History of competition policy in Brazil: 1930-2010.
KEY WORDS: Antitrust, Competition, History, Brazil, Industrialization, Development, Institutions, Liberalization, Brazilian Competition Commission, Conselho Administrativo de Defesa Economica--CADE.
In recent years, competition law in Brazil (or the State) has finally been consolidated into a prominent public policy instrument aimed at ensuring the good functioning of the country's market economy. This is the outcome of a lengthy development process dating back to the introduction of the first competition-related regulations in the first half of the 20th century. All the way through this process, the roles assumed by competition policy instruments have been in tandem with changes in the overall institutional landscape of the country, which has transformed itself from a predominantly agricultural society in the early 20th century into today's highly complex economy.
Initially, Brazil moved from a situation in which no competition law existed to a position in which the antitrust legislation, although formally in existence, was disregarded by the government in favor of other public policy instruments. During this period, which spanned from the 1930s until the mid-1990s, state-led interventions in the economy left little or no room for an effective competition law regime to function.
A significant breakthrough in this history was the enactment of a new competition statute in 1994, Law No. 8884/94, which is still in force at this writing. (1) This legislation was introduced along with a range of other reforms that were being implemented in Brazil in an attempt to liberalize the economy. An antitrust regime was thought to be a good fit for the new model of economic organization that was being adopted in the 1990s, in which market forces were given more prominence.
This article will first examine the different stages of this historical process. It will then focus on some of the current challenges for the advancement of competition law in Brazil. Certain broadly defined phases will be discussed:
(1) the 1930-1962 period, during which the first efforts led by the State to develop strong industries in the country were accompanied by the first unsuccessful attempts to establish antitrust-inspired regulations;
(2) the 1962-1988 period, during which more substantial antitrust legislation was passed (Law No. 4137/62), (2) but never fully implemented. This was the time of the 1964 autocratic military regime, which deepened earlier industrialization efforts with heavy Stateled interference in the economy;
(3) the 1988-1994 period, during which transition to democracy and a new constitution brought about institutional changes that eventually opened the door for what would result in a successful antitrust regime in years to come;
(4) the 1994-2000 period, during which a new antitrust law was enacted among many other institutional reforms that collectively created an environment that was more favorable to the implementation of an effective competition policy; and
(5) the 2000-2010 period, during which the Brazilian antitrust authorities tried to set in motion a significant shift in their enforcement priorities, focusing more on cartels and abuse of dominance cases, thus raising the profile of the antitrust law in the eyes of the business community, the general public, and other government agencies.
Finally the article will discuss some of the future challenges facing competition authorities in Brazil, including the implementation of the new antitrust statute approved in December 2011 that will replace Law No. 8884 / 94. (3)
Of course, one should not adhere too strictly to the above division of the institutional development of competition law in Brazil. Separation into different stages is useful for analytical purposes, but in reality the historical processes are far more fractured and complex. This article does not intend to give a profound account of all the factors that have influenced the development of antitrust law in Brazil. More modestly, its objective is to summarize the most important historical aspects in such a way as to give a macroscopic view of the development of the law.
A. Early attempts at introducing competition principles into the economy
The first half of the 20th century was marked by initial efforts to industrialize the Brazilian economy, which was overwhelmingly agrarian at the beginning of the century. By the 1930s, significant changes in the political arena were also taking place. These two factors--politics and the economy--are fundamental in understanding the first initiatives attempted in the field of antitrust law at that time.
From the inception of the Brazilian Republic (4) in 1889 until 1930, Brazil was ruled by elite groups that dominated the more or less independent states of the federation. Although specific political forces varied from state to state, the main characteristic of the period is that power was held mainly by political and economic groups linked to the land, which formed the basis of the economy. (5)
This political system went through a significant change in the 1930s, when the governor of the southernmost state--Rio Grande do Sul--became President. Getulio Vargas was elected after a disruption in the delicate balance of power between the most important states, which in turn had been caused by the world economic downturn and its impact on Brazilian coffee exports (at that time the main export commodity). Vargas governed Brazil from 1930 to 1945, first as transition governor (1930-1934), then as president under a new constitution (1934-1937), and finally as an authoritarian leader (1937-1945).
While in office, Vargas initiated a process of concentration of political power in the hands of the Federal Executive branch, with the consequence that economic policies began to be both devised and implemented centrally. This process of political centralization had already begun in 1930 (6) and became institutionalized and gained impetus from 1937 onward under the authoritarian regime. (7) Direction of economic affairs under Vargas reflected these changes in the political arena and became characterized by the active presence of the State in steering the industrialization process, mainly after 1937. Indeed, if during the early Vargas years state-led interventionist policies were still not sufficiently coordinated, (8) after 1937 the government's industrialization effort became more systematic and was mainly based on import substitution strategies and on the development of core industries such as oil and steel.
It is important to note that many factors other than the government itself were contributing to the industrial development in this period, such as urban development and the increasing size of the domestic market, the Second World War, the behavior of export markets, and relationships with key trading partners. However, the government's role in this environment was unabashedly proactive. For example, the Federal Executive branch installed a plethora of regulatory and financial agencies to foster industrialization. (9) This apparatus consisted of various federal agencies and commissions in charge of regulating selected sectors of the economy and promoting others through incentive mechanisms. The State also turned itself into an economic player, with publicly owned enterprises dominating many segments of the economy, such as mining, metallurgy, banking, steel, and oil.
In a nutshell, Vargas pressed for the transformation of the Brazilian economy from a predominantly rural, export-based system to an urban industrialized society. Although some industries had already been established in Brazil before the 1930s, (10) the economy as a whole was principally based on the export of primary goods. It was only under Vargas's leadership that industrialization actually took off. (11) When Vargas left power in 1945, industries had already secured a prominent place in the domestic economic landscape. (12)
From 1946 until the 1964 military coup, a brief democratic interlude took place in Brazil, first with President Gaspar Dutra, followed by the return of Vargas in 1951, and then by Juscelino Kubitschek, Janio Quadros, and Joao Goulart, together with a few other interim governments. Many of the industrialist policies of the earlier 1930-1945 era were kept after the end of the Vargas dictatorship in 1945. Notwithstanding differences between specific economic policies adopted by each administration, this was a period of continuing industrial development promoted by the State, along the same lines as the development model initiated by Vargas in the 1930s. (13)
B. Initial regulation and the Antitrust Act of 1962
Given the prominent role of the State in the promotion of Brazilian industry from 1930 to 1962, the lack of a significant antitrust regime in Brazil in this period, or even in the following thirty years, is hardly surprising. The three constitutions of the time--enacted in 1934, 1937, and 1946--and the respective legal frameworks with antitrust-related rules all reflected this state of affairs.
The 1934 Constitution was conceived at a time when the President was amassing greater political power. Following models set by other countries and mimicking social-democratic ideals of the time, this constitution contained several provisions concerning the regulation of market forces by the State. Of special note is Article 116, which gave the Executive branch the power to intervene and effectively monopolize sectors of the economy. (14) The constitution also introduced the concept of "popular economy," which was then absorbed by the legal vocabulary and reproduced in subsequent legal texts. (15)
Authoritarian ideas were ubiquitous in the 1937 Constitution. This authoritarian streak matched the government's desire--which had previously been shown by the former administration--of intervening in the economy and regulating market forces. (16) For example, one of the articles in the 1937 Constitution stated that economic freedom should be dictated by the "common good" and by national development and that public intervention in the economy should instill the nation's interest into the competitive forces of the marketplace. (17) According to this constitution, crimes against the "popular economy" were to be severely punished. (18)
The aforementioned crimes against the popular economy were established by Decree-law No. 869 in 1938. (19) The list of such crimes included, among many other more or less precisely defined practices, attempts to manipulate demand and supply, price-fixing agreements, sales below cost, and exclusivity arrangements, to name but a few. The decree also attempted to cover widely different business practices, many of which would nowadays not be considered akin to antitrust violations. Given its criminal nature, Decree-law No. 869 was applicable only to natural persons, who could be imprisoned for up to ten years depending on the infraction and other factors.
The antitrust-related provisions of Decree-law No. 869 were never fully implemented. (20) Just one noteworthy antitrust case actually came to light during the period, but not as a criminal investigation. (21) The case involved Standard Oil Co., which submitted to the government a consultation concerning its exclusivity and retail price arrangements with gas retailers. The government answered by means of a presidential decision, which was based on an opinion issued by the attorney general. After making reference to U.S. legislation and case law, the opinion concluded that the company's agreements should indeed be modified so as not to violate the provisions of Decree-law No. 869. No sanctions were imposed.
Another antitrust-inspired decree was enacted in 1945, as a result of the efforts of Agamenon Magalhaes, a traditional politician of the Vargas cabinet. Decree-law No. 7666/1945 (22) may be considered a more technical legal text. (23) The somewhat vague concept of "popular economy" was replaced by practices that could be characterized as an "abuse of economic power." Another step forward was that this new decree established administrative sanctions to the anticompetitive practices, instead of regulating them by means of criminal law. The offenses were to be investigated by an administrative unit, the Administrative Commission of Economic Defense (Comissao Administrativa de Defesa Economica in Portuguese), a distant relative of the current competition tribunal--CADE. Companies, as opposed to natural persons, were now targeted by the law.
The strong political backlash triggered by this new decree was part of a campaign against the Vargas authoritarian rule. This involved criticism of the government's dirigisme and nationalist bent and of the possibility that the new law could be used as an instrument against opposing political groups. (24) After the fall of Vargas, also in 1945, the new decree was revoked having being in force only for a few unsuccessful months. (25)
Agamenon Magalhaes overturned this withdrawal shortly thereafter as a congressman in the subsequent parliamentary assembly that drafted the 1946 Constitution. He pressed for the inclusion of Article 148 in the new constitution, in order to consolidate the language of "abuse of economic power." This article stated that a statute should be passed to prohibit practices such as "the grouping of companies aimed at dominating national markets, eliminating competition or arbitrarily raising profits." (26) The language referring to antitrust infringements as an abuse of economic power would carry through into all future antitrust legislation.
Once again, the good intentions of the constitution were lost in the complexity of political and economic reality. The government of the time was heavily involved in the promotion of industry and was not willing to fight cartels and other anticompetitive practices in a consistent way. Furthermore, the 1948 bill of law proposed by Congressman Magalhaes to put the relevant constitutional provisions into effect did not bode well. Prolonged debates about this bill within the House of Representatives and the Senate took place throughout the 1950s. (27) The antitrust bill was heavily amended, discussed, substituted, and even remodeled during the period. (28) A fragile political consensus was only achieved in 1962, when Law No. 4137/1962 was passed and sanctioned by President Goulart.
The 1962 statute created the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Economica in Portuguese, or CADE), an arm of the federal government that was given the responsibility to investigate and sanction anticompetitive conduct. (29) This was the first time that a fully functioning competition authority had been set up with legal powers to curtail anticompetitive behavior. However, soon thereafter Brazil's experiment with a multiparty democracy was cut short by a military coup in 1964. The antitrust statute had been passed in 1962, but its implementation was left to the upcoming authoritarian regime. The statute proved to be largely ineffective. To understand the reason behind this failure one has to delve into the prevailing political and economic circumstances from 1964 to 1988.
A. Authoritarian rule and redemocratization
From the end of the Second World War until the end of the 1970s, Brazil completed the process initiated under Vargas by means of which industry became one of the most important engines of the economy. Imports and exports declined in relation to the overall economic activity, despite growth of foreign investment. Cities continued to grow resulting in significant development of the tertiary sector of the economy. (30)
There were periods of both rapid and slow economic growth. Under President Kubitschek and until the beginning of the 1960s, state-led investment spurred a significant development of important industry segments, such as steel, oil, non-ferrous metals, and pulp and paper, to name but a few. (31) Inflation and trade imbalances dominated the 1963-1967 period, (32) which was marked by significantly lower growth rates and by the corresponding macroeconomic adjustment measures initiated by President Goulart in 1962 and implemented mainly by the post-1964 military government. (33)
From 1967 to 1973, Brazil saw the so-called "economic miracle," in which growth and low inflation rates were accompanied by heavy doses of state and private investment, together with high external debt. Orthodox policies of the post-1964 years were put aside, and newly established technocrats led by Finance Minister Delfim Neto implemented an ambitious economic agenda. (34) The military dictatorship coordinated industrial diversification, expansion, and concentration (although some sectors, such as automobiles, were favored over others). (35)
Smaller growth rates persisted from 1974 until the early 1980s. This was the result of many interconnected causes, including production imbalances at the core of the "miraculous" growth of the preceding years, Brazil's dependency on oil imports, inflation, trade deficits, shortage of agricultural goods, the global economical slowdown caused by the two oil crises of 1974 and 1978, and increasing foreign borrowing. (36) These were also the root causes of the economic problems that would soon become evident at the onset of the 1980s.
The beginning of the 1980s was marked by a recessive economy and the corresponding economic policies implemented by the government to overcome some of the most serious trade and financial imbalances of previous years. (37) The downturn was aggravated by high inflation rates, a problem that would persist throughout the whole decade. Several economic plans were implemented during this period to try to thwart inflation. However, over and over again, such measures were defeated by the inflationary tendencies of the economy. (38)
In broad strokes, despite the ups and downs of the 1964-1988 period, the development model set out during the Vargas years was largely maintained, but supplemented with populist economic policies that disregarded concerns with inflation and external constraints in favor of growth and income redistribution. (39) The State continued to actively implement several industry-promotion measures throughout the military dictatorship. This was particularly true of the economic policies adopted by the government until the end of the 1970s. State involvement was either direct, through publicly owned companies operating in sectors such as banking, telecommunications, energy, and oil, or indirect, through diversified industrial policies, which in general involved the creation and expansion of large companies in already concentrated markets. (40)
Market forces were heavily controlled by state-led interventions, which also encouraged the formation of large companies in selected sectors of the economy. Concentration was the leitmotiv of the industrial policies implemented by the military government. (41) An illustration of this recurring theme was the 1974 Second National Development Plan, which stated that mergers and acquisitions should be promoted in those sectors in which an excessive number of national companies would render them easy prey for foreign competitors. (42) A similar concern informed numerous other laws that sponsored large companies, and various mechanisms (such as price control measures and tax exemptions) were used by the State to realize its economic goals and the desired level of market concentration. Economic benefits of competition were not regarded as important by government officials, to say the very least.
B. Enforcement of the existing Antitrust Law
Law No. 4137/1962 incorporated the CADE into the Brazilian legal framework. In its substantive provisions, the statute listed several practices, constituting an abuse of economic power, to be investigated and sanctioned by the antitrust authorities. The language employed by the statute to list the various anticompetitive practices was imprecise, as judged by today's standards, allowing for the punishment of business practices that would nowadays not be regarded as problematic.
A far more serious problem was the context in which the 1962 statute was to be enforced. During the period in which the antitrust law was in force, the Brazilian government actively regulated and intervened in the economy as a whole. On the one hand, it is true that the simple existence of a strong industrial policy does not render antitrust enforcement impossible. On the other hand, it is also a fact that the Brazilian government itself did not have the slightest bit of interest in applying the existing antitrust legislation in a serious and consistent manner. (43)
The military government was not willing to rely on market economy mechanisms or antitrust law as a basis for industrialization efforts of the time or, for that matter, the development process in general. The executive branch employed general price-control mechanisms in various sectors of the economy. Private enterprises relied on the numerous incentives provided by the government's industrial policy measures. (44) Ever-increasing concentration levels were the state-declared objectives for the industries that were consolidating. Moreover, the existing regulation in the economy not only favored coordinated practices, but in many cases it also inspired them. (45)
Price control by government agencies is rightly regarded as the utmost example of how an effective antitrust system could not exist in Brazil during the military regime. Centralized price management was seen by government officials as one of the central tenets of their inflation control measures. (46) The government's first experiments with price-control mechanisms date back to the 1930s. However, after 1964, economic policies made such measures far more pervasive and widespread. An optional scheme was created in 1965, whereby companies would agree to price controls in exchange for tax and credit incentives. Mandatory price control was introduced in 1967. An Interministerial Price Council (the CIP) began to operate in 1968 with authority to analyze and approve price increases. (47) The CIP had the authority to select the companies or sectors that would fall within its jurisdiction. Companies willing to raise prices had to submit their requests in advance, although across-the-board sectoral price fixing was also possible. Government officers then analyzed whether or not the increasing costs faced by the applicants actually warranted the requested price increases. (48)
In short, if the aim of the antitrust law was to protect and promote competition as the cornerstone of a market economy, there was very little room for real action in Brazil, given that various forms of public intervention hampered competition in several sectors of the economy. The government was not interested in promoting competition. Its efforts were concentrated on achieving a high degree of industrial development by mechanisms other than the antitrust law. As rightly put by Eduardo Fiuza, "government policy was not only negligent to competition, but actually opposed it." (49)
For example, there was a clear mindset behind the above-mentioned Second National Development Plan, enacted in 1974, toward concentration of domestic industries, so that they could achieve scale and face foreign competition. The argument was that this would actually enhance competition, not undermine it. The plan listed price control and prevention of the abuse of economic power as measures to alleviate any harm caused by excessive concentration. Interestingly, instead of resorting to antitrust law with regard to the issue of abuse of economic power, the plan mentions that such abuses would be prevented through price control and "economic instruments," such as fiscal and credit incentives against "oligopolistic practices." (50)
This state of affairs was reflected in CADE's relatively low importance vis-a-vis other administrative bodies in charge of the Brazilian economy. Indeed, within the executive branch hierarchy, the actual political dealings between government officials and the business community were concentrated in bodies such as the CIP and the National Monetary Council (Conselho Monetario Nacional in Portuguese). CADE's low stature was reflected in the number of cases it presided over, the types of disputes that were brought before it, and the low financial penalties it was legally permitted to impose. (51)
All in all, CADE was operating in a hostile or, at best, an indifferent environment. The government clearly had little or no interest in using antitrust legislation to promote competition. (52) The economy was subjected to several state intervention mechanisms, which left little space for antitrust policy to be implemented effectively. CADE was regarded as a second-class agency, with very little political weight and almost no practical significance. (53) In short, although it may be said that CADE was at least able to keep the flame of the antitrust debate alive in Brazil between 1964 and 1988, (54) it was in fact only during the 1990s that the goal of a market economy that was minimally based on free-market principles would actually be realized. The historical reasons behind this are quite clear and will now be elaborated.
A. The new Constitution and the institutional development of competition policy
The 1980s were generally marked by runaway inflation and a recessive economy. (55) However, Brazil also underwent profound social and political changes at this time. The military dictatorship was replaced by a democratic regime. The 1988 Constitution reshaped the law in fundamental ways, primarily by consolidating democracy and laying out an agenda for the country's future. This was also the period during which the balance between the State and private enterprise began to be gradually tipped in favor of free market principles, thereby allowing the development throughout the 1990s of an antitrust regime with at least a certain level of efficacy.
Brazil's transition to democracy began when the presiding generals gradually softened the military rule from 1974 to 1982. This period was characterized by domestic and global economic downturns, internal conflicts within the Army over whether or not to mitigate the authoritarian rule, and by important steps towards the replacement of the military regime, such as the general amnesty granted in 1979. (56) Political transition gained momentum between 1982 and 1985, even though popular demonstrations in favor of direct presidential elections failed to gather sufficient support in Congress. In 1985, power was finally transferred to civilians for the first time in twenty-one years. The indirectly elected President, Tancredo Neves died without actually taking office. Vice-President Jose Sarney was then handed the presidency.
The fact that Sarney, a former supporter of the military dictatorship, was the first civilian president in the newly established regime symbolizes the very peculiar nature of Brazil's transition to democracy. As previously mentioned, economic policies adopted since 1930 were characterized by high doses of state intervention to promote industrial development and, from the military regime onward, by economic growth combined with a certain disregard for inflation and high external debt. Transition to democracy would later change this state of affairs, but the former political and economic mindset was still embedded within the institutional framework. Therefore, it is no surprise that Sarney maintained some of the economic and political practices of the past. But the new political and economic environment would not allow such practices to be preserved for long. What had changed?
As explained by Faro and Carvalho, Brazil's transition to democracy was marked by a gradual, rather than immediate, distribution of social and political power to different groups. This process lasted throughout the 1980s, and involved several factors that fundamentally altered the institutional environment of the political system and, consequently, how economic policies were discussed and put into practice. (57) One major step of this process was the overhaul of the military regime features by the 1988 Constitution, which introduced significant changes such as a comprehensive agenda of fundamental rights, an arguably stronger federalist system, and the empowerment of Congress and the judiciary. (58) Of course, these domestic changes occurred amid other structural political and economic transformations that were taking place at the global level from the late 1970s and throughout the 1980s.
At the risk of oversimplifying the whole process, it would be fair to say that Brazil was generally leaning toward a more liberal mindset, favoring less state intervention with more reliance on market mechanisms, within a context in which the executive branch was losing some of its former power. This is an oversimplification insofar as all levels of the bureaucracy continued to play a key role in steering the economy. The benefits of competition were still not actually perceived by many government officials, who continued to favor coordination and concentration in the marketplace. In any case, the overall development model adopted in the preceding decades was being cast aside, albeit slowly. The consequence was that, from 1990 on, the Brazilian institutional environment gradually became more market friendly.
The paradoxical and complex nature of the shift to a more open marketplace was reflected in the 1988 Constitution, which incorporated many different, and sometimes contradictory, principles regarding the relationship between State and private enterprise. Economic policies had to conform to constitutional principles as diverse as the protection of consumers, state sovereignty, competition, full employment, a reduction in social and regional inequalities, and social justice. In short, the constitution comprised a comprehensive agenda that mixed liberal and interventionist ideas, reflecting the multitudinous interests and ambiguities of society as a whole. (59) Formulation of an antitrust law regime would be influenced by these diverse and sometimes antagonistic principles. (60)
The first attempt to implement such a regime was by President Fernando Collor (1990-1992). It is interesting to consider how this president implemented his economic policies in general. On the one hand, Collor did not adhere to the old development model of the 1930-1985 period, which was also strongly featured in the Sarney administration. On the other hand, his policy-making style, defined by centralized decision making and little deference to other political players, was also not in tune with the post-1980s environment. (61) President Collor ended up being ousted following a highly publicized impeachment on corruption charges. However, before this, his administration managed to implement profound changes that were continued by his successors, including a trade liberalization agenda and the first initiatives aimed at the privatization of state-owned companies.
The same overall agenda was adopted by Fernando Henrique Cardoso, first as the Minister of Finance under Itamar Franco, (62) and second as president from 1994 to 2002. However, his first and foremost achievement was a series of successful economic and legal reforms implemented in 1994, including the creation of the Real currency, which finally put an end to the hyperinflation problem. Inflation had been a concern in Brazil at least since the 1970s, and several different economic plans and currencies failed to solve this problem throughout the 1980s and in the early 1990s. (63) Cardoso's first economic reforms also carved the path for other policies that were adopted during the following years. (64)
Cardoso was not only able to work within the new political environment created during the 1980s, but was also able to perform a major restructuring of the bureaucratic apparatus that would oversee and regulate the market forces that were being set free by liberalization policies. A major government plan was issued in 1995 aimed at reducing bureaucracy and implementing managerial techniques throughout the public service. Several regulatory agencies were subsequently created, following deregulation and privatization measures proposed by the government. An example of this process was the privatization of the state telecommunications monopoly in 1998 following a new legal framework and the creation of a regulatory agency in 1997.
Many other policies and reforms were implemented under Cardoso's stewardship. The result was an environment in which market forces were allowed to play a greater role. (65) This impulse was not undermined by President Luis Inacio Lula da Silva, who took office in 2002. Although President Lula's stance on state-market interactions was more interventionist, and his government was indeed friendlier to industrial policy measures, the overall institutional groundwork of the previous decade was not ignored. In fact, as discussed below, the level of institutional maturity in Lula's administration increased in many areas. An example of this is the strengthening of antitrust policy by competition authorities during Lula's term.
B. The final years of Law No. 4.137/1962 and the criminalization of antitrust-1988-1994
Throughout the 1980s and until the 1988 Constitution, attempts were made to revive CADE as an effective and operational administrative unit. The commission was transferred from Rio de Janeiro to Brazil's capital Brasilia. A taskforce was formed to prepare a regulation for the 1962 antitrust statute, and a decree was issued in January 1986. (66) In August 1986, another presidential decree reorganized CADE's composition by reverting back to the original composition of a chairperson and four commissioners with fixed mandates, all of whom were directly appointed by the president and approved by the Senate. (67) New commissioners took office in 1986 and remained at CADE until their mandates expired at the end of 1989.
However, as with the 1962 statute itself, these new attempts to revive CADE were still not sufficient to consolidate antitrust policy in Brazil. A few important cases were decided during the period, but the old institutional apparatus concerning regulation of the economy with heavy State intervention--including pervasive price-control--was still present. CADE suffered from a severe lack of institutional capacity to fulfill its role. (68) Therefore, it did not come as a surprise that no replacements were named after the mandates of CADE's chairman, Werter Faria, and its commissioners expired in 1989. CADE became inoperative for approximately three years until 1992. In the meantime, and despite the fact that CADE was not functioning, significant institutional developments were taking place which paved the way for the first attempts under the 1988 Constitution to renew antitrust enforcement in Brazil.
As previously mentioned, the 1988 Constitution had many provisions concerning regulation of the economy. According to the constitution, market principles should be the norm and competition the cornerstone of the "economic order." (69) The constitution also repeated the same provisions contained in earlier legislation stating that abuses of economic power would not be tolerated. In this new institutional context, the old interventionist project that marked the whole 1930-1985 period began to be broken up. Price fixing by government agencies was scaled back. The CIP was dismantled. (70) The Collor administration (1990-1992) also began the privatization of state-owned companies (a process that would last the entire 1990s) and adopted a trade liberalization agenda.
The first antitrust statute to be passed in this new environment was Law No. 8158, of January 8th, 1991, which actually superseded a few provisional measures that had already been enacted directly by the president in 1990. (71) This new antitrust statute did not revoke the former 1962 antitrust legislation, and both statutes would have to be implemented together.
One goal of the 1991 statute was to overcome the perceived inefficiency of the previous CADE investigations into anticompetitive practices. A new unit within the Ministry of Justice--the National Secretariat of Economic Law (Secretaria Nacional de Direito Economico in Portuguese, or SNDE)--was created with the authority to conduct more agile procedures and impose preventive measures in its investigations. The SNDE was given investigative powers, but CADE would still make the final decision on cases relating to enforcement against anticompetitive practices (which could then be appealed to the Minister of Justice).
However, given that there were no commissioners at CADE, a paradoxical situation lasted from 1991 to 1993. The SNDE could investigate cases related to anticompetitive behavior, but there was no one to decide them until 1992, when CADE's new commissioners took office. (72) Another problem was the juxtaposition of the substantive provisions of Law No. 8158 and the provisions of Law No. 4137, which was still in force. (73)
The new statute also attempted to introduce a more effective system of submission and approval of acts that could limit competition. With the new statute, the SNDE was given the responsibility of examining and approving transactions that could restrict competition, including mergers. (74) In practice, however, a full-fledged mandatory merger control system was still lacking.(75)
Despite all the hurdles, CADE managed to slowly become more active. For example, an important case was decided in 1993 against Xerox Corp. The company was accused of tying the sales of original equipment to services in the aftermarket, which allegedly would have had the effect of hurting rival companies that wanted to service Xerox machines. The case resulted in CADE issuing a fine against the defendant. (76)
A criminal statute that defined certain business practices, mostly cartel activities, as crimes was also passed at the beginning of the 1990s. (77) This law remains in force today, and its enforcement against natural persons involved in cartel activities has been steadily increasing since 2005. (78) This is another example of the way Brazil moved early as regards antitrust legislation (in theory, if not in practice). Not many jurisdictions had criminal enforcement against cartels in 1991, just as few jurisdictions had any antitrust law in 1962, the year in which the previous antitrust statute had been enacted.
However, legislation alone was not sufficient to curb cartel behavior. In fact, the criminal statute against cartels was rarely used until the turn of the century, and even today it is far from being the important deterrent of cartel behavior that it could be. As indicated, its effectiveness is growing, although penalties established in the law are very mild. (79) Only in 1994 was an effective antitrust law finally introduced into the Brazilian legal system. This was Law No. 8884, to which we now turn.
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|Title Annotation:||Introduction to IV. 1988-2010 B. The Final Years of Law No. 4.137/1962 and the Criminalization of Antitrust - 1988-1994, p. 207-233; Trusting Antitrust: Tracing the Global Embrace of Antitrust Laws|
|Author:||Todorov, Francisco Ribeiro; Filho, Marcelo Maciel Torres|
|Date:||Jun 22, 2012|
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