CIAP: No unfair practices in local construction sector

March 21, 2017 News

MANILA, Philippines - The Construction Industry Authority of the Philippines (CIAP), an attached agency of the Department of Trade and Industry, said it sees no need to change its current licensing regulations amid allegations of unfair practices from the country’s antitrust authority.

CIAP undersecretary Ruth Castelo told The STAR the Philippine Contractors Accreditation Board (PCAB)’s licensing scheme are not anti-competitive as it welcomes the entry of both foreign and local contractors.

Under PCAB rules, 100 percent foreign-owned contractors are allowed to do business in the Philippines under a Quadruple A or AAAA category if they bring in at least P1 billion as foreign direct investment.

Smaller contractors without the required capitalization, meanwhile, may still do business in the country upon issuance of special licenses by PCAB.

Castelo said this scheme is being implemented to protect small local contractors from the influx of foreign firms.

However, the Philippine Competition Commission (PCC) has slammed the practice, saying it creates a barrier to entry of foreign firms which violates the constitutional state policy against unfair competition.

In its first policy note released last month, PCC said the licensing rules implemented by PCAB contain a nationality distinction in its classification of licenses that has deleterious effects on competition in the construction sector.

“Nationality-based distinction hinders competition in the construction industry, creating an uneven playing field between local and foreign contractors. Foreign firms possess capacity to construct vital projects and share technical expertise with local firms,” it said.

“Regular licenses are preferred over special licenses because regular licenses permit the holders to engage continuously in construction activities for one year, while special licenses only allow the grantee to engage in one project or undertaking under such license. Nationality-based distinctions are not mere labels and in fact carry with them substantial distinctions in terms of costs and benefits,” PCC added.

The country’s antitrust authority further stated simulations of license applications in a typical year showed that to engage in the same level of activity, foreign firms have to pay as much as 12 times more in application fees compared to local firms.

“A P6,00 to P14,000 application for accreditation is not too much for a foreign company coming in, bringing in dollars. That’s the amount of an application so how can they say it’s expensive for them?” Castelo said.

“Foreign firms apply for a special license only after they get the project. If the project is not awarded to them, they do not need to get before they bid or before they apply for a project. They will need it only if the project is awarded to them. It’s actually an advantage for them because Filipinos who secure special licenses would have to pay before the award, whether they get the project or not. That’s why we do not know what they complain about,” she added.

Castelo said the agency was not consulted by the PCC before it came out with its policy note.

“The problem is, PCC did not even ask us,” she said.

PCAB is the implementing arm of the CIAP with the power to issue, suspend and revoke licenses of construction contractors under Republic Act 4566 or the Contractors’ License Law.

PCC’s investigation on the construction industry stemmed from an anti-competition case filed last year by the European Chamber of Commerce of the Philippines, indicating the agency is undermining fair competition in the country by favoring domestic contractors over foreign ones.