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
Venezuela: Report on the Application of Internal Laws and
Standards of Competition Policy (1993-1996)
Introduction
The present report on the Application of Internal Laws and Standards of Competition Policy in the Countries in the Hemisphere was prepared as indicated in the Minutes of Third Meeting of the Working Group on Competition Policy. This section of the report looks at the case of the Venezuelan experience. The report was drawn up, using the OECD methodology which was approved by the Working Group and corresponds to the plan outlined in Annex 3 to the aforesaid Minutes.
The main body of this report describes the development of cases that have been selected as relevant examples of restrictive practices and mergers. It also examines the role played by competition authorities in formulating and implementing public policy in other areas, and in another section discusses international activities and other material, information, and initiatives used to enforce competition policy. The statistical tables appear in the annexes to this report.
I. Recent Developments and Changes in Law or Policies
The present regulatory framework governing competition is contained in the Inventory of Laws and Standards relating to Competitive Practices in the Western Hemisphere prepared by the OAS.
II. Enforcement of Laws and Policies
A. Anticompetitive practices
1. Summary
See annex attached to this report as Table 1.
2. Significant Cases
The most representatives cases of each of the practices identified in the Law to Promote and Protect Free Competition were selected for this section of the report. Presented below are the areas in which these cases occurred and the data on which the analysis was based in determining that the law was violated.
Decision SPPLC/0024-94. April 25, 1994. Case: Collective recommendations by an association of supermarkets on retail price fixing. Investigation into vertical agreements on the fixing of prices for resale. Parties: Asociacion de Supermercados y Afines del Estado Aragua (ASEA)
Decision: It was found that the notices and communications from the Association were practices prohibited pursuant to Articles 9 and 10, subparagraph 1, of the Law. The vertical agreements between the members of the association and certain manufacturers of consumer goods on maintaining resale prices were efficient from the standpoint that the benefits were passed on to consumers.
Penalty: The Superintendency imposed a penalty on Asociacion de Supermercados del Estado Agagua on the basis of subparagraph 2 of article 38. The association was ordered to place four announcements in the press addressed to the supermarket members of the association and the general public, worded as follows: "By order of the Superintendency for the Promotion and Protection of Free Competition, Asociacion de Supermercados del Estado Aragua (ASEA) hereby advises its members and the general public that:
(1) All collective decisions made by any group or association of companies, including ASEA, for the purpose of influencing prices and other conditions of marketing or service are considered to be practices prohibited pursuant to subparagraph 1, article 10, of the Law to Promote and Protect Free Competition.
(2) Accordingly, any instruction or decision with respect to prices that this association of companies may have given or taken was unfounded and is therefore null and void.
(3) This association urges its members to observe and comply fully with the standards of competition, specifically as it concerns the setting of prices."
The Superintendent initiated an official investigation of Asociacion de Supermercados del Estado Aragua (ASEA), on grounds that it had recommended collectively that its members set prices of consumer goods. It was found that such conduct violated articles 9 and 10 of the Law, which prohibit agreements within an association to restrict competition between its members, in this case, price competition. The penalty imposed in this case was intended to be instructive and to promote competition insofar as it consisted of a requirement to publish in the press an announcement in which the association informed the general public of the decision taken by the Superintendency. Investigations were also carried out of vertical agreements between the aforesaid association and Cargill de Venezuela (the producer of Milani pastas) and Disvergramca (the producer of Ronco pastas) on the setting of prices of goods for resale. Here, it was found that the agreements favored the market since they produced benefits for consumers, who were able to obtain better prices in supermarkets that were members of ASEA as a result of the discounts on volume made by these companies.
Decision SPPLC/0027-94. May 30, 1994. Case: Complaint of abuse of dominant market position on the part of Bolsa de Valores de Caracas by charging minimum fees to its members. Parties: C.A. Sofimara Mercado de Capitales Casa de Bolsa (SOFIMERCA) and Bolsa de Valores de Caracas, C.A.
Decision: Bolsa de Valores was found to have a dominant market position. However, on the basis of the economic analysis of the practice referred to in the complaint, the Superintendency concluded that the Minimum Fee established in the By Laws of the Bolsa de Valores de Caracas is not a mechanism that may in itself be considered discriminatory and that therefore the imposition of the fee does not constitute conduct prohibited by article 13, subparagraph 4, of the Law to Promote and Protect Free Competition. Accordingly, article 116 of the By Laws of the Bolsa de Valores de Caracas, C.A. setting the Minimum Fee, is not restrictive to free competition.
No penalty imposed.
This case, the first of its kind involving dominant market position, was investigated at the request of Sofimerca which claimed that the minimum maintenance fee being charged to shareholders by Bolsa de Valores de Caracas constituted an abuse of dominant position.
The Superintendency established the economic criteria that define dominant position, the basic premise for determining the possible existence of an abuse. In this specific case, Bolsa de Valores de Caracas was found to occupy a dominant position because it was not possible to set up another stock exchange in Caracas and because the Maracaibo stock exchange is not a replacement alternative for brokers in Caracas. However, the minimum fee being charged to all brokers equally, regardless of the volume of transactions, does not constitute discriminatory treatment for similar services and is therefore not a practice that impedes competition.
Decision SPPLC/0030-94. July 8, 1994. Case: Agreement between competitors to fix passenger airfares on routes between Caracas and two destinations in the Caribbean. Parties: Linea Aeropostal Venezolana, C.A. (AEROPOSTAL) and Venezolana Internacional de Aviacion, S.A. (VIASA)
Decision: It was found that agreements on price fixing and production limits existed as defined in subparagraphs 1 and 2 of article 10 of the Law.
Penalty: Pursuant to subparagraph 4 of paragraph one of article 38 and in accordance with articles 49 and 50 of the Law to Promote and Protect Free Competition, Linea Aeropostal Venezolana, C.A. and Venezolana Internacional de Aviacion, S.A. were each fined the equivalent of 0.15% of the amount of their respective sales for fiscal year 1993.
Pursuant to subparagraph 2 of paragraph one of article 38 of the Law to Promote and Protect Free Competition, AEROPOSTAL and VIASA were ordered to publish two signed announcements in the press addressed to the general public, worded as follows: "By order of the Superintendency for the Promotion and Protection of Free Competition, the general public is hereby informed that:
(1) All agreements entered into between competing companies in order to fix directly or indirectly prices and other marketing conditions and to limit the production, distribution, and technical and technological development of investment are considered to be practices prohibited pursuant to article 10, subparagraphs 1 and 2, of the Law to Promote and Protect Free Competition.
(2) Accordingly, any agreement that this company may have entered into to fix prices and limit production is not valid and is therefore null and void."
The Superintendency assessed penalties on Viasa and Aeropostal for agreeing to fix prices on their flights to Santo Domingo and Havana and for further agreeing to limit the number of flights. On the one hand, it was confirmed in the course of the investigation that in order to comply with its part of the agreement, Aeropostal had to increase its fares on both routes to bring them into line with those charged by Viasa which significantly harmed the interests of consumers. On the other hand, the reduction in service resulted in a decrease in the number of flights to the two Caribbean cities. Both companies engaged in practices at variance with free competition that were prohibited pursuant to subparagraphs 1 and 2 of article 10 of the Law.
Resolution No. SPPLC/0003-95 of January 9, 1995. Case: Unfair competition in the Venezuelan market for toners, type NP 1010/1020, NP G-1 and NP G-5 for photocopiers of the Canon type. Parties: Datacopia C/A/ and El Mundo del Toner, C.A.
Decision: Article 17 (3). It was determined that the market showed no conclusive evidence of any impact that would suggest product simulation, of the kind that would fall within the prohibitions established in national competition legislation. No sanction.
In January 1995, the Superintendency issued its first Decision in which it addressed the topic of unfair competition under the terms of the Pro-Competition Law. The firm Datacopia, a distributor of Canon-brand toner for photocopiers, brought a complaint against the firm El Mundo del Toner, claiming that it was distributing a simulated toner that would tend to confuse the consumer, since it was impossible to distinguish it from the original Canon product, to the detriment of the reputation of the original product and of Datacopia as its distributor. The Superintendency confirmed that El Mundo del Toner does indeed sell a product that is very similar to the original, but determined that, since the specific conditions of the market for toners in Venezuela would allow the buyer to distinguish between original and generic toners, and that El Mundo del Toner did not have sufficient market power to displace its competitor Datacopia, the situation did not meet the legal requirements for enforcement of the prohibition against unfair competition on the grounds of product falsification, as contained in Article 17 (3) of the Law. That is to say, there was no proof of a limitation on effective competition in the market such as would cause the activity in question to fall within the definition of unfair competition, as prohibited under the terms of national competition rules.
Resolution No. SPPLC/0010-95 of February 15, 1995. Case: Boycott. Parties: Colegio de Farmaceuticos del Estado Carabobo and Farmacia Municipal.
Decision: Articles 7 and 9. It was found that the Colegio de Farmaceuticos in the state of Carabobo was conducting a boycott against the Farmacia Municipal, and penalties were decided accordingly. Sanction: Article 38 (1 and 2).
On its own initiative, the Superintendency launched an investigation of the Colegio de Farmaceuticos of the State of Carabobo, on the grounds that it was obliging drug companies that supplied pharmacies in that State not to supply one pharmacy in particular (Farmacia Municipal), because that pharmacy was offering highly attractive discounts on the retail prices of drugs. This constituted a boycott prohibited by Article 7 of the Pro-Competition Law. Upon proving that the allegations were true, the Superintendency, in its final decision, ordered the College to publish a notice in the national press, and to hold a special meeting to inform the public in general, and its own members, of the decision.
It should be noted that the Colegio entered an appeal for annulment with an action for cautionary relief. The latter was rejected, but the appeal is still before the Court.
Resolution No. SPPLC/0016-95 of April 20, 1995. Case: Abuse of a position of market dominance in Venezuela in Schindler-brand parts and spares for which there is no ready substitute. Parties: Ascensores Schindler de Venezuela C.A. and Servicios Tecnicos Schindler C.A.
Decision: Article 13 (3 and 5). The dominant position of Ascensores Schindler was confirmed, but no evidence was found in the market to indicate abuse of that position.
The firm Servicios Tecnicos Schindler C.A. complained to the Superintendency that Ascensores Schindler C.A. was abusing its dominant market position. According to the complainant, Ascensores Schindler C.A. refuses to sell spare parts to other firms engaged in the elevator maintenance business. Similarly, it was accused of limiting its sales of elevators exclusively to customers that were willing to contract for its own maintenance services.
After due investigation, the Superintendency determined that Ascensores Schindler C.A. was effectively in a dominant market position, since the main parts for its elevators cannot be substituted, so that consumers of its product must buy the necessary parts from that same company. Nevertheless, no evidence was found to prove that Ascensores Schindler C.A. was abusing its dominant position, as alleged by the complainant, since, on the basis of the documentation submitted, there was no evidence that it was refusing to sell parts to customers that had not bought their elevators from the company. Similarly, it was determined that Ascensores Schindler C.A. had just cause to refuse to sell parts to Servicios Tecnicos Schindler, because it was engaged in a lawsuit against that firm for abuse of its trademark.
It should be noted that in this case the Superintendency imposed a fine on Servicios Tecnicos Schindler C.A. for having refused without justification to provide the information requested, pursuant to Articles 31 and 52 of the Pro-Competition Law.
Resolution No. SPPLC/0025-95 of May 26, 1995. Case: Collusion to fix market conditions for the sale of pharmaceuticals. Parties: various pharmaceutical laboratories.
Decision: Article 10 (1). It was found that the laboratories were colluding to fix marketing conditions for sales to customers. Sanction: Articles 38 (para 1) (1, 2, 4); paras 49 and 50.
The Superintendency launched an investigation on its own initiative against a group of laboratories for colluding to fix marketing conditions, with respect to payment and financing terms, over the period June to December 1994, in violation of Article 10 of the Pro-Competition Law. It was found that all the companies investigated had been sending their customers letters on the same dates, in which they fixed the same discounts and financing terms. In addition, invoices for the period were examined, and the discounts offered were found to be very similar. On these grounds, the Superintendency imposed fines on the companies and ordered them to publish a notice in the press.
The decision was highly controversial, since medicines are subject to price controls, which the companies under investigation considered as a justification for acting in concert. They maintained that companies whose products are subject to price controls have little competitive room for manoeuver, and the States, through its policy of control, is in effect pushing them towards some form of cartelization. Nevertheless, these arguments cannot in themselves provide justification for drug marketing companies to violate the Pro-Competition Law, as they were doing.
It should be noted that the First Court of Judicial Review declared admissible a request for protection submitted by a group of the companies concerned, and exempted them from publication of a notice in the press. The substance of the decision however has not so far been revoked by the First Court.
Decision SPPLC/0017-96. July 18, 1995. Case: Agreement between the four largest newspapers to fix the rates charged for advertizing by cinemas. Parties: C.A. EL Mundo, C.A. Ultimas Noticias, Editorial Santiago de Leon, C.A. (2001), Meridiano, C.A., El Universal, C.A. and C.A. Editora El Nacional.
Decision: Article 10, subparagraph 1. It was found that an agreement had been made to fix the rates for advertizing to be charged to cinemas.
Penalty: Article 38, subparagraph 4, articles 49 and 50. The Superintendency ordered El Universal, C.A., C.A. Ultimas Noticias, C.A. EL Mundo, C.A. Editora El Nacional, Meridiano, C.A., and Editorial Santiago de Leon, C.A. to pay a fine.
An official investigation was opened on April 23, 1996, by the Superintendency against C.A. EL Mundo, C.A. Ultimas Noticias, Editorial Santiago de Leon, C.A. (2001), Meridiano, C.A., El Universal, C.A. and C.A. Editora El Nacional, and found that an agreement to fix rates charged to cinemas for advertizing existed between competitors. The investigation confirmed that the pattern of the conduct classified as horizontal agreements which prevents competitors in the same market from fixing prices in accordance with subparagraph 1 of article 10 of the Law to Promote and Protect Free Competition.
The evaluation of the impact of this practice demonstrated that it harmed the movie houses since it reduced their alternatives to place advertizing. Accordingly, a fine was assessed and the newspapers were ordered to discontinue the practice immediately. This case was an extremely important one for the office since it dealt with the mass media whose contribution to disseminating information and opinions is fundamental to the creation of a culture of competition.
Decision SPPLC/0034-96. Date: December 10, 1996. Case: Investigation into a complaint against Coca Cola Refrescos and 19 bottling companies for alleged violation of articles 5, 6, 7, 10 (subparagraphs 2 and 4), 11, 13 (subparagraphs 2 and 4), and 17 of the Law. Operation of economic concentration at the level of bottling and distribution resources in six relevant full calory soft drink markets in Venezuela. Economic concentration through soft drink brand name flavors in the relevant markets analyzed. Parties: Coca Cola Refrescos, C.A., Embotelladora El Litoral S.A., Embotelladora Caracas C.A., Hit de Venezuela S.A., C.A. Embotelladora Antimano, Embotelladora Carabobo S.A., Embotelladora Aragua S.A., Embotelladora Guayana S.A., Embotelladora Maturin C.A. Embotelladora Orinoco S.A., Gaseosos Orientales S.A. Embotelladora Guarico S.A., Embotelladora Caroni S.A., Embotelladora Lara C.A., Embotelladora La Perla S.A. Embotelladora Nacional S.A., Embotelladora Coro S.A., Embotelladora Barinas S.A., Embotelladora Tachira, S.A., and Embotelladora Valera S.A.
Decision: 1. The facts described in the complaint do not constitute a violation of any kind of articles 5, 6, 7, 10 (subparagraphs 2 and 4), 13 (subparagraphs 2 and 4), and 17 of the Procompetition Law; 2. the operation of economic concentration whereby the soft drink bottling and distribution fixed assets owned by Coca Cola Refrescos, C.A. and the bottling companies has a restrictive effect on free competition by strengthening a dominant position in six relevant full calory soft drink markets in Venezuela; 3. the concentration of brand names flavors that occurred is restrictive to free competition; 4. the obligations established in the exclusive distribution agreements entered into by Coca Cola Refrescos, C.A., Coca Cola and Hit de Venezuela, C.A., Coca Cola Holding, C.A, The Coca Cola Company, the bottling companies, and any other juridical person should be submitted in advance to the Superintendency for its authorization.
Penalty: Coca Cola Refrescos C.A. and each of the bottling companies received fines commensurate with their respective share in the relevant markets analyzed.
Coca Cola Refrescos, C.A. and its affiliated companies were ordered to enter into a legal agreement separating control of the bottling and distribution assets, which had been transferred to a trust when the legal instrument behind this procedure took effect.
The Coca Cola Company was ordered to choose and keep one brand name for each of its "naranja", "cola roja", and "uva" flavors as well as for "lima-limon", and establish for the other brand names a trust, whereby these brand names would be made available to the market on nondiscriminatory terms and conditions.
The new entity established by means of the operation was ordered to submit to the Superintendency for its authorization the existing exclusive distribution agreements.
On August 19, 1996, Pepsicola Panamericana filed a complaint with the Superintendency requesting an investigation of the Hit de Venezuela bottling companies for alleged violation of articles 5, 6, 7, 10 (subparagraphs 2 and 4), 11, 13 (subparagraphs 2 and 4), and 17 of the Procompetition Law. According to representatives of Pepsicola Panamericana, the Hit de Venezuela bottling companies engaged in practices that makes it difficult for Pepsicola to remain in the soft drink market, that the agreement between the Hit de Venezuela bottling companies and Coca Cola would prevent Pepsi from remaining in the market, and that this constituted a boycott. Pepsi further charged that a "conspiracy" existed between the bottling companies and Coca Cola violating article 10 of the Procompetition Law. They also maintained that economic concentration existed in violation of the Procompetition Law and abuse of dominant position. It was further indicated that by suddenly terminating the contract entered into with the Pepsicola company, the bottling companies had created a situation of unfair competition, that is prohibited by the aforesaid Law.
On August 22, 1996, the Superintendency ordered an investigation into the activity of the bottling companies and issued a preventive measures, whereby the bottling companies were instructed to refrain from taking an inventory of bottles and cases or "gaveras" of Pepsicola soft drinks at all points of sale in the country. Furthermore, the Superintendency officially granted the preventive measure intended to suspend the bidding on the inventory of Pepsicola products.
On September 17, 1996, Pepsicola Panamericana requested an investigation of the following companies: the bottling companies, Coca Cola Company, Coca Cola Refrescos, C.A., Coca Cola Refrescos Holding, C.A., DDA, Industrial, C.A., and the Coca Cola and Hit de Venezuela, C.A. bottling companies for practices that allegedly violated articles 5, 6, 7, 10 (subparagraphs 2), 11, 13, and 17 of the Procompetition Law, and on September 27, 1996, the Superintendency ordered an investigation. On October 9, 1996, the Court hearing the case ordered that the two procedures be combined.
After the hearing, the Superintendency found that: 1. the facts described in the complaint do not constitute a violation of any kind of articles 5, 6, 7, 10 (subparagraphs 2 and 4), 13 (subparagraphs 2 and 4), and 17 of the Procompetition Law; 2. the operation of economic concentration whereby the soft drink bottling and distribution fixed assets owned by Coca Cola Refrescos, C.A. and the bottling companies has a restrictive effect on free competition by strengthening a dominant position in six relevant full calory soft drink markets in Venezuela; 3. the concentration of brand names flavors that occurred is restrictive to free competition; 4. the obligations established in the exclusive distribution agreement entered into by Coca Cola Refrescos, C.A., Coca Cola and Hit de Venezuela, C.A., Coca Cola Holding, C.A, The Coca Cola Company, the bottling companies, and any other juridical person that may or could be engaged in bottling and distribution of soft drinks in Venezuela, with any distributor or point of sale, should be submitted in advance to the Superintendency for its authorization.
The Superintendency subsequently declared: 1. - the operation between Coca Cola Refrescos, C.A. and the bottling companies combined with the conditions established in the trust agreement signed on August 16, 1996, would produce in the market an economic concentration restrictive to free competition, that was prohibited under article 11 of the Law. Consequently, the Superintendency ordered the bottling companies, Coca Cola Refrescos, C.A., and their affiliated companies to enter into a new agreement or to modify the existing one to comply with certain basic requirements that guarantee the intention to give up the plants initially offered in the trust as well as to submit to the Superintendency for its consideration and authorization the instrument or agreement signed in accordance with the obligation to deconcentrate imposed in the present decision. 2. - The Coca Cola Company was ordered to choose and reserve for itself one brand name for each category of flavor and to place the remaining brand names in trust, so that they are available to economic agents in the market. 3. - It was requested that all existing exclusive distribution agreements and any contracts that may be entered into in the future between Coca Cola, Hit de Venezuela, and Pepsicola Panamericana, and the companies named in these proceedings and the concessionaires and points of sale, or any other participant in the soft drink distribution chain be submitted to the Superintendency for its review and prior authorization. 4. - The petition filed by Pepsicola Panamericana to declare illegal the agreement or contract of association between the bottling companies and The Coca Cola Company, as well as all acts and legal instruments that formed part of the agreement, was rejected. 5. - The petition filed by Pepsicola Panamericana concerning the declaration to dissolve the association of Coca Cola and Hit de Venezuela and the request to order the full deconcentration for the purpose of restoring the situation that existed prior to August 16, 1996, was rejected.
Once the operation of economic concentration between Coca Cola Refrescos, C.A. and the bottling companies was qualified as restrictive to competition, the Superintendency fined each of the companies mentioned in an amount commensurate with their share of the relevant market analyzed.
Continue on to Section B: Mergers and Concentrations
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