Competition as an economic phenomenon brings benefits for the entire society because it creates a favorable environment for companies to innovate and that favors economic growth, explains the expert on this topic Ignacio De León.
The professional visited the country last week, invited by the Competition Studies Center (CEC) and spoke about the experience of other countries, its scope and the law that is being discussed in Guatemala.
How do competition laws work in other countries?
Competition legislation has its origins in American legislation called the Sherman Act adopted around 1890 and there is already a very extensive tradition at the international level of countries that adopted this regulation. This type of legislation was extended to Europe in 1957 and the number of countries that adopt it has been increasing.
In Latin America, this phenomenon has been closely related to the implementation of trade and economic opening policies, such as market regulation and deregulation, which began to accelerate since the 1990s.
It is not an operation that in itself can be described as good or bad, but its effectiveness is closely related to the type of public policy that the government of a country is implementing.
If the government’s policy is to restrict trade, set official prices, grant licenses, quotas, privileges, monopolies and others, this makes the application of regulations of this type unfeasible, even if they may be formally issued.
With the same argument, technically to promote competition legislation would not be needed if a public policy has been promoted that allows the opening of markets so that people can compete.
It must be clear that one thing is competition policy, which is that list of mechanisms that the government can implement to generate an environment of flexibility in business that favors competition, and another is a Competition Law, which I prefer to call “law antitrust” because it is important to differentiate the terms. This legislation is so that it can complement the things that remain pending within an opening task that is executed through these other policies.
And the first factor to say whether they are effective or not is to think in which public policy context legislation of this type is implemented. Even in countries that have a restrictive view of markets, this legislation can end up being very counterproductive because it can become a tool of persecution and a punitive instrument against companies that are successful or come to occupy a dominant position in the market.
What is the situation in Guatemala in this regard?
Guatemala could make a lot of progress in the implementation of policies that promote competition in the markets, despite the fact that it already has significant progress if the country’s situation is compared to what it was 30 years ago when there was still no trade reform and tariffs. They were at around 150%. Much progress has been made and free trade agreements have been signed within the framework of the Central American Union; also with the United States, with the European Union and at a bilateral level.
Other steps could be taken that are also very important, such as greater assurance of property rights, especially those that are violated, because that limits the capacity of companies that are potentially very innovative. Progress can also be made in identifying barriers that limit transportation or investment, for the transportation business. nearshoring.
Guatemala could have many opportunities, but all of this is part of a discussion that goes far beyond adopting legislation to supposedly promote competition.
What is missing or what should be removed from the competition law proposal being discussed in the Guatemalan Congress?
Law proposal 5074, in general terms, is a project that represents a kind of carbon copy or adaptation of the recommendations made in international forums by competition authorities.
However, there are provisions there that I consider to be extremely dangerous for the administration of competition policy in a country like this. For example, there is the section on economic concentrations, which considers it necessary or imposes the obligation on companies to notify when a merger or acquisition occurs.
This is a commercial operation that is often very necessary so that companies can develop the capacity to integrate portfolios of services or products that are attractive for investment, such as the development of a certain degree of technology in the provision of some services that are acquired from a company that already has that capacity and is willing to sell them, as is the case with many startups technological.
This legislation proposal establishes an obligation to request authorization to be able to carry out this type of operations and then the question is what do you want to privilege: that there are many companies in the market, even if they are inefficient and expensive, or that there is the optimal number of companies? companies, since there are sectors in the economy where an infinite number of companies cannot compete because the level of demand is so low that it only supports a very small number.
That is an economic reality that I believe is not adequately addressed by the project when it establishes control over concentration operations and will create another barrier to investment.
Furthermore, there is a lack of greater emphasis on the powers to suggest deregulation or revision of legal norms that can create obstacles to competition (this is called competition advocacy) and there are only a few very timid references to the respective authority being able to make recommendations. to eliminate these types of restrictions that are legal and created by the State itself.
What are the benefits that a law of this type would bring and for whom?
Competition as an economic phenomenon brings benefits to the entire society because a favorable environment is created for companies to innovate and this favors economic growth to the extent that new products are created that add value and reach the consumer. For that same reason, it is better served and has services, products and better prices at hand that would not exist if this innovation is not facilitated. That is why it is a positive regulation.
But it is no longer enough to dictate legislation, but a very important factor is to create competence in officials to be able to administer that regulation (be it superintendence, department or commission) so that it is applied in a way that is aimed at promoting innovation. and not to generate other restrictions on trade.
What harm does not having that law represent?
Not having a competition law is not so serious if there are policy measures to promote competition that supplement what a law supposedly wants to promote and if there is an environment of business rivalry and investment in innovation made by companies.
A competition law in a context where this framework of openness already exists can have many advantages because it creates a clear environment of rules of behavior so that businessmen do not lend themselves to reproducing barriers that previously existed or that were imposed on them by the government; and that when eliminated, they do not cause the expected effect because they are reproduced not by the State, but by businessmen.
Not having a competition law in a scenario like that would be negative because it would not allow us to enjoy the benefits that this economic opening can offer to society.
In Guatemala, do those policy measures to promote competition that you mention exist?
We can analyze it like this: in the growth of the Southeast Asian countries, none had legislation to promote competition at the time they grew at the rates that turned them into what we know today as the Asian Tigers, because the economic policies of these countries favored that environment and businessmen did not need a human or political law to go out and compete. The law of the markets or the economic law was enough for them to do it.
But in Latin America it is important to have regulations that constitute an authority with the capacity to identify these barriers because this region has always had the problem of exaggerated and dominant state intervention in the economy. And if there is no one who is an intelligent spokesperson who can identify legal barriers that limit competition, the opening process is more difficult because the government does not have that natural inclination. It is always motivated by other group interests, which are the ones that tend to be most attended to and the interest of the consumer, as it is more diffuse, always comes last.
How does a competition law help or not help attract more investment to a country?
Depending on how legislation is implemented in this matter, the mere adoption of a law generally represents a positive signal for companies that invest internationally and are already familiar with this in their respective countries.
They examine whether certain basic laws exist where they are going to invest, which for them are understood as laws that ratify the will of that country to orient its economic policy towards the market. Among them, they evaluate competence, whether there are guarantees for the right to property and others.
If in their own countries the application of that law is not arbitrary, is proportional and rational, which is guided based on scientific data, then they wonder if that applies equally in the country where they expect to invest.
We must not fall into the mistake that is made in Hispanic countries of believing that issuing a law changes reality: people continue to behave as they do and so do governments.
Experience
Ignacio De León is CEO of the Kozolchyk National Law Center of the United States, was president of the Venezuelan competition agency, Pro-Competencia, and a leading innovation specialist at the Inter-American Development Bank (IDB) and has a doctorate in Law and Economics from University College.
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