Federico Volujewicz, Director of competition advocacy
For competition in Argentina, 2018 will be remembered as a key milestone year. Since the beginning of the current administration, the government included competition as one of the eight most important pillars of the National Productive Plan, and as one of the 100 political priorities for the upcoming years. The objective was clear: to establish competition as a public policy priority and as the primary way of interaction between companies and consumers. To achieve this goal, the Executive appointed in 2016 a new team to manage Argentina's antitrust agency, the National Commission for the Defence of Competition (CNDC).
Achieving best international practices in competition matters, proposing changes in the legal framework and promoting a competition culture were the main challenges posed by the new Argentine antitrust authorities.
In May 2018, the Argentine Congress passed the new Competition Act No. 27,442 (the LDC), which marks a before and after in antitrust practice in Argentina.
This article outlines the recent changes introduced by the new LDC, and a review of the most relevant decisions issued since February 2016 to the present.
Changes in the regulatory framework
Updating the legal framework was one of the current antitrust authorities' main objectives. During the second half of 2016, the CNDC with legislators of the official party jointly drafted a new competition bill (the Draft Bill), following Argentine experience in competition as well as antitrust international trends and best practices.
In September 2016, the Draft Bill was submitted to the Congress. In November 2017, it obtained preliminary approval from the Chamber of Deputies, with 140 votes in favour, 72 against and no abstentions. In April 2018, the Senate approved the bill, with 49 votes in favour and eight against. However, as the Senate introduced certain changes, the Bill returned to the Chamber of Deputies and was passed on 9 May 2018.
The new LDC was enacted on 15 May 2018 and entered into force on 24 May 2018, the same day the Executive issued its Regulatory Decree No. 480/2018 (the Decree).
Main amendments introduced by Act 27,442
The main amendments introduced by the new Competition Law are the following.
• The creation of an independent competition agency, the National Competition Authority (the ANC), which will replace the current enforcement authority. The ANC will have sufficient powers to adopt its own decisions, control its own budget, and function independently. It shall be composed of:
• a Competition Tribunal, in charge of final decisions;
• a secretary of investigations of anticompetitive conducts, in charge of the prosecutorial phase of conduct cases; and
• a secretary of economic concentrations, in charge of the prosecutorial phase of merger control proceedings.
The competition tribunal shall be formed by a president and four commissioners, who will be named by the Executive, from a shortlist that shall be the result of a public contest and which shall obtain the approval of the Senate.
• The increase of antitrust fines and the implementation of new guidelines to calculate them, in order to increase deterrence. The LDC establishes that fines can be:
• up to 30 per cent of the relevant market turnover, multiplied by the number of years of the practice, which may not exceed 30 per cent of the consolidated national turnover;
• up to double the illicit gains; or
• up to 200 million adjustable units (approximately US$150 million)
Besides fines, the LDC also includes other sanctions such us divestures, cease orders, conditions, disqualification to exercise trade activities from one to 10 years, and the exclusion from the Registry of Government Suppliers.
• The creation of a leniency programme for cartel cases in order to facilitate proper detection, prosecution and sanction of cartels. The programme offers:
• full immunity to the first firm that reveals having participated in a cartel (with the obligation to cooperate by providing determining proof of the existence of the cartel);
• a fine reduction of between 20 per cent and 50 per cent for the second that does so; and
• a supplementary benefit for those firms who not having obtained full immunity in a leniency procedure, disclose or recognise a cartel in a different market.
This important change was complemented with the presumption of illegality of hardcore cartels.
• The implementation of a premerger review system, and the creation of a fast-track procedure for those M&A operations that fall into a specific scope of low potential impact on competition, in order to speed up the process and devoting more resources to more complex cases. The new system will enter into force one year after the constitution of the new ANC.
• This system includes updating of the thresholds for M&A notification.
• The creation of a specialised Court of Appeals to review decisions of the antitrust authority to deal with competition matters, in order to improve the judicial review of the competition authority decisions. This specialised court shall act under the scope of the Federal Courts of Appeals in Civil and Commercial Matters.
The transition: from the CNDC to the creation of the National Competition Authority
Article 80 of the LDC together with articles 5 and 6 of the Decree, set forth that until the Competition Tribunal is fully constituted and set up, the Secretary of Commerce shall act as the enforcement authority of Act 27,442. At the same time, until then, the CNDC will continue acting as a technical body under the purview of the Secretary of Commerce.
Taking into account the procedures and steps established in the LDC for the constitution of the new authority, it is estimated that the new authority will be constituted and will take up its duties during 2019.
Regarding merger and acquisitions, article 84 of the LDC stipulates that the ex-ante merger control regime will enter into force after one year subsequent to the constitution and set up of the ANC; until then, economic concentrations that exceed the new thresholds stipulated by law, shall be notified before the CNDC within one week of the conclusion of the merger agreement, the publication of a purchase or an exchange offer or the acquisition of a controlling interest in a company.
Relevant decisions issued during 2016–2018
Investigation against Prisma Medios de Pago for abuse of dominant position and its shareholders for collusion
In March 2016, the CNDC initiated a study of the market for credit and debit cards and electronic means of payment. As a result, in August 2016, the CNDC opened an ex officio investigation against Prisma Medios de Pago (PRISMA) and its shareholders. PRISMA is the sole acquirer and processor of Visa cards in Argentina, which moreover participates in all related markets through associated companies. PRISMA is owned by 14 Argentine banks (including nine of the 10 biggest banks in terms of volume of deposits). PRISMA is also the owner of:
• Lapos, which offers terminals for processing in-person payments by card;
• SPS Decidir, which offers gateway services for processing online payments; and
• Todo Pago, which offers an interface for online payments.
In Argentina, Visa is the leading name in the credit cards market: in 2015, 58 per cent of credit card transactions were carried out using Visa cards.
PRISMA was investigated for allegedly abusing its dominant position by giving discriminatory treatment, providing low quality service and refusing to provide processing services to its competitors in the market for provision of interfaces for online transactions. PRISMA's shareholders, on the other hand, were investigated for allegedly colluding to fix interest rates and commercial conditions regarding the interest-free instalment financing mechanism.
In March 2017, PRISMA submitted a settlement proposal consisting of a structural remedy (divestiture of PRISMA), on the one hand, and a behavioural remedy related to the conditions for providing its processing services, which was approved on 26 September 2017.
Collusion of hospitals in the province of Salta
A total fine of 22.7 million Argentine pesos was imposed on the main hospital providers in the cities of Salta, Tartagal and Metán in the province of Salta, and on the Association of Private Clinics and Sanatoriums of the Province of Salta (ACLISASA), due to a collusion agreement aimed at setting prices in a concerted manner during the period between December 2011 and December 2013.
The case was initiated in June 2012 following a complaint made by the Secretary of Consumer Protection of the Ministry of Government of the province of Salta that originated in a presentation made by a health insurance company.
In addition to the application of the aforementioned fines, an ex officio investigation was initiated against the Argentine Confederation of Clinics, Sanatoriums and Hospitals (CONFECLISA) for elaborating and disseminating the referential values for the clinics benefits to its members.
Collusion of pharmacies through associations of pharmacists in the province of Tucumán
A total fine of 6.4 million Argentine pesos was imposed on the Pharmaceutical Association of Tucumán, the Association of Pharmacies of Tucumán and the Circle of Pharmacies of the South, for an anticompetitive practice that involved a price fixing agreement, the regulation of investment in advertising and the setting of limits to the operating hours of pharmacies in the province of Tucumán. The sanction seeks to prevent cartel behaviour among pharmacies from resulting in higher prices for medicines or poor conditions of provision of services for consumers.
In addition to the fines imposed, the Pharmaceutical Association of Tucumán, the Pharmacy Association of Tucumán and the Circle of Pharmacies of the South were ordered to refrain from prohibiting competition among their associates, to allow discounts on medicines and perfumery products, to allow advertising that fits within the current legal framework and not to interfere in the setting of working hours of their associated pharmacies. In this sense, the entities were ordered to modify or eliminate the articles of their internal norms and the code of ethics that could impose barriers or hinder competition among pharmacies.
Abuse of dominant position by the Argentine Society of Authors and Music Composers
In July 2018, the Secretary of Commerce, following CNDC's opinion, imposed a fine of 42.7 million Argentine pesos on the Argentine Society of Authors and Music Composers (SADAIC), a civil association that collects and distributes musicians' copyrights and royalties. The complaint was filed by the Gastronomic Hotel Business Federation of the Argentine Republic (FEHGRA), an entity that aims at protecting the interests of the hotel, gastronomic and touristic activities.
FEHGRA alleged that the duties required by SADAIC for the reproduction of music works on their commercial establishments were unilaterally imposed in conditions that would not have existed in a competitive market, as they were calculated without taking into account the hotel's occupancy.
SADAIC holds a dominant position on the granting of authorizations for the public execution of musical and audio-visual works in the hotels and accommodation premises market, as it holds the legal monopoly on the management of authors and composers' intellectual property rights. The relevant market is not subject to rate regulation, and SADAIC has extensive powers to set applicable rates.
During the investigation, the CNDC found that SADAIC had set excessively high abusive rates, compared with similar entities located in other countries in the region. It also found that it had made discriminatory discounts in favour of certain accommodations who had previously adhered to the agreements between SADAIC and certain hotel chambers and associations, charging them 75 per cent less than general rates, taking into account seasonality and occupancy.
Moreover, most hotels were subject to certain regulations stipulating that three, four and five star tourist accommodations shall be equipped with radio, music, television and others, turning them in captive users of SADAIC's 'services'.
On the basis of the above and following best international practices, the CNDC recommended the Secretary of Commerce to impose said fines to SADAIC, and recommended the Executive to revise the rules and standards applicable to those who publicly execute music and audio-visual works, especially on those cases where one user or category of users shall pay rights to more than one collecting society and the disparity between rates shall have an unreasonable impact on their economic activity.
Mergers and acquisitions
Acquisition by Molinos Río de la Plata of the dry pasta business unit from Mondelez Argentina
This operation, implemented in 2014, consisted of the acquisition by Molinos Río de Plata (Molinos) of four dry pasta brands (Canale, Don Felipe, Terrabusi and Vizzolini) and two manufacturing plants located in the province of Buenos Aires. Both the acquirer and the seller were active in the dry pasta business, hence, the operation presented horizontal effects.
Following international best practices, the CNDC took into account consumer habits and penetration rates (more than 90 per cent measured according to monthly consumption for dry pasta) to define the relevant product market as the dry pasta market. The geographic market was defined as national.
The CNDC observed that the most important brands of both firms were strong competitors in a differentiated products market.
Following this concern, Molinos proposed the CNDC an up-front buyer remedy, which consisted of transferring the ownership of Vizzolini, one of the brands that had been acquired through the operation. It should be noted that shortly after the notification of the concentration in 2014, and following certain registration issues, Vizzolini was owned by the acquirer, due to the ex-post-merger control system that existed in Argentina under the previous competition act.
The CNDC evaluated that the structural solution proposed by Molinos was acceptable according to best international practices for structural remedies, and that it prevented potential anticompetitive effects on the product market by allowing the short-term entry of a new player in the dry pasta market and, therefore, it approved the operation.
Acquisition by Anheuser Busch Inbev of SAB-Miller
The operation consisted of the acquisition by Anheuser Busch Inbev (ABI) of SAB Miller in the beer market.
In Argentina, ABI was operating through the country's main brewing firm, Cervecería y Maltería Quilmes SA (CMQ), with more than 75 per cent market share in 2016, while SAB-Miller was ranked in the third place with a share of about 5 per cent. The remaining 20 per cent belonged to CCU Argentina (CCU), a brewing company from Chile. Therefore, the operation revealed a horizontal relationship in the beer market.
The CNDC estimated that the combined market share of merging companies was sufficiently high, so as to create competition concerns in the beer market. Moreover, a particularity of the Argentine market made these concerns even greater. Indeed, while worldwide ABI is the owner of the Budweiser brand, in Argentina this brand, with a 6 per cent market share, was commercialised by CCU through a contract that would expire in 2025. Therefore, without any remedies, ABI would have reached more than 85 per cent of the beer market after 2025.
In order to address these concerns, the merging companies submitted a divestment proposal, by which ABI would transfer seven brands to CCU. In return, CCU would advance the transfer of Budweiser to ABI. The competition authority assessed that this proposal would solve its concerns and, therefore, the operation was approved with the condition that the companies implement the divestment proposal.
At the beginning of 2017, the Ministry of Communications issued a project to establish a new (updated) regulation for interconnection and access, which was opened to consultations. The project had references to some issues related to competition enforcement, such as essential facilities, market definition and market power. To avoid misusing those concepts, the advocacy unit of the CNDC prepared a document explaining competition jurisprudence on the matter and the extent to which they should be applied to the information and communication technologies.
Regulation in the provision of pilotage services
In April 2017, the Undersecretary of Ports and Waterways requested the CNDC to issue an opinion regarding the regulation for the provision of pilotage services to vessels entering certain Argentine ports. The CNDC recommended to establish price caps for pilotage and related services and to reduce barriers to entry in the market.
In several instances the CNDC recommended that trade barriers be reduced, in particular when the domestic market is highly concentrated. This was the case, for example, for some products in markets of industrial inputs such as aluminium, steel and petrochemicals that used to be affected by a special import procedure that works as a non-tariff barrier. Similarly, the CNDC was consulted regarding the potential effect of an anti-dumping measure in a highly concentrated domestic market (load cells for weighing scales).
Public procurement of medicines
For the first time in Argentina, many public organisations got together to organise a public tender to procure factor VIII, a treatment for haemophilia A, whose cost is entirely born by the public sector. The CNDC participated in the development of the bidding process, giving advice on the bid specifications so that opportunities for collusion are minimised. The experiment was a huge success and the bids received imply substantial savings in the cost of the treatment for 2018 compared to the prices paid in previous years. The government is, therefore, planning to extend this process to other medical treatments.
The approval of Act 27,442 consolidates the work done during the last two years in competition regulation in Argentina, giving the authorities better tools to deal with cartels and merger and acquisitions, in accordance to international best practices.
The constitution and set up of the ANC as an independent authority will be a turning point for competition law in Argentina, in order to continue enhancing effective enforcement of competition rules and promoting competition as a structural change for the Argentine economy to grow and develop in a sustainable way.
1 The new thresholds have been established at 100 million mobile units, approximately US$70 million.
2 The practise of interest-free instalments was widespread in Argentina, especially for the purchase of home appliances and other durable goods. The system functioned as follows. The merchant offered the product at a certain price, which could be paid by the purchaser with a credit card in a number of predetermined, interest-free instalments. Forty-eight hours after the sale, the acquirer (PRISMA in transactions with the Visa card) would transfer the amount of the sale to the merchant (net of the fee), with a discount corresponding to the interest rate for advance payment of the amount of the instalments. To cover this cost, the merchant included in the cash price a component corresponding to the interest that would have to be paid if the sale were made in instalments. As a result, if a purchaser wished to use any means other than the credit card to finance his or her purchases, he or she would be paying the interest twice: the explicit interest rate charged by the lender, and the implicit interest rate built into the price, to finance the credit card instalment payments.
3 Don Vicente (Molinos) and Don Felipe (Mondelez) on the high-price level segment; Vizzolini and Terrabusi (Mondelez) and Lucchetti (Molinos) on the mid-price level segment; and Favorita (Molinos) and Canale (Mondelez) on the low-price level segment.