Republic of the Philippines

Eulogio “Amang” Rodriguez Institute of Science and Technology

Cavite Campus
General Mariano Alvarez, Cavite

BUSINESS ETHICS

UNFAIR TRADE PRACTICES

PHILIPPINE LAW RELATING TO BUSINESS ETHICS
ETHICAL STANDARDS

UNFAIR TRADE PRACTICES

DEFINING UNFAIR TRADE PRACTICES

Unfair Trade Practices (UTPs) are practices of businesses or firms that are deceitful,
misleading, and uncompetitive, and therefore prohibited by law. They adversely affect
consumer welfare and reduce the profitability of businesses. UTPs cover a wide spectrum
of activities.

UTPs are normally associated with anticompetitive behavior which can be categorized into
two general types:
 Exclusionary Abuse which is an act of a firm, or a group of firms, to prevent entry
of potential rivals; and
 Exploitative Abuse which refers to actual abuse of market power (Medalla 2002).

LIST OF UNFAIR TRADE PRACTICES

1. PREDATORY PRICING - Pricing of the product below the cost of production with the
intention to drive out competitors from the market. Predatory pricing is something
difficult to prove against any firm.

2. TIED SELLING - Forcing customers to buy other products along with the desired
product. Here the supplier sells a product (tying product), which is dependent on the
purchase of some other product, usually a slowing product (tied product). This tie-in
arrangement is such that even if the customer does not want to buy the tied product, he
has to buy it to get the desired product. However, such behavior should not be
considered abusive if the firm does not have market power in the tying goods.

3. COERCIVE/EXCLUSIVE DEALING - A practice whereby a manufacturer or supplier

of goods restrains his distributors from dealing in competing products and requires
them to deal exclusively in the products manufactured and supplied by him. This
dealing arrangement can act as a barrier for new entrants and hence affects
competition adversely.

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

4. MISLEADING ADVERTISEMENT - Refers to any false or unfounded representation

related to products made to the public by a company. The representation may be about
the nature, character, or performance of a product, such as size, type of contents, or
weight. It also includes warranties, statements, or guarantees that are not based on
adequate and proper tests.

5. REFUSAL TO DEAL - a situation whereby a seller refuses to deal with a purchaser,

usually when the purchaser has limited options of alternative supply. The competitive
effects of refusal to deal have to be weighed on a case-to-case basis.

6. RESALE PRICE MAINTENANCE - a practice whereby a manufacturer and its

distributors agree that the latter will sell products of the former at certain prices (resale
price maintenance), at or above a price floor (minimum resale price maintenance), or at
or below a price ceiling (maximum resale price maintenance).

7. DISCRIMINATORY DEALING: PRICE DISCRIMINATION - When a manufacture

or a supplier of goods charge, for the same or similar product, a higher price from one
dealer and a lower price from another, it is referred to as price discrimination. The
discrimination in price can be made either through fixing or charging different prices
from different buyers or classes of buyers or by granting discount, commission,
allowance, or rebate at different rate to different buyers or class of buyers. Price
discrimination can only be effectively exerted by businesses only when they are in
dominant positions or have considerable market power in the relevant product or
geographical markets; thus it is considered a type of abuse of dominance.

8. DISCRIMINATORY DEALING: SELECTIVE DISTRIBUTION - A distribution

system whereby a supplier enters into (vertical) agreements with a limited number of
selected dealers in the same geographic area. Selective distribution agreements, on the
one hand, restrict the number of authorized distributors. On the other hand, they
prohibit sales to non-authorized distributors: this leaves authorized dealers only other
appointed dealers and final customers as possible buyers. Selective distribution is
almost always used to distribute branded final products. The possible competition risks
are a reduction in intra-brand competition, the facilitation of collusion between
suppliers or buyers and the foreclosure of certain type(s) of distributors, especially in
the case of cumulative effects of parallel networks of selective distribution in a market.

9. UNREASONABLY HIGH PRICE - Also called excessive pricing. A price is often

considered excessive if it has no reasonable relation to the economic value of the goods
or service supplied.

10. SYSTEMATIC OBSTRUCTION - This is a term used in the new German Act against
Unfair Competition. Section 4 (10) of this act renders it unfair to systematically obstruct
a competitor’s freedom to act within the market (obstruction of an individual

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

competitor). Examples of obstructive competition are boycotts, the alienation of

customers or employees, the abuse of market power on the demand side, obstructive use
of trademarks, discrimination, and the systematic undercutting of prices. To be
regarded as unfair, the obstructive act needs to be systematic, i.e., with the (primary)
intent to obstruct or eliminate a competitor.

11. FIDELITY REBATES - also called loyalty discount (LD), this means discounts offered
as a counterpart of a commitment from the purchaser to place all or most of its orders
to the seller granting the rebate, be they large or small. Fidelity rebates are generally
seen as a horizontal exclusionary devices aiming at foreclosing competitors or impeding
their expansion and thus prohibited by the competition laws of many countries in the
world.

12. MARGIN SQUEEZE - occurs when there is a narrow margin between an integrated
provider’s price for selling essential inputs to a rival and its downstream price that the
rival cannot survive or effectively compete.

Margin squeeze can arise only when (a) an upstream firm produces an input for which
there are no good economic substitutes, (b) the upstream firm sells that input to one or
more downstream firms, and (c) the upstream firm also directly competes in that
downstream market against those firms.

13. ABUSE OF INTELLECTUAL PROPERTY RIGHTS, including harming other

business’ reputation - The allegation or circulation of facts concerning the goods, the
services or the business of a competitor, or the person of the proprietor or a member of
the board, which are liable to damage the operation of the business or the credit of the
proprietor, unless those facts can be proved to be true.

The offer of goods or services that are imitations or replicas of a competitor’s goods or
services
 where this might mislead customers and cause confusion in the market place as to the
commercial origin of those goods or services,
 in cases of the original manufacturer’s reputation being unfairly exploited or
impaired, or
 where the necessary knowledge or required documents for the production of the
imitation or replica have been obtained by dishonest means

Direct marketing activities, which are considered to be unacceptable nuisances and thus
unfair.

PHILIPPINE LAW RELATING TO BUSINESS ETHICS

(GOVERNMENT & PRIVATE SECTOR)

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

LAWS ON UNFAIR TRADE PRACTICES IN THE PHILIPPINES

The following are some of the existing laws and regulations in the Philippines that fall
under the area of competition/antitrust.
1. Act No. 3815 (1930) as amended, otherwise known as the Revised Penal Code, punishes
anticompetitive behavior that is criminal in nature. Article 186 defines and penalizes
monopolies and combinations in restraint of trade while Article 187 provides penalties.

2. The Revised Penal Code also penalizes other frauds in commerce and industry such as
falsely marking gold and silver articles and altering trademarks (Republic Act No. 166,
1947).

3. Republic Act (RA) No. 386 (1949) as amended, otherwise known as the Civil Code of the
Philippines, took effect in August 1950. It allows the collection of damages arising from
unfair competition in agricultural, commercial, or industrial enterprises or in labor
(Article 28). The Civil Code also allows the collection of damages arising from abuse in
the exercise of rights and in the performance of duties (Article 19), e.g., abuse of a
dominant market position by a monopolist.

4. RA 7581 (1991), otherwise known as the Price Act - The Price Act defines and identifies
illegal acts of price manipulation such as hoarding, profiteering, and cartels. Through
price controls and mandated ceiling mechanisms, the Price Act also seeks to stabilize
the prices of basic commodities and prescribes measures against abusive price increases
during emergencies and other critical situations.

5. RA 7394 (1932), otherwise known as the Consumer Act of the Philippines. The
Consumer Act of the Philippines provides for consumer product quality and safety
standards. It also covers deceptive, unfair, and unconscionable sales acts and practices
(including weight and measures, product and service warranties), consumer credit
transactions, and penalties for violations of the statute.

KEY ANTI-CORRUPTION LAWS

In the Philippines, the primary anti-corruption statutes which prescribe corruption as a
substantive offence are:
1. Act No. 3815 or the Revised Penal Code (RPC)
2. Republic Act No. 3019, as amended, or the Anti-Graft and Corrupt Practices Act
(ACPA)
3. Republic Act No. 6713, as amended, or the Code of Conduct and Ethical Standards for
Public Officials and Employees (COCES).

BUSINESS LAWS
1. TAX REFORM ACT OF 1997 (Republic Act No. 8424) –which amended the
National Internal Revenue Code (NIRC) is the law that governs the national

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

taxation in the Philippines and gives the Bureau of Internal Revenue (BIR) the
power and duty to assess and collect national internal revenue taxes in the country.
2. THE LOCAL GOVERNMENT CODE OF THE PHILIPPINES (Republic Act No.
7160) – is the law governing local taxation in the Philippines, including the taxation
on real properties.
3. LABOR CODE OF THE PHILIPPINES (Presidential Decree No. 442) – is the law
that governs employment practices and labor relations in the Philippines.
4. INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES (R.A. 8293) – is the
law that governs the registration of patents, trademarks and copyright, and the
enforcement of intellectual property rights in the Philippines.
5. THE CORPORATION CODE OF THE PHILIPPINES (B.P. 68) – is the law that
governs the registration and regulation of corporations in the Philippines.
6. CIVIL LAW OF THE PHILIPPINES (R.A. No. 386) – the civil code of the
Philippines includes the laws on obligations and contracts. It also governs special
contracts such as contract of agency and partnership.
7. SOCIAL SECURITY ACT OF 1997 (R.A. No. 8282) – the law that mandates
employers to register their business and their employees with the Social Security
System (SSS).
8. NATIONAL HEALTH INSURANCE ACT OF 1995 (R.A. No. 7875) – the act that
mandates employers to register their business and their employees with the
Philippine Health Insurance Corporation or Phil Health.
9. HOME DEVELOPMENT MUTUAL FUND LAW OF 2009 (R.A. No. 9679) – the act
that mandates employers to register their business and their employees with the
Pag-ibig Fund (HDMF).
10. FOOD AND DRUG ADMINISTRATION (FDA) ACT OF 2009 (R.A. No. 9711) – the
law that governs the inspection, registration, licensing and monitoring of
establishments and health products.
11. THE PHILIPPINE FISHERIES CODE (R.A. No. 8550) – the law that governs
commercial fishing in the Philippines.
12. THE ANIMAL WELFARE ACT OF 1998 (R.A. No. 8485) – the act that governs the
supervision and regulation of the establishment and operation of all facilities
utilized for breeding, maintaining, keeping, treating, or training of all animals in the
Philippines.
13. SECURITIES REGULATION CODE OF THE PHILIPPINES (R.A. No. 8799) – the
law that governs the registration and regulation of securities, pre-need plans, and
securities market professionals – and the protection of shareholder interests in the
Philippines.
14. FINANCING COMPANY ACT OF 1998 (R.A. No. 8556) – the Act that governs the
registration and regulation of financial companies in the Philippines.
15. TRUTH IN LENDING ACT (R.A. No. 3765) – An Act to Require the Disclosure of
Finance Charges in Connection with Extensions of Credit

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

16. CONSUMER ACT OF THE PHILIPPINES (Republic Act No. 7394) – The law that
protects the interest of the consumers in the Philippines, promote their general
welfare, and establish standards of conduct for business and industry.
17. ELECTRONIC COMMERCE ACT OF 2000 (R.A. 8792) – an act providing for the
recognition and use of electronic commercial and non- commercial transactions,
penalties for the unlawful use thereof, and for other purposes.
18. INSURANCE ACT OF THE PHILIPPINES, as amended – the law that governs the
insurance business and insurance transactions in the Philippines.
19. FOREIGN INVESTMENTS ACT OF 1991 (R.A. No. 7042) – the law that governs
foreign investments in the Philippines.
20. ANTI-VIOLENCE AGAINST WOMEN AND CHILDREN ACT OF 2004 (R.A.
9262) – a law that protects women and children in the workplace.
21. PHILIPPINE COOPERATIVE CODE OF 2008 (R.A. 9520) – the law governing the
registration, regulation and promotion of cooperatives in the Philippines.
22. ANTI-MONEY LAUNDERING ACT OF 2001 (RA 9160) – An Act that aims to
protect and preserve the integrity and confidentiality of bank accounts and to
ensure that the Philippines shall not be used as a money laundering site for the
proceeds of any unlawful activity
23. THE ANTI-RED TAPE ACT OF 2007 (RA 9485) – an act enacted to improve
efficiency in the delivery of government services to the public by reducing
bureaucratic red tape, preventing graft and corruption in all the offices of the
government.
24. ANTI-SEXUAL HARASSMENT ACT OF 1995 (RA 7877) - an act declaring sexual
harassment unlawful in the employment, education or training environment, and
for other purposes.
25. DATA PRIVACY ACT OF 2012 (RA 10173) - Personal information is protected in
the Philippines by Republic Act 10173, also known as the Data Privacy Act of 2012,
which came into force on 8 September 2012. RA No. 10173 aims to provide a
comprehensive data protection regime, as it applies to all types of personal
information and to any natural and juridical person involved in personal
information processing.

ETHICAL STANDARDS

ETHICAL STANDARDS are principles that when followed, promote values such as trust,
good behavior, fairness, and/or kindness.

There is no one consistent set of standards that all companies follow, but each company has
the right to develop the standards that are meaningful for their organization.

The ethical standards of an organization have a major influence on how it conducts its
business. Business ethics are defined by the behavior standards of management and

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 Republic of the Philippines
Eulogio “Amang” Rodriguez Institute of Science and Technology
Cavite Campus
General Mariano Alvarez, Cavite

personnel, and the way in which business is carried out at both a strategic and operational
level. A positive approach to maintaining ethical standards can lead to competitive market
advantage and an enhanced reputation. Ethical standards are classified at three levels.

MACRO LEVEL
At a macro level, sometimes called the systemic level, ethics are defined and influenced by
the wider operating environment in which the company exists. Factors such as political
pressures, economic conditions, societal attitudes to certain businesses, and even business
regulation can influence a company's operating standards and policies. Business owners
and managers must be aware of how these pressures affect operations and relationships,
and how they may impact on markets locally, nationally and internationally.

COMPANY LEVEL
At a company or corporate level, ethical standards are embedded in the policies and
procedures of the organization, and form an important foundation on which business
strategy is built. These policies derive from the influences felt at macro level and therefore
help a business to respond to changing pressures in the most effective way. There can be a
gap between the company policy on ethical standards and the conduct of those in charge of
running the business, especially if they are not the direct owners, which can present an
ethical challenge for some employees.

INDIVIDUAL LEVEL
Since businesses are run by people, the ethical standards of individuals in the business are
an important consideration. Individuals may well have a very different set of ethical
standards from their employer and this can lead to tensions. Factors such as peer pressure,
personal financial position, and socio-economic status all may influence individual ethical
standards. Managers and business owners should be aware of this to manage potential
conflicts.

INTEGRATED APPROACH IN ETHICAL STANDARDS

Ethical standards flow through the entire structure of a business organization, shaping how
it plans its strategy, deals with customers, and manages its workforce. The standards have a
reach far beyond day-to-day operations, and should be considered in all aspects of a
business, from the boardroom to the shop floor and across all functional areas. Supporting
this effort, businesses that genuinely understand the value and importance of ethics have
appropriate metrics in place to measure achievement and identify problems before they
become major issues.

As Warren Buffet famously said, it takes years to build a reputation and five minutes to
lose it. Doing the wrong thing is costly business.