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
Peru: Report on Developments and Enforcement of Competition Policy and Laws (1995 - 1996)
1. Recent Developments and Changes in Law or Policies
The Commission on Free Competition, which was established by Legislative Decree No. 701 as a functional agency of the National Institute for the Protection of Free Competition and Intellectual Property - INDECOPI, is a technically and administratively independent body. In 1995, membership of the Commission on Free Competition consisted of 4 titular and 2 alternate members. Decisions were adopted if at least three of the members present at the meeting in question voted in favor.
The main function of the Commission on Free Competition is to work towards the elimination of monopolistic, controlling or restrictive of free competition practices in the production and marketing of goods and in the provision of services, thereby enabling private initiative to develop in ways that yield the greatest benefits for users and consumers.
The Commission on Free Competition is also responsible for ensuring compliance with Supreme Decree No. 27-95-ITINCI, promulgated on 18 October 1995, pursuant to which the norm laid down in article 3 of Legislative Decree No. 701 is deemed to have been violated when, within the same interconnected system, a company which has been granted a concession or authorization to generate, transmit or distribute electric energy, and which has a dominant position in the market, or where one or more of the persons exercising control over the said company acquire total or partial control thereof, merge with or enter into a partnership with another company whose business is the generation, transmission or distribution of electric energy.
The Commission on Free Competition thus performs a monitoring function by applying the rules of competition to those companies which attempt to suppress the beneficial effects of open competition on the development of the various types of markets in Peru.
The Commission's raison d'etre, however, is not only to ensure strict compliance with the legislative provisions that penalize anti-competitive practices. It lies also in the conviction which we the members of the Commission on Free Competition have that, apart from being necessary, the creation of a competitive environment helps to strengthen existing enterprises and to create new ones that strive for greater efficiency and competitiveness. It thus has a lasting, positive impact on the growth of the Peruvian economy and on employment creation. Another key objective of the Commission on Free Competition is consumer protection, in so far as the strict application of the norms of free competition ensures that consumers have the possibility of choosing from among products of high quality and competitive prices which are determined not artificially but by the laws of supply and demand. The Commission's approach is based on the conviction that the market must first and foremost serve consumers.
The Commission on Free Competition also monitors the various municipalities in the country to ensure that they do not violate the provisions of article 61 of Legislative Decree No. 776, the Law on Municipal Taxation, by instituting taxes whose effect is to discourage free competition, as in the case of licensing fees for announcements and advertisements, and which constitute public restrictions that create obstacles to trade in goods and services.
The Commission on Free Competition is assisted in its functions by a Technical Secretariat which investigates complaints from third parties or initiates investigations on its own to determine whether a particular practice violates the norms with which the Commission on Free Competition is responsible for ensuring compliance. To that end, the Technical Secretariat carries out the required market study and gives an opinion in the form of a technical report which is taken into account by the Commission on Free Competition when it delivers its ruling.
Members of the Commission
Mr. Alejandro Alfageme Rodríguez Larraín served as Chairman of the Commission on Free Competition during 1995. Serving with him as Commission members were Messrs. David Fishman Kalincauski, César Guzman-Barron Sobrevilla and Luis Morales Bayro as full-fledged members and Messrs. Rufino Cebrecos Revilla and Italo Muñoz Bazan as alternates.
The Technical Secretariat was headed by Mrs. Carmen de Piérola Caravedo until the first half of August 1995, when she was appointed advisor to the National Institute for the Protection of Free Competition and Intellectual Property. Miss Joselyn Olaechea Flores was later appointed Technical Secretary, a position she has held since the second half of August.
II. Enforcement of Competition Laws and Policies
A. Anti-competitive Practices
The Commission on Free Competition held 108 meetings during the year 1995 during which they discussed the technical reports on pending cases submitted by the Technical Secretariat and sought the opinion of members on the various consultations submitted to the Commission. They also discussed investigations which the Commission was likely to undertake at its own initiative and the markets involved. The work of the Technical Secretariat is described below in the order of the functions which have been assigned to it.
Article 61 of the 1993 Political Constitution of Peru provides that the State should promote and protect free competition and combat any practice that restricts such competition and any abuse of dominant or monopolistic market positions. The Commission on Free Competition of INDECOPI is the agency responsible for ensuring the fulfillment of the functions described above, within the framework of Legislative Decree No. 701, the law against monopolistic or controlling practices or practices which restrict free competition and a provision that prohibits and punishes the existence of situations of abuse of dominant market positions (arts. 4 and 5) as well as collusion and price fixing (art. 6).
For its part, the Tribunal for the Protection of Free Competition and Intellectual Property of INDECOPI, in compliance with the provisions of article 61 of Legislative Decree No. 776, the Law on Municipal Taxation, issued Directive No. 001-TDCPI-94 which defined the competence of the various functional organs of INDECOPI to investigate complaints of infractions of the provisions of the said legal norm, with the Commission on Free Competition being given responsibility for receiving and investigating complaints concerning the imposition of taxes and fees on the movement of goods, merchandise, products and animals within the national territory.
The work of the Commission on Free Competition is carried out, as mentioned before, through the follow-up of proceedings initiated either through complaints from third parties or through independent investigations by the Technical Secretariat of the Commission.
The number of proceedings instituted in 1995, from 3 February to 29 December, was eighty-seven (87). The number of cases on which rulings were given in 1995 totalled forty-four (44) and involved various economic sectors; 17 of these cases concerned violations of Legislative Decree No. 701, while 27 were concerned with violations of Legislative Decree No. 776. In seventy-eight per cent of the Commission's rulings, the complaint or investigation was found to be justified, while 9 per cent were declared to be groundless. The Commission on Free Competition also performs additional functions responding to verbal, telephone or written consultations from users or other Government agencies, with the aim of creating greater awareness of the norms and procedures that are within its purview.
Proceedings for infractions of Legislative Decree No. 701
The number of cases resolved in 1995 for infractions committed against Legislative Decree No. 701 totalled seventeen (17), seven for abuse of dominant market position, seven for practices that restricted competition and three mixed cases, that is to say, cases in which two elements that contravened the aforementioned decree were present. Of the seventeen cases, 53 per cent were resolved by a ruling that the complaint or independent investigation was well founded.
Three cases were instituted at the initiative of the Technical Secretariat of the Commission on Free Competition and one of them, which had been initiated at the request of a third party, was expanded by the Commission on Free Competition in exercise of the power given to it under article 14-b of the aforementioned legislative provision. The importance of the independent investigations initiated by the Commission on Free Competition does not lie in the number of such cases but in the scope of the adverse impact of the practice investigated. In this connection, the most important independent investigation for violation of Legislative Decree No. 701 during 1995 was the one instituted against bakery plants, the Association of Flour Millers of the National Society of Industries and eighteen milling companies, for fixing of the prices of wheaten flour. A fuller account of this case is given below.
The efficiency of the Commission on Free Competition in cases involving violations of Legislative Decree No. 701 has been reflected in the quality of rulings, which have become more technical in character, particularly the economic analyses of the markets concerned. The approximate average duration of each case was six months.
The amount of fines imposed by the Commission on Free Competition in 1995 was equivalent to 742 UIT. It should be noted that the value of the UIT used as the unit of measurement for liquidating debt is its value at the time that payment of the debt is made. The cases in which fines were imposed were the following:
- Ruling No. 015-95-INDECOPI/CLC handed down in the case brought by Chomin's against the Peruvian Association of Authors and Composers - APDAYC and the Peruvian Society of Authors and Composers - SPAC. The fine imposed on each of the parties against which the complaint was brought was equivalent to 10 UIT.
- Ruling No. 016-95-INDECOPI/CLC handed down in the case brought by the Mayor of Lambayeque against the San Pablo Transport Cooperative and other urban transport companies. A fine equivalent to 2 UIT was imposed on each of the six companies against which the complaint was brought.
- Ruling No. 037-95-INDECOPI/CLC handed down in the case brought by Chomin's against the Union of Recording Artists of Peru. A fine equivalent to 10 UIT was imposed on the party against which the complaint was brought.
- Ruling No. 041-95-INDECOPI/CLC handed down in the case brought by PETRAMAS against ESMLL and the Municipality of Lima Metropolitana. A joint fine equivalent to 50 UIT was imposed on the parties against which the complaint was brought.
- Ruling No. 047-95-INDECOPI/CLC handed down in the case brought by the Commission itself against the Association of Flour Millers of the National Society of Industries and eighteen milling companies. A fine equivalent to 50 UIT was imposed on 11 of the milling companies investigated.
- Ruling No. 057-95-INDECOPI/CLC handed down in the case brought by the Peruvian Association of Consumers and Users (APROC) against CORPAC and the Los Portales company. A fine equivalent to 50 UIT was imposed on each of the parties against which the complaint was brought.
Cases involving infractions of Legislative Decree No. 776
The total number of cases involving infractions of article 61 of Legislative Decree No. 776 in which decisions were handed down in 1995 was twenty-seven (27), twenty of them for the unlawful collection of licensing fees for announcements and advertisements, six on other different grounds and one mixed case involving two different violations. In eighty-five per cent of these cases, it was ruled that the complaint or independent investigation was justified.
Three cases were instituted by the Technical Secretariat on its own. As mentioned before, the importance of these investigations lies in the harmful impact of the practices investigated. In this regard, the most important case was the one brought against the District Municipality of Breña for the unlawful collection of licensing fees for announcements and advertisements, which affected without distinction a large number of companies in the district.
The number of complaints received and investigated for alleged infractions of article 61 of Legislative Decree No. 776 has enabled the Technical Secretariat to become more familiar with the subject, thereby reducing the length of time taken to process each case. The approximate time taken to process complaints concerning violations of article 61 of the aforementioned norm is two months. The municipalities with the largest number of complaints include that of Metropolitan Lima with 11 cases brought against it, that of Ate-Vitarte with two and that of Breña with two.
In this regard, the work of the Commission on Free Competition has been aimed at facilitating access by companies to the market and at eliminating unlawful surcharges imposed by municipalities and Government agencies which are the ones that are responsible for issuing most operating permits. For this reason, the Commission's rulings have had a mainly instructive and not repressive effect. Thus, monetary fines have not been imposed on Municipalities. Instead, they were given a copy of the dossier which had been submitted to the Public Service Ministry and to the Office of the Public Prosecutor of the Republic, so that these bodies could determine whether an investigation should be carried out for criminal or administrative liability.
Ruling appealed before the INDECOPI Tribunal
Thirteen (13) of the rulings handed down by the Commission on Free Competition during 1995 were appealed to the Tribunal for the Protection of Free Competition and Intellectual Property. The substance of all 13 rulings was upheld by the appeal Tribunal.
Servicios Prestados al Público
The services rendered to the public are designed mainly to provide information about the regulations governing the development of free competition or the levying of unauthorized fees or taxes by the municipalities. The information requested can be given over the phone, in person, or in writing, and it may explain the implications of Legislative Decree No. 701 and Legislative Decree No. 776, their spheres of application and the functions of the Technical Secretariat and the Committee on Free Competition, as well as the terms of reference in each specific case.
The Technical Secretariat's function to provide information on the scope of the regulations governing the development of free competition is very important, since they were issued only recently. In 1995, 110 written requests for information were filled. Most of them were from individuals, as may be seen in Table I.
Lima and Callao
L.D. No. 701
L.D. No. 776
1. Complaint brought by the Entertainment Company Chomin's S.R. Ltd. against the Peruvian Association of Authors and Composers - APDAYC and the Peruvian Society of Authors and Composers - SPAC, for abuse of dominant market position and practices restrictive of free competition.
The parties against which the complaint was brought are collective management companies which market repertories of the compositions of the various authors which they represent. The complainant had contracted the singer Plácido Domingo to give a performance in Peru. Among the songs which the singer is alleged to have interpreted was a composition by Chabuca Granda. Before he could interpret it, he was required to pay a fee to the parties against whom the complaint was brought. The latter had fixed a common fee to be paid by way of royalty.
The parties object of the complaint enjoy a privileged position in the market because of the large number of repertories which they represent. Abuse of their dominant market position did take place because the fees collected for the performance of a composition were not all the same but varied depending on the fee charged by the artiste performing the composition. In other words, it depended on the fame of the performer.
The parties against whom the complaint was brought also required that a fee be paid for the entire repertory of the works of an author, without any regard for the particular compositions which were performed. Individual selections were not allowed.
By its Ruling No. 015-95-INDECOPI/CLC, the Commission on Free Competition considered that the parties object of the complaint had unlawfully fixed prices and abused their dominant market position by imposing discriminatory conditions on artistes performing selections from the repertories and requiring them to pay for the entire repertory that was subject to protection.
Legal Findings of the Commission
2. Complaint brought by the Small Company of Workers in Solid Materials S.C.R.L. - PETRAMAS - against the Municipality of Metropolitan Lima and the Municipal Cleaning Services of Lima - ESMIL, for practices that restrict free competition.
- That both national and international legislation governing the payment of royalties recognize that in each country there may be one or more collective management companies, which may act as a union with responsibility for safeguarding the ownership rights of the authors and composers who are members of the union, as well as those who belong to other collectively managed companies with which they have signed reciprocal representation agreements.
- That, in Peru, the legislation governing royalties provides that no payment of any fee by way of royalties is required for the performance in public of any work which is in the public domain, whereas before any work that is privately owned could be performed, prior authorization must be obtained from the collective management company concerned and the payment provided for in the company's schedule of fees must be verified.
- That there are no valid grounds for removing from the Commission on Free Competition's scope of action the activities of collective management companies, since the latter are able to fix prices among themselves.
The Municipality of Lima and ESMLL had agreed that this company would have the exclusive right to provide solid waste storage services in their sanitized storage facilities. All companies providing solid waste removal services in the different districts of Lima were obliged to deposit such wastes in the sanitary facilities of ESMLL. In order to maintain this privilege, the Municipality of Lima instituted a tax for the service of ESMLL so that anyone wishing to dispose of solid wastes in a sanitary facility owned by a third party was required to pay the price which the owner of that other facility charged in addition to a tax for the ESMLL service which he did not use. Because of this double cost, clients preferred to use only the ESMLL facility, even though another company might offer a lower price or better sanitary conditions.
PETRAMAS is the owner of a sanitary facility which fulfills all the requirements necessary for the storage of solid wastes. However, the exclusivity which ESMLL enjoyed prevented potential clients from using the services of PETRAMAS.
The Commission on Free Competition, in its Ruling No. 041 - 95 -INDECOPI/CLC, considered that the parties against which the complaints had been lodged had engaged in a practice which restricted free competition and which was tantamount to the creation of a monopoly protected by the levying of a tax. A joint fine of 50 UIT was imposed.
Legal findings of the Commission:
- That, given the fact that the infractions were committed by institutions which wield substantial economic power and the fact that the attempt to maintain a monopoly through a municipal ordinance when the Constitution clearly prohibits the establishment of legal monopolies and, finally, the fact that the general economic interest affected involves all municipal districts of the Province of Lima, and thus its entire population, this Commission rules that, having regard to the findings contained in the important Ruling No. 013-95-ITINCI, the violation committed is extremely serious.
3. Independent investigation launched by the Technical Secretariat of the Commission on Free Competition against the Association of Bakery Plants, the Association of Flour Millers of the National Society of Industries and 18 milling companies, for fixing the price of wheaten flour.
In July 1995, Mr. Gilberto Hinojosa, the representative of the Association of Bakery Plants, issued a public statement through the press in which he suggested that the price of bread should be increased. The Technical Secretariat of the Commission on Free Competition launched an independent investigation of the bases for the statement. After a preliminary review, the Commission accepted the promise made by Mr. Hinojosa to refrain from making any further statements on the price of bread, since such statements would constitute a recommendation which was prohibited under article 6 of Legislative Decree No. 701. The Commission thereupon brought its investigation of the bakery plants to a close.
Subsequently, following an extensive and detailed investigation which included visits to the milling companies, interviews with management, requests for explanatory documentation, analyses of the flour market and of the pricing policies of the companies, Ruling No. 047-95-INDECOPI/CLC was handed down. In this Ruling, it was held that, following a "price war", eleven of the companies investigated had reached an informal agreement which was later put into effect to set the price of wheaten flour at a fixed level which was different from the level that would be dictated by a situation of effective competition. Each of these companies was fined an amount equivalent to 50 UIT.
Legal findings of the Commission:
- That, taken together, the existence of parallel prices and the circumstantial evidence disclosed may constitute proof that the behavior of the market was contrary to the laws of supply and demand and that this constitutes the theoretical framework for the analysis conducted in pursuit of this investigation.
- That, as indicated in the doctrine and foreign jurisprudence on the matter, in investigations into price-fixing practices, proof is mainly circumstantial, that is, based on a set of elements which, taken together, compared to each other and reviewed as a whole lead to the conclusion that the infraction was committed. Such means of proof is provided for in article 276 of C.P.C.
- That, taking into consideration the totality of the proof found and the indications of the existence of price fixing which can be inferred from the evidence, and the fact that this is also consistent with the economic analysis, it may be concluded that a period existed in which prices were set by agreement.
4. A complaint lodged by the Peruvian Association of Consumers and Users - ASPEC against the Los Portales S.A. company and the Peruvian Corporation of Airports and Commercial Aviation S.A. - CORPAC for abuse of their dominant market position in the management of the parking lot at the Jorge Chávez International Airport.
In July 1993, CORPAC granted the concession for the management of the aforementioned parking lot to the Los Portales S.A. company. The concession included de facto the entrance to the airport for vehicular traffic. ASPEC brought a complaint against CORPAC and the company Los Portales S.A. for forcing the public to pay for parking privileges for no other reason than for entering the airport area with their vehicles and also for requiring users to pay a minimum parking fee of two hours or a fraction thereof.
The Commission on Free Competition, in its Ruling No. 057-95-INDECOPI/CLC, held that a distinction must be drawn between the concession for the parking lot and the vehicular entrance to the airport, since the latter is a free access public road which should be subject to no restriction other than for purposes of security checks. It was held that it was not permissible to condition the entrance to the airport on the use of the parking lot and that, in addition, the commonly recognized commercial practice was violated when a minimum parking fee was charged for the period of the first two hours or part thereof. A fine equivalent to 50 UIT was imposed on each of the parties against which the complaint was brought, in light of the damage caused to users of the airport.
Legal findings of the Commission:
- First Ruling which declares that abuse of dominant market position took place in the form of the attachment of a condition. The Commission also declared that conditioning the entrance to the airport on the use of the parking lot was a form of abuse of a dominant market position.
- That, the access road to the airport is a public thoroughfare and that, consequently, transit should be free and should not be conditional on the payment of any sum, as occurred with users who entered the area as pedestrians.
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