Toward a Common Competition Policy in Mercosur

José Tavares de Araujo Jr.

In December 1996, Mercosur countries signed the Fortaleza Protocol, which established an ambitious set of guidelines toward a common competition policy in the region. The protocol implies that all member countries must have an autonomous competition agency; that the national law will cover the whole economy; that the competition authority will be strong enough to challenge other public policies whenever necessary, and that the member countries will share a common view about the interplay between competition policy and other governmental actions. Following the Mercosur philosophy, the protocol does not create supranational organisms, and the effectiveness of the regional disciplines will rely on the enforcement power of the national agency.

The protocol is enforced by the Mercosur Trade Commission (TC) and the Committee for the Defense of Competition (CDC).1  The TC performs adjudicative functions, whereas the CDC is responsible for the investigation and evaluation of cases, which are handled in three stages. Proceedings are initiated before the competition authority of each country at an interested party’s request. After a preliminary determination of whether the practice has Mercosur implications, the competition agency may submit the case to the CDC for a second determination. Both evaluations must follow a rule of reason analysis in which a definition of the relevant market and evidence of the conduct and the economic effects must be provided. Then, the CDC must decide whether the practice violates the Protocol and recommend that sanctions and other measures be imposed. The CDC ruling is submitted to the TC for final adjudication by means of a directive. As part of these procedures, the protocol establishes provisions for preventive measures and undertakings of cessation. This mechanism allows the defendant to cease the investigated practice under certain obligations agreed upon with the CDC. The monitoring of these measures and the enforcement of the sanctions are the responsibilities of the national competition authorities.

Argentina has had an antitrust law since 1919 and Brazil since 1962, but competition policy became a relevant issue in these countries only in the nineties, in the context of the trade reforms and privatization programs implemented in the region since the late eighties. In 1994, the Law no. 8884 redesigned the Brazilian policy instruments and strengthened the powers of CADE (Conselho Administrativo de Defesa Economica) as the main antitrust authority, paving the way for the regulatory reforms carried out in the subsequent years in the areas of energy, oil and telecommunications. The Argentine law was amended in 1946 and 1980, but the real reform was to be made only in September 1999 through the Law no. 25156, which created the Competition Tribunal with the necessary instruments to play the role of regulator of last resort in the economy. With an enlarged scope of application, this law introduced important new provisions, such as merger control and the autonomy of the antitrust authority.

Although Paraguay and Uruguay do not have antitrust laws, since the mid nineties their governments have been engaged in the debate about competition rules in two integration projects, the Free Trade Area of the Americas (FTAA) and Mercosur. After a preliminary phase that lasted from March 1996 to June 1998, the FTAA Working Group was transformed into a negotiating group whose main assignment is to prepare the competition chapter of the hemispheric agreement to be signed in 2005. Two explicit mandates of this group are to “advance towards the establishment of juridical and institutional coverage at the national, sub-regional or regional level, that proscribes the carrying out of anti-competitive business practices;” and “develop mechanisms to promote cooperation and exchange of information between competition authorities.” (San Jose Declaration, March 1998; see FTAA Official Website)

Therefore, the FTAA negotiations will reinforce the commitments made by Paraguay and Uruguay within Mercosur in regard to the adoption of a competition law. As they are yet to take this measure, the Fortaleza protocol is not operational until now. But there are two additional factors hampering the implementation of the protocol. According to article 7, the parties should have adopted common rules for controlling mergers and acquisitions by December 1998. According to article 9, the CDC was supposed to submit the procedural rules of the protocol to the Trade Commission. None of these commitments has been attained so far.

One important goal of the protocol is to pave the way for abolishing antidumping measures among Mercosur countries. Since the signing of the Asuncion Treaty in 1991, Argentina has initiated 38 antidumping actions against Brazil, two against Paraguay and one against Uruguay; while Brazil has opened two investigations against Argentina and two against Uruguay. As table 1 shows, Mercosur and NAFTA are the only regional agreements in the Western Hemisphere wherein the member countries apply this instrument on a regular basis. During the period 1987-2000, while Mercosur had 45 cases and NAFTA had 216, the Andean Community and CARICOM had no cases, and Central America had three cases.

Enforcing competition policy is a necessary, but not sufficient step toward the elimination of antidumping. In theory, these policies have an overlapping target, which is to curb predatory pricing but, in practice, they address different issues. While the former is concerned with market power, the latter is normally used as a trade remedy for industries unable to face import competition. Thus, to abolish antidumping inside a trade agreement, the member countries need not only competition policy, but also common disciplines for promoting the international competitiveness of their domestic industries. This is another unfinished task inside Mercosur, as article 32 of the Fortaleza protocol mandated: “The States Parties undertake, within a two year period following entry into force of the present Protocol, and for purpose of their incorporation in this instrument, to draft joint standards and mechanisms which shall govern State aid which is susceptible to limit, restrict, falsify or distort competition and to affect trade between the State Parties.”