Brazil: Administrative Council for Economic Defense

In summary

The year 2020 brought about major challenges. CADE worked to adapt itself to the pandemic and mitigate its effects, seeking to promote a healthy competitive environment and aid Brazil’s economic recovery by providing prompt, reasonable and assertive responses to the market and society. Internal procedures were quickly established to protect our employees without interrupting the provision of our services. And despite the unprecedented calamity, CADE achieved fantastic results, with some indicators even better than those of 2019.

Discussion points

• Institutional actions in the context of covid-19
• Mergers, anticompetitive conduct and advocacy
• National and international cooperation

Referenced in this article

• Collaboration among competitors (ie, Ambev, BRF, Coca-Cola)
• Boing and Embraer case
• Disney/Fox acquisition
• International cartel in the market of underground and submarine cables
• A cease-and-desist agreement with bank Bradesco
• Monitoring the performance of agreements signed with Petrobras
• The new Unit for Market Analysis and Competition Advocacy
• Working papers measuring the benefits expected from CADE’s actions
• CADE and the OECD’s project on competition assessment of the Brazilian ports and civil aviation sectors

Institutional actions in the context of the covid-19 pandemic

The pandemic has made competition authorities around the world strive towards offering market players fast merger review procedures and transparency.

In light of this, CADE took measures to harmonise the imposed gathering restrictions with the provision of its services to society.

In March 2020, it implemented internal safety protocols to detect and mitigate contamination risks in our headquarters, limiting access to the premises, strengthening cleaning measures, and adapting our hearings and meetings to a virtual format.

Moreover, CADE was one of the first Brazilian organisations to allow working from home, with around 90 per cent of employees adopting a remote work plan in March.

In the same month, CADE launched administrative proceedings to look into the medical and pharmaceutical products industry, following a peak in demand for these products when emergency care became a priority for the country.

In May 2020, the CADE Tribunal authorised collaboration among a group of competing companies (Ambev, BRF, Coca-Cola, Mondelez, Nestlé and Pepsico) with the intention of mitigating the effects of the covid-19 crisis.^[1]

These companies undertook the project ‘Movimento Nós’, aimed at recovering economic activity of small retailers of consumer goods, such as beverages, food and personal care. CADE found the collaboration was an emergency measure to reduce the impact of the crisis, and had no anticompetitive effects.

After approving this, CADE released a provisional informative note concerning collaboration among competitors facing the effects of covid-19. In an effort to increase transparency and legal certainty, the document provides guidelines on collaboration among competitiors and establishes efficient mechanisms to support players’ strategies in fighting the pandemic. It also informs the market about the procedures adopted by the competition authority to review such cases.^[2]

Mergers

Although 2020 saw a greater number of notified transactions, CADE was able to maintain its traditional efficacy and efficiency throughout the year. A total of 471 mergers were reviewed, with an average review time of 29.5 days, one of the shortest in the world.^[3]

In January 2020, CADE cleared a transaction involving the companies Boeing and Embraer. The authority concluded the companies do not compete in the same markets; thus, the acquisition would not raise competition concerns. The transaction analysed by CADE involved two operations: the acquisition by Boeing of 80 per cent of Embraer’s assets of the commercial aircraft division, which includes the manufacturing of regional airliners and large commercial aircrafts, and the creation of a joint venture between Boeing and Embraer dedicated to the manufacturing of a military aircraft.^[4]

In May 2020, CADE cleared the acquisition of Twenty-First Century Fox by The Walt Disney Company under a merger control agreement. CADE first cleared the transaction in February 2019, with the condition that the Fox Sports channel was sold, among other measures. Even though the parties endeavoured to comply with the commitments, the sale was not carried out in the time frame set by the Tribunal, and CADE decided to review the transaction in November 2019. After another unsuccessful attempt to sell the Fox Sports channel, and considering the economic environment in light of the covid-19 pandemic, it was not possible to continue with the disposal of Fox Sports channel. Thus, behaviour measures were negotiated with Disney to mitigate previously identified competition concerns and ensure that a variety of sports programmes is available to Brazilian viewers.^[5]

In June 2020, CADE confirmed the approval of a network sharing between TIM and Telefônica Brasil, after an appeal of an interested third party. The companies executed agreements aimed at sharing their network to implement and provide 2G, 3G, and 4G services.^[6]

Also in June 2020, CADE’s Office of the General Superintendent launched proceedings to investigate an agreement between Facebook and Cielo, aimed at enabling payments through WhatsApp. As the agreement had not been notified and raised competitive concerns, the competition authority initially imposed an injunction that effectively blocked the transaction. Following a long investigation, the Council determined Cielo had no incentives to stop operating through other payment channels or to explore similar partnerships; similarly, Facebook had no incentives to contract only Cielo’s services. Therefore, the injunction was eventually lifted.

In July 2020, the Tribunal conditionally cleared Hypera’s acquisition of products of the Buscopan family of brands, which included the rights to develop, manufacture, trade, advertise and distribute them — rights previously held by Boehringer Ingelheim International. The transaction was conditioned on the execution of a merger control agreement with CADE.^[7]

Moreover, in November 2020, the Tribunal conditionally cleared the sale of Liquigás, a Petrobras’s subsidiary company and a leader in the Brazilian distribution market of liquefied petroleum gas (LPG), commonly known as cooking gas. The deal encompassed three distinct transactions involving companies Copagaz, Itaúsa, Nacional Gás Butano (NGB) and Fogás.^[8] In clearing these transactions, CADE required the execution of a Merger Control Agreement to prevent coordination practices among them during the corporate restructure and post-merger periods.

In December 2020, the Tribunal unconditionally cleared a merger between Fiat Chrysler and Peugeot. The transaction will give rise to the Stellantis auto group. In its analysis, CADE concluded the horizontal overlap and vertical integration resulting from the transaction would not cause competition concerns.^[9]

Anticompetitive conduct

In 2020, CADE launched 76 investigations related to anticompetitive practices: 35 cartel cases, 30 unilateral conduct cases and 11 concerted practices. Companies convicted for anticompetitive practices are subject to fines and other penalties, such as being prohibited from partaking in government procurements. In total, the Tribunal of CADE judged 17 cases: 14 cartel cases and three unilateral conduct cases.^[11]

Cartel cases

In 2020, CADE reviewed and ruled on several important cartel cases in the Brazilian market.

In April 2020, the CADE Tribunal convicted four companies and three individuals for participating in an international cartel in the market of underground and submarine cables, with effects in Brazil. The products transmit electricity between power and distribution stations and the service’s end users. Those convicted were levied fines that totalled 20.9 million reais. The investigation was launched after companies Sumitomo Electric Industries Limited, Hitachi CableLtd and J Power Systems entered into a leniency agreement with CADE. Together, the collaborators admitted partaking in anticompetitive practices and provided CADE with documentary evidence on the cartel’s operations.^[12]

In the same month, two cease and desist agreements were signed with companies Siemens Healthcare Diagnósticos and Medartis Exportação e Importação Ltda (currently known as Extera Importação e Exportação Ltda) and six individuals for partaking in an alleged cartel in the market of orthoses, prostheses and high-cost medical devices. Together, the parties will pay a total amount of around 36.2 million reais as financial contributions.^[13]

In September 2020, the Association of Hospitals of the State of Ceará (Ahece) was found guilty of inducing concerted practices, while nine clinics and hospitals were convicted for a cartel in the market of medical and hospital services in Fortaleza, State of Ceará. In total, their fines reached 27.5 million reais.^[14]

In December 2020, four companies of the Planan Group and two of its representatives, two companies of the Frontal group and company Leal Máquinas were found guilty of bid rigging in the purchase of mobile clinics, medical and dental equipment across the country. Their strategy was to give the impression of genuine competition in the procurement procedures through cover bidding. The Tribunal imposed fines amounting to over 55.4 million reais.^[15]

Within the scope of Operation Car Wash, CADE signed four agreements. In April 2020, the agency executed a cease and desist agreement with the company Andrade Gutierrez and two of its employees in an investigation of cartel in port works. In December 2020, the authority ratified three cease and desist agreements with companies and individuals investigated for cartel in government procurements held by the Secretary of the State for the Environment of Rio de Janeiro (SEA/RJ). In total, circa 61 million reais will be collected.^[16]

Abuse of a dominant position

In October 2020, CADE signed a cease and desist agreement with bank Bradesco regarding the investigation of abuse of dominance against GuiaBolso. The agreement stipulated Bradesco would cease the investigated conduct and pay approximately 23.8 million reais in financial contribution.^[17]

The agreement solved the identified problems, making it easier for GuiaBolso to use data from Bradesco’s clients, upon the clients’ express consent. By increasing competitiveness in this market, CADE created opportunities for better services, price reductions and larger quantities.

Monitoring the compliance with agreements signed with Petrobras

With regard to the enforcement of its council’s judgments, CADE monitored the performance of Petrobras’ structural divestiture in the markets of natural gas, fuels and oil refining, as stipulated by agreements signed with the company. Over the year, the competition authority closely monitored the performance of the agreed obligations, in direct and regular communication with Petrobras, the Brazilian petroleum agency (ANP), and the Gas Committee of the Ministry of Mines and Energy. Some of the agreement’s major goals included to carry out a market opening in a competitive manner, to benefit consumers and to support the country’s economic recovery.

Advocacy

With covid-19, the topic of excessive prices was brought to the spotlight, and price controls became a popular solution to address the issue, which included price freezes, price caps, mandatory discounts, etc. In 2020, CADE has offered important inputs to the analysis of several bills that could negatively affect society, and, in most cases, its input was crucial for the decision-making process.

The authority issued 24 technical opinions, which opposed several bills that intended to directly intervene on prices in different markets (such as pharmaceutical drugs, tuition fees, LPG, ride-hailing apps, and medical equipment and supplies).^[20]

CADE’s arguments against direct intervention were mostly founded the following:

• the natural adjustment of prices, directly connected to the balance between supply and demand, would negatively affect the quality and quantity of goods and services, as well as investment and innovation;
• prices would more easily converge, revolving around a central point;
• the most efficient companies, which operate with smaller profit margins, would be penalised with the bills, potentially lessening competition in the market; and
• there would be high social costs involved in monitoring prices and punishing those who violate the law.

Working papers, guidelines and reviews of CADE’s decisions

In February, CADE released a paper on the market of agricultural inputs, focusing on seeds, pesticides, fertilisers, machinery and agricultural implements. This is the 10th edition of a series of publications titled ‘Review of CADE’s Decisions’. As the name suggests, the series addresses the authority’s decisions and their connection with various economic sectors, making a great reference material for lawyers, economics, public administrators, students, etc.^[21]

In addition, the authority published seven working papers (available in Portuguese): ‘Measuring the benefits expected from CADE’s actions in 2018’,^[22] ‘CADE’s antitrust remedies: A case law review’,^[23] ‘Applying willingness-to-pay models to research competition between private health insurance companies’,^[24] ‘International benchmarking review on calculating antitrust fines’,^[25] ‘Competition in Digital Markets: A review of expert reports’,^[26] ‘Measuring the benefits expected from CADE’s action in 2019’,^[27] in addition to a document titled ‘The CADE Department of Economic Studies: past, present, and future’, which teaches the history of a body responsible for applying economic theory to antitrust policies.^[28]

In July 2020, CADE released a preliminary version of the Guide for Cartel Penalties, available in Portuguese. The guide presents the CADE Tribunal’s methodology in determining the appropriate penalties for anticompetitive practices, founded on the case law regarding the sanctions imposed by the agency between January 2012 and July 2019. Hence, it represents a step forward in informing society about how CADE determines sanctions for cartel practices.

National cooperation

CADE has signed technical cooperation agreements to promote coordinated institutional actions with other bodies, especially with government ones. Such efforts have produced positive results, such as the creation of different working groups, the training of civil servants through conferences, courses and workshops, and a coordination with initiatives of other bodies.

Nine agreements were executed in 2020. Among them was a technical cooperation agreement with the Federal Prosecution Services (MPF) that provided for joint institutional efforts to conduct merger reviews, combat anticompetitive practices and promote competition advocacy.

International cooperation

Bilateral

CADE maintains a close dialogue with several foreign jurisdictions to make their work converge for the purpose of more effective competition enforcement, regarding not only the resolution of anticompetitive cases but also merger assessment. In 2020, CADE had 76 cooperation initiatives for interchanging information with other competition authorities and international organisations in benchmarking and case analysis.

In February, the Brazilian and Italian antitrust authorities signed a covenant to strengthen their bilateral cooperation. The document stipulates extensive cooperation in several fields, covering the organisation of discussions, exchange of experiences, and adoption of best practices in competition law and policy.

Multilateral

CADE also plays an active role in international competition forums, such as the OECD, the United Nations Conference on Trade and Development (UNCTAD), the International Competition Network (ICN) and BRICS.

As for the ICN, CADE kept its engagement with the networks’ major projects. Moreover, CADE has been a member of the ICN Steering Group since 2005, and in 2020, after its term as co-chair of the Cartel Working Group ended, the agency was chosen to co-chair of the Merger Working Group.

In the Merger Working Group, we promoted a series of regional webinars aimed at sharing experiences, developing joint initiatives and responding to merger review challenges posed by the covid-19 crisis.

Regarding the OECD, it is worth highlighting the competition assessment review on public procurement, which began in 2019. In 2020, an important stage of the project was completed, in which CADE gathered relevant information for the review.

Moreover, in November, the authority signed a contract with the OECD as to a competition assessment of the Brazilian ports and civil aviation sectors. This project is aimed at analysing existing public policies in the sectors to identify unnecessary competition restraints and propose alternative policies to strengthen the sectors’ competitive environment.

CADE also actively participates in three working groups with BRICS competition authorities related to the automotive, pharmaceutical and digital markets. The Working Group on digital economy is headed by CADE and the Russian competition authority, and conducts a strong international benchmarking agenda, aiming to better design and adapt competition law for the digital era.

Alexandre Barreto de Souza

Administrative Council for Economic Defense

Alexandre Barreto de Souza was the president of CADE from June 2017 to June 2021. He has a master’s degree in public administration from Universidade de Brasília and is currently pursuing a doctorate in political science at Universidade de Lisboa. A civil servant since 1993, he has worked in bodies of the federal government of Brazil such as the National Treasury, the Department of Inland Revenue, the Senate, and the Court of Accounts. Within the scope of his activities in the civil service are government management and accounting, control of procurements and contracts, tackling fraud and corruption in government and fighting cartels in government procurements.

Notes