Category Archives: Latin America

The Center for Competition Law Studies in Colombia and its 20th year anniversary

Editorial Team, DWA

The Center for Competition Law Studies (CEDEC) in Colombia was founded on March 1995. In its 20 years of activity, it has set an example to the academic community in the region. Its commitment to the development and dissemination of ideas in Latin American competition policy is evident in the wide range of activities in which the center is involved: its monthly meetings serve as a forum for the study of the latest developments in competition law in Colombia and Latin America; it manages an academic journal that publishes on a yearly basis papers on competition policy in the region; and, its members have been actively publishing books and academic articles on the subject and teach in graduate programs in Colombia, among other activities. As one can clearly see, the center makes a point of keeping itself busy.

The activities of the center and others in the region, such as the Centro de Libre Competencia in Chile and the Instituto Brasileiro de Estudos de Concorrência, Consumo e Comércio Internacional in Brazil, make a significant contribution to the study of the specificities of competition policy across countries. This is why in DWA we receive with joy the news of CEDEC’s 20th year anniversary. For more information about the center, check out their website. From our part, we wish CEDEC every success in the years to come.

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The Sugar Industry in El Salvador: A Case Study for Competition Authorities around the World

By Francisco Beneke*

One of the biggest challenges for the Competition Superintendence, the antitrust authority in El Salvador, is posed by the sugar industry. What makes this case worth studying is that it basically has it all: a cartel in the manufacturing stage, a dominant wholesale distributor, and a law that shields the industry against the competition authority (and as we will see, from any source of competitive pressure).

Starting with the law, enacted in 2001, the Sugar Act paints a good portrait of the manufacturing industry’s lobbying power. This law mandates and enforces a cartel as follows. Article 2 states that dividing market quotas between the processing plants is a matter of public interest. Articles 19 and 20 specify how this system works. Each plant is yearly given a percentage of the internal market based on past production history. This quota is subdivided in 12 equal parts, which represent the maximum of sugar that a firm can produce per month. If this maximum is not complied with, the processing plant is not only fined but also in the next year will be deprived of a portion of its market share equal to twice the size of the excess with which it is charged.

To enforce this mechanism, the manufacturers have to constantly disclose production information to the regulator (CONSAA), who also has auditing powers granted by the law. Another and more effective way of monitoring the market quotas is performed through the industry’s common sales agent, Dizucar.

Entry is also regulated in the Sugar Act. Any plant that wants to join the club has to be cleared by the CONSAA. The problem with this is that 3 out of 8 members of the board of directors of this state entity are representatives of incumbent plants. It is no majority but one has to bear in mind the political influence this industry has in order to assess the likelihood that the board would take a decision that affects the interests of incumbents. The chances of entry are, therefore, slight at best.

As the reader can see, the Sugar Act solves most of the problems that a cartel faces: coordination, cheating, and entry of new firms. In addition, the monitoring of the quotas is done with greater efficiency through the common sales agent mentioned above, which all but monopolizes the distribution of the production of the sugar mills.

Because the law states that this market division is in the public interest and regulates its functioning, the hands of the Competition Superintendence are tied in what concerns the cartel. Therefore, the authority took the only legally available course of action that it had. In April of 2010 it opened and investigation regarding alleged exclusionary conduct in which Dizucar, the wholesale distributor and common sales agent, was engaging.

In 2012, the Competition Superintendence found that Dizucar was guilty of abuse of dominance and fined the firm with approximately 1.1 million dollars. The amount is rather small since the decision states that the damage caused to consumers only in 2010 was as high as 12 million dollars. Nonetheless, the Competition Superintendence argued that the fine is the highest possible amount allowed by the law, which is the equivalent of 5 thousand times the legal minimum monthly wage. Technically, according to the law, this is not the highest possible amount. Article 38 of the Competition Act states that if the infringement is of particular gravity, then the fine can be established between twice and ten times the estimated amount of the profits acquired through the anticompetitive behavior. There is no discussion in the decision as to why this criterion was not applied when quantifying the fine but in light of the loss in consumer welfare that was claimed it is hard to see a good reason for keeping the fine so low.

Moving on from the case, the Competition Superintendence also undertook great efforts to do something about the Sugar Act. According to an opinion issued by the authority in August last year, since May 2010 the competition authority worked with other government institutions such as the Ministry of the Economy, the Ministry of Agriculture and representatives from Casa Presidencial (the equivalent of the White House) to form a consensus about the reforms that were needed to bring competition into the sugar industry. The work of this team culminated in a joint report in 2012 and a proposal to amend the law that basically aims to abolish the market division system.

Congress has undertaken no reforms yet, but to be fair with the Competition Superintendence and the other state institutions involved, lobbying for a change of the status quo can be a titanic task. Indeed, a very comprehensive study of the lobbying industry in the US found out that one of the strongest predictors of failure for lobbying activities is when the efforts are aimed at changing an established policy (see “Lobbying and Policy Change: Who Wins, Who Loses and Why” by Baumgartner, Berry, Hojnacki, Kimball and Leech (2009)).

To conclude, it can be seen that the strategy of the Competition Superintendence has been to coordinate both enforcing and advocacy tools at its disposal to tackle the problem. Beyond the law and beyond the economics of the decision and the proposed reforms, it is worth highlighting this coordination of activities at a strategic level. Some examples in Latin America suggest that a good enforcement policy aids antitrust authorities in gaining support for reforms they advocate. One such example is the price fixing case of medicines at the retail level by pharmacies in Chile in 2009. After the decision was made public, there was widespread condemnation among the population against the cartel, which helped streamline substantial reforms to strengthen the Chilean competition law. It still remains to be seen whether the Competition Superintendence’s efforts will succeed but I believe sugar consumers expect that this institution will not give up so easily.

* Co-editor, Developing World Antitrust

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Mexico’s New Competition Law

By Francisco Beneke*

There is hardly a stronger way to show a state’s commitment to the goals of competition law than the “Pacto for Mexico”. This pact is a multi-partisan agreement in which competition is put at the center of the government’s policy to promote the development of the country. As a result of the pact, the constitution was amended and the Mexican competition authority was elevated to the category of an autonomous constitutional entity. Also, a new competition law was enacted on July this year. Whatever opinion anyone has on the substance of the constitutional amendments and the new competition law, Mexico’s intent is pretty clear: improve the country’s economic performance through the protection of the competitive process.

The new law gives greater investigative powers to the Comisión Federal de Competencia Económica (the Comisión), adds more types of conducts to its list of forbidden behavior and separates, to some extent, the investigative and adjudicative functions of the authority. However, what prompts me to write a post on this law are not these interesting issues but something that I believe troubles Mexican firms the most.

The wording of the law is a signal of Mexico’s distaste for concentrated market structures. Article 2 states among the objectives of the law to severely punish and suppress monopolies, monopoly behavior, unlawful mergers and so on. The part that I have underlined contrasts sharply with the general idea that antitrust authorities are not there to fight monopolies but monopoly behavior. The article talks separately about the latter so there is little room to construe that there was a confusion of concepts. Mexican legislators did mean to attach a negative connotation to the term monopoly.

But what makes the new Mexican law more unique is not its general call for arms against monopolies but its specific mechanism to suppress them: a special procedure in which, if the authority determines that the market lacks effective competition (“condiciones de competencia efectiva” in Spanish), injunctions and divestitures can be ordered and regulations regarding access to essential facilities can be issued (article 94 of the law). This special type of investigation is not to be confused with the procedures that deal with anticompetitive behavior. A firm may not be engaging on conduct that violates articles 53 to 56 of the law but may still be ordered to abstain from certain behavior, sell some of its assets or let competitors use them if the authority determines that there is little competition.

So far, the Comisión has not started any special investigation under article 94. Neither has the Instituto Federal de Telecomunicaciones, which possesses exclusive jurisdiction on competition law matters in telecommunication markets. As Mexican firms must be, I am eager to learn what lack of effective competition means. Also, according to the law, if the firm under investigation proves that a given conduct or essential facility has pro-competitive effects that compensate any negative impact on consumer welfare then no injunction, divestiture order or regulation will be issued. The pro-competitive effects can include dynamic considerations such as innovation arguments, so it will be interesting to see how the authorities handle this criterion.

From the paragraph above, it seems that the law on lack of effective competition will be very facts-specific and, therefore, one thing is pretty clear: the enforcement of article 94 will be surrounded by a high degree of uncertainty. Luckily for me, I can sit back and relax while I wait for developments on this area but I don’t think firms operating in Mexico share this attitude. Most likely they are wishing for the Comisión and the Instituto Federal de Telecomunicaciones to forget about this special procedure or at least to establish a high hurdle to prove a lack of effective competition.

Co-editor, Developing World Antitrust

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