or their parties. The influence of the President over Congress emanates from the power over the purse, in particular, the power to control the release of budgetary funds. In an arena where patronage politics is prevalent, the “pork barrel,” which is used to fund the projects of lawmakers, is perceived to be crucial to their political survival (Huchcroft and Rocamora 2003, Coronel et al. 2004, Caoili 2006, Hutchroft 2008). In the case of President Estrada, his charisma and extreme popularity to the masses were also a huge factor that reinforced his grip on Congress. The President’s influence over the repeal of R.A. 1180 could be inferred from the retort of Senator S. Osmena in the Senate committee hearings against the continuous and vehement objection of the retailers group to the bill— that if they want to block the bill they should go and talk to Malacanang. Moreover, adding pressure to the legislators to hasten the passing of the bill was the personal pledge made by President Estrada to the members of the Association of Southeast Asian Nations (ASEAN) in the November 1998 Summit held in Hanoi that the Philippines would immediately liberalize its retail trade sector.

The main issue in the repealing bill that needed concession was the safety net concern. The objectors argued for a guarantee that would provide security to Filipino retailers. To address the apprehension, particularly the fear on the psychological level among the Filipino retailers, the proponents agreed to incorporate in the bill the following safeguard proposals:

1. Retail trade enterprises with a paid-up capital of less than $2,500,000.00 are reserved exclusively for Filipino citizens and corporations.
2. Foreign investors interested in acquiring shares of existing local retailers may purchase only up to a maximum of 60 percent of the equity within the first two years from the effectivity of the repealing law.
3. Retail trade enterprises where foreign ownership exceeds 80 percent must offer a minimum of 30 percent of their equity to Filipinos through any stock exchange in the Philippines within eight years from their start of operations.
4. The DTI must prequalify all foreign retailers before they are allowed to conduct business in the Philippines. For instance, to preclude fly-by-night retailers, the DTI requires foreign retailers to have at least five retailing branches in operation anywhere around the world as well as a five-year track record in retailing.
5. Only foreign retailers coming from countries that allow the entry of Filipino retailers would be permitted to engage in business.
6. At least 30 percent of the stock inventory of foreign retailers, after 10 years from the effectivity of the law, must be Philippine made.
7. Qualified foreign retailers are not allowed to use rolling stores or sales representatives, or engage in door-to-door selling or the restaurant business, or run sari-sari stores.

The majority of the legislators (except five Senators, namely, Anna Dominique Coseteng, Teofisto Guingona, Loren Legarda-Leviste, Ramon Magsaysay and Nene Pimentel, and 26 Congressmen e.g., Nereus Acosta, Michael Defensor, Raul Gonzales, Renato Magtubo and Clavel Martinez) accepted the concessions to alleviate deep-seated suspicion and distrust among the oppositions. The cross-party consensus among the lawmakers was that, without the stipulations, passing the bill in both Houses would be much more difficult. To mitigate the complications, the proponents decided to be practical and accommodated the demands. The importance of concessions is summed up in the statement of Senator S. Osmena: “I just did it to appease some of the objectors to the bill” (Senate Session Proceedings on Retail Trade Liberalization Act of 1998 held on September 14, 1999). Thus, the compromise assured the enactment of R.A. 8762 and the repeal of R.A. 1180.

Summary and Conclusion

In 1954, the Third Congress passed R.A. 1180, the Retail Trade Nationalization Act, and in 2000, the Eleventh Congress enacted R.A. 8762, the Retail Trade Liberalization Act. Although separated by 45 years, the two laws are related. Both laws deal with the same industry, and the latter effectively repealed the former. Both laws were considered a radical policy change carried out by the Government. The nationalization of the retail trade was a change from an open to a protectionist policy, while the liberalization of the retail trade was a change from a protectionist to an open policy. The nationalization and eventual liberalization of the retail trade industry exemplified the intricacy of policy shift, as the experience revealed the nuances of policy change in the Philippines.

The context showed the conditions behind the agenda setting of the policy. R.A. 1180 was driven externally by the rise of the nationalist movement, which instigated economic protectionism; and internally by the Chinese domination of the retail trade. On the other hand, R.A. 8762 was instigated externally by the ascension of neoliberalism, which led to economic liberalism; and internally by the need to promote growth within the industry and the economy. Thus, both laws were set off under the backdrop of external developments and internal irritants. Moreover, the enactment of R.A. 1180 took some time, as President Quezon, Osmena, Roxas, and Quirino were not sympathetic to the nationalization of the retail trade. The passage of R.A. 8762 likewise took a while because, since its initial introduction in 1995, the liberalization bill had been opposed by powerful business oligarchs and successfully blocked in Congress. Thus, both laws took a protracted route toward their eventual passage.

The stakeholders formed two positions vis-a-vis policy change. In R.A. 1180, the proponents wanted the industry exclusively for Filipinos and the opponents were in favor of maintaining the status quo. In R.A. 8762, the proponents were in favor of allowing foreigners to engage in the retail trade business and the opposition wanted to keep the retail trade sector exclusively for Filipinos. As regards the costs and benefits equation among the stakeholders, in R.A. 1180, the perceived gainers were the Filipino retailers and investors, and the perceived losers were the aliens engaged in the retail trade business, particularly the Chinese. In R.A. 8762 the perceived principal gainers were the Filipino consumers, manufacturers, farmers, and small retailers, and the perceived biggest losers were the local medium-sized and big retailers. Moreover, Filipino retailers and investors used their shared nationality to influence the lawmakers, while the Chinese aliens sought the help of their home country to put pressure on the Philippine government to pass R.A. 1180. With R.A. 8762, in contrast, the perceived costs and benefits resulted in a dilemma, as the losses would be immediately felt and concentrated on a relatively small sector of the economy, and the gains would take a longer period to be felt and would spread to the whole society itself. Thus, the engagements among stakeholders in the two laws evolved into distinct costs and benefits dynamics.

Both laws rationalized policy change effectively. The proponents of R.A. 1180 argued using the nationalist sentiment as the principal theme. Policy regulation was needed, as the retail trade was a critical industry that must be in the hands of and controlled by Filipinos. The rationale was underscored by the prevailing development thinking anchored on the concept of self-determination and self-sufficiency. The debates in Congress portrayed policy change as pro-Filipino. On the other hand, the proponents of R.A. 8762 argued using economic necessity as the central thesis. Policy change was necessary to break the oligopoly in the retail trade sector, as only a few players controlled the industry. The argument was reinforced by the recent concept of a contestable market premised on the existence of competition. The policy deliberation in the legislature was depicted as an action to promote efficiency in the industry and to advance consumer welfare. Furthermore, the necessity for government intervention was stressed in both laws. In R.A. 1180, the proponents contended that, by themselves alone, Filipinos would find it difficult to emancipate the industry from Chinese control, and in R.A. 8762, the proponents acknowledged that there were not enough local capitalists that can bring genuine competition and challenge the existing oligopoly in the industry. Thus, both cases highlight the need for government intervention through legislation.

Finally, presidential involvement and concessions were necessary for the passage of both laws. In R.A. 1180, President Magsaysay’s endorsement played the decisive role, as the lawmakers acceded to his request to make the law acceptable to opposing stakeholders. Similarly, in R.A. 8762, President Estrada’s support was instrumental, as it ensured the backing of the majority of the lawmakers and caused the opponents to concede the inevitability of policy change. Thus, the sitting Presidents played a crucial role in the success of both policy changes

Concessions are considered a normal part of the democratic policymaking process, as opposing interests and demands necessitate compromises. In both laws, concessions were made mainly to counteract pressures and dissent. Both R.A. 1180 and R.A. 8762 were weakened by the insertions of compromise provisions; nevertheless, those provisions guaranteed the success of policy change. Thus, concessions are end-game tactics that policy actors use to ensure the enactment of contentious policies.

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The Politics of the Anti-Dumping Law of the Philippines

Bing Baltazar C. Brillo

2010 UPLB Journal, vol. 8, no. 1, pp. 17-29.

Keywords
Anti-Dumping, GATT-WTO, Policymaking,
Republic Act 7843, Republic Act 8752

Abstract

As a member of the World Trade Organization (WTO) and signatory to the General Agreement on Tariffs and Trade-Uruguay Round (GATT-UR) Agreement, the Philippines has become a member of the international trade regime. The economic regime promotes the unhampered flow of goods and impels the country to open its economy to foreign goods. This scenario poses a risk to the local industry as foreign competitors, in their quest to penetrate and capture markets, can engage in dumping. To mitigate the risk inherent in the situation, the GATT-WTO regime encouraged countries to legislate an anti-dumping law. The rationale of the law is to establish a system of international trading where the playing field is even or level for all players. The anti-dumping law gives a country the right to adopt an adequate response to protect itself against unfair trade practices of other countries. This paper is about the evolution of the anti-dumping law in the Philippines, specifically the enactment of Republic Act (R.A.) 7843, and the transition to R.A. 8752. It concludes with the following observation on the policymaking experience: first, the enactment shows the satisficing nature and the protective tendency of the lawmakers; second, the enactment reveals the increasing influence and relevance of international organizations and regimes in domestic policymaking; and lastly, the evolution of the policy illustrates the dynamics of interagency competition vis-à-vis policy change.

Introduction

As a member of the World Trade Organization (WTO) since January 1, 1995, and as a signatory to the General Agreement on Tariffs and Trade-Uruguay Round (GATT-UR) Agreement, the Philippines has become a member of the international economic order, particularly in the area of international trade. The economic regime promotes the unhampered flow of goods and impels the country to open its economy, including industrial and agricultural markets, to foreign goods. The availability of imported goods in the domestic market results in stiff competition between the local and the foreign producers and manufacturers. This scenario poses a risk to the local industry as, foreign competitors, in their quest to penetrate the market and capture market share, can engage in unscrupulous practices, such as dumping.

Dumping as defined by the Tariff Commission (TC) “occurs when foreign producers sell their products to an importer in the domestic market at prices lower than in their own national markets, or at prices below cost of production, the sale or importation of which injures or threatens to injure a domestic industry producing like or comparable products or retards the establishment of a potential industry. It is a form of price discrimination between two national markets.” Dumping exists when key elements such as the following are present: (a) importation below the normal value, (b) material injury or threat of material injury to the domestic industry, and (c) a causal link between the injury and the importation. The high possibility of dumping in the domestic market poses a clear and present danger to the local industries.

To remedy the situation, countries are encouraged to legislate an anti-dumping law. Anti-dumping is a principle well recognized in international trade, as even the GATT-WTO regime requires member countries to enact the law (see Article 6 of GATT 1994). The rationale for the law is to establish a system of international trading where the playing field is even or level. The anti-dumping law gives a country the right to adopt an adequate response to protect itself against unfair trade practices of other countries. For instance, the law can impose a duty or tariff to even up the pricing mechanism between domestically produced goods and like products that are considered dumped products.

In the Philippines, a dumping law incorporated in Republic Act (R.A.) 1937, the Tariff and Customs Code, had been in existence since 1957. It dealt mainly with the imposition of dumping duty, and was considered inadequate in coping with the problem of dumping in the era of an open economic system. Following the mandate of the GATT-WTO regime, in 1993 the Ramos administration and the Ninth Congress agreed to repeal the existing dumping law. The intention of the policy actors was more to put up an infrastructure and support system necessary to protect the domestic industry rather than to diligently adhere to the GATT-WTO principles on anti-dumping practices. The effort resulted in R.A. 7843.

As R.A. 7843 was not entirely consistent with the GATT-WTO Agreement, in 1998 the Estrada administration and the Eleventh Congress took action to amend the prevailing anti-dumping law. This time the intention was primarily to comply fully with the mandate of the international agreement. The effort produced R.A. 8752. This paper is about the politics of the evolution of the anti-dumping law in the Philippines, specifically the enactment of R.A. 7843, and the transition to R.A. 8752. The study focuses on how each policy came about.

Factors of Policymaking

Policy is considered the essence of governance, as it is the concrete manifestation of government actions to address public issues, needs, or concerns. Policies, broadly described as “anything a government chooses to do or not to do” (Dye 1972: 2), often take the form of laws, statutes, regulations, or measures. The description implies that policymaking is a governmental activity where policy actors make formal decisions by enacting policies. Policymaking usually consists of agenda setting, discussion, formulation, and approval of the policy (Stein et al 2005, Lester and Stewart 2002, Howlett and Ramesh 1995), where each stage of the process involves interaction among policy actors.

Once made, a policy becomes a binding rule that regulates the actions of people and society. An existing policy continues to be enforceable until amended, changed, or revoked by legitimate authority through a legislative fiat. In some cases, the continuity of a policy is measured by its utility (Heywood 2002; e.g., see discussions on rationality model [Downs 1957] and on bounded rationality [Simon 1983]). The rule of thumb is that a policy persists as long as it is useful and relevant. In other cases, the demand for policy change may be set off from the outside (e.g., see discussions on lesson drawing [Rose 1991] and on policy transfer [Dolowitz and Marsh 2000]) by changing international condition, which can render existing policies unresponsive or obsolete. This mode has become pronounced in the era of economic globalization where international regimes have become regular and influential in policymaking, thereby making the process more susceptible to external pressures. One prominent manner of promoting policies from the outside is through “policy transfer” where policies from other countries are either adopted voluntarily by the host country or coercively imposed on it by a government or an international institution (Dolowitz and Marsh 1996).

The process of crafting or repealing a policy requires engagement of political actors (institutional, societal, or international actors). As the actors represent different interests, and each one tries to exert influence to shape the policy, the policymaking is essentially a political game. Analyzing the politics of the policy process requires the examination of the fundamental factors that contribute to policymaking (Reich 2002).

The first factor is the context, which refers to the surrounding conditions behind the move on the policy. In particular, the context pertains to the domestic and international political, economic, and social setting where the policymaking process takes place (Birkland 2001). The environment can obstruct or facilitate the mobilization of demand for the policy, as varying conditions can create incentives for the policy actors to take action. The context exemplifies the importance of changing conditions, as it can provide an ideal backdrop for setting the agenda of the policy.

The second is the stakeholders, or the parties involved in the policymaking. Stakeholders are key political actors whose participation in the policymaking process is critical. They are individuals, groups, or organizations that have vested interest in the policy being promoted (Schmeer 1999). Stakeholders can be politicians, government agencies, private persons, or even international organizations and regimes. Their interests should be taken into account, as they can potentially affect the dynamics of the process. Stakeholders’ participation (support or opposition) in pursuit of their interests lays down the landscape of the political arena for the proposed policy.

The third factor is rationalization, which refers to the arguments offered by policy actors to justify the policy. For arguments to be compelling and credible, they must be logical, relevant, and consistent with empirical evidence, and comprehensible to the public audience. The rationale for a policy must offer a plausible solution to a problem, issue, or concern. More importantly, it must be able to project the message that the policy serves the public well-being as well as demonstrate that the advantages of the policy far outweigh the disadvantages.

In a democratic political system, policy proposals go through an institutionalized policymaking process, where stakeholders are guaranteed a voice and platform to contest, and policy decisions are made through a vote of lawmakers. Careful evaluation of the factors leads to a better understanding of the intricacies of the dynamics of the evolution of the Anti-Dumping Law.

Republic Act 7843

The Context and Stakeholders

Since the formation of GATT in 1947 and its eventual replacement under the Uruguay Round by WTO in 1995, the postwar international trade has been delineated by the GATT-WTO regime. The global trade regime was anchored on liberalization as countries were encouraged to promote the unhampered flow of goods by opening their economies and markets. The regime’s principal aim was to remove the major impediments to international trade (Cohn 2008). This practice was put in operation by obliging countries to lower their tariffs and duties on traded goods. This liberalized arrangement, which in general does not put any limitation on imports, immensely increased the volume of the global exchanges of goods.

After winning a close election in the Philippines in 1992, President Fidel V. Ramos launched an ambitious economic reform program anchored on economic liberalization. In trade, the Ramos administration embraced the prevailing GATT-based global trade regime. To synchronize its program with the international trade regime, the Government started implementing liberalized policies, such as deregulation, privatization, and opening up to foreign investments; and enlisted the country with the GATT-UR Agreement (De Dios and Hutchroft 2003).

Anticipating Senate ratification of the GATT-UR Agreement in the later part of 1994 (following the Constitutional requirement that the Senate needs to ratify an international treaty entered into by the Philippine Government), interested parties appealed to the Government to take action to provide safety nets for the local industry. The apprehension was premised on the drastic reduction of tariffs on imports, which would result in the influx of imported goods to the country. Considering that many imported goods are cheaper than locally produced goods, the domestic economy, particularly the industrial and agricultural sectors, could be severely affected. If an enterprise could not adjust, then it would not survive foreign competition, and business closures and mass unemployment would result.

In principle, the vulnerability of local businesses against foreign competitors is acceptable in an environment of fair competition. As an open economic system, however, the GATT regime is prone to the practice of dumping. Dumping per se is not bad as flooding the market with cheap imported goods benefits consumers and forces local manufacturers to review their costing and be efficient. But when predatory pricing is employed to penetrate the market and competition is eliminated and deliberately destroyed to gain a market share— deceitfully putting the local producer out of business— then the practice is unacceptable. The likelihood of the prevalence of this practice after the adoption of the GATT-UR Agreement and the perceived inadequacy of the existing anti-dumping law in safeguarding local industries from unfair foreign competition fueled the move to repeal R.A. 1937, in particular, Section 301 Part 2, Title II, Book I of the Tariff and Custom Code.

The executive agencies at the forefront of the effort to repeal the anti-dumping law were the Department of Finance (DOF), the Department of Trade and Industry (DTI), the Bureau of Customs (BOC), and the National Tax Research Center (NTRC). The Government agencies were amply supported by the main business umbrella group— the Philippine Chamber of Commerce and Industry (PCCI). As the interest of its members was on the line, the PCCI collaborated with the agencies in preparing the draft of the repealing law. The draft became the template of the bills filed by the lawmakers in Congress.

To summarize, the Ninth Congress opened the committee hearings on 16 March 1993 in the Senate. Senate Bills no. 284, 357, and 1905 were heard by the Committee on Ways and Means, chaired by Senator Ernesto Herrera. In the House of Representatives, the committee hearings on House Bills no. 658, 4626, 13862, and 14096 started on 8 October 1992 in the Committee on Trade and Industry, chaired by Representative Roilo Golez, and on 16 November 1994 in the Committee on Ways and Means, chaired by Representative Exequiel Javier. Pursuant to the provisions of Section 26, paragraph 2 of Article VI of the Constitution, President F. Ramos certified the anti-dumping bill as urgent in both chambers on 22 November 1994. The Senate hearings yielded Committee Report no. 713 on Senate Bill 357, which was approved on Second and Third Reading on 12 December 1994. The House hearings resulted in Committee Report no. 972 on House Bill 14177, which was approved on Second Reading on 23 November 1994 and on Third Reading on 29 November 1994. The bills were reconciled and approved by the Bicameral Conference Committee on 14 December, and ratified by the Senate and the House on 19 December 1994. The new anti-dumping law was formally signed by President F. Ramos on 21 December 1994, and became R.A. 7843.

The Rationale for Republic Act 7843

Early on in the Congressional deliberations, the weakness of the existing dumping law in R.A. 1937 became apparent. During the committee hearings, Senator E. Herrera revealed that “during the ten-year period from 1977 to 1987, 41 dumping cases were filed, 30 of these were dismissed by the Tariff Commission, and only one case got a positive finding from the Department of Finance.” The implication was that in its present form the anti-dumping law as a defensive or relief mechanism was seemingly not working. Worse, the weakness of the application of the law was expected to be further aggravated with the implementation of the GATT-UR Agreement. As the anti-dumping law was already wanting in the current economic setup, certainly, the law would be more ineffectual in the transition to an open economic system.

Overall, the move to repeal the law had two objectives— the first was to craft a law that abides by the GATT-UR Agreement, and the second was to preempt the consequences of the said international agreement. As there was the possibility that the two objectives may not harmonize on all aspects, the dilemma of the legislators was how to balance them by crafting a law that adheres to the principles of GATT and at the same time provides enough leeway for the government to shield the local industry against aftereffects.

In the case of a conflict between the two objectives, the prevailing sentiment among the lawmakers was to give precedence to the latter. The repeal process was considered more as an expression of commitment to the local industry, in particular to the agricultural and industrial sectors, than compliance with the commitment to the international agreement. Senator Gloria Arroyo, a co-sponsor of the anti-dumping bill, contended that the primary purpose in repealing the law was to set up a safety net to help the local industry cope with the changes brought about by the GATT regime, and secondarily to align with the GATT mandate. The argument was anchored on the assessment that the concern for the protection of the domestic industry was immediate, while governments usually had at least five years to comply with the GATT requirements on anti-dumping.

The intent of the legislators was to quickly enact an anti-dumping law tilted toward the domestic industry before the formal ratification of the GATT-UR Agreement, and to amend the law again after several years to make it consistent with the commitments to GATT. As Senator Orlando Mercado stated, “while we will ultimately need to harmonize our anti-dumping law with the relevant provisions of the GATT-Uruguay Round should we ratify the treaty, that process of compliance may take a while.” The strategy was for the Government to buy time to enable the local industry to make the necessary adjustments and preparation against foreign competition.

As to the content of the anti-dumping bill, there were two main issues in the amendment: one was the issue of jurisdiction over anti-dumping cases, and the other was the bond requirement. The first issue was basically whether dumping was a trade or fiscal concern. If it was primarily a fiscal concern, then the Secretary of Finance would have responsibility over the cases and the provision in R.A. 1937 would be retained. If it was principally a trade concern, then the Secretary of DTI would have jurisdiction and the provision in R.A. 1937 must be changed. The proponents on the side of DTI argued that the law was first and foremost intended to protect local industry; hence, it was clearly within the domain of the agency. Second, the DTI was in a better position to determine the condition of an industry, particularly when ascertaining unfair competition or injury caused by dumping, as the agency would have better information, logistics, facilities, network, and expertise. This position was fervently supported by the senators, particularly by Senator G. Arroyo who was a former undersecretary of DTI.

On the other hand, the proponents on the side of DOF argued that although DTI might have some advantages, still the violations in dumping cases were fundamentally a fiscal matter. Second, the institutional and functional bias of DTI, which is the promotion of domestic industry, may create doubt in the objectivity of its decision. In addition, by giving the jurisdiction to DTI, there was a danger that other countries might interpret the move as blatant protectionism for the local industry; hence, it might invite retaliatory measures against Philippine exports. DOF maintained that they had the advantage of being perceived as a more neutral body in deciding dumping cases and that there was no sufficient or cogent reason for the transfer. This position was defended by the members of the House. For instance, Representative E. Javier, arguing for DOF in the Bicameral Conference deliberations, said: “we beg to disagree on the part of the House because the imposition of dumping duty is a customs matter and therefore it should be the Secretary of Finance.”

The second issue revolved around the proposal to impose a stiffer bond requirement for the release of imported goods on which a dumping protest is filed. The proposal was to abandon the practice of accepting a surety bond and to require a cash bond instead. The latter is deemed more effective because it could deter importers from bringing in imports that may be the subject of dumping cases and discourage unfair trade practices. Moreover, according to BOC, the cash bond also prevents importers from absconding upon the release of their goods and provides assurance that the government and the injured party could collect indemnity as well as the dumping duty plus the correct amount of duties and taxes in case dumping was established.

Republic Act 8752

The Context and Stakeholders

In mid-1998, four years after the enactment of R.A.7843 and the affiliation to the GATT-UR Agreement, calls were made to amend the prevailing anti-dumping law. Earlier in the Tenth Congress, a bill had been filed to repeal the law, but the bill did not prosper because of lack of time. In the Eleventh Congress, the move to amend R.A. 7843 was made, citing the need for the country to sufficiently comply with the commitment under the GATT-WTO Agreement. It was also noted that while preparing for the GATT-UR ratification, and in its bid to immediately extend protection to the local industry, the Ninth Congress hurriedly passed the anti-dumping law in 1994. As a consequence, the law lacked clarity and contained provisions inconsistent with the GATT-WTO Agreement when it finally came into the picture.

After the Senate ratification of the GATT-UR Agreement and after the Philippines became a full-fledged member of WTO, in principle the anti-dumping law embodied in the international agreement became part of Philippine laws. The Government, as a signatory, needed to comply with the treaty; otherwise, the country risked being criticized as well as being recipient of complaints from the international economic body, other countries, and foreign businesses. For instance, Commissioner Anthony Abad of the Tariff Commission (TC) warned that although in principle our local laws take precedence over international laws, in cases of violation of the anti-dumping agreement under WTO, an aggrieved contracting party that is a member of WTO has a cause for action for dispute settlement at the international level. If there was no compliance with the requirements of the international regime, the Dispute Settlement Board of WTO would decide the case against the Philippines. To stave off the possibility of international disputes and repercussions, the Estrada administration gave its full backing to the move to repeal R.A. 7843.

The move began when the executive agencies in the Legislative-Executive Development Advisory Council (LEDAC) meeting identified repealing the anti-dumping law as a priority measure. The government agencies leading the repeal process were DOF, DTI, BOC, TC, Department of Agriculture (DA), and National Economic Development Authority (NEDA). Except for DA and NEDA, the other government agencies were also the main participants in the deliberations on R.A. 7843. As in the past, there were support and participation from the business sector. Seeing that the interests of their members were again on the line, the main umbrella group of the local businesses, such as PCCI and the Federation of Philippine Industries (FPI), actively engaged in the policy deliberations.

PCCI and FPI tried to skew the crafting of the law to favor the preference of local businesses. For instance, the President of FPI, Mr. Antonio Garcia, suggested transferring the burden of proof to the importer rather than to the domestic company, as he pointed out the difficulty of gathering the necessary data for domestic companies to establish proof in seeking redress from the Anti-Dumping Law. He argued that “the biggest problem that many local industries find in terms of determining [the] dumping, is the establishment of domestic price in the country of origin,” as “the burden of proof is always on the domestic firm rather than the importer.” Obviously, the proposal not only was biased for the local industry, but also was a move to protect the industry by returning to the old arrangement. The proposal was untenable as it contradicted the GATT-WTO mandate. As explained by Commissioner A. Abad, under WTO the burden of proof was deliberately shifted to the local industry:

The problem of the dumping cases under the old Dumping Law prior to Uruguay Round ratification was that the burden of proof used to be with the importer or the exporting country to prove. In other words, imports are presumed guilty until proven innocent. So there was an incentive on the part of lawyers involved in the case to just delay the case so that the cash bond will stay in place. That’s why all this time, we’ve had long cases.

The legislators took offense at the FPI’s proposal, as they deemed such move as an attempt to create an uneven playing field favoring local businesses and at the expense of importers, foreign businesses, and Filipino consumers. In reprimanding the local business group, Senator J. Enrile called on them to take responsibility and not to depend on the government for protection all the time. He stressed that:

We are not adopting here a system of protectionism. We are willing to give some degree of protection to our industries within the context of our treaty commitments and within the context of what is considered for the national good.

Thus, the amendment must not only adopt a certain degree of fairness to all stakeholders, but also embody the international commitment of the country.

To summarize, the Eleventh Congress opened the committee hearings on 14 August 1998 in the Senate and 2 March 1999 in the House of Representatives. Senate Bills no. 87, 763, and 765 were heard by the Committee on Ways and Means, chaired by Senator J. Enrile, and House Bills no. 22, 553, 3283, and 5999 were heard jointly by the Committee on Trade and Industry, chaired by Representative M. Punzalan, and the Committee on Ways and Means, chaired by Representative H. Teves. The Senate hearings yielded Committee Report no. 1 on Senate Bill 763, which was approved on Second and Third Reading on 1 and 29 December 1998, respectively. The House hearings resulted in Committee Report no. 319 on House Bill 7612, which was approved on Second and Third Reading on 3 June 1999. The Bill was certified as urgent in both chambers by President Joseph Estrada, pursuant to the provisions of Section 26, paragraph 2 of Article VI of the Constitution. Senate Bill 763 and House Bill 7612 were reconciled and approved by the Bicameral Conference Committee on 13 July, and ratified by the Senate and the House on 15 July 1999. The new anti-dumping law was formally signed by President J. Estrada on 12 August 1999, and became R.A. 8752.

The Rationale for Republic Act 8752

Overall, the intent in amending R.A. 7843 was to cure the perceived deficiency of the anti-dumping law. The amendment addressed three basic concerns. The first was the need to make the law adhere closely to the mandates in the GATT-UR WTO Agreement on Anti-Dumping Practices. The issue was conformity, which was to align the domestic law with the international treaty. The second was the need to redraft the text of the law to make it clearer, logical, and simpler to implement. The issue was workability, which was to make the law easier to carry out. And the third was the need to strengthen the rules governing the investigation of anti-dumping cases. The issue was to toughen the anti-dumping mechanism against violators.

In the deliberations, DTI, NEDA, and TC admitted that the current form of the anti-dumping law was not consistent with GATT-WTO. TC identified the following as inconsistent provisions that needed to be revised:

• withholding of the release of questioned importation pending the determination of a prima facie case of dumping;
• imposition of a provisional measure immediately upon the finding of a prima facie case, effective up to the final determination of dumping;
• inclusion of substitutes in the definition of like products;
• country-specific application of anti-dumping duty;
• limiting to 10 days the period of submission of replies to a questionnaire; and
• retroactive application of definitive anti-dumping duty on all importations within 150 days immediately preceding the filing of the protest (see Committee Hearings in the Senate and House of Representatives).

TC also admitted in the committee hearings that the Philippine Government had already made a commitment to WTO that it would take action to amend the provisions.

In improving the workability of the anti-dumping law, the main problem raised was that the current anti-dumping law was replete with vague provisions. Senator J. Enrile, the principal sponsor of the amending bill, declared that “the purpose of this revision is to make the law clearer. Republic Act 7843 appears to be rather cumbersome to implement and we [will try] to make the proposed revision simpler and in accord with the provisions of existing treaty that we have adhered to.” For instance, the law did not follow closely the technical terms used in the agreement. Senator J. Enrile disclosed that in defining the injury that the domestic industry might suffer, instead of using “threatening to cause material injury,” which is the globally accepted term, the law used a very vague and untested phraseology—“which might injure, or retard the establishment of, or is likely to injure an industry producing like articles.” As a consequence, the purpose of the law, which was to provide protection to the domestic industry, was defeated by its complexity. Thus, there was a need to simplify procedures and to establish common legal provisions consistent with the internationally accepted terminology in the anti-dumping law.

In strengthening the anti-dumping mechanism, Senator J. Enrile identified two major weaknesses of the current anti-dumping law. One was the severity of the burden of proof required of the domestic industry in proving dumping. Thus, the amendment intended to ease the burden of proof on the side of the domestic industry. The other weakness was the issue of venue for the filing of a petition for dumping; R.A. 7843 allowed a petition to be filed either with the Secretary of Finance or with the Secretary of Trade and Industry. The lawmakers questioned why the Secretary of Finance came into the picture, when the said Secretary obviously had no technical capability to determine the levels of production, pricing, markets, and the volume of supply and demand. To address that weakness, it was proposed that cases involving industrial goods should be handled by the Secretary of Trade and Industry, and those involving agricultural goods should be handled by the Secretary of Agriculture.

Conclusion

The evolution of the anti-dumping law can be seen as part and parcel of the broader government program to promote economic development. The post-EDSA Philippine governments have climbed on the bandwagon of economic liberalism. Thus, in trade the main strategy is to adopt an open economic system that promotes exchanges among countries. In line with fully integrating economic policy with the international community, the Ramos administration decided to participate in GATT and sign up with WTO. This course of action was sustained and continued by the succeeding government, the Estrada administration. Under the two administrations, the story of the evolution of the anti-dumping law from the original law— from R.A. 1937 to the first amendment to R.A. 7843 and eventually to R.A. 8752— highlights the following observation.

First, the enactment of R.A. 7843 shows the satisficing nature and the protective tendency of the lawmakers, as they try to balance the country’s international commitment and their inherent obligation to safeguard domestic interest. The satisficing nature pertains to the legislators’ attitude of passing something just to comply with the international treaty, but without really intending to fully comply with it; while the protective tendency refers to the preference of the policy actors to skew the law in favor of the local industry. Both inclinations were manifested in the amending process, as the primary consideration was to pass a law that would give more time for the affected local businesses to adjust, rather than to candidly comply with the mandates of the GATT-UR WTO Agreement. This disposition was shown when the legislators and the executive agencies (e.g., DTI and DOF) worked in partnership with PCCI to craft an anti-dumping law that would give more protection to the domestic industry. The display of strong concern for the domestic industry that would be affected is understandable; as politicians, lawmakers have the natural inclination to cultivate and not alienate local support. This approach was reinforced by the existence of a time lag of several years for the Philippine government to fully comply with the international agreement. In effect, R.A. 7843 was intended to be a “temporary” law, which was expected to be amended later in the future.

Second, in contrast, the enactment of R.A. 8752 reveals the increasing influence and relevance of international organizations and regimes in the domestic policymaking process, specifically economic policymaking. The policymaking process was shaped from the outside, as the policy actors’ primary concern was to enact an anti-dumping law consistent with the GATT-UR WTO mandate. This disposition was shown when the legislators fended off attempts by PCCI and FPI to skew the crafting of the law to unduly favor the preference of local businesses. Thus, the lawmakers ultimately became less concerned with the interest of a particular sector— domestic industry— and took a determined effort to ensure conformity to the law. The repeal process was grounded on the acceptance by all the stakeholders of the inevitability of the international agreement, and the Philippine Government had no other recourse but to comply.

Lastly, the evolution of the policy illustrates the dynamics of interagency competition vis-à-vis policy change. As the executive agencies saw the repeal process as an opportunity to expand their domain, the bureaucratic battle focused on the quest to protect and expand the scope of their authority. In R.A. 7843, the “skirmish” was on the issue of responsibility between DOF and DTI. The former wished to retain jurisdiction based on the mandate provided by R.A. 1937, while the latter aimed to expand the agency’s role by taking authority over anti-dumping cases. The dispute spilled over to Congress, with the House of Representatives backing DOF and the Senate supporting DTI. The disagreement was settled through a compromise where both agencies shared jurisdiction.

In R.A. 8752, the question was who among the agencies had the capacity to determine dumping. The lawmakers agreed that DTI had the capacity to determine dumping when it involved industrial goods, but doubted the technical capacity of DOF. Since dumping usually involves industrial and agricultural goods, the legislators decided to give DA the responsibility for determining dumping of agricultural goods. Thus, in the final draft of the law, the power to determine a prima facie case of dumping was given to either DTI or DA, while DOF maintained authority on the financial aspect of the anti-dumping law.

The evolution and enactment of the Anti-Dumping Law demonstrate the intricacies of contemporary policymaking in the Philippines under the “shadow” of the GATT-WTO regime. The enactment of the law exemplifies the subtleties of the process, as it shows the engagements of the many interlocking actors and interests behind the law.

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