Competition bill gains support after public consultations

By Yolanda Pereira

Following several months of public consultations on previous draft bills, the Trade Ministry consolidated a revised draft Competition Bill that it recently submitted to the National Congress for its consideration.

The scope of the proposed Bill includes state monopolies and has extraterritorial reach to the extent that the anticompetitive conduct affects the local market. The regulations target anticompetitive agreements, abuse of dominant position and abuse of dominant position through predatory pricing, and lay down rules for merger notification.

Anti-competitive Agreements

As regards anticompetitive agreements, it prohibits those leading to –

• price fixing, or other transaction terms, in an abusive manner;
• restricting output, distribution, technical development, investments or the market, without justification;
• allocating markets;
• applying different terms, without justification, to similar transactions resulting in a competitive disadvantage to the other party;
• tying;
• collusive bidding;
• restricting output or sales in particular by means of market quotas;
• refusal to purchase; and
• refusal to participate in an agreement deemed critical for competition.

The above practices are not deemed to be per se illegal but would be tested against efficiency gains, a fact which can be proved to favor competition by the company in question. Refusal to sell has been excluded as an anticompetitive practice, and the draft gives no guidance regarding the concept of “justification”.

Abuse of Dominant Position

Dominance is defined under the Bill as a position where an undertaking is not exposed to effective and substantial competition. Criteria to determine the existence of a dominant position are described as follows:

• extent to which the good or service may be substituted, conditions and time necessary;
• extent to which regulations restrict market entry; and
• extent to which a competitor may unilaterally influence pricing or restrict supply or demand, and the extent to which competitors may counter such conduct.

According to the Bill, certain practices in particular may constitute an abuse of dominance:

• fixing prices or other inequitable business terms;
• restricting output, distribution or technical development, without justification;
• refusal to sell, without justification;
• applying different terms to similar transactions, without justification;
• tying;
• threatening to discontinue to deal in order to obtain or attempt to obtain more favorable terms exceeding agreed terms.

Abuse of Dominant Position through Predatory Pricing

Provisions addressing abuse of dominant position through predatory pricing bring two prohibitions that bear on resale price maintenance, as follows –

• selling at prices below production cost or profit margin, without justification, with the purpose of driving competitors out of the market; and
• selling at prices below purchase, or restocking, or profit margin, without justification, with the purpose of driving competitors out of the market.

Purchase prices, after discounts, would be determined according to invoices, supply contracts or price lists. The competition authority in coordination with the Trade Ministry would determine costs at origin according to antidumping regulations. Discounts include those directly connected with the transaction at origin, quantity discounts, financial and promotional discounts. Purchase prices should include advertising costs, commissions, gifts and any other outlay by the seller in connection with the product or service in question.

The prohibitions will not apply to perishables, obsolete stock, goods that can be restocked at a lower price, goods sold at the same price as another competitor in the relevant market considering time and territory, or stock clearances.

Abusive Tying Arrangements

Tying arrangements on a contractual basis are prohibited when the effect is exclusionary or exploitative, causing a serious damage to competitors and suppliers.

Merger Notification

According to the Bill, prior notice of a merger or acquisition will not be mandatory.

Filing of a notice within the following 10 days of closing, publication of purchase offer, or acquisition of participation will be mandatory in the following cases –

• the transaction increases to, or exceeds 40% of the relevant market for a specific good or service; or
• the transaction exceeds 120000 minimum monthly salaries according to the latest fiscal year figures.

The competition authority must rule within 45 days giving clearance or not, or passing the transaction subject to conditions. Silence on the part of the authority will be deemed to constitute assent, however; assent on this basis shall not benefit any transactions notified upon requirement of the authority