WORLD TRADE
ORGANIZATIONWT/WGTCP/W/75
7 April 1998
(98-1414)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  Spanish
COMMUNICATION FROM CHILE
The following communication, dated 18 March 1998, has been received from the Permanent
Mission of Chile with the request that it be circulated to Members.
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THE CHILEAN COMPETITION SYSTEM
General Overview of Legislative Decree No. 211
I. BACKGROUND
Legislative Decree No. 211 of December 1973 (hereinafter DL 211) is the only legal
instrument for the comprehensive regulation of economic competition in Chile.  Both the date of its
enactment and the ideological principles on which it is based correspond to a watershed in Chile's
economic history characterized by a determined transition from centralized State management to asystem of free competition based on private initiative, market-driven pricing and the opening up of
Chile's economy to the rest of the world.
However, DL 211 was not the first Chilean competition law.  Although its origins can be
traced back to 1931, rules of this type were not introduced until 1959, with the publication of Law
13.305.  Chapter V of this composite law contained a definition of monopoly as constituting anoffence, laid down a number of exceptions and established an Anti-Trust Commission to exercise the
powers of sanction and control granted by the same Law.  Subsequently, a Public Prosecutor's Office
was set up to provide technical support for the Commission and to conduct any investigations needed
for the more effective enforcement of the Law.
DL 211 owes its adoption to disuse of Law 13.305 as a result of extensive and growing State
intervention in the economy and the lack of resources available to the Commission and to the
Prosecutor's Office for enforcement of the Law throughout the national territory.  This made itnecessary to enact  new legislation more in tune with the liberal economic policy applied in the
country since 1973, with the aim of establishing a permanent and efficient system to safeguard
economic competition.
The legislation in question remains in force, and its implementation over the past 24 years has
served to establish a flexible and dynamic competition system in Chile.  The system has provedcapable of adapting to changing market circumstances  without losing sight of its basic principles, and
has made an essential contribution to the deregulation of domestic markets.
DL 211 has undergone only a partial reform involving the extension of its scope to cover
suppression of monopolistic practices in the labour market.  The reform also expressly provided forWT/WGTCP/W/75
Page 2
the offence of abuse of dominant position and specified how proceedings before the anti-monopoly
bodies should be organized, broadening a nd updating their system of coordination.
In its current wording, DL 211 is divided into 37 articles under five sections (General
Provisions;  Regional and Central Preventative Commissions;  Judicative  Commission;  National
Economic Prosecutor's Office;  and Criminal Procedure).
It should be added that in October 1997 an administrative (not substantive) bill was submitted
for consideration by the legislature.  Its purpose is to strengthen the supervisory function of the
National Economic Prosecutor's Office by doubling the number of its staff, and it also provides for an
increase in staff remuneration.  The bill is now close to its first reading by the Chamber of Deputies.
Thus, the reform bill under consideration reflects the importance attached to strengthening the
defence of competition, since few countries are in a position to take initiatives along these lines.
II. SUBSTANTIVE ASPECTS OF DL 211
II.1 Free competition as a protected legal interest
DL 211 places three vital issues within the remit of the anti-monopoly bodies:  free
competition in economic practice, freedom of employment and the right to organize, freedom of
assembly and the right of collective bargaining for workers.  It should be pointed out, however, that
the reference to labour-related matters is applicable  only to the extent that the labour market is
adversely affected by specific restrictive practices.  Other labour-related matters fall outside the scopeof DL 211 and are governed by the provisions of the Labour Code.
In a nutshell, the legal interest under protection is freedom of economic competition.  This
much is clear from the text of Article 1 of DL 211 - which defines practices in restraint of
competition - and from the preamble to the Law, the first three paragraphs of which refer expressly to
the legal interest subject to protection.
Moreover, the constitutional grounds for protecting free competition are to be found in
Article 19, Nos. 21 and 22, of the Political Constitution of the Republic, which provides that:
"Article 19.  The Constitution guarantees everyone:
21.  The right to carry out any economic activity which is not contrary to morals, public order
or national security, in compliance with the legal rules by which it is regulated (...)
22.  No arbitrary discrimination in the treatment to be accorded by the State and its agencies
in economic matters."
Lastly, it should be noted that DL 211 supplies no definition of "free competition" and merely
refers to it as a protected legal interest.  In this respect, Chilean law is consistent with most of the
existing systems for the defence of free competition around the world, since it is clear that the Lawmust work with open and flexible concepts, leavin g responsibility for interpreting their meaning in
each particular instance to the relevant authoritie s in their jurisprudence.  To have opted for some
other legislative policy - for example, by establishing a prescriptive definition of free competition -
would have been tantamount to hampering the proper application of the law in judicial practice.  In
this connection, the Chilean anti-monopoly bodies have followed a pragmatic line of approach, closer
to the concept of workable competition than to the ideal model of perfect competition.WT/WGTCP/W/75
Page 3
II.2 Definition of restraint of competition
Article 1 of DL 211 is the rule on which the definition of restraint of competition is based, in
as much it sets out in general terms what is meant by the "offence of monopoly".
The rule in question states that:
"Anyone who, individually or collectively, pe rforms any act or concludes any agreement
tending to impede free competition within the country in the economic sphere, whether of a
domestic nature or in relation to foreign trade, shall be liable to any of the categories of
medium-term rigorous imprisonment".
The above is supplemented by Article 2, which lists certain anti-competitive acts, while also
establishing a general rule to the effect that "any other decision aimed at eliminating, restricting or
obstructing free competition" constitutes a punishable offence within the meaning of DL 211.
At the same time, the first paragraph of Article 4 confirms the content of earlier articles by
prohibiting in principle the granting of any form of monopoly to private individuals by the State.
Lastly, Article 6 specifically refers to "abuse of monopoly position" in the market-place as a
restraint of competition.  "Monopoly" position should be taken to mean not only the position of a
monopolist in the market, but any dominant position enjoyed by one or more firms, whether or not
monopolistic.
The definition set out in Articles 1, 2, 4 and 6 is applicable to any national or foreign person,
including the State itself.  Moreover, even where the restrictive conduct took place outside the
national territory, it will always be subject to investigation and sanction insofar as it affects free
competition within the country.
It can be stated that the definition of anti-competitive acts or practices combines two essential
characteristics.  First of all, it is an open-ended and broad definition.  Secondly, it fulfils the twofold
function of classifying both criminal and administrative offences.
As can be seen from the provisions cited above, anti-competitive acts or practices are defined
in broad, all-embracing terms.  An open-ended definition of this type is required in order to extend theapplication of the Law to all possible infringements of competition.
Consequently, the legal concept of "monopoly" co vers all possible restrictions, both known
and not yet identified, without distinction as to entity, scale or form.
Given the broad wording of the Law, the task of completing the characterization of the
offence has been left to judicial practice, for which purpose a wide degree of discretion has been
allowed whenever it has been necessary to establish the criteria for controlling restrictions on
competition.  This does not mean that the Chilean system for the defence of competition is based on
the case-law principle, since although the Commissions take into account legal doctrine established in
earlier cases, they are under no obligation subsequently to comply with that doctrine, and may
therefore vary their position from one case to another.
With regard to the criminal and administrative nature of the Chilean anti-monopoly law, the
following points may be made:WT/WGTCP/W/75
Page 4
The above-mentioned Article 1, first paragraph, of DL 211, supplemented by Article 2, establishes a
clear category of criminal offence - the offence of monopoly - punishable by imprisonment for a
period ranging from 61 days to five years.  If the conduct affects essential goods or services, the
sentence can be increased to 10 years' imprisonment.
The fact that DL 211 is based on a principle of criminal indictment does not mean that the
application of the law should exclusively be subject, in all cases, to the existence of an offence.  Onthe contrary, DL 211 is customarily applied by the anti-monopoly bodies acting in an administrative
capacity, and criminal proceedings are only a last resort.  As a result, there has been only one case of
criminal conviction in the entire history of the Law.
In fact, Article 6 of DL 211 itself states  that the anti-monopoly bodies may deal with
infringements of free competition or abuses of dominant position which do not constitute offences.
For the above reasons, it should be considered that, in principle, an anti-competitive act,
practice or agreement is not criminal conduct in the strict sense of the term but primarily constitutesan administrative offence liable to control or sanction by the anti-monopoly bodies provided for in
DL 211.
Criminal proceedings are a last resort for the application of the Law and the bringing of such
proceedings is justified only in cases where the administrative authorities with preventative and
adjudicative functions have been unable adequately to prevent,  prosecute or punish an act, practice oragreement seriously detrimental to free competition.
II.3 Exceptions provided for in DL 211
The prohibition established in Articles 1, 2, 4 (first paragraph) and 6 of DL 211 is formulated
in absolute terms:  any act, practice or agreement which tends to impede free competition is unlawful
and must therefore be prevented or punished by the anti-monopoly bodies.
However, given that an absolute prohibition might lead to the penalization of restrictive
practices of potential social benefit in terms of economic efficiency or stability, the legislature
established a number of exceptions to the applicability of DL 211.
Three sets of exceptions may be identified, which we will call statutory, national interest and
sectoral.  The first two are covered by Article 4 of DL 211.  The third is established in Article 5.
II.3.a Statutory exceptions
The first paragraph of Article 4 bars the State from granting monopolies to private firms.  It
sets out the rule that:
"Private individuals may not be granted any monopoly for the exercise of economic activities
in such areas as mining, industry, trade or services"
As a corollary of the above, under the following paragraph the State is authorized to maintain
specific statutory monopolies, which are consequently excluded from the scope of DL 211.  Indeed,
Article 4, second paragraph, provides that:
"Only by law may monopoly control of specific activities of the kind referred to in the
previous paragraph be reserved to governmental, semi-governmental, public, self-
administering or municipal institutions."WT/WGTCP/W/75
Page 5
As a result, the State and the Administration have the option of assuming direct and exclusive
responsibility for economic activities relating to basic services in general.  However, a monopoly
cannot be allocated to the State solely at the behest of the Administration:  the National Congress has
to enact a law expressly so providing.
II.3.b Exceptions based on  national interest
As has been shown above, the ban on the granting of monopolies to private individuals in
Article 4 of DL 211 merely confirms the absolute nature of the prohibition contained in
Articles 1 and 2 of the Law.  Hence, the exception established in the third paragraph of the same
Article also pertains to the general definition of the offence of monopoly, in as much as it is provided
therein that:
"Notwithstanding and provided that the national interest so requires, authorization may be
given by reasoned supreme decree, subject to prior favourable opinion of the Judicative
Commission (Comisión Resolutiva), for this law to provide for the adoption or continuationof such practices or contracts referred to in the preceding Articles as may nevertheless be
necessary for the stability or development of national investments..."
The principle on which the exception is based is that of "national interest", a concept not
defined in the Law, which has had to be clarified by judicial practice on a case-by-case basis.
It should be pointed out that intervention of the political authority - the President of the
Republic - is required to validate the exception by means of an official enactment, and that the report
by the Judicative Commission is binding on the Administration.  An exception on the grounds of
national interest is one of the means of evading the prohibitory principle, since in this way the judicial
organs have been able to authorise specific anti-competitive acts, practices or agreements, which
otherwise would have been subject to mandatory pr ohibition or rejection, even if they involved a
degree of benefit for "the stability or development of national investments".
II.3.c Sectoral exceptions
Lastly, sectoral exceptions are those established under the rule contained in Article 5 of the
Law, which excludes from the scope of DL 211 a group of special laws considered to have parallel
force to DL 211.
These are laws and regulations which, mainly for reasons of public order, govern specific
economic and occupational activities in sensitive sectors of the national economy;  provisions which
would have been automatically invalidated by the prohibition contained in Article 4, first paragraph,
failing express confirmation of their continuance in force together with DL 211.  In any event, DL 211
itself takes on the task of specifically enumerating the sectors exempted.
Thus, the provisions relating to intellectual and industrial property, under which effective
monopolies or privileges are established for the benefit of authors, inventors and proprietors of marks,
are expressly maintained in force.  The provisions relating to State mining reserves also remain in
force, as do the rules of the Sanitary Code.  The provisions regulating public service or municipal
enterprises, banking and other specified sectors also continue to be valid.
Despite the foregoing, Article 5, third paragraph, of the Law sets out to strengthen the
principle of prohibition by indicating that "Nevertheless, no State monopoly may be established ... inthe absence of a prior favourable opinion by the Judicative Commission".WT/WGTCP/W/75
Page 6
The Article 5 exceptions are in turn qualified by the last paragraph of the Article, which
authorizes the Judicative Commission to seek to amend or repeal statutory provisions or regulations
which it considers harmful to the public interest owing to their restrictive effect on competition.
The Commission has exercised this authority on various occasions, requiring the legislative
power to repeal anti-competitive provisions.  For example, residual restrictive rules concerning
insurance, public auctions, industrial installations and price fixing were successfully repealed.
III. BODIES RESPONSIBLE FOR IMPLEMENTING DL 211
Article 6 of DL 211 provides for three sets of administrative bodies and one service to prevent
and punish infringements of free competition.
The bodies in question are the Judicative Commission, which is Chile's competition court and
the highest organ in the system,  the Central Preventative Commission and the Regional Preventative
Commissions (12 in all).  The service is the National Economic Prosecutor's Office  based in Santiago,
which is represented throughout the country by twelve Regional Economic Prosecutors' Offices.
III.1 The Regional Preventative Commissions  and the Central Preventative Commission
The commissions, all of which are honorary bodies, are composed of persons with other
permanent functions who meet for the purposes of their terms of reference.
Every region in the country has a Regional Preventative Commission to deal with matters of
relevance to the functioning of the competition system within the region concerned.  Santiago houses
the headquarters of the Central Preventative Commission, which deals with practices or abuses of anational character, or such as involve more than one region.
It is not the purpose of the Preventative Commissions to adopt mandatory penalties or
corrective measures for situations affecting freedom of competition.  Their function is to inform,consult and indicate ways in which individuals and even State agencies should face up to anti-
competitive situations.
For the performance of their preventive function,  the Commissions are empowered inter alia
(Article 8 of DL 211):
- To hold consultations on existing or planned contracts which might interfere with free
competition;
- to make sure, within their limits of their jurisdiction, that free competition is
maintained and no abuses of dominant position are committed,  by proposing
measures to sanction practices or abuses brought to their attention;
- to instruct the relevant Prosecutor's Office  to investigate such practices or abuses;
- at the request of the Prosecutor's Office, to adopt preventive measures designed to
suspend the harmful effects on competition of specific practices or contracts.WT/WGTCP/W/75
Page 7
III.2 The Judicative Commission
The Judicative Commission  has a broader range of functions which are regulated by law.  In
the first place, it is entitled to deal ex officio, or at the request of the Prosecutor's Office or in response
to complaints by private individuals, with any situ ation which it deems to be incompatible with free
competition.  In such cases it may carry out its own investigation, drawing on a comprehensive range
of powers which include use of the law enforcement agencies.  In keeping with its standing, theCommission is made up of representatives of the highest public bodies.
In dealing with such cases, it may adopt any or all of the following measures (Article 17 of
DL 211):
- Invalidate any act, contract, system, pact or agreement which it deems to be
incompatible with freedom of competition;
- revoke the legal personality of any corporation or order the dissolution of any legal
entity in general (commercial partnerships, for example);
- disqualify natural persons involved in such cases from acting as representatives of
trade unions or professional bodies for a period which may range from one  to five
years;
- impose fines of up to 10,000 tax units (Unidades Tributarias) (approximately
US$550,000);
- order the institution of criminal proceedings for the ascertainment and punishment
under the ordinary law of the criminal offence of interference with free competition.
As has already been seen, the Judicative Commission may also call on the public authorities
to amend statutory provisions or regulations which it considers anti-competitive, and of its own
motion issue special instructions to be followed by individuals in their choice of practices or contractswhich might affect free competition.
As the highest organ in the Chilean system for protection of competition, the Judicative
Commission is responsible for managing and controlling all the organs under its aegis, and is in turn
subject to supervision by the Supreme Court in resp ect of its rulings, insofar as punitive rulings may
be the subject of a special appeal to the Court.
III.3 The National Economic Prosecutor's Office and the Regional Prosecutors' Offices
The National Economic Prosecutor's Office, under the authority of the National Economic
Prosecutor, is an autonomous public service independent of any other administrative body or service,
which is linked to the central Government through the Ministry of Economy, Development and
Reconstruction.
Each regional capital has a Regional Prosecutor, answerable to the National Prosecutor, who
fulfils the latter's functions within the territory of the region concerned.
In the exercise of his functions, the National Prosecutor is independent of all the authorities
and courts he has to deal with.  Consequently, he is able to defend the interests entrusted to him in the
manner deemed legally appropriate in his own assessment.WT/WGTCP/W/75
Page 8
The National Economic Prosecutor's Office has been given the form of a legal and technical
group for its dealings with the Judicative and Preventative Commissions, and it is served by anationwide body of staff including lawyers and engineers.
The National Economic Prosecutor's Office performs the following basic functions on a
permanent basis (Article 24 of DL 211):
- Conducting investigations into infringements of free competition and other economic
offences as required by law, whether ex officio or in response to complaints orrequests for opinion from authorities and the public in general;
- information and advice to the Judicative and Preventative Commissions in cases
heard by them and action to ensure compliance with their decisions;
- coordination of the work of the central and regional Judicative and Preventative
Commissions and of the 12 Regional Prosecut ors' Offices, and representation of the
public economic interest before the Supreme Court and other ordinary courts of
justice.
IV. JURISPRUDENCE OF THE COMPETITION BODIES
In the exercise of their functions, the competition bodies have investigated markets important
to the national economy, such as those of telecommunications;  generation, transmission and
distribution of electric power;  sanitary services and all services of general public interest.
On the basis of surveys of these markets and corrective measures proposed to forestall
anti-competitive practices, the corresponding activities and the provision of the respective serviceshave been liberalized.
These activities, which in the past were carried out by State companies under monopoly
conditions, were first privatized and then introduced into markets gradually laid open to competition,
thanks in large part to the work done by the anti-monopoly authorities.
In the field of telecommunications, at the time when DL 211 began to be applied in Chile,
only two companies,  both State-run, controlled the market:  the Chilean Telephone Company and theNational Telecommunications Enterprise, one operating in local telephony, the other in national and
international long-distance telephony.  This market segmentation was ordered by the State itself inagreement with the respective governing boards.
The competition bodies, led by the Central Preventative Commission, began by
recommending that both companies should act independently of each other, and then promoted
competition in those areas where it was possible, namely unrestricted marketing of lines andtelephones.
Up to this point in time, the competition authorities have continued promoting
telecommunication deregulation with the aim of ensuring effective competition among the numerous
enterprises currently seeking to enter or already operating in this market.
In the electric power sector, although one firm is seen to occupy a dominant market position,
intervention by the competition-protection organs has served to eliminate barriers to entry, facilitateelectrical interconnection and secure more equitable conditions of competition for the current
operators.
With regard to electricity transmission and distribution, which are natural monopolies given
the nature of these activities, the work of the anti-monopoly authorities has focused on preventingWT/WGTCP/W/75
Page 9
possible abuses of dominant position, in respect of both power supply and the collection of user tariffs
and transmission charges.
Without prejudice to the foregoing, the competition authorities have encouraged the
deconcentration and separation of electricity generation, transmission and distribution activities, so
that they may be developed by independent companies capable of competing among themselves.
Mention should also be made of the studies on production and marketing in other areas of
market activity, such as medicines, meat, the wheat- flour-bread chain, sugar, oil, automobiles, etc..
With regard to medicines, the Commissions were obliged to proceed very cautiously, because
the relevant legislation and regulations had eliminated all barriers to market entry and all
Government-determined mechanisms for the fixing of prices and commercial margins.  A market
survey carried out by the National Economic Prosecutor's Office warned that the parties active in this
market, particularly laboratories, wholesalers and pharmacies, did not have suitable rules to ensure
greater transparency in negotiations.  As a result, laboratories imposed arbitrary marketing conditionson pharmacies and openly favoured some over others.
Since 1984, the Central Preventative Commission has endeavoured to establish some order in
this field, by laying down conditions for the optimum operation of free market competition.  This has
given the economic agents greater security, sparing them the burden of unjustified pressures.
However, the work of the Chilean anti-monopoly bodies is not confined to the above-
mentioned markets.  In their jurisprudence, they have  had occasion to deal with restrictive practices of
all kinds, ranging from price fixing to industrial concentration, and they have established a body of
doctrine based on technical and professional criteria directed at all times to safeguarding an open and
vigorous system of free competition.
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