El Salvador: Superintendency of Competition

Before the Competition Law, El Salvador didn’t have much regulation about competition, and there where even some anti-competitive agreements regulated in the commercial law as legal and enforceable.

We have come a long way since those days. Even though the path to adopting a competition regulation was long and took about 14 years in the making, the Competition Law was finally adopted in 2006, and now almost 10 years later, we have great achievements and even greater challenges to face.

The road to a Competition Law in El Salvador

The current Constitution of El Salvador was adopted in 1983. Even before then, the antitrust issues were within its content but where never properly embraced; monopolistic practices are also forbidden in order to guarantee entrepreneurial freedom and the protection of consumer interests.

The discussion of whether to have a proper Competition Law began in 1989 along with the discussion of adopting a consumer protection regulation, and it was the recent elected President who brought it up in his social and economic development plan. The first draft was made in 1992 by a non-governmental organisation but did not flourish.

In the next presidential term, between 1994 and 1999, the nation’s economy grows slower because of the absence of structural reforms such as the adoption of a competition policy. The trade policy is focused on the negotiation of trade agreements with Chile and Mexico, and is beginning to consider the possibility of a regional trade agreement with the United States of America.

A second draft made in 1996 revives the discussion, along with the privatisation of key sectors such as telecommunications, energy and pension funds. These now privatised sectors became regulated and during the debates that surrounded those discussions, competition became an important issue: it was imperative to adopt a competition regulation that would prevent these privatisations growing too powerful and having an adversely powerful market influence on  consumers and users of those sectors. Another two drafts have since been presented to the Legislative Assembly.

In 2000 a special commission was formed to discuss and evaluate the different drafts of a competition law within the Legislative Assembly, but not much was accomplished owing to changes in the circumstances surrounding the drafts and the mechanism for their formal discussion.

A formal draft for a Competition Law made by the Ministry of Commerce was introduced in the Legislative Assembly in 2003. This draft was widely discussed between representatives of the business, academic and consumer sectors. On 2004, the newly elected President decided that the adoption of a competition law would become one of the three major points to focus on that year. The Competition Law was adopted in November of 2004 to take effect in January of 2006.

The newly adopted Competition Law

By 2004, the competition regulation in El Salvador had become a reality, but it not would be until 2006 that the Law could be enforced. These 13 months – vacatio legis – would be used for establishing the agency, its strategy and priorities for its first years and for advocacy activities. Spreading knowledge about what would become illegal was crucial, especially since the Commercial Law regulated agreements between competitors regarding the limitation of competition, making them legal and enforceable.

The Law focuses in three anti-competitive practices: agreements among competitors, anti-competitive practices among non-competitors and the abuse of dominant positions. It also establishes pre merger notifications as mandatory in certain cases.

On 1 January 2006, the competition authority was born with the sole purpose of promoting and protecting competition by enforcing the Competition Law. It started with minimum staff, minimum resources and maximum drive. In its first year, the agency focused on creating a competition culture through a strong advocacy programme: there were two finalised market studies and four more in the making, many presentations regarding the content of the Law and the mission of the competition authority, and a wide range of media appearances promoting each result that the authority produced. It began its first ex officio investigation on the fuel sector, and received 14 complaints; four of the 20 cases were resolved in the same year and one was dismissed.

The authority went to full throttle from then on, hosting the 2007 International Competition Network Cartel Workshop in El Salvador, a major international event with the participation of 76 members of competition authorities of 36 countries. It began six ex officio investigations, received eight complaints and resolved 12 of the 14 cases in the same year, plus the 10 remaining cases of the year before. One of the cases was a ‘naïve cartel’, in which the participants were probably unaware that their conduct was unlawful because of the recent adoption of the Competition Law.

2007 was also the year that the Competition Law was amended, in order to strengthen its investigation tools and hardening the fines and other sanctions. One of the tools that the competition authority was given was the possibility to perform dawn raids, a tool that was used for the first time the following year in the investigation of a hard-core cartel in the wheat flour sector – the first really big case for such a small authority.

On 2008, the government of El Salvador volunteered to be peer reviewed at the sixth LACF meeting held in Panama, with a follow-up evaluation on 2012. The peer review pointed out some weaknesses in the judicial system that could hinder the proper revision of the authority’s decisions. The report concluded with several recommendations, such as strengthening anti-cartel enforcement, improving the efficiency and effectiveness of merger review, ensuring adequate resources for the authority, and the possibility of adopting procedures that would allow settlement of cases. Most of these recommendations require an amendment of the Law that is yet to be made, even though a draft has been proposed to the Legislative Assembly.

Although the improvements to the Law are still on hold, the authority has continued its hard work in promoting competition and investigating anti-competitive practices.

It has sanctioned many cases in key sectors of the country’s economy, such as electricity, telecommunications, public procurement, insurance and sugar, among others. Many sectors and markets have been studied to assess the competition conditions within, such as rice, sugar, air transport of passengers, fertilisers and pharmaceuticals; and because of the findings in these studies, the authority has issued public policy recommendations to other entities of the government – which are not of mandatory adoption. Many have not been evaluated nor implemented.

The competition authority has been internationally recognised as a trendsetter in the region in competition matters. Many national and international Cooperation and Coordination Agreements have been signed in order to give and receive technical assistance for the day-to-day work and to increase and improve capacity building.

The authority is also a member of the RECAC – Central America regional network of competition authorities – and fully collaborates with the drafting of a regional competition regulation and authority which is a commitment of the region acquired in the Association Agreement between the European Union and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama).

There are still many issues to address to improve both the Competition Law and the authority, but in almost 10 years of existence the authority has built a strong and positive reputation, both in and outside of the national borders through its advocacy work and the application of the law.