The Public Competition Enforcement Review: Venezuela

Overview

i Fundamental considerations for understanding the Venezuelan economy

Prior to explaining and analysing the antitrust and free competition framework in Venezuela, it is of utmost importance to understand the current situation in terms of the Venezuelan economy and the legal contrast between the national constitution of Venezuela (the Constitution) and the country's economic regulations.

The Constitution establishes certain rules, principles and rights to foster an economic system allowing private initiative and free association, within a market directed to promote and protect free competition, and guaranteeing all citizens access to goods and services.2 In accordance with those constitutional parameters, the executive branch of government (the National Executive), in subordination to the law, must regulate, organise and develop the economy in Venezuela.

Nevertheless, the economic legal regulations created in the past 23 years – basically through legislative delegation from the National Assembly (the legislative branch) to the National Executive – have changed the constitutional foundations of Venezuela's economy, creating a new model that both the former and the current President have called the 'socialism of the 21st century', whereby the market for goods and services has effectively been under governmental control by means of the following: price-fixing; foreign currency exchange control (repealed in 2019);3 confiscation of companies and properties; and regulation of profit margins for goods and services.4

This has brought about a significant reduction in free competition, since economic agents do not have enough room for manoeuvre and economic conditions have produced a reduction in the number of productive companies. These negative economic condition are the result of a lack of raw materials, the inconvenience of access to foreign currency (thus reducing imports of any kind) and the absence of legal protection for both domestic and foreign companies. Economic agents, therefore, cannot assess the risks of new investments and instead must keep their cost structure to a minimum and put all their efforts into preserving their business in a country where inflation and devaluation of the bolivar has been reducing the purchasing power of producers, merchants, providers and consumers. (Inflation reached 1,698,488.2 per cent in 2018,5 7,374 per cent in 20196 and 3,700 per cent in 2020.7 However, economic specialists observing the notable decrease in the rate of inflation to 686.4 per cent in 20218 believe this possibly marks the end of hyperinflation.9)

Since 2017, the government of Nicolás Maduro has carried out a series of experiments in economic matters, many of them issued by the National Constitutional Assembly (NCA).10 These include the Constitutional Law of Agreed Prices,11 a profound reform of the tax framework, the implementation of the unit of account called the petro, created in 2018 (without the authorisation of the National Assembly and outside constitutional norms) and applied inconsistently since 2019. The government indicates that the petro is a cryptocurrency but has not provided information and public access to the platform and algorithms used for its creation, and it is difficult to consider it a cryptocurrency because the government is the issuer and the value is also set by the government.

Although the NCA was dissolved in December 2020, one of its final legislative acts was the issuance of the Anti-Blockade Law,12 whereby the National Executive was granted a series of generic or open mandates to rebuild the Venezuelan productive apparatus, help industries recover, and restore private and foreign investment. The de facto dollarisation of the economy that began a few years ago has continued to deepen the commercialisation of goods and services in dollars (in the border area with Colombia, the use of the Colombian peso as a payment currency is very common), but to date there has been no formal dollarisation enacted by the government.13

The Venezuelan health crisis, which existed before covid-19, has deepened as a result of the pandemic. A state of emergency was declared by the government of Nicolás Maduro in March 2020, with effect until February 2021, creating a lot of legal restrictions. The country began a vaccination campaign very late and by January 2022 only 37 per cent of the population had received two doses of the vaccine. Given the size of the population, this puts Venezuela in 124th place worldwide in terms of vaccination rates.14

Nonetheless, both the legislative and executive branches of government made significant changes on the economic front during 2021. Notably, the Decree of Economic Emergency originally enacted in 2015 was most recently extended in February 2021. Also of note is the third monetary revaluation process undertaken in 13 years,15 which took effect from October 2021. The government also enacted the Law for the Promotion and Development of New Enterprises, to 'promote the development of new entrepreneurs and entrepreneurial culture aimed at increasing and diversifying the production of goods and services, the deployment of innovations and their incorporation into the economic and social development of the Nation', indicating that this Law is governed by the principles of social justice, democracy, efficiency and fair and free competition.

Although from a constitutional and strictly formal point of view the Venezuelan economy may be considered a free competition regime, it is in effect a controlled economy (through public entities) from a legal and material point of view, and it is on this basis that the free competition regime in Venezuela is discussed in this chapter.

ii The Antitrust Law and antitrust authorities

The legal regulation of free competition is effected through Decree No. 1,415, which enacted the Antitrust Law.16 As established in Article 1 thereof, the Law aims to promote, protect and regulate fair economic competition to ensure the democratisation of productive economic activity with social equality, strengthen national sovereignty and foster endogenous and sustainable development, satisfy social needs and build a fair, free, solidary and mutually responsible society by means of the prohibition and sanctioning of monopolistic and oligopolistic behaviours, as well as abuses of dominant position, agreed-upon claims, economic concentrations, and any other anticompetitive or fraudulent practices. Nevertheless, Article 3 states that the following are excluded from the application of the Law: grassroots organisations of popular power governed by the Organic Law of the Communal Economic System; public or strategic companies; and national state-owned companies for the provision of public services.

The Superintendency for the Promotion and Protection of Free Competition (the Antitrust Superintendency) is the main authority in this regard. It is considered an administrative unit of the National Executive, with budgetary autonomy but without legal personality (i.e., it is part of the legal entity of the state), and it has the power to investigate and enforce the Antitrust Law. In this sense, the Superintendency has the faculty to investigate possible infringements of the Antitrust Law, either by acting on a complaint or upon its own initiative. However, before reaching a decision, the Superintendency must obtain sufficient evidence upon which to base its conclusions.

At the conclusion of an investigative procedure, the Antitrust Superintendency issues a resolution determining the existence or non-existence of prohibited practices under the Antitrust Law. In the event that the existence of prohibited practices is determined, in accordance with Article 38, the Antitrust Superintendency may:

  1. order the cessation of the prohibited practices within a given time;
  2. impose certain conditions or obligations on the infringer;
  3. order the elimination of the effects of prohibited practices; and
  4. impose sanctions provided by the Antitrust Law.

The lack of payment of a fine or payments made after the deadline has expired for that purpose results in an obligation to pay default interest until clearance of the debt. The interest rate is calculated at 6 per cent above the average rediscount rate established by the Central Bank of Venezuela during the delay period.

The Superintendency may impose on undertakings any behavioural or structural remedies that are proportionate to the gravity of the infringement committed.

Penalties start with the prohibition of the anticompetitive agreement and a fine that shall not exceed 10 per cent of the total turnover in the preceding business year.

Cartels

As a general principle, the Antitrust Law establishes that '[c]onduct, practices, agreements, contracts or decisions that hinder, restrict, distort or limit economic competition are prohibited.'17

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:

  1. directly or indirectly fixing purchase or selling prices or any other trading conditions;
  2. limiting or controlling production, markets, technical development or investment;
  3. applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  4. sharing markets, territorial areas, supply sectors or sources of supply between competitors; and
  5. 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 the contracts.

Pursuant to the Antitrust Law, these regulations are considered 'general obligations' for every economic agent. Nevertheless, grassroots organisations, public companies or companies of a (wholly or partially) strategic nature, 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 with reference to the Organic Law of Fair Prices (OLFP),18 the main law governing economic activities in Venezuela, which has the following principal purposes, among others:

  1. economic order;
  2. protection of consumers and users;
  3. 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;
  4. the establishment of maximum profit; and
  5. the effective oversight of the economic and commercial activity 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 regard, the OLFP and its administrative provisions stipulate that in general the maximum profit margin of each member of the commercialisation chain cannot exceed 30 per cent (as an exception, importers are limited to a 20 per cent profit margin for their activities)19 of the cost structure of the goods 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 elements to be recognised as costs and expenses. A second piece of legislation that must be taken into consideration is Administrative Provision No. 070,20 an administrative regulation of SUNDDE establishing pricing criteria through the intermediation margin and the elements of price marking. Although hyperinflation and the gradual dollarisation of the economy have seen Administrative Provision No. 070 fall into disuse, it does remain in force.

Following the above, in accordance with this price-fixing regulation and profit-margin regime, the Antitrust Law establishes some 'exception rules', whereby the President, heading the Council of Ministers, may grant an exemption from the prohibitions contained in the Antitrust Law when it is considered in the nation's interest, as in the following cases:

  1. direct or indirect – individually or concerted – fixation of purchase or sale prices of goods or services;
  2. application of different conditions in trade relations for similar or equivalent provisions that may lead to inequalities in the competition situation, especially where the conditions are different from those that would be required in the event that a genuine competition concern were to exist in the market, and except for those cases of cash discounts, volume discounts, lower costs for offerings of reduced risk and other common advantages in business; and
  3. exclusive branches and franchises with prohibitions against trading in other products.

The established exemptions shall comply concurrently with the following: contributing to the production, commercialisation and distribution of goods, the provision of services and fostering 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 that the existence of prohibited practices is determined, the Antitrust Superintendency will be able to:

  1. order the cessation of the prohibited practices within a given time;
  2. impose certain conditions or obligations on the infringer;
  3. order the elimination of the effects of prohibited practices; and
  4. impose sanctions.

In this regard, Article 49 of the Antitrust Law establishes the sanctions that could be applied in the event that 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 by up to 20 per cent in the case of aggravating circumstances. In the event of a 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

Although cartels are prohibited and price-fixing is, as a general rule, also prohibited, there are still rules in force enacted in accordance with the OLFP (namely Administrative Provision No. 070), whereby economic agents, including every producer, importer and service provider, must mark the price of goods and services according to a mathematical formula. This implies a 'price-fixing' obligation, despite the prohibition of conduct of this kind by Article 9 of the Antitrust Law, but as noted above Administrative Provision 070 has fallen into disuse. However, it is nominally still in force.

Additionally, the Constitutional Law of Agreed Prices gives the National Executive the option to determine the 'priority' character of some goods and services. 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 remains unclear. Administrative criteria and results will be required before it is possible to proceed with a proper analysis.

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.

iii Outlook

As a consequence of the controlled economic model imposed by the government over the past 23 years, the development of economic agents has had to take place in a very restricted market. Nonetheless, the de facto dollarisation of the enconomy (particularly since 2019), and what seems to be a state policy aimed at liberalising certain economic activities, suggest that growth is likely in the coming years, both in the number of economic agents and in the production of goods and services. However, these changes in economic conditions, beginning with the abolition of exchange control in 2019, have been very slow, unfolding in a very difficult environment given the insufficiency of the electricity service, corruption and serious security problems. Thus, even if the Antitrust Law is in force, it must coexist with the OLFP, which is the principal legal framework for regulating and controlling the economy in Venezuela, affecting economic agents and establishing the conditions for the market for goods and services.

Considering the reduction in the size of the market, and in government control, there have been no identifiable trends in terms of cartels, but the situation could change if the movement towards economic deregulation continues and this is put into practice formally.

Antitrust: restrictive agreements and dominance

As discussed in Section II, as a general principle, the Antitrust Law prohibits not only any type of conduct that hinders, restricts, distorts or limits economic competition but also the actions or conduct of those who while not holding a right protected by the Law seek to prevent or hinder the entry of companies, products or services into all or part of the market, or similarly hinder companies in the market.21

Additionally, it is forbidden for parties subject to the application of the Antitrust Law to take actions that restrict economic competition between them; to encourage others not to accept the delivery of goods or the provision of services, to prevent their acquisition or provision; or not to sell raw materials or inputs or provide services to others. Consumers or users and their organisations will not be subject to these regulations.22

Article 7 of the Antitrust Law prohibits manipulative behaviours, which are considered to be conduct tending to manipulate factors of production, distribution, commercialisation, technological development or investment to the detriment of economic competition.

Furthermore, agreements or conventions held directly or through unions, associations, federations, cooperatives and other groups subject to the application of the Antitrust Law and that restrict or hinder economic competition among their members are prohibited.

Agreements or decisions taken in assemblies of the subjects of the application of the Law that restrict or hinder economic competition are null and void.

In accordance with Article 11 of the Antitrust Law, contracts between economic agents that establish prices and procurement conditions for the sale of goods and the provision of services to third parties that produce or may produce the effect of restricting, falsifying, limiting or hindering fair economic competition in the whole market or part of it are prohibited.

Article 12 of the Antitrust Law establishes that the abuse of a dominant position, in all or part of the domestic market, by any or several of those subject to the Law is prohibited, and in particular the following practices:

  1. the discriminatory imposition of pricing and other commercialisation or service conditions;
  2. the unjustified limitation of production, distribution or technical or technological development to the detriment of companies and consumers;
  3. the unjustified refusal to meet demand in relation to the purchase of products or provision of services;
  4. the application – in trade or service relations – of unequal conditions for equivalent provision that places competitors at a disadvantage in comparison with others; and
  5. the subordination of the execution of contracts to the acceptance of additional services that, by their nature or in compliance with trade usages, are unrelated to the purpose of the contracts.

In this context, to identify a dominant position, one must analyse Article 13 of the Antitrust Law, which indicates that a dominant position is established when a determined economic activity is performed by a single person, or group of associated persons, whether in their capacity as purchaser or their capacity as provider of services, as well as in their capacity as user thereof; or where there exists more than one person to whom the execution of a certain type of activity is attributed, but there is no actual competition between them.

When a dominant position is established, the persons in that position must comply with the provisions of the Antitrust Law, to the extent that there are no applicable differing conditions established by their relevant governing regulatory bodies, in conformity with what is provided in Article 113 of the Constitution.

If the existence of prohibited practices is determined, the Antitrust Superintendency will be able to proceed in accordance with Articles 38 and 49 of the Antitrust Law.

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

The de facto dollarisation, the opening of small new businesses (specially in Caracas) and the distancing of the state over small and medium-scale trade could generate new economic trends.

iii Outlook

As stated above, it is expected that 2022 will see the evolution of the government's plans to open up the country economically. The prospect of an eventual economic opening-up leads us to suppose that many of the economic activities controlled by the government through public entities will be deregulated or privatised.

Sectoral competition: market investigations and regulated industries

The Venezuelan framework presents a number of special regulations for certain industries. In the absence of legislation or regulations specific to an economic activity or industry, the OLFP will automatically apply.23

In this sense, special regulated activities include the following:

  1. insurance activity: the Superintendency of Insurance Activity;
  2. the banking sector: the Banking Superintendency;
  3. the oil industry: the Ministry of Oil and Energy and PDVSA;
  4. cement: the Venezuelan Corporation of Cement;
  5. the mining industry: the Ministry of Mining;
  6. electric power: the Ministry of Electric Power and Corpoelec;
  7. telecommunications: the Ministry of Communications and Conatel; and
  8. healthcare: the Ministry of Health and many public entities.

As a main principle, every economic activity will fall within the scope of the Antitrust Law framework except for those agents or undertakings stipulated in Article 3 of the Law (see Section I.ii).

A lot of the specifically regulated industries are developed by public or strategic companies or national state-owned companies. This is the case with companies involved in the oil industry. Moreover, the banking sector is considered a public service according to Article 8 of the Law of Institutions of the Banking Sector, and the same legal situation applies for electricity, provision of domestic gas and many economic activities of public interest (telecommunications, construction, sale of food, medicines and some body care products, among others).

The conclusion of economic concentration transactions by insurance, banking and telecommunications companies requires prior authorisation from regulatory bodies.

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

The high presence of state-owned companies and strategic companies in practically every sector of Venezuelan industry is the most common scenario in regulated industries. Nonetheless, Nicolás Maduro is considering the privatisation of the oil industry, a situation that could imply an historical change in Venezuelan industry. There are not many details about this possible operation but, Maduro's representatives have been discussing with Russian and European oil companies the possibility of taking over government-controlled oil properties and restructuring some debt of the state oil company Petroleos de Venezuela SA in exchange for assets.24

iii Outlook

See Section II.iii.

State aid

Venezuelan legislation does not regulate state aid provisions involving undertakings or regions in the jurisdiction. Nevertheless, there are some 'mitigating circumstances' that could be considered by the Antitrust Superintendency before determining legal or economic sanctions. In this sense, Article 52 of the Antitrust Law indicates that for the purpose of fixing the amount of sanctions, the following attenuating circumstances shall be taken into account:

  1. the performance of actions that put an end to the restriction of economic competition;
  2. the effective non-application of the prohibited behaviours set out in the Antitrust Law;
  3. the performance of actions tending to repair the damage caused; and
  4. active and effective collaboration with the Antitrust Superintendency in its administrative supervisory functions.

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

The Venezuelan legal framework contains no 'state aid' dispositions. Nevertheless, as a matter of course, economic agents under investigation usually elect to cooperate with the Antitrust Superintendency or pursue any other strategic action that allows them to mitigate the risk of sanctions.

iii Outlook

If Nicolás Maduro's regime intends to restore Venezuelan industry and other regulated sectors, a series of legislative reforms and possible privatisations in various sectors previously nationalised or confiscated by the predecessor regime of Chávez Frías will be essential. The Anti-Blockade Law is claimed to promote this strategy.

Merger review

The Antitrust Law prohibits economic concentrations that may cause or enhance a dominant position in all or part of a market, or that may generate negative effects on competition or democratisation of production, distribution or commercialisation of goods and services. Small and medium-sized enterprises, cooperatives and companies that form part of the communal economic system25 are exempt from this prohibition. The Law maintains the voluntary reporting status in cases of economic concentrations.

Economic concentration transactions of insurance, banking and telecommunications companies require prior authorisation from regulatory bodies.

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

The Guidelines for Economic Concentration Assessment (1999) will continue to be applied until the Antitrust Superintendency issues a regulation specifying an applicable procedure.

A concentration is defined as a merger of previously independent undertakings; acquisition of sole control over another undertaking; or acquisition of joint control in a fully functioning merged joint venture or existing undertaking.

The Antitrust Law defines 'control' as decisive influence over the activities of a company.

The revised threshold for economic concentration transactions is equivalent to 120,000 tax units26 and is assessed according to the domestic business volume of the companies involved.

iii Outlook

In view of the fiscal reforms undertaken in 2020, the de facto dollarisation of the economy and the proposed privatisation of the oil sector, further reforms and new economic trends remain a real possibility for 2022.

Conclusions

The government has been developing a controlled economy using different kinds of regulations and parameters. As explained above, the administrative units and public entities of the National Power have been determine in the past 20 years the priority products that may be imported and what raw materials should be supported with subsidised US dollars, using methods such as price setting, foreign currency exchange control, confiscation of companies and properties, and regulation of the profit margins for goods and services, all of which are a hindrance to free competition.

Nonetheless, since 2019, the government seems to have distanced itself from small and medium-scale economic activity, permitting de facto dollarisation of the economy, incorporating new forms of digital transaction such as the petro, and raising the prospect of possible privatisations in some industries, creating an expectation of further reforms and changes in the economic sector in the coming year. However, the legal uncertainty and lack of transparency facing public entities seems unlikely to change at present, a situation that complicates the possibility of a return to the free market.

Footnotes

1 Alejandro Gallotti is a junior partner at LEGA Abogados.

2 See Articles 112, 113 and 114 of the Constitution.

3 The Law of the Foreign Exchange Regime and Exchange Crimes.

4 The Organic Law of Fair Prices (OLFP).

8 Central Bank of Venezuela (bcv.org.ve).

9 See ¿Cuánto fue la inflación de Venezuela en 2021? – Economía Hoy (economiahoy.digital) (last accessed 18 January 2022).

10 Created in May 2017 outside the constitutional parameters. See Articles 347 and 348 of the Constitution.

11 Extraordinary Official Gazette No. 6,342, dated 22 November 2017.

12 Anti-Blockade Constitutional Law for National Development and Guarantee of Human Rights published in Extraordinary Official Gazette No. 6,583, dated 8 October 2020.

14 See Covid-19 en Venezuela: casos de coronavirus y vacunación al 11 de enero – La Nacion (last accessed 17 January 2022).

15 Decree No. 4,553, which redenominated the bolivar at a ratio of 1 million:1, and Resolution No. 21-08-01on the Rules Governing the New Monetary Expression. Basically, the government effectively removed six zeros from the denomination of the bolivar: in consequence, since October 2021, 1 million bolivars equal 1 bolivar.

16 Extraordinary Official Gazette No. 6,151, dated 18 November 2014.

17 Article 4 of the Antitrust Law.

18 The Organic Law of Fair Prices has been in force since 23 January 2014, and most recently amended by Decree Law No. 2,092 published in Extraordinary Official Gazette No. 6,202 dated 8 November 2015.

19 Administrative Provision No. 070.

20 Published in the Official Gazette No. 40,775 dated 27 October 2015 by the National Superintendency for the Defence of Socioeconomic Rights (SUNDDE).

21 Article 5 of the Antitrust Law.

22 Article 6 of the Antitrust Law.

23 Article 2 of the OLFP.

25 An economic model that encourages domestic production to transition from the 'capitalist rentier state' to the 'socialist economic productive system'.

26 One tax unit equals 1,500 bolivars, according to the Administrative Provision Adjusting the Tax Unit Rate published in Official Gazette No. 41,839, dated 13 March 2020.

The Law Reviews content