The Chamber of Deputies currently has under consideration a draft law on the Protection of Competition which, as is the trend in other countries, is aimed at filling a number of gaps in existing legislation, and updating it.
A. AntiCompetitive Practices
1. Summary
At the present time there are 57 cases underway, including 52 complaints, 1 ex officio proceeding, and 4 ex officio preliminary market investigations. Thanks to the Commission's newly reinforced resources, it is in the process of reducing the backlog of cases and has been able to shorten the average processing time considerably.
2. Significant Cases
a. Cases in progress
a) Newspaper advertising: "Ambito Financiero", a business and finance daily with a low market share in terms both of circulation and advertising revenues, brought a complaint against "Clarín", the country's largest newspaper in terms of circulation and graphic advertising, for offering its advertisers a 15 per cent discount when they sign an exclusive contract.
b) Sale below cost in supermarkets: Stationery supply distributors brought a complaint against "Makro", a major supermarket, for offering paper from the firm ESTRADA for sale to the public at prices below the cost of purchase.
c) Exclusive distribution of cigarettes: Cigarette distributors have complained that the larger of the country's two brand manufacturers has changed its marketing system in the metropolitan area by singling out certain distributors and imposing exclusive marketing arrangements on them. This practice was then quickly followed by the other cigarette manufacturer.
d) Professional and health clinic associations: Several complaints have been lodged against clauses that exclude health professionals or clinics that contract directly (i.e. outside the associations' networks) for services under the major social programs (the mutual health insurance system).
e) Liquified (bottled) gas market: Complaint against alleged collusion agreements among refining companies in one part of the country (Province of Missiones) where there are no natural gas networks.
b. Recently decided cases
a) Fines amounting in total to US$ 360,000 were imposed on container loading and unloading firms operating in the Port of Buenos Aires for raising their fees at the same time and by the same amount, in the midst of a labor dispute. This penalty is currently under appeal before the Economic Crimes Court.
b) A cease-and-desist undertaking was accepted from the Bakery Center of Lanús, which had already been fined in an earlier case for price-fixing in its area of influence.
c) In the case of the complaint brought by American Express against Visa (which was launched simultaneously in a number of Latin American countries) for its alleged attempt to impose a "rule" on issuing banks that would exclude the complainant, the Commission delivered an opinion setting aside the case on the grounds that the "rule" in question was not adopted for use in Argentina, but it also stated that that "rule" would be anti-competitive and that if it were adopted in Argentina the Commission would re-open the case ex officio. It also urged the Secretary of Industry, Trade and Mining to monitor the credit card market, and this recommendation was included in the Resolution setting aside the case. ANNEX I, at the end of this report, reproduces the Opinion of the National Commission for the Protection of Competition and the related Resolution of the Secretary of Industry, Trade and Mining.
III. Institutional Strengthening
a) Since mid-1996, the National Commission for the Protection of Competition, acting under an Executive Decree, has been assigned a public servant, with the rank of Under-Secretary of State, to serve as full-time President of the Commission. (Previously, the duties of President were fulfilled by the Under-Secretary of Internal Trade, who had many other tasks to look after as well).
b) The Commission's staff complement has been strengthened. In the current year, it has been augmented by 11 professionals with solid post-graduate academic credentials from prestigious universities in Argentina and abroad.
c) Since mid-April of this year, the Commission has occupied new offices, and now enjoys space and equipment adequate to its needs.
d) During the year the Commission's computer arsenal has been expanded considerably, with the addition of several PCs. These are connected into the Ministry's global network, and have Internet access facilities. All staff have been or are being trained in handling the principal software tools.
e) An agreement has been signed with a prestigious economic body, the Di Tella Institute, to analyze the structure, shape and behavior of markets for fifteen industrial sectors producing basic inputs that are key to the competitiveness of downstream industries.
f) The Commission, acting either on its own (ex officio) or together with other MERCOSUR countries, is engaged in a series of cooperation and technical assistance initiatives with the OAS, the IDB, the World Bank, the European Union and various national competition agencies.
IV. International Affairs
a) In December 1996, the Presidents of the Member States met in Fortaleza and approved the Protocol for the Protection of Competition. This Protocol is currently awaiting parliamentary ratification in Argentina.
b) A Seminar will be held in Buenos Aires, May 21 to 23, organized by this Commission and the European Union, at which European experts will discuss with participants from the four Mercosur countries a series of illustrative cases in various areas relating to the protection of competition (collusion agreements, abuse of dominant position, concentration, State aid).
The Commission is taking part in the negotiations to create the FTAA; it is attending the UNCTAD sessions; and it intends to take part in the upcoming round of negotiations within the WTO.
ANNEX 1: Opinion of the CNDC on the American Express-VISA Case
I. Facts
American Express Travel Related Services Company, Inc. and American Express Argentina S.A. have brought a complaint against four companies, Visa International, Visa Argentina S.A., MasterCard International and Argencard S.A., for alleged threats against the banks with which the latter firms do business, whereby those banks would be induced to refuse to sign contracts with the complainant companies.
2. The Parties
2.1. American Express Travel Related Services Company, Inc. is a US company headquartered in New York City, whose business is to issue "charge cards" for international use, whereby holders can purchase goods and services in businesses that are members of its card system while deferring payment for them. In addition to its charge cards, American Express issues credit cards in some countries (although not in Argentina) and traveler's checks.
2.2 American Express Argentina S.A. is a subsidiary and licensee of American Express, headquartered in the city of Buenos Aires, whose business is to issue the American Express charge card. It handles the financial management of the system by itself (signing up businesses, receiving and paying balances and other related operations).
2.3. Visa International Service Association Inc. (hereafter VISA) is a company incorporated in the United States, whose business is to administer a system of internationally valid bank cards, mainly credit cards, and/or traveler's checks. The company is classed under US law as a "non-stock membership corporation", i.e. as a corporation that does not issue shares. Its members are banks or groups of banks that are licenced to use the VISA trademark, which make contributions to it in the form of commissions for the provision of services and, in some cases, capital contributions. VISA International operates its bank card system around the world, by granting licenses for the use of its trademark to banks or financial institutions that as a result become members of the system, pay commissions for services and vote in sessions of the General Meeting. For operational purposes, VISA has grouped its licensee banks by country, and in turn by region, so that there are a number of Regional Boards to which are delegated the functions of the principal Board. According to its bylaws, the VISA Board, or by delegation the Regional Boards, must decide on the admission and expulsion of members.
2.4. In light of the features mentioned above, the VISA system is an "open" one, where a bank acquires the category of Member when it receives its license, in contrast to a "closed" system, where a single company handles all of the management (issuing cards, signing up members, receiving and paying balances, etc. ), as is the case with American Express.
2.5 VISA ARGENTINA S.A. was incorporated under Argentine law in 1983 by a group of Argentine banks and foreign banks with operations in Argentina that are individually licensed by VISA International to use the VISA trademark within the country. VISA ARGENTINA is a member of VISA International, and its business consists of providing processing and clearing services to its member banks. This system allows the holder of a VISA card to make purchases at any business that is affiliated with the VISA system, and that business, in turn, can collect payment from any member bank of the system. In addition, there may be Argentine or Argentine-domiciled banks that are licensed for the VISA trademark but that are not members of VISA ARGENTINA, and that run their own processing and clearing system, as is the case with the Banco de la Provincia de Buenos Aires.
2.6. MasterCard International is a company headquartered in New York City, USA, that operates internationally an "open" credit card system similar to that of VISA, as well as international payment and clearing systems through the MasterCard, Maestro and Cirrus systems.
2.7. ARGENCARD S.A. is an Argentine company established in 1971 that operates the Argencard credit card, for use in the local market only, under an "open"-type system. In 1977, ARGENCARD S.A. became part of the MASTERCARD system and received a license to operate the international MasterCard card in Argentina and in Uruguay. ARGENCARD S.A. thus markets both credit cards, one for domestic use and one that is valid for both domestic and international use, and it is responsible to MASTERCARD for making the banks comply with the guidelines for international operations (such as authorizations, credit limits, protection of trademark, etc.) and for making payment for purchases abroad with cards issued by the banks that ARGENCARD S.A. has licensed as issuers.
3. The complaint
3.1. American Express maintains that the companies named in its complaint are responsible for acts that harm, restrict and distort competition, representing the abuse of a dominant position in the market for internationally valid, general-purpose cards, to the detriment of the public economic interest. Those acts, which are claimed to violate Law 22,262, consist in the announcement by the president of VISA International for Latin America and the Caribbean that the company would adopt a standard, referred to as the "Rule", whereby any member of VISA that decides to issue American Express cards or Discover cards within the Region will be automatically expelled from the VISA system. The complaint maintains that VISA USA has already adopted the Rule in the United States, and that it tried to extend it to Europe but was prevented from doing so by action of the Competition Commissioner of the European Commission, who considered that, were it to be adopted, the rule would violate the Community's competition standards. Moreover, the complaint cites as a background factor a communication from the Competition Commissioner of the European Commission expressing satisfaction that VISA International has abandoned the proposal that would have prevented its members from issuing competing cards. On the basis of these factors, the complainant believes that there is a real and immediate risk of its adoption both in Latin America and the Caribbean in general, and in Argentina in particular.
3.2 With respect to the second of the companies listed in the complaint, MasterCard International, the complainant maintains that the past history of that company makes it safe to assume that it will follow a similar policy in Latin America and the Caribbean. The complaint cites in this connection a statement of the president of MasterCard and an article that appeared in a prestigious US newspaper.
3.3 In addition, the complaint alleges that, while the Rule does not prevent banks from issuing MasterCard and VISA cards at the same time, nor does it prevent Citicorp from issuing the Diners Club card as well, it does prevent any bank from issuing American Express cards, under threat of expulsion.
3.4. Finally, it argues that the international policy pursued by VISA and MasterCard, companies that hold a dominant market position, is well known in the Argentine market and is thus having a dissuasive effect that is restrictive of competition, since it seeks to prevent American Express from gaining access to that market.
3.5. Subsequent to filing the complaint, the complainant has submitted two further newspaper articles in evidence. One of these reports that the United States Federal Trade Commission is about to take action against VISA USA for its adoption of the Rule, and the other reports that the president of MasterCard International had recently announced the possibility of adopting a similar Rule.
4. Explanations
4.1. In its explanations, VISA International states that the so-called "Rule" was never adopted, nor is there any intention of adopting it, and that this was communicated to the member banks in the Latin American and Caribbean region. Therefore, VISA maintains that there are no grounds for considering the hypothesis of the adoption of any such Rule, and that the hypothesis itself is not enough to demonstrate any violation of Law 22,262: the complaint therefore denounces non-existent facts, is irrelevant, lacks legal foundation, and should be dismissed.
4.2. Similarly, VISA International adduces a document certifying that the Regional Board of VISA International for Latin America and the Caribbean issued a resolution, already notified to the banks, stating: "This Board has no intention of considering the adoption of any regional prohibition with respect to the issuance or acquisition of competing products by member banks, including the products of American Express, Discover, JCB, MasterCard and others".
4.3. On this basis it reiterates that the complaint is groundless and that it should be dismissed, because the facts alleged therein do not exist.
4.4 Subsequently, VISA submitted a copy of the decision rendered in Chile on a similar complaint brought against it by American Express, and a request for preventive measures. In its opinion, the Central Prevention Commission states that "the rule..., as American Express itself recognizes, does not apply, nor has it ever applied, in Chile. In the view of the petitioner, it represents only a "risk" that might "eventually" represent an attack on free competition, a hypothesis that, in the opinion of this Central Prevention Commission, is not based on actual behavior that can be prevented or corrected by the Commission. On the contrary, it is based on suppositions and hypotheses that have not occurred (and therefore) there are no grounds for taking preventive action pursuant to Article 8 of Decree Law No. 211 of 1973 (...), and consequently no ruling will be issued on the substance of the matter brought by the petitioner".
4.5. For its part, VISA Argentina also argues that the complaint should be dismissed, since it refers not to actual deeds or behavior but to mere notions or hypotheses which are as such not sanctionable. It adds that article 18 of the National Constitution, as well as article 9 of the American Convention on Human Rights and article 15 of the International Covenant on Civil and Political Rights, both of which have constitutional force, establish as an absolute prerequisite for any sanction that a deed must have been committed in order for it to violate a legal precept. In addition to the foregoing, VISA Argentina argues that it itself is totally removed from the complaint, since even if the alleged facts were true, its function consists solely of providing processing and clearing services for licensed banks, as has already been recognized in a court ruling.
4.6. With respect to the other two companies cited in the complaint, MasterCard International and Argencard both deny the deeds alleged against them, and maintain that the complaint does not make reference to any actual fact that has occurred, but only to hypotheses that have insufficient foundation, and they too ask that the complaint be dismissed.
4.7. Subsequent to the submission of explanations, the complainant appeared voluntarily before this Commission, asking it to consider the defendants' explanations as a commitment not to issue the "Rule" in question. This request was rejected on the grounds that a commitment, under the terms of Law 22,262, must be expressly applied for, and that it must refer to the immediate or gradual cessation of conduct, a situation that does not apply in this case.
5. The Credit Card Market
The Product
5.1 In principle, there are three "products" involved in this market: charge cards, credit cards and debit cards. The charge card permits the holder to make purchases with the commitment to pay the entire balance outstanding upon expiry of the monthly billing period. The credit card allows the holder to transfer payment of the debt arising from its use to successive billing periods, with an attendant financing cost. With the debit card, on the other hand, the amount arising from its use is debited immediately from the holder's bank account. Notwithstanding these differences, in order to delimit the relevant market, it is necessary to identify the extent to which the products are substitutes for each other.
5.2. Credit cards have two principal characteristics, which are complementary and inseparable, and which encourage consumers to apply for and make use of them: the first is that they are a means of payments, and the second is that they allow payment of the purchase price to be deferred.
5.3. With respect to the first of these reasons, it can be said that as a means of payment, the credit card or charge card is a substitute for cash, for checks and for debit cards, since if the costs associated with the acquisition of such cards were to rise significantly, consumers would be more disposed to use alternative means of payment, and to give up the convenience of a means of payment that does not require the buyer to carry cash.
5.4 With respect to the consumer's need to defer payment for a purchase, charge cards and credit cards are not substitutes for cash and checks, since use of these latter means of payment implies an immediate reduction in consumers' cash balances, which the use of the cards allows them to avoid: hence they are universally known as "credit cards".
5.5. This dual property places this market in a situation similar to the market for other products, such as, for example, the automotive market. There is no doubt that pick-up trucks can substitute for automobiles as a means of family transport, regardless of the fact that they offer an additional service as cargo carriers, which in general is of little interest to the average family. Nonetheless, if the price of pick-ups were to fall well below that of passenger cars, there would be a progressive shift in demand from one product to the other. The question to determine relates to the degree of this price elasticity that determines consumer choice, since that will reveal whether we are speaking of one market or two.
5.6. Proceeding from the above considerations, in principle, when we analyze the credit card market, we must examine both markets separately, since, as will be seen, credit cards play a relatively insignificant role in the means-of-payment market. Nevertheless, in the market for instruments that allow deferred payment of the purchase price, the role of credit cards is highly significant.
5.7. Given the characteristics of the complaint in question, the relevant market is that for instruments that allow deferred payment of the purchase price. This is due to the fact that the "rule" denounced by American Express states explicitly that its card is the only one in Argentina that could not be issued by banks that issue VISA/MasterCard. That is to say, the "Rule" would not discriminate against all competitors of VISA/MasterCard in the means-of-payment market, but only and exclusively against one significant competitor in the market for deferred-payment instruments.
5.8. In summary, in this market, cards affiliated with "general-purpose card systems" are not substitutable by other forms of payment, since the latter do not fulfill the condition of allowing consumers to defer payment. That is to say, the products that compete strictly among themselves to satisfy this consumer need are the charge card and the credit card, thereby excluding debit cards, checks, and cash. In all these latter cases (debit cards, checks and cash) there is an almost immediate reduction in the client's bank account, which obliges him to keep on hand greater liquidity that is required when he uses credit or charge cards. A further point of distinction, with specific reference to checks and cash, is that these may only be used within the country, while the leading credit cards are not restricted in this manner.
The Market
5.10. In this market there are four classes of agents: a) the companies that administer the card trademarks; b) the holders of these cards; c) the issuing institutions, and d) the paying banks. Basically, the cards operate with two different systems: a) the open system, in which the relationship with the card holder and with the member business may fall to different issuing banks (viz. the VISA and MasterCard systems) and b) the closed system, in which these relationships fall to the administering company (viz. the American Express system).
5.11. A consumer's decision to obtain a particular card depends essentially on the strength of the system, which is determined by the number of its affiliated businesses. Since, at the same time, the willingness of businesses to affiliate themselves is a direct function of the number of cards issued by the system, there is a mutual dependence between the demand for cards and their acceptance by businesses.
5.12. In the banking market, the growing competition from other financial intermediaries has meant that banks are now increasingly supplementing their basic banking functions with other lines of business embracing a broad range of services that includes the distribution of credit cards. This is the most important among a whole set of services that includes, as well, the sale of various types of optional and compulsory insurance.
5.13. In this manner, the wide geographic coverage enjoyed by some banks has allowed them to become highly effective distribution channels for such cards, and at the same time, the need to enlist new clients has led the "closed" card systems to reformulate their marketing strategies to become, in many aspects at least, "open" systems. For the clients, it is a convenience to be able to entrust the management of their cards to the same entity that handles their other financial affairs, especially when it comes to the automatic debiting of their bank accounts. This summary characterization of the market can be completed, then, by recognizing that card holders have come to expect that acceptance of their cards will not depend on the identity of the issuing bank, since existing systems do not allow businesses to differentiate on that basis.
The Systems
5.14. Broadly speaking, the system operates as follows: a) the card holder purchases goods or services at an affiliated business; b) the business then presents the sales documentation to the payer bank; c) the payer bank transmits the documentation to the administering company for processing; d) the administering company processes the information and advises the issuing entity of the amount that must be transferred; e) the issuing entity remits the amount indicated to the administering company; f) the administering company transfers the appropriate amount to the payer bank; g) the payer bank, after deducting its commission, pays the business; h) the administering company sends notice to the issuing entity for the transactions conducted by the card holder; i) the issuing entity sends the notice to the card holder; and j) the card holder clears the account with the issuing entity.
5.15. The various systems, however, have some specific characteristics that can be summarized as follows:
Visa: VISA provides its member banks with access to a national and world-wide system of payments that allows the holders of cards issued by one bank to make purchases for which the merchant can recover payment from any other bank. It also provides the services of authorizing transactions, investigating fraud, protecting the trademark logo, advertising the trademark, and operating a global communications network for processing transactions. The issuing bank is responsible for the relationship with the card holder: it sets the annual fee to be charged and the terms and conditions of payment and credit. It guarantees payment to the payer bank in exchange for a transaction fee. The payer bank, in turn, is responsible for the relationship with the affiliated business, to whom it pays the amount of the transaction, less a discount for its services.
Argencard / MasterCard: Argencard has tried in principle to place the business in the hands of the financial institutions, acting as an integrated payments system that offers various distinct products. The banks choose what they are going to market, and they set the financial and creditworthiness conditions for access to the card, since it is they that provide the funds for the system's operation. Argencard/MasterCard, as the processor and coordinator of the operating system, intervenes only in the enforcement of the systems, and in supervising and protecting its trademarks, but it does not determine the business policy of the affiliated entities.
American Express: It has always retained direct control over all aspects of the card operation, within a closed system: it has been responsible for issuing the card, for signing up businesses, for processing charges from the businesses, for billing the client, for providing authorization services, preventing fraud, protecting the logo and conducting advertising. Its cards have been distributed primarily through direct mail promotions and arrangements with selected companies whereby their employees can obtain the card under preferential conditions. It has also signed agreements with the banks, but under these agreements the banks, which are not the issuers, offer the card to their clients and receive a sales commission for this service.
Continue on to Annex 1: The Supply Strucutre and its Impact on Prices
