Professor

DANIEL ROQUE VÍTOLO

REPÚBLICA ARGENTINA

COMPETITION and ARGENTINE ANTITRUST

LAWVítolo

Abogados

Argentina

Kitzbüehl

AREA: 2.8 million Km2

POPULATION: 35.6 million

GDP: US$ 298.1 billion

GDP per person: US$ 9,010

Exports Year 2000: US$ 26.2 billion

Imports Year 2000: US$ 25.3 billion

ARGENTINA TRANSFORMATION

•pPrincipal changesA stable democracyAn open economyPrivatizacion of public companiesAct of Convertibility ($ 1 = US$ 1)Tax and monetary controls

INVESTMENT IN STRATEGIC SECTORS

• Energy• Oil• Gas• Mining• Agriculture• Agricultural

Industries• Food• Transportation

• Iron• Steel• Communication• Retail of Food• Trading Centers• Distribution• Services• Tourism

STRATEGIC CONDITIONS• A STABLE DEMOCRACY

• THE “FINANCIAL ARMOR”

• THE INTEGRATIONS AGREEMENTS

the country is starting to grow;

the International Financial Armour avoids any risk of default;

there are opportunities in most economic sectors, requiring capital, know-how and technology;

there is full legal and political stability based on a democratic environment fully engaged in the international world order through Treaties, which, according to the National Constitution, prevail over any domestic law (i.e. more than 130 treaties with the U.S.A.)

there is no exchange control and there is full freedom for entrance and exit of capital, profits, dividends, and royalties.

there is equal legal and tax treatment for foreign and local investors

I would like to invest there...

FOREIGN INVESTMENTS IN ARGENTINA

• No previous approval or registration is needed

• The same conditions as the investors domiciled in Argentina

• The foreign company is ruled by the laws of the place where it was organized (in most of the cases)

• Simple registration in order to participate in local companies

ANTITRUST LAW

MARKET

HISTORICAL RECORDS• Act 11.210 (1923)• Executive Order 15.810 (1946)• Act 12.906 (1946)• Act 22.262 (1980)• Act 25.156 (1999)• Executive Order 1019 (1999)• Decrees 726 and 788 (1999)• Executive Order 89 (2001)• Decree 40 (2001)

ANTITRUST FILES

PHILOSOPHICAL CONCEPTS

• PROMOTION– Development of

the Economy– Effective

Assignment of Resources

– Benefits distributed among everyone

• PROTECTION– Transparency– Consumers– Freedom– Market

transactions

FIRST RELEVANT INNOVATION• Prohibitions considered in

themselves (“per se” conducts) disappeared from the legal sanctions.

• The analysis of the case by case was incorporated within the legal framework, under a sort of “reason rule”.

CONSEQUENCES• The application of the

legislation will depend on the balance between the anticompetition effects of a certain conduct and the achievement or a greater economic efficiency, which the latter can imply.

ACTS or CONDUCTS ACTS or CONDUCTS DISAPPROVED by LAWDISAPPROVED by LAW

• Those ones that could LIMIT, RESTRICT, FORGE or DISTORT the COMPETITION or the ACCES to the MARKET

• Those ones that constitute an ABUSE of a DOMINANT POSITION in a MARKET, so that it can cause DAMAGE to the GENERAL ECONOMIC INTEREST

SPECIFIC CASES MENTIONED by LAW

• Price manipulation

• Restrictions for good or services

• Horizontal distributions agreements

• Restrictions to offers and bids in biddings, licitations and competitions

• Limitation to technical or invest development

Anything else?• Subjective attacks to competitors• Price agreements• Limits to the technological development• Obligations to additional sales or

purchases• Obligation of consumption abstention• Unjustified refusal to satisfy orders• Interruption of supply without an

alternative• Sale below the cost• The abuse of a dominant position

SECOND MAIN INNOVATION

• Autarchic body (Court of Defense of Competition) is created as an Administrative Court

• Seven (7) members• Selected through a public contest before a

jury• Six-year period (removed partially every

three years)• Cannot be removed without justified cause

THIRD MAIN

INNOVATION

• Some control related to concentrations and

mergers

“ECONOMIC CONCENTRATIONS”

• The merger between companies• The transfer of goodwills• The acquisition of the ownership, interest

or rights on shares of stock, equity interest, debts instruments, bonds, which grant any kind of influence over the decisions of the persons issuing them, when such an acquisition gives the purchaser the control or the substantial influence over the same

Anything else?

• Any other agreement or act which practices or legally transfers to a person or an economic group the assets of a company, or which grants determining influence over the decisions about ordinary and special management and administration matters of a company.

WHAT DOES THE LAW PROHIBIT and TRY to AVOID?

• The economic concentration whose objective (or effect) is or can be to reduce, restrict or distort the competition, so that it causes damage in the general economic interest

They shall be in our hands !!!

ACTS SUBJECT TO AUTHORIZATION

• Any of the take overs mentioned before when the amount of the total volume:

– of the whole of the affected companies exceeds in Argentina the amount of US$ 200,000,000.-

– of the total business worldwide, of the group of companies affected, exceeds US$ 2,500,000,000.-

PROCEDURE(confidential)

• NOTICE TO THE COURT WITHIN ONE WEEK FOLLOWING:– Conclusion of the agreement– Registration of the business before the

competent office

• COURT MUST DECIDE WHITHIN 45 WORKING DAYS FOLLOWING THE PRESENTATION:– To Authorize– To Condition– To Deny

• IN CASE OF SILENCE THE OPERATION WILL BE CONSIDERED AUTHORIZED

YOU DO NOT NEED TO ASK YOU DO NOT NEED TO ASK FOR AN AUTHORIZATION IF:FOR AN AUTHORIZATION IF:

• The buyer was the owner of more than 50% of the shares of the stock capital before

• The bonds, shares or debentures do not give political rights (vote)

• Only one foreign company, which did not have any assets in Argentina or shares of local companies before, buys only one local company

• Acquisitions of liquidated companies that did not register activities in the country within the last year.

GOOD NEWS!!

Of Course, You Can Also Ask The Court

In Advance But nobody does that...

WARNING!!!!• The acts shall only have

effects among the parties or towards third parties, once the procedure of previous authorization fixed by the law has been complied with; additionally, there are significant fines

What a problem...

• From US$ 10,000.- to US$ 150,000,000.- for the antitrust conducts (forbidden practices and abuse of dominant position)

• Up to US$ 1,000,000.- per day (no notification of economic concentrations; or not to stop the conducts or effects when the Court orders so)

• Additional penalties

HOW MUCH SIGNIFICANT?

STEPS to authorize ECONOMIC STEPS to authorize ECONOMIC CONCENTRATIONSCONCENTRATIONS

• Which is the relevant market? (Definition)• Identification of the companies that actually

act in the relevant market• Measurement and qualitative analysis of the

concentration• Possibility of increasing the power market in

an unilateral o coordinate conduct

If the answer is NO, the business is authorized

If the answer is YES: Go to the next step

NEXT STEP• Are there regulatory, logistics or

transport barriers to imports?• Are there possibilities for new

competitors to come into the relevant market?

• Do the consumers represent a limitation to the power market?

• Is the conclusion that there are a possibility to increase the market power in an unilateral or coordinate way?

If the answer is NO, the business is authorized

If the answer is YES go to the next step

NEXT STEPNEXT STEP• Are there efficiency productive

profits?

If the answer is NO

Authorization could be denied

The Court could

condition the business

IF THE ANSWER IS YES: GO TO

THE NEXT STEP

FINAL

STEP

B u s ine s s is a u th o rize d Business is denied Business is conditioned

E va lu a tio n o f the m a rk e t p o w e r in c re a s evs .

E ffi c ie nc y p ro d u c tive p ro fi ts

THE FINAL DECISION CAN BE APPEALED TO A JUDICIAL COURT Please... Do

not !!!!

STANDARD OF THE DECISION• The final authorization

(administrative or judicial) turns the business unattackable

• But if the parties gave to the authority false information or false documentation, it could be attacked

WHICH IS THE PROBLEM WITH THIS PROCEDURE?• Time

– Merger (130 days)– Goodwill transfer (90 days)– Take over (45/60 days)

• Surprise factor– The market– Competitors– Workers

• Confidentiality– Disclosure– Know how– Customers– Inside information

Let me see...

ONE ADITIONAL PROBLEM

• The Administrative Court can suspend the term if it considers that the parties did not give enough documents and information necessaries for making the decision, or if a deeper investigation or analysis is necessary

• The procedure could be longer than 45 working days

THE PITFALLS• Who will lead and manage the company

in the meantime?• What happens if the company needs

supplementary financial assistance?• Who will assume the losses and the

gains of the period?• If a crisis appears... who will decide

what to do?• What happens if there are first refusal

rights?

MATERIAL ADVERSE CHANGES?

• What happens if the market changes?– Is there a way to protect good faith?– Will the affected party cooperate to obtain

authorization from the Court?

• What happens if the “relevant” market moves?– Is there any way to abort the business?

• What happens if in the meantime the business becomes not viable, or the company that was merged in suffers losses that cannot be absorbed by the price (or its adjustments)?

WHAT HAPPENS IF THE COURT DOES NOT AUTHORIZE THE BUSINESS?

If both parties agree

There is no problem

If the authorization is denied because of only one of the parties... What can the other one do?

WHAT HAPPENS IF THE COURT CONDITIONS THE BUSINESS?

If both parties agree

There is no problem

If both parties agreeThere is no problem

If one of the parties does not agree?

More pitfalls!

• When you have two different sizes of companies and you must pass by the Court only because of one of them... If the authorization is denied, or it is conditioned to another act...

• If the business aborts... Could any compensation be claimed by the affected company?

• WHAT ABOUT?:• Strategic

information• Cost and expenses• Corporate image• New chances of

business• Information got by

the competitor or the other company

• Public information• Damages in terms of

customers and market share

WHO HAS THE RIGHT TO APPEAL THE COURT DECISION?

Both of them

Suposse there are discrepancies ...

CAN THE PARTIES WAIVE THEIR RIGHTS IN ADVANCE?

How can we build a price, its adjustments, and how can we prevent all the pitfalls in this kind of business?

If you know how... You are a genius!!!!

If not... Try to finda good lawyer !!!!

Vítolo Abogados