Myths and Legends of Competition Law in Guatemala

Written by:

Mario Estuardo Archila

 

The subject of Competition Law is complicated, because of all of the disciplines involved in the elaboration of its legislation, interpretation, and application.

 

In Guatemala, this issue was in everybody’s mind due to the publicity that has been given to the necessity of having a Competition Law, since that was part of the Free Trade Treatise with the European Union.

 

 This has risen several questions regarding if we have a Competition Law or not. Several experts have declared unequivocally that we do, in fact, don’t. Others come to the contrary conclusion. And from this precise answer depends if, we do indeed need a Competition Law, a reform to the current legislation, or if the existing legislation is sufficient. We will answer this question in the following pages.

 

Competition Law; do we already have one?

 

The Guatemalan Commercial Code, in its Book II, includes in Title II the legislation corresponding to “The Protection to Free Competition”. In addition to these rules, which we will comment on further in this text, the Central American Regulation on Competition, recognized that the competition legislation in Guatemala is comprised of the Political Constitution of the Republic, the Commercial Code (quoted above), the Penal Code, the State Contracts Law, the Hydrocarbon Law, the Hydrocarbon Commercialization Law, the General Telecommunications Law, the Banks and Financial Groups Law, the Insurance Activities Law and “any other legislation related with competition that is notified to the COMIECO.” It should be made clear, however, that these rules are not necessarily legislation that allows for more competition in their respective sectors. They are, in many cases, and not only in Guatemala, rules and regulations that limit competitions within the sectores that they regulate. This type of restrictive laws to competition, often disguised as laws for promotion or incentives, end up creating, in fact, monopolies or oligopolies; this is what happens when legislations impedes free competition in an industry sector. 

 

Since 1890, there have existed legal regulations on “competition”, thanks to the so called “Sherman Act”. The effect of it over time is questionable. For example: Esso Standard Oil was the first company to be penalized under this law. Rockefeller was prosecuted as a criminal, because his company was deemed too big. 34 additional companies were created as a result of enforcing said rule. However, to this date, Exxon-Mobil, the direct descendant of Esso Standard Oil, is the biggest company in the world.

 

In the same manner, one must understand that Rockefeller made an impressive fortune by the fact that he was able to satisfy, better than others, and at more accesible prices, the needs of the consumers in the United States of the XIX century. Maybe an unfounded fear lead to the establishment of the Sherman Act, in order to prevent that this economic giant were to be used negatively.

 

These fears have been sufficiently overcome in more advanced countries, and by the economic theory, where it is well known that it is not the size of a company the essential element that hinders competition; instead, it is the barriers to entry and the ability to affect the immediate consumer at a given moment. Typically, competition laws start from a model of perfect competition. This model enables to design scenarios, but it does not reflect reality, because it is simply impossible to know a priori the totality of the information that a “perfect” competition system requires, and much less, for an official agency to design in a “perfect” way these scenarios that allow for it to predict the future of a certain business behavior.

 

Several of modern problems (we will go over 2 real life cases later on) are manifestations of the problems created when designing the scenario, precisely due to the lack of information available by the institutions in charge of its application.

 

The business owner, evidently, has limited information, but this is tempered by their aversion to risk, which makes them look for a better strategy in order to overcome their marginal costs, or, at least, achieve an equilibrium. Theses strategies may be short term investments, low prices — for a short period of time — marketing strategies, etc.

 

The amount of variables involved makes it complex to devise a competition legislation system that is able to act as a filter for permitted and not permitted actions (a priori analysis legislations) and other issues that require “corrective” or punitive mechanisms. In international jurisprudence, however, even those corrective (a posteriori) systems have flaws and allow to cast a doubt over the true efficacy of these legislations. From a Law perspective, all legislations must undergo a Justice examination.

 

Therefore, practices that make business performance better, lower prices for the consumer, or present important innovations in goods or services, should not be curtailed by rules that protect “competition”, when it is precisely competition that results in lower prices, better business performance and innovations in goods and services.

 

As Hayek points out un his book Law, Legislation and Liberty, what makes a big company control others conduct is not the volumen of resources it possesses but the ability it has to stop the delivery of the goods the consumers need to consume immediately and, he continues, the possibility the company has to discriminate among buyers.

 

I would venture to affirm that Guatemala already has a Competition Protection Law, based on the article 361 of the Commercial Code that establishes that, “All businesses have the obligation to enter into business with anyone who requires the products or services that it offers, observing equal treatment between the diverse kinds of consumers.”

 

Quoting again from Hayek what makes a big company control others conduct is not the volumen of resources it possesses but the ability it has to stop the delivery of the goods the consumers need to consume immediately. He adds that this faculty does not come from the possibility to control the prices, but from the fact that, the company is in the position to discriminate among buyers.

 

Therefore, the obligation that the Commercial Code of Guatemala establishes is a rule regarding competition protection and against the exercise of market power. The norms that follow it are within the area of “unfaithful competition”, although the definition of “unfaithful competition” is sufficiently wide to permit the incorporation, by way of jurisprudence, of certain notions that the economic science and the doctrine on competition law have already created. The article 362 defines as unfaithful acts: “Every act or deed contrary to good commercial faith, or to normal and honest development of mercantile activities, will be considered as disloyal competition, and therefore, unjust, and prohibited.”

 

Within acts contrary to good commercial faith and or to normal and honest development of mercantile activities, one can find, in the judicial process, collusive pacts, restriction of offers pacts, territorial protections, among others.

 

The legal. Process is an ordinary suit that can be initiated by individuals, trade associations, or the General State’s Attorney’s Office.

 

However, is all of this enough?

 

Personally, I think that except for a small amendment to article 364 which will be discussed further on, the existing legislation is enough to achieve the desired regulation. The reforms that are definitely necessary are those to be made on the procedural side.

 

The main reform must be done to the procedure itself, but as a general reform to the justice system as a whole, since the ordinary procedure becomes a lengthy process, full of obstacles. In Guatemala, the following legal recourses should be available:

 

a) Class action law suit. In order for various consumers whose rights have been violated by the contested behavior, can adhere themselves to a suit. This is very much used in the USA.

b) An amendment to the judicial procedures in order to avoid formal suits with recourses that impede an agile resolution to the cases. This is obviously something that must be addressed throughout the Guatemalan judicial system.

c) The action by the General State’s Attorney already exists, but there is still is a need to train the professionals inside that institution to recognized the aforementioned practices,

 

And, last bust most importantly:

 

d) The prohibition from the cited article 361 must be clearly included in all possible legal actions, since to this day, if an act is not interpreted as “disloyal competition” under the 361 provisions, there is no legal recourse available. This is why the article 364 must be amended to clearly include the action due to monopolistic acts.

 

I consider it best to recur to direct judicial actions, and not as it has been handled in other countries, as direct local legislation. The creation of a Competition Superintendency, with and administrative control system of the market, would involve an administrative litigation before and against such a government branch, between the infractor and the Superintendency. This impedes access to the public and other economic agents, to adhere themselves to the suit as part of it, and later it still needs to go to a judicial administrative procedure, which is nothing more than an ordinary lawsuit with a single instance, between the infractor and the would be Superintendency.

 

This procedure does not allow for accessibility, adding to the inconvenience that a Superintendency tends to pay attention to short term and political problems, more than to true competition problems. It is very doubtful that a “supervisory” entity of business behavior, imbued in the bureaucratic framework of a political system, can even visualize business activity, much less accurately regulate for the benefit of consumers in the medium and long term.

 

We say this, because it must be considered that the valuation that the public officials in charge, make in relation to those economic acts, tends to be strong and short term, distorting their real functions.  

 

Case Study

 

We use as a case study the Nestlé/Perrier one, since it demonstrates the high degree of complexity and subjectivity to which this type of legislation is submitted. The main issue was the necessity to define the relevant market of the product, it being “bottled water”. To one party — Perrier — the relevant market was “non alcoholic beverages”, since all of them had the same function: to quench thirst. The European Competition Committee, on the other hand, argued that the relevant market had to be defined, not only by the consumer’s search to “quench thirst”, but also to “quench their thirst with a healthy — unsweetened — product, but that this lead to include tap water and, therefore, that Coca-Cola was a potential rival, since Coca-Cola requieres their bottle factories to begin the process with drinkable water from tubes before mixing in the syrup and bubbles. In order to do this, the Committee added to its definition of relevan market “liquid product to quench thirst from a natural source that provides minerals.” The question arises then if carbonated water can be part of the relevan market or not.

 

This is why it’s very complicated to imbue with decision making power to governmental offices, since the play on terms to include or exclude a product or situation can cause more distortions to competition than simply permitting interaction.

 

Interpretative Danger

 

This seeking to encompass a set of products in a legal definition is the work of lawyers. This form of interpretation is what they teach students in Law School, however, said definitions have little or nothing to do with economic reality and the decision making process of economic agents.

 

We should simply make a mental experiment, just to have a practical idea of the point we are making, by thinking, which necessity is covered by bottled water. It could be dietetic, religious, as a thirst quenching method, as an alcoholic mixer, as a way to take medicine, and so on and so forth. There are people (the Dutch in a great degree) who have their meals with a glass of milk, not water or carbonated beverages. Other people drink flavored water to quench thirst, while others drink simple tap water. In each of these instances, the sellers of bottled water lose a potential sale…

 

Competition Authority in Guatemala

 

The same Central American regulation quoted above clearly establishes that the competition authority in Guatemala is the Vice-Minister of Investment and Competition, through the Direction of Promotion of Competition, from the Ministry of Economy.

 

All of the above being said, we have solved the two big myths clouding Competition Law in Guatemala:

 

  1. We DO have a competition legislation;
  2. We DO have a national competition authority.

 

Surely, the most problematic issue has to be the dogmatic belief for some, that a specific competition law is necessary, one that creates a super-competition-authority to direct the economy. But that is an issue that would best be discussed in a whole book.

Scroll to Top