Colombian Competition Regime
Colombian competition laws comprise two main aspects: restrictive trade practices and pre-merger control. Broadly speaking, the regulations cover both agreements and unilateral actions that may have an economic effect in the local market. Therefore, Colombian competition laws also cover conduct outside Colombia if the conduct affects the Colombian market.
As in many countries, the main objectives of competition laws in Colombia are to provide rules to protect consumers in Colombia as well as free access to the market by preventing or prohibiting conduct or behaviour that restricts free competition or the abusive exploitation of market power in the local market. Violation of Colombian competition laws may result in fines and civil liabilities for damages.
Colombian Congress recently approved Law 1340 (the new Law), which modified competition rules in Colombia that have been applicable in the country since 1959. However, not everything changed.
This article refers to the general competition regime in Colombia and highlights the most relevant changes introduced under the new Law. The first part briefly explains the types of agreements or conduct that will result in violation of Colombian competition laws. Then, the second part refers to the pre-merger control rules applicable to transactions having effects in the local market, and finally the third part focuses on procedural aspects of the regulation.
Agreements and conduct contrary to free competition
Based on the Colombian Constitutional principles, competition laws provide rules against dishonest or fraudulent rivalry in trade and commerce. Illegal agreements between competitors, between parties at different levels of a value chain upstream or downstream or abusive unilateral conduct by parties bearing market power.
For Colombian antitrust law purposes, ‘agreement’ means any agreement, arrangement, covenant, collective practice or consciously parallel practices existing between two or more parties. In addition to the fines that the authorities may impose on parties entering into illegal or restrictive agreements, the law in Colombia provides that any agreement that has the purpose or effect of restricting competition is prohibited and, therefore, null and void.
Agreements need not be formally entered into, and tacit understandings would also qualify as restrictive. The following non-exhaustive list of conduct is considered illegal:
Any agreement between parties to fix, raise or lower their sale or resale prices will be regarded as price fixing, and thus illegal. Unilateral actions intended to influence a business to increase the prices of its products or services, or to desist from its intention to reduce its prices are also illegal.
Resale price maintenance in Colombia is also prohibited as well as agreements that intend or have the effect of determining sales conditions and discriminatory trade conditions. Price suggestions in vertical relationships, for instance, between a manufacturer and the distributors or retailers of its products, are valid.
In Colombia there are no guidelines regarding the rules on sharing of information between competitors. However, investigations have started as a result of parallel pricing behaviour in markets where public announcements were made.
Agreements creating discriminatory conditions for sales or trade against third parties will also be illegal. The rule allows that different or special treatment is given to third parties based on objective conditions. For instance, it would be acceptable to offer better conditions to parties that sell or purchase higher product volumes, if other aspects of the relationship are the same. The rule is that the same treatment must be afforded to parties in analogous situations.
Under Colombian laws, a merchant is free to determine who to sell to and not, as long as this decision is based on objective reasons. For example, a merchant may reject a sale to a customer who does not offer the guarantees of payment required. However, if the denial to sell were only intended to ‘punish’ a customer, then it would be characterised as a violation of the competition regime. Thus, any denial to sell or to buy must correspond to objective conditions.
Market partition and quota allocation
Any negotiation or arrangement that has the purpose or the effect of sharing or allocating customers, territories or products between competitors is prohibited. Quota arrangements, whereby competitors agree on quantities of the products or services that they will maintain are also prohibited. It is also illegal to sell or render services in different parts of the Colombian territory at different prices or subject to different conditions in the absence of objective reasons, when the intention of the conduct is to reduce a competitor’s business.
Regulation of production or technical developments
Any agreement that has the effect or the purpose of limiting the production of a product, try to limit or control the investment in new technology or the development of new products are strictly prohibited. However, agreements which purpose is the cooperation in research and development of new technologies are permitted.
In Colombia an agreement whereby parties agree to make the purchase of their products conditional on the purchase of a completely different product will be considered as illegal tie-in arrangements.
Agreements or understandings between bidders regarding prices or conditions to be included in the offers will be considered illegal. If the bidding process involves public procurement, in addition to the risk of potential fines for violation of competition rules, infringers may be subject to criminal liability.
Colombian competition laws prohibit exclusivity clauses where they have the effect of foreclosing the free access of a competitor to the relevant market or monopolising the distribution of products or services. Noteworthy, not all exclusivity clauses are illegal; only those that could substantially reduce competition within a particular market. In determining the illegality the authorities will analyse the market structure and the levels of concentration as well as its characteristics, the existence of barriers to entry or to expansion, and ultimately the power conferred by the exclusivity upon the party benefiting from it.
Since 2000, competition authorities have considered that non-
compete agreements are illegal and thus null and void. This interpretation has been applied even to non-compete covenants ancillary to an asset sale purchase or business sale purchase. Colombian competition authorities have held that this type of arrangement has the effect of foreclosing the entrance of a party to a market and therefore cannot be permitted. The authorities have suggested that Colombian regulations provide legal mechanisms that would allow for instance that a party (purchaser) that paid a significant price to purchase the business of another (seller) impedes that the seller undermines its rights by using privileged information to unlawfully attract clientele or start a new endeavour.
Infringement of consumer protection rules
Colombian consumers are the main focus of protection of competition rules. Therefore, a party that deploys its activities in violation of consumer protection regulations may also be subject to fines for infringing competition laws.
Abuse of dominance
Colombian competition laws proscribe the abuse of market power. Dominance is not illegal per se. Once the authority identifies parties to be dominant in a market, in practice their activities may be closely monitored.
Dominance or market power has been defined as the ability to act independently from competitors, consumers and in general of competitive constraints in the market. During an investigation the competition authority may conclude that a party is dominant when its share of the market has been constantly high during an extended period of time and the barriers to enter are high enough to discourage the entrance of new firms or the expansion of existing competitors.
Merger control rules
Merger control rules in Colombia provide that any transaction that qualifies as an ‘economic concentration’ (such as mergers, acquisitions, joint ventures, or other forms of company associations or corporate grouping, and even exclusive distribution agreements that meet certain criteria), between parties active in the same relevant market in Colombia must be notified to the Colombian competition authority. Transactions between parties with vertical links in a market in Colombia will also be subject to pre-merger review if the conditions for filing are met.
The new Law appointed the Superintendency of Industry and Commerce (SIC) as the Colombia competition authority. The only exceptions to the exclusive competence of the SIC to issue opinions on concentrations are in the events of mergers between financial entities that are subject to supervision of the Financial Superintendency, and authorisations related to certain civil aeronautic operations between air carriers. These transactions are subject to the approval of the Financial Superintendency and the Colombian civil aeronautics authority (Aerocivil), respectively.
As a general rule, parties will not be allowed to close the transaction in Colombia or to implement locally transactions closed abroad, until the authority has given a favourable opinion with respect to its effects in Colombia. Accordingly, parties may be required to carve out the Colombian portion of the business whenever foreign transactions with effects in the Colombian market, need to be closed before the Colombian authority has authorised it.
Any form of coordination of the activities of the parties that may have effects in the Colombian market will be in violation of Colombian competition laws, if made before local clearance. The authority may impose fines against infringing parties and the individuals who tolerate or promote such infringement. In previous cases, the SIC has accepted to hold separate undertakings for the Colombian market, when the deal is to be closed abroad before clearance in Colombia.
Parties that belong to one same group of companies or that are already controlled by the same concern are not required to notify merger transactions between them.
Filing obligations and thresholds
Parties to a transaction are jointly responsible for filing a notification with the SIC when the value of their combined revenue or the value of their combined total assets meets the legal thresholds. However, the SIC has accepted filings submitted on behalf of one party, when the report contains sufficient information to analyse the transaction and its potential effects in the Colombian market.
According to the new Law, the SIC will determine the filing thresholds on a yearly basis. These values will remain unchanged during the pertinent calendar year. During 2009 a filing is required for transactions with the effects of an economic integration in Colombia, if the combined value of the total assets or revenue of the parties was below or equal to 100,000 monthly minimum legal salaries – approximately US$20.4 million – as reflected in their balance sheet and financial statements for 2008.
An integration, concentration or acquisition of control of two or more businesses in the same relevant market will be covered by the general authorisation regime and will not require the express prior clearance from the SIC, when the parties do not meet any of the legal thresholds, or when their share in the affected market is below 20 per cent.
Automatic approvals – the 20 per cent rule
The new Law introduced a novel feature for pre-merger control, as transactions qualifying as economic concentrations between parties that have assets or revenue which value meets the legal thresholds, but which combined share of the relevant market is less than 20 per cent, would be subject to an automatic approval upon the notification of the transaction to the SIC.
The new Law is silent with respect to the formalities or contents that such notification must include. While the authority issues guidelines on such aspects, a conservative approach suggests extreme caution in the definition of the relevant market and in the calculation of the combined share of the parties involved in the transaction.
The Law grants the SIC authority to perform an ex post review of transactions reported under the 20 per cent notification rule and to impose fines on the parties and individuals involved when the authority considers that the parties did not meet the requirements for the automatic approval and thus the transaction should not have closed (in connection with its effects in Colombia) before the legal clearance.
There are no filing fees under current rules in Colombia. However, if the SIC approves a transaction subject to the compliance of certain conditionings, the parties will have to pay an annual supervision fee to the authority, while such stipulations are in effect. This levy will be calculated based on the asset value of the parties under supervision.
Procedure for a pre-merger filing
Filings in Colombia must include significantly detailed information regarding the specific transaction and matters such as sales volumes, market share, and identification of major competitors, suppliers, entry barriers and distribution channels. Formalities such as legalised powers of attorney and certified copies of certificates of incorporation, balance sheets and financial statements of the parties are also required.
The new Law extended considerably the review period of pre-merger filings in Colombia. Before the new Law, the SIC had 30 business days to review the documents filed and issue an opinion on the transaction. If the SIC required additional information, before the expiration of the review period the SIC could ask the parties to complement the filing, causing the 30-day term to start running again, as of the date in which the parties filed all the additional information requested by the SIC. In practice, the SIC would take between two to four months to issue its opinion in a case not involving major obstacles.
Under the new procedure, the parties are required to file a brief with a summary of the transaction on which the SIC will render a preliminary opinion within three working days. If the authority considers that an in-depth analysis of the proposed transaction is required, the parties will be asked to make a public announcement to third parties so they can submit comments and objections on the transaction. The first stage of the review will expire 30 working days after the filing. Before this first stage expires, the SIC must either clear the transaction or inform the parties of any additional information required to issue its opinion. The SIC must render a final decision no later than three months after the parties have filed the additional information required by the SIC.
In its analysis of a transaction, the SIC will confirm if the definition of the relevant markets affected and the market shares proposed by the parties is adequate. In the past years, the decisions published by the SIC confirm that its analysis of a transaction will also consider the scenarios before and after the transaction regarding concentration indexes in the relevant markets, the countervailing power of other competitors, of other suppliers and customers of the parties as well as the existence and type of barriers to enter and exit a market.
In principle, the SIC can only object to a proposed transaction, or require undertakings, if it concludes that it tends to generate an undue restriction to free competition.
If after an investigation, the SIC concludes that the parties have incurred in violation of the competition rules, it may impose on the parties involved and on the responsible individuals monetary fines.
The fines can be imposed on parties for having entered into illegal agreements, abusively exercised of their market power or when they have coordinated activities in the Colombian market before the required pre-merger authorisation is issued. The new Law also provides that failure to cooperate with the SIC in investigations related to the compliance of competition laws, will be considered as a violation of the competition rules and infringers may be subject to fines.
Under the new Law, fines for violation of competition rules were notably increased; the maximum amounts will be adjusted on a yearly basis. The statute of limitations for legal actions related to violation of competition rules was extended from three to five years.
During 2009, the maximum fine that can be imposed against the parties can be as high as US$25.4 million (approximately under current exchange rates) or 150 per cent of the value of the profit obtained by the infringer as a result of the violation, whichever is higher. Individuals responsible for the infringement can also be subject to fines of up to US$500,000 (approximately under current exchange rates).
The new Law introduced cooperation benefits to parties that provide authorities with effective, relevant and timely information about the existence of a cartel or illegal agreement between competitors.
Benefits range from total amnesty to partial exoneration of the fines that could be imposed. The recognition of a lenient treatment is open to the discretion of the SIC, which may be a problem in implementing an effective cooperation mechanism. The promoters or leaders of the cartel will not be apt to apply or to receive any benefits.