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Report on Developments and Enforcement of Competition Policy and Laws in the Western Hemisphere
Submitted by the OAS Trade Unit to the FTAA Working Group on Competition Policies
Colombia: Report on Developments and Enforcement of Competition Policy and Laws (1992 - 1996)
Thus far no additional laws regulating competition and restrictive trade practices have been enacted that are different from 1959 Law 155, 1964's Regulatory Decree No. 1302 and Decree law 2153 of 1992. The foregoing notwithstanding, the Office is in the process of putting together internal guidelines to provide its staff with a legal tool to make it easier to apply the rules and regulations already on the books on this subject.
II. Application of Competition-Related Law and Policy
From 1992 to June 1997, the Office of the Delegate for Competition Promotion handled a total of 156 cases involving free competition and restrictive trade practices. Of these, 114 were complaints, 32 were instituted by the government, and 10 were brought by other agencies or offices of the Office of the Superintendent. Of these cases, 22 were received in 1993, 30 in 1994, 69 in 1995 (42 of which are complaints about medical associations), 21 in 1996 and 14 in 1997.
Most such cases closed with a finding that they did not have sufficient merit to institute a formal investigation. On the other hand, however, in the period from 1994 to 1997, 32 rulings ordered a formal inquiry into the respective case. Eight such decisions were issued in 1994, three in 1995, 16 in 1996 and five in 1997. Of these, 21 are now closed; 18 ended with pledged assurances. The most common practice alleged in these inquiries was direct or indirect price-fixing agreements (see appendices 1 and 2).
2. Significant cases
a. Railway sector
The Empresa Colombiana de Vías de Férreas -FERROVÍAS- is a state-owned industry and business company associated with the Ministry of Transportation. It is sole owner of the nation's rail system and is in charge of running the rail transport system. Its other main objective is to maintain, improve, recondition, extend, modernize, run, direct and administer the national rail network and to regulate and control its operation.
In 1991, Ferrovías signed a contract with Drummond Ltd.(DLTD), a private enterprise engaged in coal exploration and mining in Colombia's northern region. The contract is for 30 years, effective as of the date on which all contractual preconditions have been fulfilled. It spells out the rights, obligations and conditions of DLTD's coal-shipping and related activities along the La Loma-Santa Marta line, which is part of the national rail system. Under the terms of the contract, up to 10 million tons of coal can be shipped by rail each year, the monthly maximum being one million tons. In 1994, the La Loma-Santa Marta line could carry up to two million tons annually.
The case began with a complaint filed against Ferrovías on June 27, 1994, by one of the coal mining businesses in Colombia's northern region, alleging that an abuse of dominant position occurred when terms were established that were biased in favor of Drummond Ltd. (DLTD) but prejudicial to the other coal mining businesses in the northern region. Resolution No. 2,324 of October 31, 1994, ordered that an inquiry against FERROVÍAS be instituted since clauses 3, paragraph 3.19, and 8, paragraph 8.10, of the Private Transport Operating Contract -La Loma-Santa Marta line- allegedly constituted a violation of Article 50, paragraph 2 of Decree 2153/92, since clause 3, paragraph 3.19, speaks of the "GUARANTEED SERVICE LEVEL", which effectively means that Ferrovías is guaranteeing the DLTD first choice of train timetables and routes provided the Train Plan is worked out jointly.
Also, should any operational conflict arise with other clients on the Coal Line, whether in execution of the Train Plan or operation of the trains in motion, FERROVÍAS pledged to take every measure possible to settle the conflict in such a way that the detailed parts of the Train Plan can be carried out. The privileges that the DLTD was given vis-a-vis Guaranteed Service Level are in addition to other privileges it obtained under the contract. Under clause 8, paragraph 8.10, third parties were permitted "to travel and ship by the Main Line provided this does not prevent the DLTD from shipping the required amounts guaranteed under the present contract or does not affect the DLTD's Guaranteed Service Level. If FERROVÍAS wishes to assign to other clients temporarily any carrying capacity that the DLTD will not require for travel or shipment on the Main Line, that capacity is to be taken from whatever capacity the DLTD was scheduled not to be using when the Train Plan was planned and agreed upon with FERROVÍAS. If the carrying capacity that FERROVÍAS wishes to assign elsewhere can affect the DLTD's privileges under the contract, FERROVIAS must first obtain the DLTD's written permission before reassigning the carrying capacity. DLTD may not refuse without just cause.
The relevant market: The relevant market is the use or service of the rail line to ship coal and materials associated with coal mining. The geographic area is the run from each of the coal- loading points within the mining area to the shipping port at Santa Marta and Ciénaga. The market in question has characteristics typical of a pure market. The information supplied shows that the current operators of the line are Drummond Ltd -also a coal exporter- and the S.T.F.; however, the end users or consumers of the service, apart from DLTD, would be Prodeco, Carbones Caribe, Sororia, C.M.U., Dupela, Norcarbón, Carboandes and Siminera, all companies that have concessions to (explore for and) mine coal in the immediate area, which consists of eleven (11) communities located in the municipalities of Chiriguaná, El Paso, Bosconia, La Jagua de Ibirico and Becerril.
What these users have in common is that they are all exporters and have a port of embarkation, either their own or authorized, within the jurisdiction of the municipalities of Santa Marta and Ciénaga, in the department of Magdalena. Then there are the potential coal (exploration and) mining businesses in the reserve areas of Guaymaral, El Descanso and El Hatillo, located in the area in question. Drummond Ltd. now accounts for 49.38% of the coal produced, while the other businesses account for the remaining 50.61%.
In this particular case, overland shipping is not a viable alternative to rail shipping, since there are a number of differences, such as cost, which is much higher in the case of overland carriage. The ratio is between 2:1 and 3:1: with the increased risk involved in shipping overland; the shipping insurance premium is higher; shipped overland, the coal will take longer to reach the port of embarkation, and unloading costs are higher in the case of overland shipping.
The Office of the Superintendent concluded the following:
- Clause 8.10 does not constitute a violation of the rules of free competition, since once the Operating Contract is in effect, Ferrovías was required to request permission before reassigning any capacity the operator would not be using, which is obvious since a minimum guaranteed service level has been agreed upon and cannot be refused.
Through Resolution No. 523 of April 11, 1997, the Superintendent of Industry and Commerce decided to accept the guarantees that Ferrovías offered, which were that it would renegotiate the contract concluded with Drummond to amend the offending clauses so that the restraint of competition would be eliminated by dropping the clause that gives Drummond first choice of train schedules and routings and the clause requiring Ferrovías to get Drummond's advance, written permission before leasing the line to third parties.
b. Automotive Sector
Once the official preliminary investigations were conducted, investigations were ordered into the country's major automotive assembly plants and their dealerships, namely: Resolution 1574 of July 15, 1994 ordered an investigation of the Compañía Colombiana Automotriz S.A. (CCA), which assembles Mazdas; Resolution 801 of April 30, 1996, ordered an investigation of General Motors Colmotores S.A., which assembles Chevrolets, and Resolution 925 of May 13, 1996, ordered an investigation of the Sociedad de Fabricación de Automotores S.A. (Sofasa S.A.), which assembles and imports Renaults and Toyotas.
These investigations also extended to the legal representatives and auditors of the businesses being investigated for allegedly having authorized, carried out or tolerated the practices being investigated.
Compañía Colombiana Automotriz S.A. (CCA) and its dealerships.
This investigation examined two allegations:
- CCA's alleged division of markets among its dealerships (Article 47, number 3 of Decree 2153/92).
General Motors Colmotores S.A. and its network of dealerships
The following were the charges:
- Alleged market apportionment via client selection in the case of the Automayor dealership, which is owned by the other dealerships, the corporate intent being to funnel sales to government agencies via the one dealership (Article 47, paragraph 3 of Decree 2153/92).
- Conclusion of an agreement with marketing terms alleged to be unrelated to the purpose of the contract, primarily having to do with the following:
Advertising: In the manner and amount determined by the factory, and strictly according to its guidelines.
Internal control, inventories, sales and supplies of spare parts and services, all according to the standard, factory-designed system.
Examination of the dealership's installations, books and records: no restriction whatever.
Warranty restrictions whereby buyers could only go to the original dealership -the dealership that sold the vehicle- for any service covered under the warranty (Article 47, paragraph 7 of Decree 2153/92)
Guarantees given: The parties being investigated offered to take corrective measures and requested that the inquiry be closed pursuant to Article 52 of Decree 2153/92. They were to amend the following points in their dealership contracts:
Other matters investigated are the following, which the Superintendent's Office ordered dismissed for lack of merit:
Sociedad de Fabricación de Automotores S.A. SOFASA and its dealerships
The following were the charges:
- An agreement containing marketing clauses allegedly unrelated to the purpose of the contract, mainly in the following respects:
Exclusive direct sales: the business awarding the franchise reserves the right to sell to certain clients stipulated in the contract.
Dealership territory: demarcation of a specific zone as the area within which the dealership can do business.
Advertising: the dealership and business granting the franchise share advertising costs, with the latter planning and conducting the advertising directly.
Accounting and reports: Unlimited access to a dealership's books and statistics (Article 47, paragraph 7, of Decree 2153 of 1992).
Guarantees pledged: The parties being investigated requested that the inquiry be closed and, in order to bring the investigation to a close, pledged guarantees as required under Article 52 of Decree 2153/92, to modify the following aspects of their franchise agreements:
Other charges investigated but which the Superintendent ordered dismissed for lack of merit include the following:
Early closure: As the modifications in question were considered adequate, by resolution 1187 of August 6, 1997, the guarantees given by the Sociedad de Fabricación de Automotores, S.A. and its dealerships were accepted and the investigation ordered closed.
Continue on to Section C: Telecommunications Sector