Until very recently, economic protection in Latin America was ensured by countries in the region imposing very high tariffs, as per import substitution models devised by multilateral agencies. These models are the source of heated controversy as to their respective merits and shortcomings, but from a legal perspective they secured a substantial insulation of the local economies from predatory trade practices and from abuses of economic power. Therefore, countries in the region have not had a great tradition in curbing actions in either area. Of the two fields, however, competition law was much more inactive than trade law, as the latter had the basic framework evolved within the General Agreement on Tariffs and Trade (GATT)[1].

Following the Uruguay Round, countries in the region adopted policies of unilateral trade liberalisation as pillars of the respective economic stabilisation programmes and rapidly reduced tariffs. Brazil, for instance, reduced its average tariffs from 55 per cent in 1987 to an average of 6.5 per cent today, having fully consolidate its 35 per cent average tariff, as per its commitments at the Uruguay Round. This phenomenon of unilateral tariff liberalisation occurred generally with all developing countries, so that, nowadays, the 20 most liberal countries are the developing countries, followed by Germany in 21st position, the United States in 25th position, and then Colombia, Greece and India, with Japan in 28th position preceded by Argentina and Brazil[2]. As a result, the economies that were previously protected from external competition by high tariffs became exposed not only to legitimate trade competition, but also to its illegal manifestations: predatory trade practices and the abusive and anti-competitive practices of economic power. The former are traditionally the subject of multilateral regulation in international trade law whilst the latter are now the subject of intense international debate.

In Brazil and Argentina, the situation is greatly aggravated by the partial failure to adjust to the prevailing trade liberalisation, the institutional legal structure which, in many respects, still follows the model of closed economies. This situation adversely affects competitiveness of local companies in an environment of open trade, in the areas of tax and labour legislation. In some countries, such a Brazil and Mexico, this scenario is further complicated by interest rates and exchange policies[3].

Nevertheless, the importance of establishing a framework for the matter within Mercosul has been perceived and, accordingly, Decision no. 20/94 of the Common Market Council of Mercosul (a trade union among Argentina, Brazil, Paraguay and Uruguay), with a view to guaranteeing equal conditions for competition, created a Technical Committee charged with considerations of public policies that may be seen to distort competition. The objective of the referred Committee is to identify and distinguish those measures considered both compatible and incompatible to the function of a Customs Union, pursuant to criteria of economic efficiency and the global objectives of Mercosul.

The essential guidelines on the defence of competition in Mercosul were approved by Decision no. 21/94 of the Common Market Council, which considered the necessity to establish common parameters for the defence of competition in Mercosul to enable a co-ordinated course of action by the signatory countries against those practices which prevent free competition. The referred guidelines acted as a model for all signatory countries to amend their national legislation appropriately and subsequently made possible the approval of the Protocol for the Defence of Competition in Mercosul.

Decision 21/94 determined that in the event of a perceived breach of the rule of free competition, the signatory country affected could present to the Trade Commission of Mercosul a complaint, specifying the violation in question. Such complaint must contain proof of such violation based on the guidelines established.

The country in which the alleged violation took place has 30 days to initiate an investigation pursuant to its own law and should apply, where relevant, the appropriate sanctions provided by law. In the event that an investigation concludes that no violation has occurred but the complainant still alleges the existence of the same, then such country may appeal under the procedures established in Chapter IV of the Protocol of Brasilia for the Solution of Controversies, which was approved by Decision 01/91 of the Common Market Council of Mercosul.

Such referred Chapter IV allows for Arbitration Proceedings and provides that in the event that any dispute cannot be solved under the prevailing procedures then application may be made for a hearing before the Arbitration Council, whose jurisdiction is duly recognised by the Mercosul member countries.

Decision no. 21/94 additionally established rules of harmonisation applicable to companies established in Mercosul countries. Such rules prohibit the practice of acts of concentration between economic agents together with any steps that may impede, distort or restrict competition and free market access in the production, distribution and commercialisation of goods and services within Mercosul. Specific acts prohibited include the fixing of prices or any other conditions, whether directly or indirectly, which may affect the trade in goods and services; limiting or controlling production, distribution, technological developments or investments; and the use of excess pressure on clients or suppliers to oblige the same to act in a predetermined manner.

In relation to company mergers the member countries of Mercosul established that all acts of economic concentration that could lead to a market share in excess of 20% of the relevant market within Mercosul must be submitted to prior approval.

Finally on December 17, 1996 the Common Market Council of Mercosul approved the Protocol for the Defence of Competition in Mercosul, which recognised the necessity of free market access and an even distribution of the benefits of the process of economic integration.

Such Protocol reiterated that any action which has the effect of limiting, distorting or falsifying free market access or competition or which represent an abuse of market power would be regarded as a breach of such Protocol.

This Protocol established the period of 2 years for the signatory countries of Mercosul to adopt common rules for the control of acts of concentration and acts that prejudice free competition in the regional market for goods and services. The Protocol further establishes the procedures for the initiation of an investigation by the Committee for the Defence of Competition in Mercosul and the appropriate sanctions that can be applied including the imposition of fines, a desist finding or even a decision to return matters to the “status quo ante”. The determination of unfair practices and appropriate sanctions will be made by said Committee and will subsequently be implemented by the responsible authority in the pertinent member country.

The framework in question shares the same basic problems afflicting the resolution of disputes created by the Protocol of Brasilia, in the sense that a national of a state cannot trigger an action without the previous express concurrence of his/her own country’s government. If juridicity is to be improved within Mercosul, both systems will have to be considerably improved.