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06 November 2013
In February 2013 the National Economic Office of the Public Prosecutor (known by its Spanish acronym, FNE) filed a petition before the Tribunal for the Defence of Free Competition requesting that the latter propose to the president that Article 5 of the Merchant Navy Law be modified to annul the exemption enjoyed by shipping conferences, pool agreements and consortiums that regulate and rationalise services from the Competition Act (Decree-Law 211/1973). The proposed amendment aimed to harmonise the industry's regulations with the principles of free competition. The FNE also requested that Chile withdraw as a state from the denominated United Nations Convention on a Code of Conduct for Liner Conferences (for further details please see "Tribunal considers request to abrogate immunity for shipping conferences").
The FNE commenced a confidential investigation in November 2009 (Role 1545-09), regarding possible anti-competitive practices in the shipping market related to maritime conferences. The FNE studied the current legal framework within which the maritime conferences develop their activities, highlighting both Article 5 of the Merchant Navy Law and the above-mentioned UN convention. It also analysed the 2002 suggestions of the Organisation for Economic Cooperation and Development, of which Chile is a member, in order to bring to an end any advantage or sectorial exemption that might impede free competition among its member countries, especially in connection with conferences.
A public hearing before the tribunal took place on November 14 2012, with oral presentations made by the FNE, the Ministry of Transportation, the General Directorate of International Economic Relationships and several ocean carriers. The tribunal requested copies of all agreements held by the different parties for the past 10 years, which were submitted by mid-January 2013.
The tribunal reviewed the agreements provided by the different parties and on April 10 2013 issued a resolution in which it set out that:
In the opinion of the tribunal, this interpretation reconciles the two objectives behind the Merchant Navy Law. On the one hand, it allows shipping companies to be parties to a conference, pool agreement or consortium in order to render a more efficient service; on the other, it prevents conducts against free competition being committed under the umbrella of such agreements. In this respect, the exemption system has succeeded in creating stability in the local shipping industry and has provided economies of scale, particularly on routes that are small and far away from the principal clusters of consumers and producers.
Although the tribunal established no clear guidelines regarding shipping agreements, and under Chilean law the final interpretation must be made by the Supreme Court, which rules on a case-by-case basis, some general conclusions can still be drawn.
The tribunal will evaluate on a case-by-case basis whether the conduct of members of shipping agreements will impede free competition, either unilateral or collectively. This evaluation will mainly be made under a test of efficiency, especially regarding the ability to achieve economies of scale, a more frequent service and a greater number of destinations, and with a view to maximising the use of vessels' capacity.
Regarding conferences, the resolution states that in light of international experience, agreements concerning tariffs that eliminate loyalty agreements (if such still exist)(1) or permit free entrance to and withdrawal from the conference and do not impede independent negotiations will "be in principle more compatible with the free competition regulations than those which do not fulfill the abovementioned characteristics". In this regard, the resolution appears to mirror the situation in the United States following the 1998 amendment to the Shipping Act, which permitted the existence of independent and confidential agreements, notwithstanding the existence of a conference.
With regard to consortium and pool agreements, market shares and efficiencies should be considered. In this regard, the resolution states that such efficiencies must allow the provision of a better service than that which each company would be able to provide if acting separately, due to economies of scale and network opportunities.
Regarding pool agreements, the main test will be transparency (ie, the client must be aware that the shipping companies are acting together). In addition, it will be important that efficiencies are demonstrated and the joint market share of the members to the agreement determined in relation to the respective route. (2)
For further information on this topic please contact Ricardo Rozas at Jorquiera & Rozas Abogados by telephone (+56 2 580 9300), fax (+56 2 580 9311) or email (email@example.com). The Jorquiera & Rozas website can be accessed at www.jjr.cl.
(2) In Chile, there are no thresholds generally applicable to, for instance, mergers and acquisitions and no specific rules on maximum market shares regarding shipping agreements, as is the case in other countries.
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