12. COMPETITION POLICY IN THE ANDEAN COUNTRIES:
A POLICY IN SEARCH OF ITS PLACE

Ana Julia Jatar and Luis Tineo*

(Continuation)

Venezuela: Getting Closer to the Right Balance

Competition policy in Venezuela started with an economic reform program implemented during the Pérez administration in 1989. The reforms were oriented toward trade liberalization, exchange rates, price controls, and foreign investment. Competition law, together with antidumping and consumer protection regulations, were important elements of the process. The law was enacted in 1991.⁸ Prior to its enactment, the constitutional rights of freedom of industry and commerce were suspended. By suspending such rights, the executive branch regulated private sector activities through decrees without congressional involvement. This empowered the government to manage the import-substitution and protectionist policies that had prevailed for almost five decades. Likewise, countless laws and regulations created monopolies or stimulated cooperation among competitors. Collusive and monopolistic practices were a consequence of the lack of entry of new competitors. To limit that power, governments relied on price controls, which were negotiated among the trade associations on a regular basis (Jatar 1994).

The Venezuelan law contains provisions dealing with restrictive practices and merger control. Restrictive practices are prohibited unless expressly authorized or exempted by the competition agency. Concerning conduct, the law provides a list of prohibited practices, which include price-fixing, price discrimination, abuse of dominant position, and resale price maintenance, among others. The law neither differentiates between horizontal and vertical restraints, nor provides analytical standards for conduct violations. This made the initial enforcement efforts of the agency difficult. Executive regulations issued in 1993 under the agency’s advice clarified these ambiguities. Following the European model, the regulations declare all practices prohibited unless expressly authorized by the competition agency. To grant such authorizations, the regulations give the agency more discretion to evaluate practices. The agency thus has allowed certain agreements on a rule of reason basis, in spite of restricting competition, due to the economic efficiencies they generate. Examples of such agreements include exclusive dealings, franchises and other vertical restrictive agreements. On the other hand, the agency has developed rather strict per se criteria against price and output horizontal restrictions, whereby authorizations have never been bestowed (Pro-Competencia 1993b, 1994b, 1995b, 1996b).

With regard to merger control, the law prohibits economic concentrations when they create a dominant position in the market. As in conduct, the merger provisions were extremely limited and focused solely on preventing increases in market size. A first interpretation led to the conclusion that any merger was illegal, as any transaction would lead to a dominant position in the highly concentrated Venezuelan market. Departing from the European concept of dominance and adopting a U.S. consumer welfare approach, the agency then developed a second set of regulations. Based on the U.S. merger guidelines, the regulations provided a specific methodology to determine whether mergers resulted in sufficient market power to eliminate or restrict effective competition. Thus, changes in market structure through mergers, due to either the elimination of potential competition or the increment of efficiency and international competitiveness, would be monitored in a rational manner.

The law and its regulations are enforced by the Superintendency for the Promotion and Protection of Free Competition (Pro-Competencia). Pro-Competencia is headed by a superintendent with prosecutorial and adjudicative independence from the executive branch. In addition to law enforcement, Pro-Competencia devotes significant efforts to competition advocacy functions. This function has proved to be instrumental in the pursuit of competition policy goals, particularly in the initial transition stages. Soon after beginning its activities, the agency realized that competition was not only about restrictive practices, but more importantly about fostering competition. Although trade liberalization was effective in many sectors, many others were still protected from competition. Since its inception, Pro-Competencia has actively promoted deregulation initiatives, prevented government policies contrary to competition, and proposed legislative reforms to encourage a more competitive environment. The same can be said with respect to the dissemination of competition goals among universities, academies, judges, trade and consumer associations, and the media.

Despite the politically troublesome environment in which competition policy has existed, the Venezuelan experience, after five years of activity, shows a positive record. In the Andean region, Pro-Competencia has been the agency that has dealt with more issues likely to both affect and foster competition. On anticompetitive conduct, the agency has conducted 54 investigations related to cartels, exclusionary and boycott practices, and abuse of dominant position. Of these 54 investigations, most at the request of firms, 23 were conducted in 1993, 15 in 1994, 8 in 1995, and 8 in 1996. In 36 cases, Pro-Competencia found merit to open formal proceedings and adjudication. Thirteen cases were opened in 1993, ten in 1994, nine in 1995 and four in 1996. The agency found violations of the law in 15 of these cases (OAS 1997c; Pro-Competencia 1993a, 1994a, 1995a, 1996a).

For Pro-Competencia, enforcement in a society that awoke to a law that suddenly made its common practices both illegal and subject to sanctions was thought to be counterproductive and unmanageable. In the initial stages, Pro-Competencia chose cases of evident collusion in which the main competition objectives could easily be understood by businesses and the public alike. Many collusive practices were still recognized openly on television and newspapers. Some others were detected in the price control offices where firms went to bargain deals. This helped Pro-Competencia communicate that its chief concern was to change the existing perception about the benefits of cartels (Jatar 1996).

By its second year of operation, Pro-Competencia had a better understanding of the law, and the initial message had been effectively conveyed to the public. Thereafter, the agency started to apply the law more stringently. A per se criterion has firmly applied to horizontal restrictions and a more relaxed rule of reason has applied to vertical agreements. The first case of collusion effectively sanctioned by Pro-Competencia involved nine cement producers operating in Caracas. In Premezclados, the producers belonged to the same trade association within which prices were agreed. Pro-Competencia found the price lists for the firms’ clients, verified that such prices were invariably honored and ascertained that cheating was considered a violation of the agreement. The agreement was voided, and severe fines were imposed (Pro-Competencia 1994a). The decision was helpful because it fully explained the per se approach toward cartels and set the interpretation that has guided the enforcement of the law on conduct up to the present. Recent investigations for cartel violations have been successfully conducted in industries like oil product transportation, movie theaters, travel agencies, pharmacies, construction equipment suppliers, newspapers, airlines, poultry, and cement (Pro-Competencia 1995b, 1996b).

Merger control has been the agency’s most controversial law enforcement subject. With no mandatory premerger notification system in place and a law that does not provide clear rules as to how a merger could be treated, Pro-Competencia has had enormous difficulties in handling this area. To date, Pro-Competencia has evaluated 27 mergers. Of these, 19 have been approved, 4 banned, and 4 approved subject to some modifications (OAS 1997c). The first case was analyzed in 1993. The case of Pinco-Pittsburgh involved the merger of two major paint producers, Pinco-Pittsburgh (25 percent market share) and Corimon (28 percent market share). The merging parties alleged that Pinco-Pittsburgh was not a competitor any longer as its financial standing was close to bankruptcy. For Pinco-Pittsburgh to remain in business, it had to merge with a healthier firm. In addition, the transaction was planned on the brink of the severe banking crisis, price control, and currency devaluation in which Venezuela was immersed in 1994.

In a controversial decision, Pro-Competencia, using the U.S. market power approach based on the degree of concentration rather than the European dominance approach set out in the law, initially ruled against the merger. In this situation, according to the law, an order of divestiture followed. Pro-Competencia learned that such a measure was costly and hard to enforce. Thus, the agency, in view of the economic crisis of the country, reconsidered its decision and approved the merger several months later using the U.S. “failing firm” argument (Pro-Competencia 1994a). In the Pinco-Pittsburgh, Pro-Competencia was exposed to the hardships of merger analysis in a transition economy. Since many firms are on the verge of exiting the market because of structural changes or simply contradictory policies, a flexible approach based on dynamic (efficiencies and market entry and exit, among others) rather than on static (degree of concentration and market power) considerations should prevail in the analysis.

To avoid harmful divestiture actions once firms have merged, the government issued a regulation based on the 1992 U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, which allows Pro-Competencia to provide advisory opinions to the merging firms prior to the transaction. Merging firms, if so they wish, may submit the transaction to Pro-Competencia for guidance. The agency must in turn explain in detail the reasons for which a proposed merger may be illegal and the consequences to which the firms would be exposed if they decide to continue with the transaction. Still, there is a great deal of skepticism about the interpretation of the law to be overcome by Pro-Competencia. For business defendants, the law allows firms to merge freely, with Pro-Competencia’s transactions scrutiny justifiable under an after-the-fact abuse of dominant position standard.

Tensions and uncertainty in this area have continued ever since. In the 1996 PepsiCo v. Coca-Cola case, Pro-Competencia initiated, at Pepsi’s request, an investigation of the merger between Cisneros, a former bottling producer and distributor for PepsiCo, and Coca-Cola. In the transaction, Cisneros brought to the deal 18 bottling facilities, 60 distribution locations, and 14,000 employees, as well as its homegrown soda brands (representing 40 percent of the market). Coca-Cola brought its Coca-Cola, Fanta, and Sprite brands (representing a 14 percent market share), plus $500 million in direct investment to improve the new company. To avoid anticompetitive charges, Coca-Cola put its 6 bottling facilities, 500 trucks, and 1,200 employees up for sale to anyone interested in them. PepsiCo, on the other hand, deemed the merger illegal, alleging restrictions on competition because of the dominant position acquired by the merging company, and asked Pro-Competencia to dissolve the transaction. The merger had left PepsiCo (which had a 70 percent share in the dark soda market) out of the market since, prior to the merger, all Cisneros facilities had been at the disposal of PepsiCo. PepsiCo’s options to return to the market were either to buy Coca-Cola’s facilities, build its own facilities, or find a replacement partner for Cisneros.

Although PepsiCo put forward countless arguments, for Pro-Competencia the only issue was whether the merger restricted competition in the soda market.⁹ After a five-month investigation, Pro-Competencia ruled against the merger. It considered that given the nature of the bottling and distribution system, which required a huge investment and a long time to settle real competition, the transaction would leave the soda market with basically one participant. The problem with the ruling was that it was issued months after the transaction was completed. As faced in the Pinco-Pittsburgh case, an order to dissolve the merger seemed costly and difficult to enforce. Therefore, Pro-Competencia compelled Coca-Cola to modify some aspects of the transaction. Among these measures, Coca-Cola was compelled to transfer its facilities, as well as either Cisneros’ soda brands or Coca-Cola’s Fanta and Sprite to an independent trusteeship.¹⁰ However, it sanctioned the merging parties (Cisneros and Coca-Cola) for breaching the competition law (Pro-Competencia 1996a).

The PepsiCo–Coca-Cola decision, certainly Pro-Competencia’s most important, showed two failures in the approach toward mergers. The first failure comes from the legal approach. Since the law does not provide for a premerger notification, firms are free to merge, and Pro-Competencia can only review these transactions after mergers are concluded. In this scenario, the preventive nature of merger regulations is lost and Pro-Competencia will always be in the troubling position of being an arbitrator in the market. In this role, Pro-Competencia pleased no one. Cisneros–Coca-Cola were initially pleased as the decision allowed the transaction to continue with only minor changes. However, they considered the divestiture order of their nondark soda brands and the fines to be inconsistent with the conditioned approval of the transaction. PepsiCo was pleased as well, since the decision found the merger anticompetitive. However, PepsiCo held that the decision, to be consistent with the law, would have had to void the transaction altogether.

The second failure comes from the agency’s technical approach. Pro-Competencia made several mistakes in measuring the impact of the transaction in the market. To mention one, in measuring the likelihood of PepsiCo’s market reentry, Pro-Competencia underestimated the ability of PepsiCo to find a new partner. Just two months after the merger was disclosed, PepsiCo agreed to a $380 million joint venture with Polar, Venezuela’s largest brewing company, to bottle and distribute PepsiCo sodas. Soon thereafter, Pepsi soda returned to the market and so did competition, as intense as ever, between the world’s two largest rival firms. Again, Pro-Competencia focused its analysis on static considerations at the moment of the merger (basically the degree of concentration and market power held by the merging firm the day following the merger) rather than on dynamic considerations (for example, efficiencies, product substitutability, likelihood of entry, and nature of the soda market). Unfortunately, this approach made Pro-Competencia miss the broader picture.¹¹

The case was appealed by both parties in court. Beyond legitimate questions related to the methodology applied to evaluate the transaction and the legality of the fines imposed, the substantive issue of whether Pro-Competencia has statutory powers to stop or restructure mergers remains. If the decision were reversed by the courts, it would be very damaging to the credibility built so far by Pro-Competencia, not to mention the confusion it would bring to such a critical area of competition policy. Cases like this one fall easily into the hands of lawyers, whose advice, which is often unnecessary if the agency conducts its investigations properly, increases transaction costs. Also, these cases, for the most part, end up in the courts of justice, where the expertise to judge competition issues is limited. This brings the likelihood of rulings on a nonsubstantive basis and not always in keeping with the interests of consumers.¹²

Turning to competition advocacy, this is the area in which Pro-Competencia’s actions have been most effective. Nearly three quarters of its efforts have pointed toward the deregulation and demonopolization of protected sectors. For instance, the Venezuelan securities market was protected from competition by a 1975 law that was still in force. According to that law, the members of the stock exchange had to agree on a fixed commission which in turn had to be approved by the exchange commission. The competition law did not automatically overrule this sort of provision. Each provision had to be amended or ousted on a case-by-case basis. Meanwhile, restrictive practices in those sectors remained legitimate. Pro-Competencia issued an opinion about the anticompetitive effects of these rules. The commission agreed to revoke the regulatory measures that interfered with the stockbrokers’ free pricing.

Successful identification and review of the compatibility of valid rules with competition goals have been conducted, among others, in the pharmaceutical, sugar, coffee, and health sectors (Pro-Competencia 1996). Not so successful have been the efforts in the agriculture sector. Active lobbying has overcome Pro-Competencia’s efforts to eliminate traditional price-fixing, quota allocation, and discriminatory practices. Pressure from farmers and producers made the government exclude the agriculture sector from application of the competition law, and the old practices continue (OAS 1997c).

Competition issues have also played a role in the privatization process. The privatization law deems void privatizations that may lead to high levels of market concentration. As a result, the privatization agency and Congress have informally conferred on Pro-Competencia the role of counselor on the potential effects on competition that would result if one of the actual rivals of the privatized company happened to procure the bid. Assessment of the regulatory framework designed for the privatization of natural monopolies has also been part of Pro-Competencia’s role. In these areas, Pro-Competencia has issued 16 reports since 1992 (Pro-Competencia 1996c). These reports include opinions on the privatization of two state-owned airlines, a state-owned aluminum conglomerate, a state-owned dairy, and several state-owned financial institutions. They also include opinions on regulatory issues related to airfare tariffs and energy. Although nonbinding, these reports have earned a sound reputation among the public agencies and the investors involved in the privatization bids.

Competition policy in Venezuela has not been an easy task. Since 1992, two governments with a different orientation and under different political environments have been in power. The most damaging political and economic crisis in Venezuela’s history reached its peak between 1994 and 1996. The newly elected government reversed the open trade policies. Controls were reestablished, as were foreign trade and investment restrictions. The government gave in to business pressure and implemented protectionist measures, especially against Colombian imports. The privatization process was also halted. This change in policies significantly slowed the rhythm of the reforms, and with it, the development and enforcement of a sound competition policy. Pro-Competencia meanwhile has been run by two superintendents. The first (1993–94) dealt with the creation of the agency and the application of the law in the midst of the transition. The second superintendent (1994–97) has worked to keep the competition process alive, especially during the two years of controls. In both periods, the agency has learned how to overpower pressures and keep the underlying goals of its function in perspective.¹³

A new policy shift occurred in 1996. This shift portends Venezuela’s comeback to a more market-oriented system. The reputation and independence gained by Pro-Competencia are key advantages in the much-needed reimplementation of competition policy.

COMPETITION POLICY IN THE ANDEAN COMMUNITY: A MISSING LINK FOR DEEPER INTEGRATION

The open regionalism approach adopted by the Andean Group free trade community envisaged the rebirth of a truly integrated market. Regional tariff and nontariff barriers were progressively reduced. Policy harmonization on rules of origin, transportation, export subsidies, antidumping and countervailing duties, intellectual property rights, and standards and investment, among others, supplemented the trade liberalization efforts of each country. Consistent with the market-oriented endeavors developed at the national level, the Andean Community integration project has been oriented to promote firms’ growth on the basis of international competitiveness and efficiency. The development of common rules to organize business transactions and trade among countries is a major challenge in the region. Competition policy is a key instrument that has been missing in this effort.

This absence is surprising because the Andean Community integration project has tried to be a mirror image of the European Union. The experience of the European Union shows that the enforcement of competition laws at both the national and supranational level is essential to achieving changes in business behavior and institutions. Domestically, a healthy and strong competition policy stimulates local rivalry among firms, which is a key element for efficiency enhancement and international competitiveness. Subregionally, cooperation among countries in competition law enforcement encourages the development of common rules to regulate trade across the region. As the European Union experience shows, having a supranational framework and institutions represents a further step in limiting pressure from interest groups on governments, as well as in preventing transnational anticompetitive practices that may elude domestic enforcement.

In the European Union, competition policy has been used more to consolidate the unification of the European markets than to promote competition within the national markets. To reach this goal, the member countries gave up their powers of enforcing the Treaty of Rome’s competition provisions to the Commission. By means of the well-known Regulation 17, the Commission became responsible for opening investigations on any matter concerning anticompetitive practices and the granting of exemptions within the single market. Thus, the powers of the Commission exceeded those of each country’s competition authorities. The main purpose of this decision was to provide for firm specialization within the union and reinforce the notion of “one market” and “European firms.” By encouraging the integration of firms, the framers expected an increase in the number of participants through free trade, which in turn would reduce the dominant positions of firms in domestic markets. This approach proved to be successful as increased competition created pressure to specialize through economies of scale and comparative advantage.

The Commission used competition policy as an important support. Enforcement activities have concentrated on different priorities over the years in efforts to consolidate the single market. During the 1960s, 1970s, and 1980s, priority was placed on the elimination of trade barriers among countries. Therefore, the Commission’s enforcement emphasis was put on vertical restrictions, particularly to prevent the fragmentation of the single market through concerted practices by distributors in the supply of products to retailers. Mergers, cartels, and dominant firm activities were for the most part untouched as they developed into internationally competitive corporations. As the Commission has gained more independence and maturity, and as countries and interest groups have found it more difficult to impose particular policies, competition policy has begun to change its priorities. During the 1990s, enforcement has been stricter. Since the initial concerns of market fragmentation by national firms have disappeared and European firms have gone fully international, the priorities of the Commission have come closer to U.S. policies toward collusive restraints and mergers.¹⁴

Unfortunately, the Andean Community has not replicated this. The only attempt to address competition issues has fallen short. In fact, the Cartagena Agreement of 1969 does not contain rules on competition similar to Articles 85 and 86 of the Treaty of Rome. It does, however, include a mandate to adopt regulations for dealing with business restrictive practices. On this ground and without properly knowing which business practices affected market integration, the Commission of the Cartagena Agreement enacted Decision 285 in 1991, which established common rules “to prevent or correct distortions in competition resulting from practices aimed at restricting free competition.”¹⁵

Decision 285 is the first effort to address competition issues at the subregional level in Latin America. Its substantive provisions and enforcement mechanisms are modeled after European Union competition rules. Therefore, supranationality principles applied by community bodies govern the system. Curiously, Decision 285 was enacted before the current national competition laws. Although it was seen as a model for policy harmonization in the region, its components and scope fall short compared to what was developed in each country later on. Nonetheless, the Decision, based on supranational principles, prevails over domestic law in cases of subregional dimension.

The Decision has a very limited scope. It deals with restrictive practices resulting either from collusive agreements or from abuses of dominant position as long as they affect competition in more than one country of the subregion. If the practice does not have extraterritorial implications, then national law applies. Concerted actions prohibited by the Decision include price-fixing, restraints on output, distribution, technical development and investment, market allocation, discrimination, and tying arrangements. Abuses of dominant position, on the other hand, include, besides the practices mentioned before, refusals to deal, withholding of input to competing firms and discriminatory treatments. The Decision, however, misses the most important practices affecting competition in integrated markets: vertical restraints and merger review.

The enforcement of Decision 285 is responsibility of the Board, which conducts investigations and proceedings at the request of countries or affected firms. To this extent, the Decision, in sharp contrast with the European Union model, provides the Board with a very peculiar rule of reason standard of analysis. In what looks more like an antidumping analysis than an antitrust one, joint consideration must be given to positive evidence of the existence of the practice, threat of injury or actual injury to a subregional industry, and the cause-effect relationship between the practice and the injury. Proceedings must be completed within two months after investigations are initiated. If the board determines that the practice is restrictive to competition, it may issue an order to cease it. It may also authorize the affected country to impose corrective measures, that is, to lower tariffs on the products exported by means of restrictive practices. In spite of these features, Decision 285 has been a total failure in promoting competition in the Andean market. In fact, only one case has been submitted before the board for examination, and its outcome was negligible. The case involved restrictions to competition in the formerly controlled subregional sugar market.

In Imezucar v. Ciamsa (OAS 1997c), Imezucar, a Venezuelan sugar trading company, requested an investigation in 1996 over allegedly collusive practices in the sugar market performed by Ciamsa, a sugar trading company owned by several Colombian and Venezuelan sugar producers. Imezucar claimed that Ciamsa-Colombia had concerted with Ciamsa-Venezuela to restrict sugar production and exports, fix prices, and allocate market and quotas among its affiliates in each country. It also showed that such collusive and monopolistic practices had injured its activities and reduced its market participation in both countries. Ciamsa, on the other hand, alleged that its affiliated companies competed on an individual basis with each other and that Ciamsa was an efficient system for importing and distributing sugar to its members. In its investigation, the board did not find evidence of collusive pricing, nor did it establish a relationship between the alleged injury and the concerted practices. The case was dismissed.

A number of institutional limitations have contributed to some failings. A first limitation is that the Board cannot initiate investigations on its own. Its actions have to be requested either by the countries or by firms that have a legitimate interest. This leaves the board with little power to oversee the Andean market. The ability to select cases and open investigations is the most important enforcement power. In addition, such power guarantees the independence of the board on issues affecting the integration process, competition, and consumer welfare. Competition rules do not envisage the protection of individual competitors. To the contrary, they seek to protect the competition process. Under the decision’s system, the board acts more like an arbitrator of conflicts between private parties than as a protector of the competition process.

A second limitation is that the Board has neither punitive nor coercive powers to force firms to adopt its decisions. It simply issues a finding with an explanation, setting forth its conclusions and a recommendation to cease the practice. This lack of a mechanism to prevent restrictive practices weakens the board’s authority. The third limitation has to do with the unusual remedy the board may impose. It may authorize countries to grant preferential treatment to imports from third countries of products that are subject to investigation. This remedy seems to work in a protected scheme, but not in an open one where such preferences have been eliminated at the national and regional levels. Again, it is a remedy thought to address individual industry concerns and not competition itself.

These limitations have made the decision groundless and in need of review.¹⁶ The deepening of the Andean integration process will make it even more necessary to pay attention to such questions as the harmonization of domestic competition legislation and means of enforcement among the five countries. Extraterritorial restraints to competition are only one aspect. Many of these practices are successful because no country has jurisdiction over the firms. Firms act in a country, and the restrictive effects are seen in another country. With similar mechanisms and institutions placed in each Andean country, the ability of firms to affect competition is reduced.

Therefore, the participation of national competition agencies in future investigations would help to identify the roots of the problem properly and solve it coherently. Attention should also be paid to the role of the new general secretariat in fostering competition in the subregion. The harmonization process should consider the impact of subregional policies on competition conditions. As seen at the national level, many restrictive practices are facilitated by public policies aimed at promoting goals contrary to competition. The secretariat should play a subregional competition advocacy role in the elaboration of regional economic policies in which free competition is ensured.

For the new Andean Community, the use of a supranational competition policy should be a priority to consolidate free trade in the region. First, it would help in the enforcement of common provisions when anticompetitive practices involve firms from different countries. Second, it would limit pressure from interest groups on individual governments, which would make it easier to protect the competition process instead of the interests of competitors. Third, in the case of mergers, the enforcement of supranational regulations would allow for a better assessment of the optimal size of the firms according to the regional market.

FINAL COMMENTS

After nearly five years of implementation, competition policy is still finding its place in the Andean region. This chapter has shown how competition policy has been approached in each country, as well as in the subregional context. It has also shown that enacting competition laws is not enough and that there is a long road still ahead to make competition policy an effective instrument to promote rivalry and integrate the markets of the region.

To date, the existing laws are nicely drafted, and the new competition agencies have hired bright individuals with a modern understanding of markets and the public service. Nonetheless, the political will to enforce competition policy is still a main challenge. The differences in enforcement among the Andean countries nowadays reveal the degree of political will given to competition policy. As examined, this policy goes from virtually nothing in Bolivia and Ecuador to an uneven enforcement in Colombia, Peru, and Venezuela.

In absence of political support, the existing competition agencies, like many of the new institutions of the market-reform generation, are still struggling to define their role and space within both the business community and the government. Since these constituencies are rather weak, some agencies have tried to find oxygen through the triggering of often unnecessary investigations. In some instances, these investigations have led to erratic decisions, showing a lack of trained personnel, methodological learning, and institutional capabilities to intervene properly in the market. The scale and stage of development of the Andean markets may seem insufficient for firms to pay the high transactions costs to get into them. Consequently, groundless interventions by the competition agencies may certainly contribute to increasing such costs and making investment more difficult in the region.

In the context of the United States–Andean countries’ relations, competition policy issues have not provoked any trade friction. Nonetheless, the increasing flows of trade and investment, particularly from the United States, may increase the potential for anticompetitive behavior and changes in market structure in the Andean countries. This may trigger investigations before the competition agencies, especially in the area of mergers, where most of the U.S. firms have concentrated their commercial interests in the region. It is noteworthy that although some of the competition investigations have had tremendous impact in each country, they have been conducted and solved fairly according to a rule of law and following internationally accepted standards. As for activities across national boundaries, no cases have been reported whereby business practices have had extraterritorial effects on the market conditions either in the United States or in any of the Andean countries. Furthermore, no firms in an Andean country have been involved in an investigation conducted under U.S. antitrust laws.

Four important points can be concluded from the Andean countries’ experience. First, competition policy still depends heavily on individuals rather than on institutions. The president plays a determining role in policy shaping, which cannot easily be set apart by the supposedly independent agencies. The heads of the agencies are to some extent subject to signals hinging upon the government’s will. The green light has been fully given in Peru where INDECOPI still enjoys the government confidence. The green light has selectively been given in Colombia and Venezuela, but a red light has been given where frequent shifts in government policies have forced the competition agencies to change priorities in their agendas.

Second, a lack of government conviction in competition policy has increased rent-seeking activities by the traditional business groups. Governments have given in to competition pressures. Accordingly, sectoral exemptions have been bestowed, new restrictions to trade and investment have begun to appear, sanitary and phytosanitary measures have halted imports, and threats of antidumping and countervailing duty actions have intensified, as have domestic industry lobbying for tariff protection. The economic turmoil of Colombia and Venezuela are clear examples of the protectionist answers that governments can provide against increases in competition coming from abroad.

Third, the laws have been applied very differently to similar situations. Although there are common grounds regarding collusive agreements, such agreements have been more effectively prosecuted in Peru and Venezuela than in Colombia, and they are freely employed in Bolivia and Ecuador. None of the countries has developed sound criteria toward vertical restraints. Finally, each country has tailored its own merger policy, which ranges from full freedom to merge in Peru, to an outdated system in Colombia where mergers are overlooked, to a forceful system in Venezuela where mergers matter. As a result, each country, with different priorities, has yielded different outcomes and therefore, provided firms with different signals.

Fourth, the Andean countries and existing agencies have missed the regional role that competition policy may play in the integration project. The Andean institutions have lost their leadership in this area to the extent that competition policy is left to each country. Extraterritorial problems originated by cartels and restraints at the distribution channels are increasing in the region. The Andean integration project is aimed at promoting the integration of regional firms that are able to compete internationally. Despite the fact that the increase of competition in the region is largely due to the Andean trade liberalization framework, the absence of a regional competition policy not only has not promoted the expected regional integration of firms, but, for the most part, its inhibition.

Efficiency and consumer welfare are the ultimate goals of both the economic reforms and the integration efforts. Such objectives will be rewarded as long as the markets work in open and transparent environments. Indeed, more competition is appreciated nowadays than ever before in the Andean region. However, it is not enough. The Andean markets still continue protected, highly concentrated, and run by fewer firms. Therefore, more consistent efforts are required. The existing competition agencies have learned important lessons during these recent years, such as how to lead a harmonization process in the region. This task will help enhance the attractiveness of the region for trade and investment.

REFERENCES

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Pro-Competencia. 1993a, 1994a, 1995a, 1996a. Doctrina Administrativa de Pro-Competencia. Caracas.

———. 1993b, 1994b, 1995b, 1996b. Informe Anual de Pro-Competencia. Caracas.

———. 1996c. Informes Especiales de Pro-Competencia (1992–96). Caracas.

Rodríguez, A. E. 1996. “The Role of Merger Policy in Recently Liberalized Economies.” Monterrey Institute of International Studies. Monterrey, Calif. Mimeo.

———. 1997. “Disarray in Latin American Competition Policy? A Critical Review of Recent Decisions.” U.S. Federal Trade Commission. Washington, D.C. Mimeo.

Rodríguez, A. E., and M. Coate. 1997. “Competition Policy in Transition Economies: The Role of Competition Advocacy.” Brooklyn Journal of International Law, Fall.

Tineo, Luis. 1997. “Competition Policy and Law in Latin America and the Caribbean: From Distribution to Market Efficiency.” Monterrey Institute of International Studies, CTCD WP No

8 The Law to Promote and Protect Free Competition (December 1991). Additional regulations have been issued to deal with specific areas. Regulation 1 (January 1993) sets enforcement standards for prohibited conduct based on authorizations and exemptions. Regulation 2 (May 1996) sets standards for merger analysis and control. Guideline No. 1 (July 1993) provides information requirements to request authorization to perform certain prohibited conduct. Guideline No. 2 (May 1994) provides information requirements and methodology for merger analysis (OAS 1997b).

9 As occurred in previous merger cases, the case absorbed the time and effort of all the agency’s staff. Likewise, the agency was placed under siege by attorneys, top executives, and politicians.

10  Although this measure was part of the original plan of the merger, Pro-Competencia found that the trusteeship was not fully independent from Coca-Cola. Therefore, the agency decided to directly oversee the selling activities of Coca-Cola facilities under a trusteeship established under the agency’s guidelines.

11 For a detailed analysis of the technical aspects of this case, see Rodríguez (1997).

12 Since Pro-Competencia’s first decision back in 1994, almost all the decisions involving powerful firms have been appealed before the courts of justice. At present, 12 important cases are pending review. The first two decisions came out of the courts (an average of three year delay) in 1997. Both overruled Pro-Competencia’s decisions (Gason cartel and the other Pinco-Pittsburgh on merger) because of the lack of legal standards. See OAS (1997c).

13 For a recount of Pro-Competencia’s institutional development during the period 1993–97, see Kelly (1997).

14 For an analysis of competition policy in the European Union and the lessons that can be learned for Latin America, see Jatar (1996).

15 Decision 285 on Standards for Preventing or Correcting Market Distortions Caused by Practices that Restrict Free Competition, April 4, 1991 (OAS 1997a).

16 In fact, a draft proposal to amend Decision 285 was put forward by the Venezuelan competition agency for discussion. Among its features, the draft proposes a system of exemptions based on the European Union model. According to it, authorizations may be granted on an individual basis to agreements among competitors or on a global basis to sectors provided they enhance economic efficiency and consumer welfare. By the same token, the draft proposes a premerger notification system also along the lines of the European model. For details of this proposal, see Garmendia (1997).