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Report on Developments and Enforcement of Competition Policy and Laws in the Western Hemisphere

Submitted by the OAS Trade Unit to the FTAA Working Group on Competition Policies


Colombia: Report on Developments and Enforcement of Competition Policy and Laws (1992 - 1996)

I. Recent Developments and Changes in Law and Policy

Thus far no additional laws regulating competition and restrictive trade practices have been enacted that are different from 1959 Law 155, 1964's Regulatory Decree No. 1302 and Decree law 2153 of 1992. The foregoing notwithstanding, the Office is in the process of putting together internal guidelines to provide its staff with a legal tool to make it easier to apply the rules and regulations already on the books on this subject.

II. Application of Competition-Related Law and Policy

A. Anti-competitive practices

1. Summary

From 1992 to June 1997, the Office of the Delegate for Competition Promotion handled a total of 156 cases involving free competition and restrictive trade practices. Of these, 114 were complaints, 32 were instituted by the government, and 10 were brought by other agencies or offices of the Office of the Superintendent. Of these cases, 22 were received in 1993, 30 in 1994, 69 in 1995 (42 of which are complaints about medical associations), 21 in 1996 and 14 in 1997.

Most such cases closed with a finding that they did not have sufficient merit to institute a formal investigation. On the other hand, however, in the period from 1994 to 1997, 32 rulings ordered a formal inquiry into the respective case. Eight such decisions were issued in 1994, three in 1995, 16 in 1996 and five in 1997. Of these, 21 are now closed; 18 ended with pledged assurances. The most common practice alleged in these inquiries was direct or indirect price-fixing agreements (see appendices 1 and 2).

2. Significant cases

a. Railway sector

The Empresa Colombiana de Vías de Férreas -FERROVÍAS- is a state-owned industry and business company associated with the Ministry of Transportation. It is sole owner of the nation's rail system and is in charge of running the rail transport system. Its other main objective is to maintain, improve, recondition, extend, modernize, run, direct and administer the national rail network and to regulate and control its operation.

In 1991, Ferrovías signed a contract with Drummond Ltd.(DLTD), a private enterprise engaged in coal exploration and mining in Colombia's northern region. The contract is for 30 years, effective as of the date on which all contractual preconditions have been fulfilled. It spells out the rights, obligations and conditions of DLTD's coal-shipping and related activities along the La Loma-Santa Marta line, which is part of the national rail system. Under the terms of the contract, up to 10 million tons of coal can be shipped by rail each year, the monthly maximum being one million tons. In 1994, the La Loma-Santa Marta line could carry up to two million tons annually.

The case began with a complaint filed against Ferrovías on June 27, 1994, by one of the coal mining businesses in Colombia's northern region, alleging that an abuse of dominant position occurred when terms were established that were biased in favor of Drummond Ltd. (DLTD) but prejudicial to the other coal mining businesses in the northern region. Resolution No. 2,324 of October 31, 1994, ordered that an inquiry against FERROVÍAS be instituted since clauses 3, paragraph 3.19, and 8, paragraph 8.10, of the Private Transport Operating Contract -La Loma-Santa Marta line- allegedly constituted a violation of Article 50, paragraph 2 of Decree 2153/92, since clause 3, paragraph 3.19, speaks of the "GUARANTEED SERVICE LEVEL", which effectively means that Ferrovías is guaranteeing the DLTD first choice of train timetables and routes provided the Train Plan is worked out jointly.

Also, should any operational conflict arise with other clients on the Coal Line, whether in execution of the Train Plan or operation of the trains in motion, FERROVÍAS pledged to take every measure possible to settle the conflict in such a way that the detailed parts of the Train Plan can be carried out. The privileges that the DLTD was given vis-a-vis Guaranteed Service Level are in addition to other privileges it obtained under the contract. Under clause 8, paragraph 8.10, third parties were permitted "to travel and ship by the Main Line provided this does not prevent the DLTD from shipping the required amounts guaranteed under the present contract or does not affect the DLTD's Guaranteed Service Level. If FERROVÍAS wishes to assign to other clients temporarily any carrying capacity that the DLTD will not require for travel or shipment on the Main Line, that capacity is to be taken from whatever capacity the DLTD was scheduled not to be using when the Train Plan was planned and agreed upon with FERROVÍAS. If the carrying capacity that FERROVÍAS wishes to assign elsewhere can affect the DLTD's privileges under the contract, FERROVIAS must first obtain the DLTD's written permission before reassigning the carrying capacity. DLTD may not refuse without just cause.

The relevant market: The relevant market is the use or service of the rail line to ship coal and materials associated with coal mining. The geographic area is the run from each of the coal- loading points within the mining area to the shipping port at Santa Marta and Ciénaga. The market in question has characteristics typical of a pure market. The information supplied shows that the current operators of the line are Drummond Ltd -also a coal exporter- and the S.T.F.; however, the end users or consumers of the service, apart from DLTD, would be Prodeco, Carbones Caribe, Sororia, C.M.U., Dupela, Norcarbón, Carboandes and Siminera, all companies that have concessions to (explore for and) mine coal in the immediate area, which consists of eleven (11) communities located in the municipalities of Chiriguaná, El Paso, Bosconia, La Jagua de Ibirico and Becerril.

What these users have in common is that they are all exporters and have a port of embarkation, either their own or authorized, within the jurisdiction of the municipalities of Santa Marta and Ciénaga, in the department of Magdalena. Then there are the potential coal (exploration and) mining businesses in the reserve areas of Guaymaral, El Descanso and El Hatillo, located in the area in question. Drummond Ltd. now accounts for 49.38% of the coal produced, while the other businesses account for the remaining 50.61%.

In this particular case, overland shipping is not a viable alternative to rail shipping, since there are a number of differences, such as cost, which is much higher in the case of overland carriage. The ratio is between 2:1 and 3:1: with the increased risk involved in shipping overland; the shipping insurance premium is higher; shipped overland, the coal will take longer to reach the port of embarkation, and unloading costs are higher in the case of overland shipping.

The Office of the Superintendent concluded the following:

    - As the sole owner of the national rail system and the only party responsible for the system's operation, Ferrovías has a dominant position on the market for using the rail lines in the country and abused that position by setting terms in the contract that it concluded with the DLTD that discriminated against the DLTD's current and potential competitors, especially in the case of clause 3, paragraph 3.19. It is obvious that the terms that Ferrovías set for DLTD would be biased against parties that wished to do the same thing, i.e. to use that line to ship coal mined in the Department of César and in the country's interior and bound for export from ports on the Atlantic coastline, since the DLTD would have first choice of schedules and train routings. Then, too, if there was any chance that DLTD's guaranteed service level might be affected, FERROVÍAS was contractually required to obtain DLTD's written permission in advance, leaving DLTD's competition at a disadvantage.

    - Clause 8.10 does not constitute a violation of the rules of free competition, since once the Operating Contract is in effect, Ferrovías was required to request permission before reassigning any capacity the operator would not be using, which is obvious since a minimum guaranteed service level has been agreed upon and cannot be refused.

Early closure: Under the fourth paragraph of Article 52 of Decree 2153/92, during the course of any investigation the Superintendent of Industry and Commerce may order the investigation closed when, in his/her judgment, the alleged offender offers adequate guarantees that it will either cease or modify the practice for which it is being investigated.

Through Resolution No. 523 of April 11, 1997, the Superintendent of Industry and Commerce decided to accept the guarantees that Ferrovías offered, which were that it would renegotiate the contract concluded with Drummond to amend the offending clauses so that the restraint of competition would be eliminated by dropping the clause that gives Drummond first choice of train schedules and routings and the clause requiring Ferrovías to get Drummond's advance, written permission before leasing the line to third parties.

b. Automotive Sector

Once the official preliminary investigations were conducted, investigations were ordered into the country's major automotive assembly plants and their dealerships, namely: Resolution 1574 of July 15, 1994 ordered an investigation of the Compañía Colombiana Automotriz S.A. (CCA), which assembles Mazdas; Resolution 801 of April 30, 1996, ordered an investigation of General Motors Colmotores S.A., which assembles Chevrolets, and Resolution 925 of May 13, 1996, ordered an investigation of the Sociedad de Fabricación de Automotores S.A. (Sofasa S.A.), which assembles and imports Renaults and Toyotas.

These investigations also extended to the legal representatives and auditors of the businesses being investigated for allegedly having authorized, carried out or tolerated the practices being investigated.

Compañía Colombiana Automotriz S.A. (CCA) and its dealerships.

This investigation examined two allegations:

    - Alleged direct or indirect price fixing between the CCA and its network of dealerships, consisting of a purported price-discounting agreement, the preconditions for the discount prices, and a standard interest rate on loans. (Article 47, number 1, of Decree 2153/92, Article 1 of 1959 Law 155).

    - CCA's alleged division of markets among its dealerships (Article 47, number 3 of Decree 2153/92).

Guarantees given: Pursuant to Article 52 of Decree 2153/92 and availing themselves of the opportunity to get the investigation closed early, the parties under investigation pledged to amend the contracts with their respective dealerships so that:
  • In the matter of the alleged price fixing agreement, the contracts would stipulate that prices would be determined by free market forces and that dealerships would be free to sell the products to the public based on the characteristics of the market; each dealership's discounts would be determined on the basis of its own cost structure, and any possibility of suggested retail sales prices for vehicles and spare parts and for maintenance and repair services would be eliminated.

  • In the matter of the alleged agreement dividing up and apportioning markets, it would be stipulated that in the matter of territory the only allowable restriction would be to ensure timely delivery of warranty and maintenance services; the contract would not grant exclusive privileges or preferences based on the geographic location of the dealership's showroom.
Early closure: With resolution 1382, dated October 11, 1995, the Office of the Superintendent for Industry and Commerce accepted the guarantees given by the Compañía Colombiana Automotriz and its dealerships, thereby closing the investigation early.

General Motors Colmotores S.A. and its network of dealerships

The following were the charges:

    - An alleged price-fixing agreement in the form of suggested prices for manufacturer resales, conveyed by periodically sending out price lists; also alleged were standardized discounts and the conditions that must be met to receive them (Article 47.1 of Decree 2153 of 1992).

    - Alleged market apportionment via client selection in the case of the Automayor dealership, which is owned by the other dealerships, the corporate intent being to funnel sales to government agencies via the one dealership (Article 47, paragraph 3 of Decree 2153/92).

    - Conclusion of an agreement with marketing terms alleged to be unrelated to the purpose of the contract, primarily having to do with the following:

Dealership territory: assignment of a predetermined area as a dealership's business territory.

Advertising: In the manner and amount determined by the factory, and strictly according to its guidelines.

Internal control, inventories, sales and supplies of spare parts and services, all according to the standard, factory-designed system.

Examination of the dealership's installations, books and records: no restriction whatever.

Warranty restrictions whereby buyers could only go to the original dealership -the dealership that sold the vehicle- for any service covered under the warranty (Article 47, paragraph 7 of Decree 2153/92)

Guarantees given: The parties being investigated offered to take corrective measures and requested that the inquiry be closed pursuant to Article 52 of Decree 2153/92. They were to amend the following points in their dealership contracts:

  • In the matter of the alleged price-fixing agreement, suggested standardized price lists were to be eliminated. General Motors Colmotores S.A. retained the right to periodically inform its dealerships of any market studies it may have conducted, including the products' position within its segment of the market.

  • The marketing terms alleged to be unrelated to the purpose of the contract were to modified as follows:

      a) Advertising: the dealerships' obligation to advertise in the manner and in the amount recommended by the manufacturer was eliminated; dealerships now only have to take its recommendations into account

      b) Systems for internal control, accounting, inventories, sales and supply of spare parts and services: the dealerships' obligation to keep these records and systems in line with factory guidelines was eliminated, although the factory will provide any advisory assistance that the dealership may require from it.

      c) The obligation to follow the standard, factory-designed accounting system was eliminated; the factory, however, can still demand from its dealerships any financial statements and other information it may require.

      d) The special authorization the manufacturer has to examine and check the inventory of the dealership's stock, its facilities, and the dealership's books and records was limited to regular working hours and now has to be arranged in advance with the dealership.

      e) Warranties: All dealerships in the system must honor buyer warranties.

Other matters investigated are the following, which the Superintendent's Office ordered dismissed for lack of merit:

  • Marketing terms alleged to be unrelated to the purpose of the contract:

      a) As to the clause in the contract that prohibits dealerships from participating in the resale of products covered under the contract, and from selling or doing business in products, spare parts or accessories other than those sold and/or recommended by the business granting the franchise, it was established that the prohibition on resales does not apply to operations of this type, which are between the dealerships; instead, its purpose is to protect consumers.

      b) Dealership territory: After examining the present market for automotive vehicles in the country in light of the territorial restrictions, the finding was that the practice of including restrictions of this kind in contracts between dealerships and the business granting the franchise was not objectionable, provided such clauses make for more efficient customer service, preserve the trademark's image, and make the system stronger in specialized services, and provided customers can go to any dealership in the system for maintenance and after-sale services and dealerships can sell to a buyer from outside its business territory; in other words. Such clauses are not to prevent customers from going to distributors or dealerships outside the dealership's territory for service covered under the warranty or for maintenance of a product purchased from another distributor or dealership in another area.

      c) Grounds for termination of the contract and effects thereof.

  • The alleged market apportionment agreement: The dealership agreement concluded between G.M.C. and Automayor S.A. allegedly resulted in customer selection which purportedly had the effect of dividing up markets among dealerships. It was established that no dealership had exclusive rights to sales to government or public agencies.
Early closure: Since the changes proposed by the parties being investigated were deemed adequate, in Resolution 367 of March 18, 1997, the guarantees given by General Motors Colmotores S.A. and its network of dealerships were accepted, which brought the investigation to an early conclusion.

Sociedad de Fabricación de Automotores S.A. SOFASA and its dealerships

The following were the charges:

    - An alleged price-fixing agreement in the form of lists of the manufacturer's suggested resale prices. (Article 47, paragraph 1 of Decree 2153 of 1992)

    - An agreement containing marketing clauses allegedly unrelated to the purpose of the contract, mainly in the following respects:

      Exclusive product lines, new cars, spare parts and accessories: dealerships were expressly prohibited from purchasing, supplying, promoting and selling new vehicles, spare parts and accessories other than those supplied to them directly by the business awarding the franchise, regardless of whether the vehicles, spare parts and accessories are competing brands.

      Exclusive direct sales: the business awarding the franchise reserves the right to sell to certain clients stipulated in the contract.

      Dealership territory: demarcation of a specific zone as the area within which the dealership can do business.

      Advertising: the dealership and business granting the franchise share advertising costs, with the latter planning and conducting the advertising directly.

      Accounting and reports: Unlimited access to a dealership's books and statistics (Article 47, paragraph 7, of Decree 2153 of 1992).

Guarantees pledged: The parties being investigated requested that the inquiry be closed and, in order to bring the investigation to a close, pledged guarantees as required under Article 52 of Decree 2153/92, to modify the following aspects of their franchise agreements:

  • As for the alleged price-fixing agreement, rather than the suggested price lists, the business granting the franchise will supply its dealerships with periodic, general information on the automotive market, including general information on the industry, on the competition's products and on the vehicles and parts it manufactures.

  • The marketing clauses alleged to be unrelated to the purpose of the contract will be changed as follows:

      a) Direct sales: The business granting the franchise ceases to have exclusive rights over direct sales, but retains its right to sell directly, on a nonexclusive basis and through autonomous contracts independent of the franchise agreements, to its suppliers, employees and the departments, municipalities, public corporations and public transportation agencies, and for advertising and promotional campaigns or sports and cultural events.

      b) Advertising: The kind of advertising that is planned and executed unilaterally by the business granting the franchise and underwritten jointly by the parent company and the dealership is eliminated; henceforth, nationwide or regional advertising planned, directed and carried out jointly with dealerships will be underwritten by both parties, only after the parties have agreed upon the amount that each is to pay.

      c) Accounting and reports: The parent company's unlimited access to the dealership's books and figures is eliminated; instead, dealerships will pledge to provide, as promptly as possible, any information and figures that the parent company may require in connection with the business and matters related to the dealership contract. Dealerships' accounting systems must meet all legal requirements and their figures must faithfully and accurately reflect their economic-financial situation, sales and other business transactions. They are to produce monthly reports, in the manner required by the parent company, showing their monthly sales, inventory of vehicles and spare parts, and mechanic services according to procedures that the parties agree upon in advance.

Other charges investigated but which the Superintendent ordered dismissed for lack of merit include the following:

  • Marketing terms allegedly unrelated to the purpose of the contract:

      a) Exclusive product line unless Sofasa S.A. authorizes otherwise in writing

      b) Dealership territory: When this issues was examined in light of current conditions on the automotive market in Colombia, with the amended contract nothing was found that could be said to be in violation of the free competition rules and regulations or to constitute restrictive practices.

Early closure: As the modifications in question were considered adequate, by resolution 1187 of August 6, 1997, the guarantees given by the Sociedad de Fabricación de Automotores, S.A. and its dealerships were accepted and the investigation ordered closed.

Continue on to Section C: Telecommunications Sector

 
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