Since the early 1990s, the Brazilian government has steadily adopted deregulation and privatisation policies as part of its economic modernisation programs that marked the country´s shift from a virtually closed environment towards an open market economy. These policies were aimed at promoting more economic freedom, which would boost financial and industrial development, whereas the government would focus its efforts in achieving fiscal soundness. High interest rates and many investment opportunities attracted an impressive flow of foreign capital to Brazil, resulting in more dynamic competition in many sectors, especially those which formerly constituted state-run monopolies.

This movement was accompanied by a growing concern that outdated Brazilian antitrust laws were inadequate to discipline the new economic reality. The Brazilian Congress therefore enacted, on 13 June 1994, a new antitrust law (Law 8884/94, later amended by Law 9069 of 29 June 1995 and Law 10149 of 21 December 2000) (the Competition Law) which consolidated previous legislation into one simpler and more adequate regulatory framework. This law contained better instruments for promoting free enterprise and competition, as well as restraining illicit practices such as abusive exercise of dominant positions, collusive behaviour and other unfair business practices. Article 20 of Law 8884/94 defines violations of the economic order as conduct that results in one of the following effects: limitation, fraud or harm against free competition or free enterprise, control or domination of a relevant market of goods or services, arbitrary increase of profits, or abusive exercise of a dominant position.

The Administrative Council for Economic Defence, CADE, which had existed since 1962, was brought to a very prominent position under the new competition legal framework. CADE became an independent federal agency with quasi judicial powers to enforce the provisions of Law 8884/94 and with broad authority to examine anticompetitive acts and agreements. Under Art 54 of Law 8884/94, all mergers, acquisitions or joint ventures resulting in a market share greater than 20%, or resulting in a gross annual revenue exceeding BRL400 million, must be submitted to scrutiny by this agency. CADE only authorises such operations if parties can prove that productivity will be increased or that competition will not be seriously compromised in a relevant market.

Today, CADE´s six members and president are appointed by the President of the Republic and must be approved by the Senate for a two-year term. The Council has authority to halt mergers and acquisitions, apply fines (ranging from 1 % to 30% of the party´s gross revenue) and penalties for anticompetitive behaviour, and to impose performance goals and restraints upon potentially anticompetitive operations. Managers may also receive fines according to their direct responsibility, and companies that are part of a same economic (de facto or de jure) group may also be penalised. Non-compliance with CADE rulings may result in fines or criminal proceedings, but the parties´ right to judicial review is guaranteed by the Brazilian constitution.

Law 8884/94 has also given CADE authority to examine acts that take place out of the Brazilian jurisdiction, but produce anticompetitive effects in Brazil – for this purpose, any agency, branch, subsidiary office or establishment of foreign businesses in Brazil may be investigated by CADE.

CADE decides most cases within a few months from their submission or from the request for investigation, depending on the nature of the inquiry. However, in certain circumstances cases may wait for several months for such a decision due to requests for clarification and production of evidence.

The Brazilian anti-trust system is expected to be further reformed in the near future. Significant changes anticipated by Provisional Measure 2055 of 11 August 2000 include the creation of a National Agency for Competition and Consumer Protection (ANC), which would incorporate CADE (as an administrative court under the Competition Law) and other related agencies. The new agency is expected to function as a competition tribunal, thus deciding upon relevant mergers, acquisitions, joint ventures, consumer complaints and cartel formation, besides proposing new competition legislation and performing market studies. Provisions are currently being elaborated to ensure quick judgements by this new agency. Nevertheless, it is feared that a single agency would not be effective in dealing with both competition and consumer protection issues. Therefore, it is expected that the creation of ANC will be closely observed by the National Congress and civil society, in order to ensure that the new agency will indeed promote a sound competition environment.

Competition and the national financial system

The stabilisation of the currency since 1994 has greatly contributed to the creation of a sound and very dynamic financial market in Brazil. Thus, during this past decade, many mergers, acquisitions and joint ventures between financial institutions operating in Brazil took place in order to better compete in this new environment. However, differences arose between the Central Bank of Brazil and CADE concerning each other´s competence to evaluate such operations between financial institutions.

CADE considered that pursuant to Law 8884/94 all mergers, acquisitions and joint ventures between financial institutions were subject to its approval as much as any other operations outside the financial sector which resulted in relevant market concentration. It argued that the Central Bank did not have the proper structure to decide whether or not these operations were harmful according to the Competition Law.

The Central Bank of Brazil, on the other hand, claimed to be the only body capable of ensuring economic and competition soundness in the financial sector, based on the Banking Law. This law, according to the Central Bank, prevails over the Competition Law because it brings discipline to the national financial system. Central Bank officials fear that there could be some kind of shock in the financial market if CADE intervened in important mergers, casting doubts over the future operations of the banks involved in the unsuccessful transaction. The Central Bank´s objective is to strengthen the financial sector, even if the result of its policies may be a greater concentration of the market shares.

These different interpretations of legal texts led to a great uncertainty in the market, but that was not an obstacle to the conclusion of many operations between Brazilian and foreign institutions. The Central Bank and CADE tried to find a solution for their contradictory views, but failed to do so as fundamental differences persisted.

It is estimated that 51 of such mergers, acquisitions and joint ventures which took place between 1997 and 2002 could be subject to examination by CADE. Nevertheless, the Central Bank has approved 17 of the mergers and acquisitions that could fall under CADE´s jurisdiction between 1997 and 2000. The Justice and Economy Ministries propose that CADE examines all acts of concentration other than those where there is a risk of financial system shock. These last cases would be subject to examination by the Central Bank. The only unsolved problem in this proposal is the lack of a clear and objective criterion for determining whether a specific situation presents a risk of financial system shock or not. On the other hand, the Brazilian Bar Association considers that CADE should be able to decide on acts of concentration involving financial institutions.

As CADE and the Central Bank have yet to reach an agreement, Congress decided to debate the issue and force a settlement for this dispute through new, clearer legislation. Current proposals stipulate that the Central Bank would have final jurisdiction to decide cases which present risks to the soundness of the financial system, defining clearer criteria for identifying such risks. CADE would review all other cases, and all transactions concluded before the enactment of this new law would be exempt from further examination.