Developing World Antitrust

In light of the recent decision in Colombia regarding an agreement to block imports of sugar from other Latin American countries, we will present to you our first impressions. This post offers our comments on what we consider to be the issues that make the study of this decision so peculiar.

Amine’s comments:

The sugar industry and antitrust cultivate a very close relationship in Central and South America. One of our previous post analyzes the approach of El Salvador’s competition authority in dealing with this market.

Nowadays, the sugar industry is widely talked about in Colombia. The market is very peculiar since, at the center of the sector, there is a mechanism called FEPA. The main goal of the mechanism is to stabilize the prices of sugar, ensure a fair remuneration to producers, regulate the production and stimulate exports. To achieve those goals, FEPA’s committee enjoys some very interventionist powers that have led to the fixing of prices for sugar.

As you can imagine, much of the problems arising in the present case relates to the role of FEPA and to what the entity can or cannot do in the context of that framework.

This actually appears mainly with regards to the question of the information being exchanged between different undertakings. It is true that Superintendencia de Industria y Comercio (hereinafter SIC) was facing a cartel in the very traditional sense of the word as the involved companies exchanged information directly paying very little attention to the consequences of their acts. However, information was also exchanged indirectly through the FEPA mechanism. In fact, the SIC points out that the information exchanged in the context of the FEPA framework was so detailed and in no way relevant or necessary to concretize its goals.

From this, it appears clearly that SIC embarks in a proportionality test over the content of the information exchanged (necessity / suitability). By doing so, it seems to differentiate between the nature of information exchanged and the FEPA being used as a vehicle for that end. Of course, harm to competition stems from the exchange of information. However, the SIC seems to tackle the problem more radically. It ordered FEPA’s steering committee to amend the instrument. The SIC order goes in the direction of ensuring that the price-stabilization mechanism does not deform again in a platform for exchange of sensible information and the agreement of production quotas. The SIC does not advocate for the abolition of the system even though it points out to its weaknesses.

However, addressing the two problems described in the above paragraph is fundamental. It triggers a crucial question relating to the role and powers of competition authorities in the presence of frameworks such as the one at the heart of the present case. In fact, should competition law in developing countries have two essential dimensions? One that focuses on the protection and the preservation of existing competition and another one that relates to the creation and the construction of markets and competition. SIC’s decision exposes greatly this dual dimension through the FEPA framework.

FEPA, according to the SIC, was the platform that induced associations to share strategic information and then adopt an anticompetitive behavior. At the same time, FEPA, as a tool of state intervention, mainly through the fixing of prices, acts as a barrier to competition. In this case, any intervention has nothing to do with the classical procedure that deals with anticompetitive behavior. Some countries such as Mexico have already considered introducing the concept of “lack of effective competition” that we have discussed in the blog to address such situations where, even if there is no liability for abuse of dominance or a cartel, the authority can enjoin companies from certain behavior or order divestitures. Without discussing the merits of such an approach, we can say that the present case shows that fighting against legal barriers, at east trough advocacy, deserves a central position in Latin America’s agenda.

Francisco’s comments:

The decision will definitely have a long-lasting impact on antitrust in Colombia and the rest of the region. Not only because of the magnitude of the fines (a total of 112 million USD) but also because of how it addresses all of the issues that arose in the case. The decision deals with a wide array of problems that range from the harms of the information exchange, legal immunity from antitrust laws, regional non-competition agreements, to the liability of individual executives. I will only comment briefly on the regional aspect of the agreement and the liability of executives.

As Amine said, the sugar industry and antitrust have a close relationship in most Latin American countries. In the case at hand, it is interesting to see that in the record there was evidence that pointed to an international coordination effort to avoid competition from imported product. Some of the emails show that Salvadoran and Costa Rican producers would notify Colombian sugar manufacturers when they received a request from potential Colombian importers. Other communications show a hardball negotiation with Bolivian producers to deter them from sending their product to Colombian territory.

It is important to take this into consideration because, in other countries such as El Salvador, the antitrust authorities advocate for openness of trade to tackle anticompetitive problems in the sugar industry. The abolition of trade barriers will accomplish little if it is not accompanied by a close watch on a likely collusion at the international level.

Regarding the second point, liability of individuals is an issue that deserves more debate when designing a law enforcement policy. The deterrent effect of antitrust law can be different depending on how aligned are the interests of the management and the shareholders of a company.

Under certain conditions, exposure to fines of the firm alone could not act as a dissuasive factor for the executives and in the end the shareholders would end up with the burden of paying the penalties. Liability of individuals can be a form of aligning the interests of management and owners regarding the desirability of forming a cartel or unlawfully monopolizing a market. In the present case, the fines on individuals were between 17,000 and 380,000 USD, which can be regarded as considerable on average.

Some countries, such as Mexico, have the prospect of criminal liability, and others, such as Brazil, can impose both administrative and criminal penalties to individuals. Others, as El Salvador for example, do not have either a criminal or an administrative sanctions regime for firm executives involved in anticompetitive behavior. Even without taking into account enforcement practice, there is little convergence regarding liability systems in Latin America, which makes it an interesting area for future debate and reforms.

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Our comments are just a quick brush around only a part of the issues covered by the decision. Nonetheless, we hope they can be useful in providing more information on what is posed to be one of the highest-profile cases in Latin America this year.