Volume 6, Number 3, Page 2
Relevant Aspects of Antitrust Law in Chile
By Carlos Cruzat
The basis for the legal framework of free competition in Chile was created with Decree Law No. 211 1973 (DL211) The law and its regulations have been repeatedly modified over the past three decades. The following article reviews relevant aspects and modifications in the legal framework protecting free competition in Chile, including the regulatory agencies responsible for implementing DL211 provisions. The Law applies to all individuals and corporations doing business in Chile and, importantly, activities occurring outside of the country when such practices have the potential to negatively affect free competition in Chile.
Competent Bodies
DL211 created an association composed of the Regional Preventive Commissions (RPC), Central Preventive Commission (CPC), Resolution Commission (RC) and Fair Trade Enforcement Commission (FTE). The preventive and resolution commissions are independent of any public office. The FTE is a public service agency having its own budget and answering to the President of the Republic through the Ministry of the Economy.
The RPC and the CPC are not authorized to impose sanctions. Their main functions are to; (i) prevent acts contrary to free competition in their respective jurisdictions; (ii) determine situations constituting a threat to free competition; and (iii) propose corrective measures. Investors concerned about whether certain acts may be considered contrary to free competition, may request a legal judgment before pursuing measures conceivably in violation of DL211. Any transactions approved by such judgments will exempt the parties involved of any violation of the free competition statutes.
The RC is in charge of overseeing application of the antitrust law. The RC reviews complaints filed against the decisions of the regulatory commissions and is authorized to direct the FTE to take legal action. In addition, the RC is authorized to modify or terminate any contract contrary to free competition, order the modification or dissolution of privately owned corporations that have engaged in such acts, and impose fines of up to US$550,000. Parties adversely affected may appeal the RC's decision to the Supreme Court only if the judgment includes (i) the modification or dissolution of the juridical person; (ii) the application of fines; or (iii) a prohibition on holding office in labor unions.
Finally, the FTE's primary responsibilities include (i) representing the public interest before the RC and the courts, (ii) assuring enforcement of the judgments of the RC and the courts, and (iii) defending opposing judgments before the Supreme Court.
Acts Contrary to Free Competition
DL211 does not define acts that impede free competition. However, Article 2, (f) of DL211 indicates a general prohibition on any action whose purpose is the elimination or hindrance of free competition and gives several examples:
a) the use of quotas in production;
b) allocation of market areas or the exclusive distribution of one product of different producers by a single person or entity;
c) price fixing of products and/or services by agreement or imposition; and
d) limiting the freedom of individuals to work or organize, meet or negotiate collectively including actions hindering the normal course of collective negotiations within a company and actions which impede legitimate access to an activity or job.
Legal Precedents
The DL211 definition of acts contrary to free competition is so generic that special consideration should be given to the previous decisions of the courts and regulatory entities responsible for insuring free competition. The following is a discussion of the jurisprudence of antitrust regulatory bodies.
1) Exclusive Distribution Clause:
Previous decisions have ruled that: (i) "the existence of an exclusive distributor does not violate free competition regulations, provided that the distributor does not gather all or a significant portion of the production of the same product manufactured by different producers;" and (ii) that "the referred distribution would be illegal if the same distributor also undertakes the exclusive distribution of the same product manufactured by other producers." Consequently, for the exclusive distribution of a product by one manufacturer to be legal (i) there must be no discrimination (unjustifiable denial of sale or difference in terms of sale to individual buyers); and (ii) there must be no unfair competition, which would exist if the wholesale distributor sold either to dealers or the public without the possibility of earning a reasonable margin of profit on subsequent sales.
Competition authorities have not generally approved exclusive distribution agreements between producers and independent traders acting on their own behalf and at their own risk. Instead such authorities have tended to approve agreements in which exclusive distribution was given to a distributor acting on behalf and at the risk of the manufacturer or supplier. Approval was granted in a case where the Chilean distributor acted under a power of attorney granted by the producer and, was subject to his direction (CPC's Resolution 597/471 of May 11, 1987).
Changes in jurisprudence occurred in 1992. CPC's Resolution 833/993 of June 11, 1992 provides that the distinction between wholesale distribution and retail distribution is valid from the point of view of the difference that purchase (wholesale) and representative (retail) agreements hold within common law.
2) Price Fixing
Article 2, (d) of DL211 provides that actions and contracts tending to prevent free competition include "such acts referring to the setting of prices of any product or service, and agreeing and imposing of such upon others." Competition authorities have generally rejected horizontal price agreements among competitors.
Concurrently, authorities have rejected vertical agreements between suppliers and distributors and not allowed the supplier to impose sale prices on the distributor, specifically a minimum price, or suggested retail price.
Even though the authorities have not accepted the practice of a suggested retail price in the past, this is changing. Today, the authorities tend to allow the supplier to offer retail price suggestions when it is evident that the distributor is not obliged to accept them.
3) Negation of Sale
The courts have on several occasions affirmed that the “negation of sale” is contrary to the law, specifically if its purpose is to avoid competition on the part of the purchaser (the RC's Resolution 128 of August 24, 1982). Moreover, the RC has established that the supplier may not prohibit the purchaser from selling goods from its competition or refuse to sell at the general market rate (RC's Resolution 246 of January 13, 1987).
Still, it should be noted that as the decisions indicate “any producer or importer has complete freedom to market its products and determine the price it will charge the public or intermediaries. In addition, such producer or importer may decide to sell only to end consumers and/or that the sale price of the product or service will be one and the same, without considering discounts or reductions to dealers for purchase volume or form of payment.” (RC’s Resolution 384/437 of June 28, 1983). In any event “if a producer sells to a dealer, he/she must sell to all parties interested in buying and must do so with respect to all in the same conditions, pursuant to general, objective and reasonable guidelines.” (RC’s Resolution 29 of April 27, 1977).
4) Abuse of Dominant Position
The courts have sanctioned the abuse of dominant position consisting of predatory pricing or using other means of damaging present or future competitors in order that they withdraw from the market or compete in disadvantageous conditions.
Predatory prices are defined as prices lower than the corporation's direct operating costs during the relevant period (RC's Resolution 279 of April 19, 1988). Nonetheless, the fact that prices are below operating costs does not in and of itself imply predatory pricing. Objective conditions of the market must first be considered. Prices below operating costs are not considered predatory when (i) they are maintained for short periods; (ii) they are applied to a limited number of products, (iii) the party does not hold a dominant position, and (iv) the pricing does not substantially benefit the company holding dominant position. (CPC's Resolution 902/326 of May 2, 1994).
5) Other Acts
Dominant position, production quota distribution and market zone allocation are among the acts that the law defines as threatening to competition. Although, rarely approved, the law also allows for authorization of the existence of dominant position in the market when the national interest so requires and it becomes necessary for the development and stability of national investments. n
Carlos Cruzat is a partner with Cruzat, Ortuzar and Mackenna in Santiago Chile
