As a general principle, the Antitrust Law establishes that 'Conduct, practices, agreements, contracts or decisions that hinder, restrict, distort or limit economic competition are prohibited' (Article 4).
In accordance with Article 9 of the Antitrust Law, agreements between undertakings, decisions of undertakings and concerted practices that have as their object or effect the prevention, restriction or distortion of competition are prohibited, especially when:
- directly or indirectly fixing purchase or selling prices or any other trading conditions;
- limiting or controlling production, markets, technical development or investment;
- applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- sharing markets, territorial areas, supply sectors or sources of supply between competitors; and
- making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts.
These regulations are considered by the Antitrust Law as 'general obligations' for every economic agent. Nevertheless, grassroots organisations, public or mixed strategic companies, and national state-owned companies for the provision of public services are excluded from the application of the Law (see Section I).
The aforementioned activities must be analysed in conjunction with the Organic Law of Fair Prices (OLFP), which is the main law governing economic activities in Venezuela, indicating the following, among others, as its purposes:
- economic order;
- protection of consumers and users;
- fair, equitable, productive and sovereign development of the national economy through the determination of fair prices for goods and services, considering the analysis of cost structures;
- the establishment of maximum profit; and
- the effective oversight of the economic and commercial activity in order to protect the income of citizens.
The administrative entity responsible for enforcing the OLFP is the National Superintendency for the Defence of Socioeconomic Rights (SUNDDE).
In this sense, the OLFP and its administrative provisions provide that the maximum profit margin of each member of the commercialisation chain cannot exceed 30 per cent in general (we mention, as an exception, importers, with a 20 per cent profit margin for their activities) of the cost structure of the good or service. The cost structure shall be calculated according to the methodology set by SUNDDE, especially in accordance with Administrative Provision No. 003, which indicates the valid elements that will be recognised as costs and as expenses. A second act that must be taken into consideration is Administrative Provision No. 070, an administrative regulation of SUNDDE where the pricing criteria through the intermediation margin (MI) and the elements of price marking are established.
Following the above, in accordance with this price-fixing regulation and profit-margin regime, the Antitrust Law establishes some 'exception rules' when the President, heading the Council of Ministers, grants an exemption from the prohibitions contained in the Antitrust Law, when it is considered in the nation's interest, in the following cases:
- direct or indirect – individually or concerted – fixation of goods or services purchase or sale prices;
- application of different conditions in trade relations for similar provisions or equivalent that may lead to inequalities in the competitive situation, especially if different from those conditions that would be demanded in the event a genuine competition concern exists in the market, except those cases of cash discounts, volume discounts, lower cost of money for the offering of reduced risk and other common advantages in business; and
- having exclusive branches and franchises with prohibitions on trading with other products.
The established exemptions shall comply with – in a concurrent way – the following: contributing to the production, commercialisation and distribution of goods, provisions of services and foster technical and economic progress; and bringing benefits for consumers or users.
These 'exceptions' to the prohibitions of the Law can only be applied in particular circumstances, considering that the legal regime of fair prices and profit margins applies as a general rule to all economic activities.
In the event the existence of prohibited practices is determined, the Antitrust Superintendency will be able to:
- order the cessation of the prohibited practices within a given time;
- impose certain conditions or obligations on the infringer;
- order the elimination of the effects of prohibited practices; and
- impose sanctions.
In this sense, Article 49 of the Antitrust Law establishes the sanctions that could be applied in the event it discovers prohibited practices or conduct set out in Sections 1, 2 and 3 of Chapter II of the Law. Thus, if the Antitrust Superintendency determines the existence of prohibited practices, the economic agent shall be sanctioned with a fine of up to 10 per cent of the value of its annual gross revenues in the event of extenuating circumstances; the amount may be increased up to 20 per cent in the case of aggravating circumstances. In the event of recurrence of the prohibited practices, the fine will be increased to 40 per cent.
The calculation of the annual gross revenues referred to in this chapter will correspond to the fiscal year prior to the imposition of the fine.i Significant cases
Since the entry into force of the Antitrust Law in November 2014, the Antitrust Superintendency has published no decisions as a result of administrative procedures or claims.ii Trends, developments and strategies
Even if cartels are prohibited and price fixing as a general rule is prohibited, in accordance with Administrative Provision No. 070 every producer, importer and service provider must mark the price of goods and services according to a formula, whereby the maximum sell price to the public (consumers) (PMVP) divided by the maximum sell price for producers or importers (PMVPI) minus 1 and the result multiplied by 100 will give you the MI, which should not exceed 60.
This implies a 'price-fixing' obligation for producers, importers and providers over every product or service, eliminating the possibility of distributors and sellers establishing prices despite the prohibition of Article 9 of the Antitrust Law. In this sense, if the price fixing was made or established by producers, importers or providers in accordance with Administrative Provision No. 070 there is no sanction or consequence under the Antitrust Law.
This also affects vertical relationships between producers, importers, distributors, sellers and providers, because the regulations established in Administrative Provision No. 070 imply a price-fixing obligation with a profit margin for the whole economic chain; this means that the profit margin between the producer or importer and the final seller cannot exceed 60 per cent.
Additionally, the Constitutional Law of Agreed Prices gives the National Executive the possibility to determine the 'priority' character of some goods and services. In this sense, the prices of those priority products will be determined through an agreement between the economic agents and the National Executive. Nevertheless, this is a new regulation, and the procedure is not clear enough. We are waiting for administrative criteria and results in order to proceed with a proper analysis.iii Outlook
As a consequence of the controlled economic model imposed by the government, economic agents have been developing in a very restricted market, where the main issue is obtaining raw materials and foreign currency to maintain a business or an economic activity. Thus, even if the Antitrust Law is in force, it must coexist with the OLFP, which is the principal legal framework to regulate and control the economy in Venezuela, affecting economic agents and conditioning the circumstances surrounding the market for goods and services.
Many economic agents have been adapting their practices and commercial relationships to those special profit margin rules, creating strategies such as adjusting their cost structure to the sub-legal regulations of SUNDDE, trying to reduce the risks of penalties (e.g., fines, public interventions, confiscations of goods and imprisonment), avoiding certain activities that could be considered high risk (e.g., selling priority products) and avoiding needing to obtain foreign currency through the foreign currency exchange control regime.
Nevertheless, if an economic agent receives a notification – as a consequence of the initiation of an administrative procedure – from the Antitrust Superintendency, a possible strategy to consider could be the modification or cessation of an activity or operation that could be considered as prohibited, in order to reduce the risk of sanctions and the eventual imposition of a penalty.
Cooperation with the Antitrust Superintendency or any other public entity is a usual strategy in administrative procedures. In addition, the assistance of a public law or economic law specialist during the administrative procedure is highly recommended.