Latest news in the regulatory recommendation file “ERN N°32” initiated by Conadecus.
On April 23, 2024, the letters were provided, presented by the required authorities, within the framework of the regulatory recommendation file ERN N°32-2023 on “participation of business groups in different areas of the economy”, initiated by the Corporation National Association of Consumers and Users of Chile (Conadecus) before the Court for the Defense of Free Competition (TDLC).
The regulatory recommendation is an attribution of the TDLC regulated in article 18 No. 4 D.L. 211, in the following terms: “Propose to the President of the Republic […] the modification or repeal of the legal and regulatory precepts that it deems contrary to free competition, as well as the issuance of legal or regulatory precepts when necessary to promote competition.” competition or regulate the exercise of certain economic activities that are provided under non-competitive conditions.”
This attribution, which is discretionary on the part of the TLDC, must be carried out taking into consideration “the remaining effects that the regulatory proposal may have”, that is, “both with regard to the costs and benefits associated with the introduction of a new regulation as well as in relation to the effect that it may have on other legal assets expressly protected by the legislator.”
In this sense, Conadecus requested the TDLC to propose to the President of the Republic, through the Minister of Finance, the presentation of a bill for “Reduction of Aggregate Economic Concentration” that limits the market power of significant business groups. that have a pyramidal ownership structure or participation in important financial entities and in companies of relevant size in the economic activity of the sector. This with the objective of regulating the exercise of the economic activities of said groups under competitive conditions.
Specifically, Conadecus requested from the TLDC that said regulatory proposal incorporate the following measures:
- Reduction of pyramidal support structures: Those significant business groups with pyramidal structures may not have more than two layers, forcing those that exceed this amount to progressively reduce until they reach two
- Separation of important financial entities from a significant business group: The law should prohibit majority shareholders of a company of relevant size in the economic activity of a real sector, from being at the same time the owner of an important financial entity (a financial entity whose assets exceed limits determined by the law itself).
- Obligation to take into account the levels of Aggregate Economic Concentration: In this sense, the dominance of significant business groups in specific industries must also be considered prior to assigning concessions and rights by the State.}
- Establishment of a Public Registry of Concentration of significant business groups: Including important financial entities and companies of relevant size in the economic activity of each sector for the purposes of carrying out permanent analyzes of compliance with the objectives enshrined in the law.
The basis for these measures would be given by the disadvantages for competition that Conadecus estimates derive from the economic power of these groups:
(I) Effects on access to financial markets.
(II) Displacement of SMEs and entrepreneurs.
(III) Coordination.
(IV) Predatory pricing.
(V) Entry deterrence.
(VI) Effects on economic well-being.
(VII) Political economy concerns.
All of the above would cause a lack of social well-being that would be harmful to the country.
On the other hand, the National Economic Prosecutor’s Office (FNE) made certain regulatory recommendations to the TDLC, different from those proposed by Conadecus, focused on increasing the transparency and registration of information on business conglomerates, and a corresponding increase in the supervision of certain operations and improper use of comparative advantages.
The FNE recommendations in the context of the regulatory recommendation file on the participation of business groups can be grouped into four categories:
a) Creation of a complete and updated registry of natural and legal persons linked to each other within a conglomerate.
b) Separation between the companies of a conglomerate that are dedicated to the financial field from those that work in the productive field, and supervision of the flow of information that circulates between the two.
c) Rules to strengthen oversight between related parties.
d) Rules to strengthen the supervision and prosecution of practices contrary to free competition within a conglomerate, such as discrimination in the granting of credits, cross subsidies, predatory practices, among others.
It is important to mention that the processing of this file is just beginning. We still need to know the economic discussion that will surely open with the respective reports, in addition to the public hearing in which all those involved will participate.
Although there is still a way to go, positions such as that of the FNE suggest that the regulatory recommendation file will leave aside the measures requested by Conadecus and will begin, instead, to focus on the analysis of the current regulation that governs business conglomerates. and verify if this regulation allows effective supervision of those areas in which the FNE detected risks to free competition, or, on the other hand, it is estimated that the robust Chilean system is sufficient to avoid this type of risks or threats.
For further details please contact our Public Law and Regulated Markets team:
Antonio Rubilar | Partner | arubilar@az.cl
Dafne Guerra | Director Life Sciences and Free Competition | dguerra@az.cl
Felipe Giovanazzi | Associate | fgiovanazzi@az.cl
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