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ANTITRUST MERGER POLICY IN COLOMBIA

ANTITRUST MERGER POLICY IN COLOMBIA. CORNELL INTERNATIONAL LAW JOURNAL 2009 SYMPOSIUM COMPARATIVE ANTITRUST POLICIES IN MERGERS AND ACQUISITIONS. Alfonso Miranda Londoño. Ithaca, NY, February 2009. Program. Introduction Concept of entrepreneurial concentration

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ANTITRUST MERGER POLICY IN COLOMBIA

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  1. ANTITRUST MERGER POLICY IN COLOMBIA CORNELL INTERNATIONAL LAW JOURNAL 2009 SYMPOSIUM COMPARATIVE ANTITRUST POLICIES IN MERGERS AND ACQUISITIONS Alfonso Miranda Londoño Ithaca, NY, February 2009

  2. Program • Introduction • Concept of entrepreneurial concentration • Obligation to Inform Merger Operations • Procedure before SIC • Highlights in the evolution of Merger Doctrine Alfonso Miranda Londoño 2009

  3. 1. INTRODUCTION

  4. 1.1 Competition Law in Latin America and the Caribbean: Origins and Evolution • Many Latin American countries issued a first round of Competition Laws in the late fifties or the early sixties. • These laws were not extensively enforced due to the application protectionist development model fostered by ECLAC, which encouraged close oligopolistic or monopolistic markets. • In the nineties,after the Washington this situation changed with the application of the open market development model which introduced competition to many markets. • Latin American countries issued new competition laws, following mostly the European model. Colombia - SIC (1992); Venezuela - Procompetencia (1993). Perú - Indecopi (1993). Panamá - Clicac (1996). Brazil - CADE, etc. Alfonso Miranda Londoño 2009

  5. 1.1 Competition Law in Latin America and the Caribbean: Origins and Evolution • There are still some Latin American countries that have not issued general competition laws: Antigua and Barbuda, Bahamas, Belize, Bolivia, Cuba, Dominica, Ecuador, Granada, Guatemala, Guyana, Haiti, Paraguay, Saint Kitts and Nevis, Saint Lucia and Surinam • Apart from national legislations there are some important international treaties that contain competition rules, like NAFTA, CAN and MERCOSUR. • Also the Free Trade Agreements that the US has signed with several countries in Latin America, call for the application of Competition Laws. Alfonso Miranda Londoño 2009

  6. 1.1 Competition Law in Latin America: Origins and Evolution • It is important that Latin American Countries issue competition laws including merger regulations in order to protect their markets in this era of globalization. • It is also important that Latin American Competition Laws are designed for the size and characteristics of the markets in which they will be applied. • We must learn from the countries with more experience in the application of Competition Laws, but try to adjust them to the needs of our economies. Alfonso Miranda Londoño 2009

  7. 1.2 Competition Law in Colombia • Article 333 of the Constitution guarantees free competition as a right of everyone that implies responsibilities. • It is defined as an economic right, not a fundamental right. That means it can not be protected via “Tutela”. • It is defined as a collective right which means it can be protected via Popular or Class Actions • The State has a duty to intervene in order to avoid the restriction of economic freedom and to impede that natural persons or undertakings abuse their dominant position in the national market. Alfonso Miranda Londoño 2009

  8. 1.3. Merger Control in Colombia • Merger Control is an important part of Antitrust law in Colombia. • Even though it formally exists since Law 155, 1959, it only has been applied using modern standards of analysis since 1998. Since then, the General Competition Authority, the Superintendence of Industry and Commerce – SIC, has decided very interesting cases like: • Sale of the sole beer manufacturer - “Bavaria”, to SabMiller. • Sale of the national telecommunications company – “Telecom”, to the Spanish operator - “Telefonica” • Sale of the supermarket chain - “Carulla”, to the French controlled chain - “Éxito”. Alfonso Miranda Londoño 2009

  9. 1.3. Merger Control in Colombia • Sale of the main national newspaper “El Tiempo”, to the Spanish “Planeta Group”. • Sale of the national steel producer – “Acerías Paz del Río”, to the Brazilian conglomerate “Grupo Votorantim”. • Sale of the only PVC resin producer – “Petco” to the Mexican manufacturer – “Mexichem”, and the subsequent sale of the main PVC tube manufacturer – “Amanco”, also to “Mexichem”. • Acquisition of Petro Rubiales by Pacific Stratus Energy. • Sale of Aluminio Reynolds Santodomingo to the Arfel Group. • Sale of the Dole flowers operation. Alfonso Miranda Londoño 2009

  10. 1.4 Characteristics of Merger Control in Colombia • Mergers are not prohibited by Antitrust laws in Colombia. There is an obligation to inform mergers within notification thresholds and to obtain prior authorization from the Competition Authorities. Failure to do so can lead to Gun Jumping investigations and fines. • The general Competition Authority in Colombia, the Superintendence of Industry and Commerce (SIC), is also the main authority for merger control. • The SIC is an administrative entity controlled by the government. The Superintendent can be freely appointed and removed from office by the President of Colombia. Alfonso Miranda Londoño 2009

  11. 1.4 Characteristics of Merger Control in Colombia • SIC has been granted the power to review mergers in all sectors of the economy that are not subject to a specific authority. • However, there are several exceptions to the general merger control exercised by SIC: • Mergers in the financial and insurance sector are reviewed by the Superintendence of Banks. • Mergers between television operators are reviewed by the National Television Commission – CNTV. • Mergers between airlines are reviewed by the Aviation Authority. Alfonso Miranda Londoño 2009

  12. 1.5 Statistics Alfonso Miranda Londoño 2009

  13. 2. CONCEPT OF ENTREPRENEURIAL CONCENTRATION

  14. 2.1 Legal Definition and doctrine Law 155/59:“Art. 4.- Undertakings dedicated to the same activity of production, supply or consumption of a product, raw material, merchandise or service, which assets jointly or separately are equivalent to 20 million pesos or more, are obliged to inform to the National Government the operations they intend to close in order to merge, consolidate or integrate, whatever the legal form of such consolidation, merger or integration.” Doctrine: For SIC an operation amounts to an entrepreneurial concentration subject to merger review when it is an adecuate and direct way to permanently place two or more companies that were participating independently in the market, under one administration or control center, whatever the form of the legal operation.(Opinion No. 00001365, 2000 from SIC. Alfonso Miranda Londoño 2009

  15. 2.2 Structural elements of the definition • Operation between undertakings (art. 25 C. Com.) • Undertakings dedicated to the same economic activity. (includes vertical integrations) Subjective Element • Assets individually or jointly are equal or greater than 20 MM pesos. (SIC has regulated the thresholds). • With disregard to the legal form of the operation Objective Element • The undertakings must inform and obtain authorization of SIC before the operation produces effects in the Colombian market. Cronological element Alfonso Miranda Londoño 2009

  16. 2.3 Foreign operations • There is no particular rule for this case in the law. Effcts theory has been applied by SIC: • Two foreign companies merge abroad, both have subsidiaries in Colombia and their products are sold in the country = The operation needs approval from SIC. ( HP – COMPAQ). • Two foreign companies merge abroad. Independently of the existing of subsidiaries their products are sold in the country = The operation needs approval from SIC. (SabMiller – Bavaria/ Saint Gobain - Fiberglass). • When the products of one foreign company are not sold in Colombia and buys a company in Colombia = The operation does not need approval from SIC. (SabMiller – Bavaria/ Saint Gobain - Fiberglass). Alfonso Miranda Londoño 2009

  17. 3. OBLIGATION TO INFORM MERGER OPERATIONS

  18. 3.1 Authorization Regimes (Res. 22195, 2006) • General Authorization Regime:Operations that are under the thresholds of 100.000 minimum wages (USD $20 Million) of operational income or assets, do not need to be informed and are considered generally authorized. • Particular Authorization Regime:Operations that meet or exceed the thresholds of 100.000 minimum wages (USD $20 Million) of operational income or assets, need to be informed to SIC and to obtain authorization before entering into effect in Colombia. • Exception: Operations between companies that belong to the same economic group do not need to be informed. Alfonso Miranda Londoño 2009

  19. 3.2 Review test – “Undue restriction of Competition” • The standard set in the law is that SIC must prohibit or object to mergers that tend to produce an “undue restriction to competition.” The challenge then is to know when the restriction is undue. • There is a presumption (sort of per se rule) in the law, that there will be an undue restriction to competition in the following cases: • When the transaction is preceded by anticompetitive practices between the merging parties. • When the transaction will give the merged entity the power to impose “Unfair prices”. Alfonso Miranda Londoño 2009

  20. 3.2 Review test – “Undue restriction of Competition” • There is no explanation in the law of the reasoning and analysis that SIC will use and the authority has not issued guidelines. The main pints gathered from the cases are: • SIC defines the relevant market based in the product market and the geographic market using the hypothetic monopolist test (SSNIP test). • SIC calculates market participation and applies concentration indexes like HHI and CR4. • SIC evaluates competitive pressure from perfect and imperfect substitutes, as well as from potential national or international competition. Alfonso Miranda Londoño 2009

  21. 3.2 Review test – “Undue restriction of Competition” • SIC evaluates the different kinds of barriers for entering the market in an effort to evaluate the contestability of the market or the likelihood of entry of new competitors. • SIC evaluates conditions or remedies to the transaction if they are proposed by the parties. In some cases SIC will modify substantially the remediesoffered. In general SIC will prefer structural to behavioural remedies. • It is not very clear what particular set of circumstances will trigger an objection or a conditioned approval; but most likely it will be a negative mixture of the above elements. Alfonso Miranda Londoño 2009

  22. 3.2 Review test – “Undue restriction of Competition” • This means that a merger that increases concentration in the relevant market to a high degree, with no perfect or even imperfect substitutes of the product, no potential competition in sight, high barriers to entry, scarce contestability and no possible structural remedies will probably be prohibited. • In its whole history, SIC has prohibited les than 1% of the informed mergers. Alfonso Miranda Londoño 2009

  23. 3.3 Conclusions on the Review test • For some years now SIC has been applying reasoning and analysis similar to those developed both in the European Union and the United States. • There is much debate as to the use of economic tools, such as the concentration indexes, which were prepared for developed economies, without adjustment to the size and specific characteristics of the Colombian economy. • It has to be considered that most markets in a developing economy are small and already concentrated, but that does not mean that there is no competition or that it will become impossible for new competitors to enter the market. Alfonso Miranda Londoño 2009

  24. 3.3 Conclusions on the Review test • During the past few years SIC has gone a long way in the study and control of mergers. However, there is a great deal of uncertainty as to what kind of analysis SIC or any of the other authorities is going to apply in the review of mergers. • The legal statutes are very general and old, and the authority has not provided so far guidelines or instructions that can help companies to foresee its opinion about a particular merger. • SIC should take the example of the Telecommunications Regulation Commission CRT, which just issued a methodology for determining relevant markets. Alfonso Miranda Londoño 2009

  25. 3.4 Efficiency Exception • SIC cannot object or prohibit mergers in which it is demonstrated that the operation will produce substantive efficiencies that will be translated into reduced costs that cannot be achieved by other means, and that there will not be a reduction in supply. To this date SIC has never recognised or accepted that this exemption has been demonstrated in a merger. • SIC has accepted and applied, in at least in two cases, the so-called “failing industry defence”. In those cases SIC has authorized the mergers as a mechanism to save companies that were going bankrupt. Alfonso Miranda Londoño 2009

  26. 4. PROCEDURE BEFORE SIC

  27. 4.1 Timing and Deadlines • After filing, SIC has 30 working days to review the transaction. • If SIC fails to issue a decision within the review period, the law grants the merging parties a positive administrative silence, which means that the transaction is deemed authorized. • The review period can be extended in case that SIC issues a Request for Additional Information (RAI), case in which the 30 working days review period will start to run once the additional information is filed. Alfonso Miranda Londoño 2009

  28. 4.1 Timing and Deadlines • In case that the merging parties fail to answer the RAI within the next two (2) months following its issuance, SIC will consider that the parties have desisted from their request for authorization. • In case of a negative decision the parties can file a reconsideration plea within the next five (5) days. • Once SIC has decided the reconsideration plea, the decision is final but the parties can challenge its validity before the administrative jurisdiction in a law suit that can take between 6 and 10 years to be resolved. Meanwhile the decision of SIC is fully applied. Alfonso Miranda Londoño 2009

  29. 5. HIGHLIGHTS IN THE EVOLUTION OF MERGER DOCTRINE

  30. 5.1 Landmarks • In August 2006, SIC issued a new merger regulation that raised the thresholds for notification of mergers. It is now mandatory to inform those operations in which the value of the assets or sales of the merging companies in Colombia (individually or jointly considered) are equal or superior to US $20 million. The application of these thresholds has reduced the number of informed transactions in 40%. • Since the Pavco – Ralco transaction SIC started to impose structural as well as behavioral conditions in order to subdue restrictions on competition and authorize complex concentration operations. Alfonso Miranda Londoño 2009

  31. 5.1 Landmarks • Structural conditions require divestiture of brands, installed capacity, etc. Behavioral conditions, on the other hand, require the elimination of exclusivity, etc. Nowadays SIC applies all kinds of conditions but prefers the structural ones. • The “Cementos Andino” - “Cementos Argos” transaction was authorized by SIC based in the Failing Industry Doctrine. Even though this kind of defense had been considered before, it was only until the cement merger that SIC laid down the characteristics and requisites for application of the Failing Industry Doctrine. Alfonso Miranda Londoño 2009

  32. 5.1 Landmarks •  SIC developed a doctrine for review of vertical concentrations. It also concluded that operations such as the sale of a brand or the creation of a new company by two previous competitors amount to an economic concentration that needs authorization from SIC. • During the past two years SIC has claimed jurisdiction over mergers between public utilities companies. It has also disputed the review of mergers between Cable Tv. companies Alfonso Miranda Londoño 2009

  33. END OF PRESENTATIÓN AVAILABLE IN: www.javeriana.edu.co/Facultades/C_Juridicas/menu_lat/inv_centro_comp.htm Alfonso Miranda Londoño 2009

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