Up to date, Peru's general framework in competition is comprised by Legislative Decree 701, Law that eliminates monopolistic, controlling and restrictive practices affecting free competition, Legislative Decree 807, INDECOPI's competence and proceedings Law, Law 27444, General Administrative Procedure Law, and Law 26876, Antimonopoly and Antioligopoly Law for the Electricity Sector.
Peru has undertaken major changes which have had a significant impact on the country's development. Many of the most significant changes involved the constitution of a market economy system. For this, a mediator was required, who without intervening in or distorting the marketplace, would guarantee the effectiveness of the economic system to ensure that the basic rules of competition are honored.
Thus, since its establishment in 1992, Indecopi has viewed itself as an institution with an arbitration or mediation role in competition controversies among individuals and private enterprises. However, Indecopi acts ex officio to enforce the Competition Law -Legislative Decree 701- whenever a conduct capable of cause damage to the general economic interest in the national territory is detected.
Also, Indecopi develops market studies, focusing on market structures and its implications to competition, in order to promote competition in those markets where significant market failures are detected.
The Free Competition Commission (CLC for its Spanish acronym) is a technical and administrative autonomous agency and one of the jurisdictional bodies within INDECOPI. It's responsible for ensuring compliance with the law against practices that are monopolistic, or designed to control or restrict free competition.
The Free Competition Commission has a Technical Secretariat that serves as a liaison with the administrative structure of INDECOPI. (Article 44 of the Law on Organization and Functions of INDECOPI)
Six members directly named by INDECOPI's Board of Directors make up the CLC. Each member works part time at the Commission, and can come from the public or private sector. Their autonomy and impartiality is granted by their moral and professional capacity.
All the different areas, commissions and offices belonging to INDECOPI, including the CLC, are financially and administratively audited every year.
The Competition Defense Chamber of INDECOPI's Tribunal has the second and final administrative jurisdiction on cases involving violations of Decree 701.
INDECOPI also requests a permanent active role of its Economic Studies Department in order to analyze markets and to collect information for future and current procedures.
Current Competition Policies / Arrangements
The Peruvian antitrust legislation punishes anticompetitive practices such as:
- Direct or indirect collusion among competitors to fix prices or other terms of trade or service
- Division of the market or supply sources
- Application of production quotas
- Agreement upon product quality when it does not relate to national or international technical standards and negatively affects the consumer
- Application in business practices of discriminatory terms for similar services, which place some competitors at a disadvantage with regard to others
- Making contracts contingent upon acceptance of supplementary payments that by their nature and in comparison with business custom are not related to the purpose of the contracts
- Unjustified refusal to satisfy demand for purchase or acquisition of goods or services, or offer of sale or provision thereof
- Collusion for limits or controls on production, technical development, or investment
- Establishment of, agreement on, or coordination of bids or lack of bids in public auctions, competitions, and sales
- Any other situation with similar effects.
Legislative Decree 701 seeks to eliminate monopolistic practices, controls, and restraints on free competition in the production and marketing of goods and the provision of services, so that free private enterprise can flourish for the greatest benefit of users and consumers. (Article 1)
The law applies to all persons and entities under public or private law undertaking economic activities. It also applies to all persons who direct or represent corporations, organizations and institutions, when they take part in the behaviors forbidden by this law (Article 2)
According to the provisions of this law, acts or behaviors involving economic activities that constitute abuse of a dominant market position or limit, restrain, or distort free competition in a manner that injures the common economic interest in national territory are prohibited and shall be punished.
With regard to merger control, it only applies to the electricity sector. Peru's National Institute for Defense of Competition and Protection of Intellectual Property, INDECOPI, is in charge of providing an ex-ante evaluation of mergers in the electricity sector (Law No26876: antitrust and antioligopoly of the electricity sector), since the CLC has to be notified of merger proposals.
Through Supreme Decree N¢X 087-2002-EF, published on June 1st, 2002, additional regulation has been set for Law N¢X 26876 "Antitrust and Antioligopoly Law for the Electricity Sector". This decree has the purpose of establishing a special procedure for the application of the law whenever a concentration takes place as a result of the promotion of investment by the Agency of Promotion of Investment, PROINVERSION.
In addition to these regulations, according to article 36o in Law No 27336, OSIPTEL is the body in charge of the resolution of any conflict between private enterprises related to behaviors affecting the market of public services in the telecommunications sector (it acts as a competition agency in the telecommunications sector).www.osiptel.gob.pe
Regarding other issues, Law 27809 established a time limit for the resolution of INDECOPI's procedures, which is 120 business days. This resolution must be applied to CLC's procedures.
Law 27444, General Administrative Procedures Law, established the general framework to regulate the administrative procedures, included the CLC's procedures.
In 2005, the Competition Defense Chamber issued Resolution No 0328-2005/TDC-INDECOPI, which contains a Precedent of Mandatory Observance regarding some guidelines for issuing and answering to information requests in a procedure started by the CLC.
In addition, the Free Competition Commission enacted Resolution No 039-2005-INDECOPI/CLC (July, 2005). This decision established a guideline that included criteria to evaluate proposals made by the parties under article 20 of Legislative Decree 701, to discontinue the illegal acts under investigation or change his conduct in these respects in order to attain the adjournment of the administrative proceeding.
Measures to Deal with Horizontal RestraintsArticles 3 and 6 of Legislative Decree N¢X 701 were understood as an enactment of the per se rule and the rule of reason. These rules were firmly adopted in Peru by two decisions established by the Competition Chamber of the Tribunal of INDECOPI in 1997. However, article 3 literally expresses that a negative effect has to be present in the economy, in order to declare a practice illegal; then, in 2003, the Chamber enacted Resolution N¢X 0224-2003/TDC-INDECOPI, which modified those precedents.
In addition, this administrative decision has established a precedent for all antitrust cases to be treated in the future. Articles 3 and 6 do not apply sanctions based only on the existence of collusive agreements or conspiracies to restrain trade (as was mentioned above). According to the decision, it will also be necessary to put the agreements into execution, and for them to have a negative effect in the economy, to declare a practice illegal. This analysis must be carried out on a case-by-case basis. Competition authorities in all future cases will follow the doctrine approved by Resolution N¢X 0224-2003/TDC-INDECOPI, since it is of mandatory compliance.
Measures to Deal with Vertical Restraints
Peruvian competition law does not prohibit per se vertical restraints such as:
- exclusive dealing, and;
- resale price maintenance.The anti-competitive nature of these practices is analyzed case by case. Tying arrangements could be punished under the Rule of Reason.
Under Peruvian Competition Law there is no different treatment between horizontal and vertical restraints. The precedent set by Resolution N¢X 0224-2003/TDC-INDECOPI, is also applied to vertical restraints.
Measures to Deal with Abuse of Dominant Position
Peruvian competition law punishes the abuse of dominant position as an anti-competitive practice. Acts of abuse of a dominant position include:
- Unjustified refusal to satisfy demand for purchase or acquisition of goods or services, or offer of sale or provision thereof
- Application in business practices of discriminatory terms for similar services, which place some competitors at a disadvantage with regard to others
- Making contracts contingent upon acceptance of supplementary payments that by their nature and in comparison with business custom are not related to the purpose of the contracts
- Other cases of a similar nature.
These practices are punished when the anti-competitive conduct and its damaging effects on the market have been proved.
The Competition Defense Chamber of Indecopi issued Resolution No 0225-2004/TDC, which stated that abuse of dominant position comprises not only exclusionary, but also exploitative conducts.
Measures to Deal with Mergers and Acquisitions
The only sector, which has a prior notification mechanism for concentration operations, is the electricity sector.
According to the Law (Antitrust and Antioligopoly Law for the Electricity Sector), all companies directly or indirectly involved in merger operations, shall notify such operations before performing them, considering their market share in the activities of electric power generation, and/or transmission, and/or distribution in the Peruvian territory.
During 1999, the main investigation concerning mergers in the electricity sector was carried out. At the end of this procedure, the CLC established some issues in order to improve the analysis of concentrations operations such as:
- Concentration operations that are made in a foreign country, including tender off operations, must be notified to the CLC in order to obtain previous authorization.
- Regarding the definition of control over a firm, the CLC ruled that constant influence over the decision bodies within a firm implies a prime position over the rest of shareholders. This influence can be executed through the strategic decisions taken by the General Shareholders Meeting, the Board or by Management.
- The previous authorization system is applied to all operations that potentially restrain, reduce or damage competition. Therefore, if the operation only enhances a dominant position, it will not be under the scope of this law. However, this last type of operations will be evaluated in detail, given that they have potential capacity to restrain, reduce or damage competition.
- The prohibition or the establishment of conditions does not imply by themselves that the operation constitutes an abuse of dominant position. In fact, the regulations establish a previous authorization system before the operation causes any effect on the market.
Based on previous experience with merger notifications in the electricity sector, in April 2002, the CLC elaborated a new questionnaire in order to improve the request of information within a merger notification procedure. This new questionnaire takes into account the Peruvian Electricity sector's way of operation and requests more direct and specific information. It also considers the different relevant markets in the Peruvian electricity sector:
- The non franchise customer.
- The transmission market.
- The distribution market.
Through Supreme Decree N¢X 087-2002-EF, published on June 1st, 2002, additional regulation has been set for Law N¢X 26876 "Antitrust and Antioligopoly Law for the Electricity Sector". This decree has the purpose of establishing a special procedure for the application of the Law whenever a concentration takes place as a result of the promotion of investment by the Agency of Promotion of Investment, PROINVERSION. www.proinversion.gob.pe