Philippine Competition Commission (PCC) has urged the Supreme Court to scrap the nationality requirement mandated by Philippine Contractors Accreditation Board (PCAB) for contractors in the construction industry to attract foreign investors into the sector.
“The nationality requirement [by PCAB]puts a substantial barrier to the entry of foreign contractors in the construction industry,” PCC said in a statement on Friday. “Ease of entry into an industry is a positive sign of competitiveness.”
The PCC issued the statement in connection with the ongoing case between the Manila Water Co. Inc. (MWCI) and PCAB.
Last December 19, 2016, the PCC filed its first amicus curiae (Latin for “friend of the court”) brief with the Supreme Court in which it asked the high court to nullify PCAB’s nationality requirement in its current licensing scheme for contractors in the construction industry.
In a statement on Friday, the PCC said that the PCAB-MWCI case was elevated to the high court just weeks before the Philippine Competition Act was passed in July 2015.
The competition law spells out the state’s policy of promoting free and fair competition in all commercial and economic activities, and PCC is the primary state agency with jurisdiction over competition issues.
PCC stressed that the construction industry plays an important role in economic development because it builds the infrastructure of almost every other industry and the rest of the economy, including housing, transport, water and sanitation, and power.
“It is a settled principle in economics that if there are many players in the market, healthy competition will ensue. Competition results in better quality products and competitive prices that will benefit the public,” PCC said.
Competition in the construction industry would result in improvements in production processes, leading to economic benefits for the country, it added.
In a letter sent earlier to the Office of the Solicitor-General (OSG) which represents PCAB in the case, PCC said that the SC ruling could either open up and level the playing field for both domestic and foreign contractors or preserve the unduly restrictive licensing regime imposed under the assailed regulation.
Two types of licenses
PCAB, the authorized licensing body, issues two types of licenses to contractors—regular and special licenses. Local firms can be granted a regular license, which gives them continuing authority to engage in many contracting activities throughout a one-year period. Foreign firms can only be granted a special license, and they need to have a separate license for each contract activity.
These conditions create a substantial difference in cost between foreign and local firms when securing licenses from PCAB.
“These conditions are not very encouraging for foreign contractors intending to participate in the construction industry,” PCC said.
The PCC noted the low participation rate of foreign contractors in the Philippines, ranging from 10 percent to 15 percent.
The Commission found that few new licenses were issued and three-fourths of the total licenses issued were merely renewals or amendments. In 2015, for example, only 20 special licenses were issued to foreign construction firms and four were issued to joint venture participation out of 1,600 special licenses—or 0.23 percent of the total licenses for that year.
“The burdensome requirements could be hampering the entry of new participants, particularly, foreign firms, in the construction industry,” PCC said. “It is indicative of how competition in this industry remained relatively stagnant in years.”
The commission said the government “must advocate a level playing field where no market participant is given undue advantages that would allow it to gain market share over otherwise more effective and efficient competitors.”
Highest average cost
At present, the Philippines has the highest average cost of construction in certain classified projects when compared to its Asean counterparts, the PCC said.
For standard high rise apartments, it costs $900/square meter in Manila, $773.5/sqm in Bangkok, $707/sqm in Jakarta, $665/sqm in Vietnam and $465 in Kuala Lumpur.
For standard high rise offices, it costs $870/sqm in Manila, $757.5/sqm both in Kuala Lumpur and Jakarta, $750/sqm in Vietnam and $727.5 in Bangkok.
For standard shopping centers, it costs $815/sqm in Manila, $750.5/sqm in Bangkok, $740 in Vietnam, $690/sqm in Kuala Lumpur and $594/sqm in Jakarta.
For prestige shopping centers, it costs $1,115/sqm in Manila, $885/sqm in Kuala Lumpur, $882/sqm in Bangkok, 649/sqm in Jakarta, and no updated data in Vietnam.
PCC said it is not a party to the case and is not solicited by any party but has strong interest in the subject matter. It sought to intervene in the pending Supreme Court litigation to shed light on the effects of the PCAB regulation on competition. The decision on whether to admit the information lies at the discretion of the court, the commission said.