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 of the Venezuelan economy and the legal contrast between Venezuela's National Constitution (NC) and its economic regulations.

The NC establishes certain rules, principles and rights to foster an economic system that allows for private initiative and free association, within a market directed to promote and protect free competition, guaranteeing access to goods and services by all citizens.2 In accordance with those constitutional parameters, the Executive Power, in subordination to the law, must regulate, organise and develop the economy in Venezuela.

Nevertheless, the economic legal regulations created in the past 22 years – basically through legislative delegation from the National Assembly (the Legislative Power) to the Executive Power – has changed the constitutional foundations of Venezuela's economy, creating a new model that the former President and the current President have called 'Socialism of the XXI Century', where the market of good and services is – practically – under the control of the government using following main methods: price fixation; foreign currency exchange control (repealed in 2019);3 confiscations of companies and properties; and regulation of the profit margin for goods and services.4

As a consequence, this has brought about a significant reduction of free competition, since economic agents do not have enough room for manoeuvre, because the economic conditions have been reducing the number of productive companies as a 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, creating negative economic conditions where economic agents cannot assess the risks of new investments, keeping their cost structure to a minimum and putting all their effort into preserving their business in a country where inflation (reaching 1,698,488.2 per cent in 2018,5 7,374 per cent in 20196 and 3,700 per cent in 20207) and the devaluation of the bolivar has been reducing the purchasing power of producers, merchants, providers and consumers.

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).8 These include the Constitutional Law of Agreed Prices,9 a profound reform of the tax framework, including the organic tax code and the value added tax law,10 all this outside the parliament, the only competent authority to issue laws in these matters,11 the implementation of the unit of account called the petro, created in 2018 (without the authorisation of the National Assembly and outside the constitutional scenarios) and applied inconsistently since 2019. The government indicates that the petro is a cryptocurrency, but has 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 last normative acts was the Constitutional Anti-Blockade Law (ABL),12 whereby the National Executive was granted a series of generic or open attributions to rebuild the Venezuelan productive apparatus, help industries to recover and restore private and foreign investment. These economic powers allow the National Executive to disregard other rules of the Venezuelan legal system, and permit a parallel budget to be derived from the economic income obtained with the acts carried out in the implementation of the ABL, carrying out 'any business that is necessary' and acting outside the limits established within the Constitution. They also allow the National Executive to operate in absolute secrecy outside the purview of public legislative and fiscal institutions. The ABL was promoted by the government of Nicolás Maduro as the legal basis on which economic recovery will hinge. Nonetheless, to date, many regulations created in recent decades to enable the state to control the economy are still in force.

The de facto dollarisation 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 the government has expressly rejected the possibility of formal dollarisation.13

As elsewhere in the world, the Venezuelan economy was impacted during 2020 by the covid-19 pandemic. A 'state of emergency' was declared by the government of Nicolás Maduro in March 2020 and continues to this day. The Venezuelan health crisis, which existed before covid-19, has deepened as a result of the pandemic. Oil prices have fallen to historic lows, and the basic needs of the population have made it difficult for them to comply with containment and lockdown measures.

We consider that the Venezuelan economy has a free competition regime from a constitutional and strictly formal point of view, but a controlled economy – through public entities – from a legal and material point of view. In these terms, we discuss the free competition regime in Venezuela.

ii The Antitrust Law and antitrust authorities

The legal regulation for free competition has been determined through Decree No. 1,415, which enacted the Antitrust Law.14 The purpose of the Law, as established in Article 1 thereof, is to promote, protect and regulate fair economic competition so as to ensure democratisation of productive economic activity with social equality, strengthen national sovereignty and foster endogenous and sustainable development, to satisfy social needs and build a fair, free, solidary and co-responsible society by means of the prohibition and sanctioning of monopolistic and oligopolistic behaviours, as well as abuse of dominant position, agreed-upon claims, economic concentration, 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 mixed strategic companies; and national state-owned companies for the provision of public services.

The Antitrust Superintendency is the main authority in this regard. It is considered an administrative unit of the National Executive Power with budget autonomy but without legal personality (it is part of the state legal entity), and it has the power to investigate and enforce the Antitrust Law. In this sense, the Superintendency has the faculty to investigate whether there has been an infringement of the Antitrust Law, either by acting on a complaint or upon its own initiative. However, before reaching a decision, the Superintendency must rely on sufficient evidence upon which to base its conclusions.

In the resolution that brings a procedure to a conclusion, the Antitrust Superintendency shall resolve upon the existence or non-existence of prohibited practices under the Antitrust Law. In the event that the existence of prohibited practices is determined, the Antitrust Superintendency, in accordance with Article 38, 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 over the average rediscount rate established by Banco Central de 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' (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:

  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 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),15 which is the main law governing economic activities in Venezuela, indicating the following, among others, as its purposes:

  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 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)16 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. 070,17 an administrative regulation of SUNDDE where the pricing criteria through the intermediation margin (MI) and the elements of price marking are established. It is important to note that given the hyperinflation and gradual dollarisation of the economy, Provision 070 is in disuse; however, it remains in force.

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:

  1. direct or indirect – individually or concerted – fixation of goods or services purchase or sale prices;
  2. 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
  3. 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:

  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 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 mathematical formula, whereby the PMVP (the maximum sell price to the public (i.e., consumers)) divided by the PMVPI (maximum sell price for producers or importers) minus 1 and the result multiplied by 100 will give you the MI, which should not exceed 60. This implies a 'price-fixing' obligation despite the prohibition of Article 9 of the Antitrust Law. Nonetheless, given the hyperinflation and gradual dollarisation of the economy, Provision 070 is in disuse; however, it remains in force.

Additionally, the Constitutional Law of Agreed Prices gives the National Executive the possibility 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 is not clear enough. We are waiting for administrative criteria and results in order 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, 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.

Considering the reduction of the market and government control, there are no trends in terms of cartels. The year 2021 is likely to continue to be affected by the covid-19 pandemic, where public bodies, including the Antitrust Superintendency, are attending to the minimum procedures (administrative procedures that the Antitrust Superintendency must follow). The economic opening that the government intends to promote with the ABL is expected to progress in 2021.

Antitrust: restrictive agreements and dominance

As discussed in Section II, the Antitrust Law prohibits as a general principle any type of conduct that hinders, restricts, distorts or limits economic competition, but also prohibits the actions or conduct of those who, not holding a right protected by the Law, seek to prevent or hinder the entry or stay of companies, products or services in all or part of the market (Article 5).

Additionally, it is forbidden for parties subject to the application of the Antitrust Law to exercise actions that restrict economic competition among them, and 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 (Article 6).

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

Likewise, agreements or conventions that are held directly or through unions, associations, federations, cooperatives and other groups that are the subject of application of the Antitrust Law, and that restrict or hinder economic competition among its 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 enforcement of the Law is prohibited, and in particular the following practices are prohibited:

  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 the demand on the purchase of products or provision of services;
  4. the application – in trade or service relations – of unequal conditions for equivalent provisions that place competitors in a disadvantaged position 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 said contracts.

In this sense, in order to determine what a dominant position is, one must analyse Article 13 of the Antitrust Law, which indicates that there is a dominant position when a determined economic activity is performed by a single person or group of persons associated with each other, from their capacity as purchaser to their capacity as provider of services, as well as in their capacity as user thereof; or where there exists more than one person destined for the execution of a certain type of activity, there is no actual competition among them.

When there is a dominant position, the persons who are in said position shall comply with the provisions of the Antitrust Law, to the extent that there are no different conditions established by the regulatory bodies that govern them, in conformity with what is provided in Article 113 of the NC.

In the event 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, the year 2020 will clarify this expectation.

iii Outlook

As stated above, it is expected that 2021 will see the evolution of the government's plans to open up the country economically. The eventual economic opening 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. If an economic activity or industry has no special regulation, it will automatically be regulated by the OLFP (Article 2).

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 under the Antitrust Law framework except for those agents or undertakings within the cases established in Article 3 (see Section I.ii).

A lot of the special regulated industries are developed by public or mixed strategic companies or national state-owned companies. This is the case with companies involved in the oil industry. Moreover, the banking sector is considered by Article 8 of the Institutions of the Banking Sector Law as a public service, 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).

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 high presence of state-owned companies and mixed 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.18

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

Considering that the Venezuelan framework does not have 'state aid' dispositions, we have no major comments on this subject. Nevertheless, economic agents under investigation usually apply as a strategy cooperation with the Superintendency or any other action that allows them to mitigate the sanctioning risks.

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. It is expected that the government will use the ABL to promote this strategy in 2021.

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 system19 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 that includes a particular 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 full function concentrative joint venture or existing undertaking.

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

The revision of the threshold for economic concentrations transactions is the equivalent to 120,000 tax units (TU) (1 TU = 1,500 bolivars20). It is measured in terms of domestic business volume of the companies involved.

iii Outlook

Considering the fiscal reforms of the month of January 2020, the de facto dollarisation of the economy and the proposed privatisation of the oil sector, it is possible to expect new reforms and economic trends in 2020.

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 fixation, 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, 2019 was an atypical year, where the government seems to have distanced itself from small and medium-scale economic activity, admitting de facto dollarisation in the economy, incorporating new forms of digital transaction such as the petro and starting the year 2020 with fiscal reforms and the possible privatisation of the oil sector, which creates the expectation of further reforms and changes in the economic sector during this year. However, legal uncertainty and opacity in front of public entities is something that so far does not seem to be changing, a situation that complicates the possibility of having a return to the free market.

Footnotes

1 Alejandro Gallotti is a junior partner at LEGˆA Abogados.

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

3 Foreign Exchange Regime and Crimes Decree-Law.

4 Organic Law of Fair Prices.

8 Created in May 2017 outside the constitutional parameters. See Articles 347 and 348 of the NC.

9 Extraordinary Official Gazette No. 6.342, dated 22 November 2017.

10 Extraordinary Official Gazette No. 6,507, dated 29 January 2020.

11 Articles 201 and following of the NC.

12 Dated 8 October 2020, Extraordinary Gazzete 6583.

14 Special Official Gazette No. 6,151, dated 18 November 2014.

15 In force since 23 January 2014, last reform on 8 November 2015 according to the Decree Law with Rank and Force of Law No. 2,092 published through the Extraordinary Official Gazette No. 6,202 of the same date.

16 Administrative Provision No. 070.

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

19 An economic model that encourages domestic production in order to transition from the 'Capitalist rentier state' to the 'Socialist economic productive system'.

20 Seniat Administrative Providence published through Official Gazette No. 41.839 dated 13 March 2020.

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