On March 31, the plenary session of the Constitutional Convention approved the following rule: “Collusion practices between companies and abuses of monopolistic position, as well as business concentrations that affect the efficient, fair and loyal functioning of the markets, will be understood as conduct contrary to social interest. The law will establish the sanctions for those responsible.”
For the first time, the Fundamental Charter will include an express rule related to free competition. In the current Constitution there is no direct reference; it is only registered implicitly in those articles that are related to the freedom to undertake, arbitrary non-discrimination, the right to acquire all kinds of goods, and private property.
Such innovation has not left experts in the field indifferent. No one doubts the importance of free competition, but – they maintain – it is already well protected in Decree Law 211, in the National Economic Prosecutor’s Office, the Court for the Defense of Free Competition, and the third chamber of the Supreme Court. Therefore, regulating it constitutionally does not generate any profit… it might only hinder, they say. “The main criticism of what has already been approved is that it is very dangerous to try to define what is infringing in free competition, because what is infringing in free competition has a certain ‘flexibility’ that is closing on the subject of jurisprudence and not of the text. legal”, says the director of the Competence Center (CeCo) of the Adolfo Ibáñez University and former national economic prosecutor, Felipe Irarrázabal. “It seems to me a very poorly made or very poorly thought out rule. What it generates is that where there was a fairly developed institutional framework at a comparative level and that provided a lot of certainty, we are going to move into a situation of uncertainty or legal uncertainty, it is going to be disruptive and it is going to complicate the application”, adds the Contreras partner Velozo and former head minister of TDLC, Javier Velozo.
According to a study by CECO, of the 37 OECD member countries, only 12 of them have any reference to free competition in their Constitutions. In particular, nations such as the United States, Germany, France, Australia, England, Japan, Canada, Spain and Israel do not incorporate it. And even more, there is no relationship between the budget that is delivered to the competition authorities and its consecration in the Fundamental Charter. On the contrary, the money delivered by those countries that do not consecrate it is 1.7% higher than those that do.
There are no two opinions regarding it. The consulted lawyers indicate that the best solution is that the promotion of free competition is recorded only in a general way. And let the rest be up to the laws. “If they are wrong, fixing the Constitution is very difficult, and that can be used by the investigated entities. That’s probably not what they’re looking for, but it might be the effect. I believe that the system can live very well without a constitutional norm”, indicates Irarrázabal.
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Felipe Irarrázabal, former national economic prosecutor.
Punctually, in the articles already approved, doubts jump everywhere. “It might generate a lack of certainty regarding the figure of collusion and abuse of a dominant position”, indicates the director of the Regulation and Competition area of the Prieto studio, Andrea Von Chrismar. “Without a doubt, it addresses a sensitive issue that interests the entire community. However, I would have preferred a simpler wording, which refers to the general principles and leaves its regulation to the legislator”, adds the partner of Pellegrini & Rencoret, Julio Pellegrini.
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Andrea from Chrismar
In the first place, the concept -they coincide in the square- of practice of collusion between companies, leaves out, on the one hand, actors such as union entities or natural persons, and on the other hand, it can produce distortions, when the term in the current regulations is collusion or concerted practice “among competitors”. Guerrero Olivos’ associate attorney, Juan José García, explains it this way: “The concept of collusion between companies is much broader. For example, when one reviews free competition issues and sees them from a vertical point of view, there are the relationships of a supplier or a producer with its distributor that, in some exceptional cases, when there is a dominant company in that relationship, can have an anti-competitive effect, but generally have a pro-competitive effect. But according to this regulation, one might say, will collusion be considered to exist when dealing with a relationship between companies that are vertically related?
In addition, there are collusive agreements called hub-and-spoke that were denounced, for example, in the case of supermarkets. There, two companies coordinate through their suppliers. The lawyers wonder if the prosecution of those cases would be considered with the approved wording.
Next, the agreement approved by the plenary speaks of “abuse of monopoly position”, when the current regulations point to the dominant position. The partners of FerradaNehme, Nicole Nehme and Benjamín Mordoj, asked themselves in a column published last week by CECO: “Will this affect the persecution of abuses of those who, without enjoying a monopolistic position, have a dominant position, which is what What happens in general in this type of case? They added: “It is worrying that behaviors that have been sanctioned in Chile for decades, such as collusion between natural persons or abuse of a dominant position, end up being the subject of debate due to a constitutional technique that seems to have omitted important aspects.”
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Nicole Take
In the square they agree that the wording basically accounts for a lack of advice. “There is a large number of lawyers who are experts in free competition in Chile and a very active academic community. For the same reason, it is worrying to note that the constitutional norm does not seem to have considered the accumulated heritage in this discipline”, reads the column of the FerradaNehme partners. None of the lawyers contacted was invited to the commission on Fundamental Rights, from which the regulations emanated. As can be seen in the detail of summonses, neither the National Economic Prosecutor’s Office nor the TDLC were summoned.
“The wording assumes that the protection of competition is only a duty of companies, excluding other market agents which must also ensure free competition. The wording of the proposed article proposes a sanctioning approach, leaving aside alternative ways of correction or regulatory proposals that promote competition”, indicates Prieto’s partner, Benjamín Grebe. “I think it is important to enshrine this principle in a broad and general way, and that it be the law that regulates it in a more specific way, as has been done until now. Today, free competition is protected by the current Constitution, under the broad concept of economic freedom. I would replicate the same in the new Constitution”, points out the secretary of the Free Competition Commission of the Bar Association, Pedro Rencoret.
The risk of the merger system
Carey’s partner and member of the Red ProCompetencia, Lorena Pavic, subtracts drama from certain concepts of the article in question. She estimates that they might be modified and left, talking correctly with the current regulations in the harmonization phase. However, there is an aspect that causes concern, the part that deals with the concentration of companies and that condemns those that affect the efficient, fair and loyal functioning of the markets.
Chile has a preventive control mechanism for mergers or concentration operations since 2016, included in the latest amendment to Law 20,945 that perfected the system. This mechanism falls to the FNE, which analyzes from before all those operations that exceed certain thresholds and gives them the go-ahead for their completion.
The approved articles put this mechanism in check: “With the authorization of the FNE today you have legal certainty that this operation will not be questioned, but today someone might say that with this constitutional consecration, one might review them ex post and there is a high level of uncertainty regarding how this constitutional consecration is going to converse with the current system”, indicates Pavic. “It seems to me an error that business concentrations are considered an infringement because we have a system like the European one that what it does is control business concentrations ex-ante,” adds Velozo.
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Javier Velozo
Former prosecutor Irarrázabal explains that all the systems that have preventive control over mergers agree that the vast majority of these operations do not have effects on free competition and that, on the contrary, they must be approved and it is important that they be able to concentrate because they have efficiencies. and in the end they can even generate more competitive environments. “The problem with this rule is that it combines infractions that are collusion and abuse of a dominant position with concentration operations, and the latter are not infractions. Putting it all together, you don’t know what they’re thinking,” he stresses.
Several lawyers agree that the umbrella of tranquility is given by the continuity of the FNE, the TDLC and the Third Chamber of the Supreme Court. Its maintenance gives some guarantee that the current principles should continue. However, there is also doubt.
The Justice System Commission has already approved that the National Justice System will be made up of neighborhood justice, the courts of first instance, the Courts of Appeals and the Supreme Court. This would imply ending the special courts. Although this has not yet been endorsed by the plenary, the lawyers already point out that such regulations would imply the end of the TDLC as we know it. “That would be worrying. The Court for the Defense of Free Competition has experts, economists, and a history since its installation that has set the standard in sanctioning cartels, market regulation, and is highly respected at a comparative level, losing it would be complex. Transferring these cases to the ordinary courts would generate uncertainty and difficulty in resolving these issues. I hope that doesn’t advance”, underlines Pavic.
Irarrázabal himself recounts that a week ago in the framework of a meeting of the American Bar Association in Washington, the Federal Trade Commission asked him to explain the Chilean system, and specifically the TDLC, to an agency of an important country, in an instance in which such a court is a very unique case. Something similar only exists in South Africa.
Today, the entity has among its five titular ministers, two economists. If their functions are transferred to a system of ordinary justice, it is unlikely – they estimate in the square – that they will be able to maintain that profession or have only experts. “It is important, for example, to review those provisions referring to the appointment of judges and the independence of special courts, as should be the case with the institutionality of free competition,” Grebe indicates.
To the above, the experts emphasize another aspect already approved by the plenary session: that regional bodies can create public companies. In the sector they agree that it should be clearly expressed that those companies are going to compete on equal terms with private companies. And that is guaranteed by incorporating that common legislation will apply to them.
Velozo goes one step further: “Taking into consideration that the special courts, including the Court for the Defense of Free Competition, are probably going to disappear, in the end you will have a new institutionality, new courts, with constitutional regulations that will generate more uncertainties than certainty. ”. “What the plenary is proposing can bring many inconveniences to the application that has been given to these more than 60 years of experience in competition issues in Chile. And those inconveniences can be taken advantage of by the investigated companies. In my opinion, it is a bad text and it is a bad philosophy of what is behind it regarding not understanding very well what the basis of competition issues is and to what extent it is necessary to include it in the Constitution”, concludes Irarrázabal.