Wednesday, May 16, 2012

Merger review bill discussed in Peru (Guest article)

By Francisco Marcos, Professor of Law, Center for European Studies Madrid, LL.M. Berkeley Law

Peru lacks a general merger control regime (only transactions in the energy sector are subject to control by INDECOPI, in accordance to Ley Nº 26876). That could be one of the reasons why some of Peruvian’s industries and sectors of economic activity show high levels of concentration.

Although high concentration in a market could not be bad in itself, nor it is condemned per se, it is usually a fertile ground in which anti-competitive practices and abuse of market power may flourish. For that reason, the Peruvian Congress is currently discussing a bill that would introduce a general merger review regime for relevant transactions in the market (Congreso de la República, Proyecto de Ley nº 972/2011-CR, Ley de promoción de la librecompetencia y la eficiencia en los mercadospara la protección de los consumidores, 28 march 2012). 

The bill follows international standards in the matter and it establishes a mandatory ex ante merger review regime in which only mergers and acquisitions of companies with turnover exceeding 138,7 million of US$ (if turnover in Peruvian markets is above 13,87 million of US$) would need to be notified (article 5 of the Bill). 

In the past, to substantiate that Peru did not need a merger control system reference was made to the small size of the Peruvian economy. According to this argument, business growth would be discouraged if a merger review system was established. Limited founding sources and reduced access to capital markets make mergers and acquisitions an efficient growth and competition strategy. Given the significant degree of openness of the Peruvian economy, business concentration may be a necessary element to allow Peruvian firms to compete in global markets and overcome the barriers of entry into foreign markets. 

Although these arguments are true, and they should substantially condition the design and operation of the Peruvian merger control, they do not necessarily lead to the rejection of merger review as an additional tool that can be used to protect and promote competition in Peruvian markets. The Competition Commission of INDECOPI has developed a valuable experience in enforcing the Peruvian competition rules (first, DecretoLegislativo 701 -adopted in1991-, and since 2008, DecretoLegislativo1034) in the last two decades and it is well regarded both in Peru and internationally. Provided additional resources are given, INDECOPI well undoubtedly be up for the challenge of steering the new control regime. 

Of course, any system that is adopted should allow companies to reach a minimum efficient scale but avoid the perpetuation of inefficient firms and structures in the market. The merger control procedure has to be flexible enough to incorporate a significant dose of rationality in the analysis and assessment of efficiencies that may result from the merger. 

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