Chile: National Economic Prosecutor’s Office

The current state of competition law in Chile has matured into a fundamental issue for social welfare. The benefits of competition such as lower prices, better products, wider choice and greater efficiency are now well known to Chilean society. However, there is still some lack of awareness about the rules that govern healthy competition in the business sector. The legal mandate of the National Economic Prosecutor Office (FNE) is to advocate and defend competition in the markets by enforcing these rules.

A reform to the Chilean competition legislation is currently being examined by the Chilean Congress. The government has proposed a bill that modifies the key aspects of the Competition Act on cartel prosecution and merger control. In the course of the past four years, the FNE has contributed to reform by highlighting critical topics through vigorous and successful action. Therefore, the emphasis of our work for the coming years will be to implement the reform once approved, guided by the case-based reasoning of our institution. We are certain that the accumulated experience of the FNE will broadly be able to achieve the aims proposed by the upcoming reform.

Cartel enforcement

Cartel prosecution as a main objective

Over recent years, the FNE’s main objective has been to increase awareness of anti-competitive practices. It has paid particular attention to uncovering and taking action against cartel activity. The FNE understands that cartels in a free society are the total antithesis to competition and has thus focused its efforts on their prosecution.

In this regard, our work during recent years has brought a series of successful outcomes whereby FNE has proven its efficiency. This can be briefly illustrated by a group of cases which the agency brought to public attention and with which we highlighted the weaknesses of the current system. As a result, these cases helped to streamline the substantial reforms that aim to strengthen Chilean competition law.

The first of these is the decision issued by the Competition Tribunal (TDLC) on the complaint against three poultry meat producers in 2014,¹ in which the TDLC ordered the dissolution of a trade association and imposed the highest fines available in the current legislative framework for the first time since its creation. It was also the first time that the FNE made use of its powers of dawn raid. Finally, but maybe most importantly, it revealed the inadequacy of the current system of fines in deterring cartel formation and placed the discussion of fines at the centre of interest in Parliament, in the government and in society itself. Appeals are still pending before the Supreme Court and the final award is expected to be issued soon.

Second, in the transport sector the FNE has achieved substantial results in detecting and prosecuting three different cartel cases regarding intercity and inner-city services. For these cases the FNE made use of its powers of wiretapping and dawn raids, which contributed to the presentation of solid evidence. All three cases were sanctioned by the TDLC; two have been upheld by the Supreme Court and the last is awaiting a decision.²

Third, FNE filed a case against the Trade Association of Obstetric Gynaecologists of Ñuble in 2015³ that involved 90 per cent of the gynaecologists in the region. The FNE argued that the investigated parties agreed on a minimum sale price on consulting and surgical specialty procedures, causing direct harm to private health care patients. Owing to the agency’s actions, the TDLC ordered an immediate termination of such practices, imposing fines for each doctor who took part in the agreement. This case is also pending before the Supreme Court.

Overall, these cases confirm the effective use of intrusive powers by the FNE, in addition to the need for a robust system of antitrust regulation. It is worth noting that, so far, intrusive powers have been successfully exerted by the FNE and all appeals against these measures have been rejected by the courts.

Implementation of the leniency programme

Another area of significant accomplishment in the FNE is the fruitful introduction of the leniency programme in 2009.⁴ The leniency programme is the mechanism that has empirically proven best at encouraging competition, thwarting cartels and discouraging the unwarranted creation and exercise of market power. To promote leniency, the agency has issued guidelines detailing the process for firms and individuals wishing to take advantage of the leniency benefits. A series of national and international cartel cases can best illustrate the value of the programme.

The first international case in which the FNE made use of the leniency programme was that against two home appliances’ manufacturers. The TDLC established that the defendants had taken part in a cartel designed to artificially increase the price of low-power hermetic compressors (essential parts for the manufacture of refrigerators) sold in the Chilean market. In September 2013, in a unanimous decision, the Supreme Court of Chile upheld the TDLC’s judgment.

Another important international case, filed by the FNE in January 2015, involved six shipping companies that engaged in a horizontal agreement on car carriers (Chile’s Compania Sud Americana de Vapores SA (CSAV) and CCNI, South Korean Eukor Car Carriers and Japan’s Kawasaki Kisen Kaisha, Mitsui OSK Lines and NYK Line).⁵ Once again, the leniency mechanism was crucial in the detection of a cartel linking trade in Europe, America and Asia, and which accounts for 91 per cent of local imports. This case is currently under review by the TDLC.

Turning now to national cases, in July 2014, four asphalt producers were accused by the FNE of having agreed on a mechanism to allocate contracts for the provision of asphalt-based products used in the construction, replacement and repair of public and private roads. The agreement was disclosed to the FNE by ENEX, a company member of the Quiñenco Group, which applied for leniency. ENEX provided the FNE withstatements and relevant data on the structure and conditions of the collusive arrangements.⁶ Another relevant national case was the intercity bus services case mentioned above which also profited from the leniency programme for the detection of collusion practices.

Measures of legal reform

The Bill contemplates a series of specific measures that take into account the necessity of providing better tools that increase performance, continuity and effectiveness of the FNE in its cartel enforcement functions. The content of this reform was, in part, inspired by a report produced by UCL consultants,⁷ which includes legal and economic analysis to assist the Chilean Competition Authorities in defining the optimum fine.

The principal aim of the reform is to strengthen the deterrence effect of cartel prosecution by setting an appropriate framework of sanctions. There are three key aspects in this matter.

First of all, the Bill proposes to adopt a new method of assessing fines for antitrust violations. Thus, sanctions for such infringements must be sufficiently strict to ensure deterrence. Specifically, the Bill proposes that the maximum fine should be assessed to either ‘double of the economic benefit resulted by the infringement, if this benefit can be clearly determined by the Tribunal’, or ‘30 per cent of the sales of the agent during the period of the infringement’, considering the goods or services subject to the agreement.

The Bill also includes a provision for the reinstatement of criminal penalties for hard core cartels. This measure follows considerations of other jurisdictions, such as the United States, the United Kingdom and Canada that deem administrative fines as insufficient to deter hard-core cartel conduct. The amendment proposes prison sentences for individuals, participants in cartels, of up to 10 years. According to the Bill: ‘Criminalisation of collusion will constitute a substantial advance aimed at encouraging executives, who are the ones that make the decision to be a part of a cartel, to behave according to basic principles pervaded in the spirit of competition and to choose not to engage either themselves or their companies in these reprehensible practices.’ Consequently, the reform will extend the scope of leniency programme to criminal liability for the first applicant.

Improvements to the merger control system

Achievements under the current system

Currently, there is an absence of explicit merger control in the Chilean competition law. The FNE and the TDLC have elaborated the current merger control system through soft law at the enforcers’ level, following the general provisions of the Competition Act. The system may be described as semi-voluntary, because the notification of mergers and acquisitions is optional for merging parties. However, the TDLC may review the merger upon request by the FNE, prior or post consummation.

The Competition Act contemplates a non-adversarial as well as an adversarial proceeding. The FNE has initiated in recent years several non-adversarial proceedings before the TDLC regarding merger reviews. In some cases particularly in the supermarket⁸ and telecommunication⁹ industries the parties have decided to cancel their merger plans after objections presented by the FNE before the TDLC, in others the mergers were approved subject to remedies. In 2012, the FNE initiated, for the first time, a contentious proceeding against a consummated merger in the cinema industry that raised competition concerns. As part of the TDLC proceeding, the FNE reached a judicial settlement with the parties, requiring ex post divestitures, which was later approved by the TDLC.

In 2012, the FNE issued its Guidelines for Horizontal Merger Analysis as a result of its awareness of the absence of legal standards or specific procedural rules on merger control.¹⁰ The Guidelines include two sections: a first analytical and substantive section applying to horizontal mergers and a second procedural section applying to all types of mergers, including explicitly horizontal, vertical and conglomerate mergers. To date, this procedure has been applied in five merger cases.¹¹

Another relevant measure taken by the FNE was to promote the practice of agreements subject to binding commitments that are later approved by the Competition Tribunal. This is the case of Nestlé’s global acquisition of Pfizer’s infant nutrition business, in 2013, in which the company agreed to sell Pfizer’s infant formula to a third party.¹² This is also the case of CFR Pharmaceuticals acquisition by Abbott Laboratories in 2014.¹³ In this case, the parties committed to proceed with the divestiture of brands, registrations and other assets in connection with the production and commercialisation of valproic acid operated by either CFR or Abbott. Another significant example is the agreement between Contitech and Veyance for the acquisitions of the heavy conveyor belt business of the latter in 2015,¹⁴ which included a series of behavioural remedies that could, in the view of the FNE, safeguard competition in the market.

Lastly, it is worth noting that there has been permanent collaboration with foreign competition agencies in matters concerning international mergers. This cooperation is facilitated by our participation in a series of multilateral forums, in particular the Organisation for Economic Co-Operation and Development (OECD) and the International Competition Network.

Measures of legal reform

Definitely, the need to reform our merger controls system appears to be a consensus among the businesses, practitioners and enforcers. The coexistence of different proceeding of a general nature has led to inefficiencies and uncertainties. An OECD report on the Chilean merger control system, published in 2014 recommended, among other, to include in the competition law a merger specific proceeding that consists of two phases and that contemplates substantive tests for merger assessment and ensures effectiveness and efficacy of the process.¹⁵

The government adopted said suggestions, and proposed to replace the current voluntary system with a mandatory one for those mergers that exceed certain thresholds. It proposes a Phase I for the review and clearance of unproblematic mergers and a Phase II for the assessment of mergers requiring an in-depth review because of their complexity or likelihood of anti­-competitive effects. The Phase II review may lead to a clearance decision, to clearance subject to remedies or to blocking the merger. The FNE will be responsible for Phase I and Phase II, and its decision can be appealed before the TDLC. We anticipate that this option may enhance effectiveness and timeliness in the review process.

Settlement policy

In unilateral conducts we have executed several settlements and agreements in sectors such as telecommunications, water supply, health insurance, pharmaceutical, brewery and household cleaning products with important undertakings in the local and international market including Unilever, Claro, Telefónica and CCU. In these cases the FNE is a firm believer that rather than following a long adversarial proceeding, it is preferable to attempt to resolve the conflict in the fastest and less costly way possible, allowing for more benefits for consumers.

The Unilever case is a good illustration of this policy.¹⁶ The FNE initiated a judicial proceeding against Unilever Chile SA for having abused its dominant position through exclusionary practices in the laundry detergent market. The TDLC approved a settlement between FNE and Unilever, where the latter assumed various obligations that constitute a significant change of its commercial practices, with the objective that third parties – detergent manufacturers and importers – improve their chances of exhibiting and distributing their products effectively. According to the Agreement, the commitments assumed by Unilever are not limited to the detergent market, but are extended to other categories of products of mass consumption.

Advocacy and market studies

The FNE performs several direct and indirect sector­-related advocacy actions. These advocacy actions include approaching the regulator directly in an effort to promote the adoption of pro­-competitive amendments. The FNE may also make direct suggestions to the authorities or request the TDLC to propose to the President of the Republic, through the relevant Cabinet Minister, the amendment or abrogation of any regulatory provision that may hinder competition. The TDLC may also propose the enactment of regulatory provisions, wherever necessary, to encourage competition or regulate the exercise of certain activities that take place under non-­competitive conditions.

Regarding market studies, the FNE published successful reports that have shown results and have affected public debate, particularly in the construction, bank, electricity, health-care, telecommunications and forestry sectors. For example, the Study on the Effects of Bioequivalence and the Penetration of Generic Drugs in Competition (2013)¹⁷ contributed to the ongoing discussion at the time regarding the new law on pharmaceuticals. Another example is Competition in the Wholesale Electricity Market in Chile (2014)¹⁸ which analysed the dynamics of competition in the electricity wholesale market which involved both tenders by distributors and bilateral negotiation with non-regulated clients. The report was very effective in drawing attention to the role of competition on the country’s energy agenda.

Nevertheless, the FNE does not have express powers to request data and other information for market studies. Therefore it is still difficult to develop an appropriate analysis, as the agency has to rely on the willingness of market players to cooperate, or on publicly available information. Following recommendations by the OECD,¹⁹ the legal reform presented by the government aims to balance this situation by granting these powers to the FNE.

Conclusion

This summary shows the significant efforts of the FNE towards organising competition law and developing its institutional capacities. Moreover, the exercise of its legal powers aims to increase the social welfare through a rigorous analysis of the anti-competitive issues arising in today’s market economy.

The FNE believes that merger control system, cartel enforcement and the introduction of explicit powers for market studies are the most urgent areas in Chilean competition law. A strong competition policy supports businesses to thrive in contexts of growing economies and empowers society against the abuse of market power. This is why we believe the reform will solve the problems which the FNE has long drawn attention to. Thus, it is expected that this reform will produce a substantial modification in the field of Chilean competition law, which we can only look forward to with deep commitment and enthusiasm.

Notes

1. Requerimiento de la FNE contra Agrícola Agrosuper SA y otros, TDLC (2014) C-236-11.
2. Requerimiento de la FNE contra Servicios Pullman Bus Costa Central SA y otros, Supreme Court (2015) 19806-2014; Requerimiento de la FNE contra Casther y otros, Supreme Court (2015) 21536-2014; Requerimiento de la FNE contra Sociedad de Transportes Línea Uno Collico SA y otros, (2015) TDLC C 244-12.
3. Requerimiento de la FNE contra la Asociación Gremial de Ginecólogos Obstetras de la Provincia de Ñuble y otros, TDLC (2015) C 265-13.
4. Law No. 20.361 of 2009 amended the Chilean Competition Act, incorporating a new article 39-bis, which provides the benefit of total or partial immunity for infringements to the cartel provision contained in letter a) of article 3 of the Competition Act.
5. Requerimiento de la Fiscalía Nacional Económica contra Tecumseh Do Brasil Ltda y otro, Supreme Court (2013) 5308-2012.
6. Requerimiento de la FNE contra CCNI SA y otras, TDLC (2015) C 292-15.
7. Requerimiento de la FNE contra Asfaltos Chilenos SA y otros, TDLC (2014) C 280-14.
8. Lianos, I, Jenny, F, Wagner von Papp, F. Motchenkova E, David, E et al (2014) An Optimal and Just Financial Penalties System for Infringements of Competition Law: a Comparative Analysis (CLES Research paper series 3/2014, UCL Faculty of Laws: London). Available from: www.fne.gob.cl/wp-content/uploads/2014/11/Estudio.pdf.
9. Consulta de FNE sobre toma de control de Alvi Supermercados Mayoristas SA por Distribución y Servicio D&S SA, TDLC (2011) NC 383-10; Consulta de la FNE sobre la adquisición de Eco Market, en la localidad de Frutillar por Rendic Hnos SA, TDLC (2012) NC 393-11.
10. Consulta de la FNE sobre fusión entre GTD Grupo Teleductos SA y Empresa Nacional de Telecomunicaciones SA (Entel), TDLC (2012) NC 401-11; Consulta de la FNE sobre transferencia de concesiones de radiodifusión a Radiodifusión SpA, TDLC (2012) NC 404-12; Consulta de la FNE sobre acuerdo para el desarrollo de una plataforma de distribución de contenidos digitales ‘Over The Top’, TDLC (2014) NC 421-14.
11. Available from: www.fne.gob.cl/english/2014/10/03/guidelines-for-horizontal-merger-analysis.
12. Hortifrut y Vital Berry, FNE (2012) 2155-12; Disolución Andes Films SA,FNE (2013) F12-2013; Operación de concentración entre Cía. Sud Americana de vapores SA y Hapag-Lloyd AG, FNE (2014) F27-2014; Adquisición de cementerios de Parques de Chile SA por Nuestros Parques, FNE (2014) F29-2014; Inversiones Salcobrand compra Marconi SpA, FNE (2015) F41-2014.
13. Acuerdo extrajudicial entre FNE, Nestlé Chile SA, Nestlé SA, Pfizer Chile SA y Pfizer Inc, TDLC (2013) AE 07-13.
14. Acuerdo Extrajudicial entre la Fiscalía Nacional Económica, Abbott Laboratories de Chile Ltda, Abbott Laboratories (Chile) Holdco (Dos) SpA y CFR Pharmaceuticals SA, TDLC (2014) AE 09-14.
15. Acuerdo Extrajudicial entre la Fiscalía Nacional Económica, Contitech Chile SA y Veyance Technologies Chile Ltda, TDLC (2015) AE 11-15.
16. OECD (2014), Assessment of Merger Control in Chile: Report by the OECD Secretariat. Available from: www.oecd.org/daf/competition/chile-merger-control-2014-en.pdf.
17. Requerimiento de la FNE contra Unilever Chile SA, TDLC (2014) C 249-13.
18. FNE (2013), Study of the Effects of Bioequivalence and the Penetration of Generic Drugs on Free Competition. Available from: www.fne.gob.cl/wp-content/uploads/2013/09/estu_001_2013.pdf.
19. FNE (2014), Competition in the Wholesale Electricity Market in Chile. Available from: www.fne.gob.cl/wp-content/uploads/2014/01/informe_final_FNE_Enero13_2014.pdf.
20. This report was officially launched in Santiago, on March 2015 during a two-day regional conference to promote the use of market studies by competition authorities in Latin America. OECD (2015), Competition and Market Studies in Latin America: The case of Chile, Colombia, Costa Rica, Mexico, Panama and Peru. Available from: www.oecd.org/daf/competition/competition-and-market-studies-in-latin-america2015.pdf.