WORLD TRADE
ORGANIZATIONWT/WGTCP/W/93
22 September 1998
(98-3619)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM BRAZIL
The following communication, dated 24 July 1998, has been received from the Permanent
Mission of Brazil with the request that it be circulated to Members.
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Competition Policy in Brazil:
Aspects of the country's recent experience
I. INTRODUCTION
The last decade has witnessed the dissemination of competition laws in several parts of the
world, especially in developing countries.  According to the 1997 UNCTAD World InvestmentReport, more than seventy nations have now competition laws, in contrast with less than forty in the
1980s. Notwithstanding the radically different environments in these different countries, competition
policy tends to gain increasing importance all over.
In Brazil, although there have been laws regulating the subject since 1945 (and the country
has had an entity since 1962), the competition authorities have been restructured in the nineties and
the focus of their actions shifted from basically di rect intervention in the market for the purpose of
protecting the so-called "popular economy" (that is, essentially, controlling prices) to the analysis ofmergers, abuse of dominant position and other topics more in line with the range of subjects usually
identified with "modern" Competition Policy.
This submission aims at providing an overview of the situation of competition policy in
Brazil, its historical evolution and the challenges the country faces with topics such as the
privatization process, international cooperation and others.
II. THE BRAZILIAN EXPERIENCE:  BACKGROUND
Considering its status of a developing country, with all the difficulties that entails, Brazil has
had a significant development in its practice related to competition policy.  The authorities have
succeeded in spreading the culture of competition among most of the segments of Brazilian society,
such as the private sector, the Judiciary, universities, etc.
There is, already, a significant accumulated experience in terms of dealing with cases such as
the repression of horizontal and vertical agreements , merger control, conduct cases and others.  The
country is now, alongside with consolidating the experience already achieved, starting to explore new
areas, such as the regulation of the activities of recently privatized companies and international
cooperation.WT/WGTCP/W/93
Page 2
Before turning to those discussions it is useful to provide an overview of the Brazilian
legislation in competition policy.
A. THE CURRENT STRUCTURE OF COMPETITION POLICY ENFORCEMENT IN
BRAZIL
Brazilian antitrust legislation makes reference to three different entities. CADE
(Administrative Council for Economic Defense,  an autonomous agency composed by six
commissioners and a President appointed by the President of Republic and confirmed by the Senate
for a fixed term), SDE (Secretariat for Economic Law, of the Ministry of Justice) and SEAE
(Secretariat for Economic Monitoring, of the Ministry of Finance) will be referred to as entities.
Their responsibilities, according to the law, are as follows:  SDE is in charge of starting and
conducting investigations related to antitrust cases, as well as monitoring the market foranticompetitive practices.  SEAE is responsible for preparing non-binding economic opinions on
merger cases and may issue opinions in the case of anticompetitive practices.  CADE is an
autonomous agency that enforces the competition law in adjucating cases, deciding on what
constitutes a violation of the law and applying penalties when needed.  CADE can also conduct
additional investigation when necessary.
B. THE RECENT EVOLUTION OF THE SYSTEM
Considering the high degree of state intervention prevailing in Brazil during most of the
import-substitution industrialization phase of the past decades, the Brazilian legislation in competition
is precocious. CADE was created as far back as 1962 and has already acquired some tradition.
One can identify two distinct trends in the legislation dealing with market regulation in Brazil
as well as in many other developing countries:  the first one is characterized by significant direct
intervention in the market for the purpose of protecting the so-called "popular economy".  This type of
legislation dates back to the 1930s.
Indeed, when import tariffs were high, subsidies prevailed in many sectors and the
government regulated the most important prices of the economy, it was natural to have prices
controlled.  This trend was predominant until the late 1980s.
Three important changes occurred thereafter:
(i) a significant trade liberalization bringing import tariffs down from an average of
more than 50% to approximately 13% and eliminating several non- tariff barriers;
(ii) privatization and deregulation of a number of important sectors of the economy;
(iii) and, lastly, the stabilization plan launched in 1994, which succeeded in coping with
the four-digit inflation process that had undermined the macro performance of the
country since the late 1970s.
After a transitional period which lasted from 1991 to 1994, those changes made the
"protection of the popular economy" anachronistic and the second trend of legislation became
predominant.
The main law on Competition Policy in Brazil is Law 8.884 supplemented by additional
legislation such as  9.021/95 and 8.137/90.  It introduced some changes to the previous law, which are
more in line with the international trends in antitrust regulation:WT/WGTCP/W/93
Page 3
(i) CADE was given more autonomy from the central administration and its members
gained a fixed two-year term renewable once;
(ii) the merger review system was perfected in a number of ways and put in practice for
the first time.
C. NEW CHALLENGES
Brazil already has a reasonable number of administrative decisions, especially in the recent
period.  In 1997 the average number of decisions per month was roughly seventeen times that of the
period 1994-96.  More than half of the decisions were taken in the last twenty months.
However, those statistics should not lead to an underestimation of the importance of the early
experience of CADE.  Indeed, one can find a rich doctrinal debate as well as a few useful precedents
for most of classic types of horizontal and vertical agreements.  It is also noteworthy that aprofessional community dedicated to antitrust developed in some cities of the country.
As for the composition of the decisions (conduct and merger cases), there is now a
predominance of conduct cases vis-à-vis merger review cases; the latter represented 39% of the total
in the first two years of implementation under the new law as opposed to 11% in the last twenty
months.  The high percentage of "abusive price" cases suggests the frequency with which authoritiesin the past tried to use the competition law to repress what was perceived as an abuse but very often
was a macro result of the inflationary process.
The vast majority of the conduct cases in the recent period has been terminated without the
imposition of any penalties.  In most cases, the evidence was not sufficient to continue the
prosecution.  Two points derive from this fact:
(i) In countries with a past of strong state intervention this may be frequent as well as
desirable.  In fact, the termination of a number of old cases is positive to the extent
that previous state actions are no longer causing uncertainty.  This is particularly true
in regard to numerous cases involving privatized companies which had been kept
under investigation until last December;  and
(ii) It is urgent to build investigative capacity for which material and especially human
resources are needed.  Therefore, SDE is developing consistent and stable guidelines
to investigation and instruction of those processes.  The consistency and acceptability
of the guidelines are based on the fact that renowned specialists have been
contributing to its making and implementation.  As a follow-up to  CADE's new code
of Internal Rules, a Resolution on investigation should be enacted by August after an
ample and transparent consultation to national and foreign experts and to thecommunity as a whole.
With regard to mergers, some results are noteworthy:
- compared to other developing countries, the number of decisions (87) as well
as the content of the rulings already reveals some accumulated experience;
- the rate of disapproval in 1994-97 is relatively low and not much different
from more mature jurisdictions (6%);
- most of the transactions are undertaken by foreign companies;WT/WGTCP/W/93
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- and most of them are acquisitions of Brazilian companies.
One of the priorities of the Brazilian Entities has been the acceleration of the decision process
on merger cases.  In order to accomplish that goal a change in regulation was introduced in 1996
through legal instruments issued by the Entities  (Resolution # 5 of CADE, Ordinance 163 of SEAE
and Ordinance 5 of SDE).  It introduced hearings with the participation of the three Entities, at whichparties to a transaction expose their views and motives related to particular mergers. The basic idea
was to create a fast-track procedure for cases that can be considered simple and are most likely to be
approved. The average time required to analyse the operation decreased from approximately twenty
months to seven months as indicated in the chart below.
A joint effort by the three entities shall lead to further improvement in merger review in the
next nine months.  Simplification and rationalization of the procedures, a better screening mechanism
of the simpler cases and orientation to the business community should lead to a reduction of theperiod of the analysis from 7 to 2.4 months (see Chart).  In addition, the new regulation shall be as
close as possible to the framework for a merger notification form currently under discussion at the
Committee on Competition Law and Policy of OECD.
Improving the Preventive Role
(period of analysis in months)
20,0
2,47,0
01020
August 1996 May 1998 May 1999Resolution # 5Super
Resolution # 5
III. NEW ISSUES:  COMPETITION POLICY, PRIVATIZATION AND REGULATION
Besides consolidating what has already been achieved, Brazilian authorities have to prepare
for the new challenges of a new model of development different from the import substitution model
and integrated in a global economy.
Two lines of action are particularly important in this new context:
- privatization and the coordination between competition entities and the new
regulatory authorities;
- cooperation with the other national jurisdictions.
Privatization
The Brazilian privatization programme started in the 1980s and gained momentum  after 1991
when major state companies were transferred to the private sector.  The entities have been analyzing
some of these operations in the light of Law 8884.  Since 1995 the privatization programme includesWT/WGTCP/W/93
Page 5
sectors which have been heavily regulated in the past under the assumption that they were natural
monopolies. With a new law for public concessions since 1995 and the amendments to the
Constitution, it has been possible to create a new regulatory framework for these sectors. The attached
note on "Competition Policy, Privatization and Regulation" describes the issue in more detail.
International Cooperation
The government of Brazil has been promoting initiatives that lead to cooperation with other
national entities.  The sharing of know-how and experience contributes much to the accumulation of
knowledge of all the parties and to the diffusion of the culture of competition.
Different from the jurisprudence of the 1960s and 1970s, there is an increasing number of
cases which not only present the same characteristics both nationally and in other markets, but also
constitute, in reality, a cross-border merger or a generalized conduct.  Therefore, the potential for
inconsistent decisions among different national entities is high, which requires an increasing degree ofcoordination.  Also, the frequency of cross-border tr ansactions poses the problem of transaction costs
firms incur when they have to comply with so many applications and bureaucratic timetables.  Efforts
to harmonize particular requirements (e.g., for merger review) could be useful even without a more
profound convergence in the legislation.
Competition Policy in the MERCOSUR Customs Union
In December 1996, the MERCOSUR countries si gned a protocol for the harmonization of
competition policies within the trade bloc. The Protocol sets the rules that must be followed when
analyzing a case with effects in more than one country of the bloc.  It also regulates the functioning of
a regional Competition Committee.  The Protocol is presently being regulated.
IV. PERSPECTIVES OF COMPETITION POLICY IN BRAZIL: TOWARDS 
INSTITUTIONAL MATURITY
Together with consolidating what has already been achieved, complementary lines of action
are being further explored by the Brazilian authorities.  These are the improvement of the
investigative capacity in conduct cases, the improvement of merger control and the continuation of the
work of competition advocacy, with special emphasis on the Judiciary.
The institutional improvement of the Brazilian entities is also being enhanced.  Several
initiatives concerned to the modernization of their internal rules are being adopted and special
attention is being given to staff training, both within the country and abroad.
In a global economy, legal certainty is a strong instrument for the attraction of foreign
investment.  In this context, transparent rules and respect for the due process of law contribute to the
establishment of a stable environment.  Also, the formation of jurisprudence constitutes an important
aspect of the dissemination of the culture of competition in the world. Brazil and Mercosur are takingimportant steps in those directions.WT/WGTCP/W/93
Page 6
ATTACHMENT
Competition Policy, Privatization and Regulation
Institutional aspects
The Brazilian Congress approved in 1995 amendments to the Federal Constitution which
removed barriers to private sector participation in the areas of telecommunications, electricity, as well
as in the oil sector.  The amendments to the Constitution were followed by the approval of legislation
creating regulatory agencies for those three sectors - namely, the National Agency for Electricity
(ANEEL), the National Telecommunications Agency (ANATEL), and the National PetroleumAgency (ANP).  In parallel, Congress approved, also in 1995, a law (the concessions law ) governing
the central aspects of the provision of public utilities under license agreements.
The roles of the Brazilian competition entities and that of the regulatory agencies with respect
to enforcement of competition law and policies in the respective sectors is not spelled out in a
systemic manner under the relevant legislation.  As a general matter, the basic legislation oncompetition, and in particular Law 8.884 of 1994, a pplies without exception to regulated industries.
Brazilian competition entities and the regulatory agencies have initiated discussions towards the
establishment of concordats governing their relationship with respect to competition issues.  It is
expected that additional regulatory agencies will be set up in the future; the area of transportation is
likely to be next in line.
Creating competition
A large-scale privatization programme is underway in Brazil in the areas of
telecommunications and electricity, as a result of which monopolies will be replaced with competitive
markets.  The same will happen in the oil sector, where the state monopoly exercised by Petrobrás ,
the national oil company, will give place to competition.  The following is a concise description of
this process.
In the oil sector, the petroleum law  approved by Congress provides for the creation of
competitive markets in the activities of exploration and production through the participation of the
private sector under license agreements.  The National Petroleum Agency has already defined the
acreage which will be explored by Petrobrás, and the fields will be up for bidding by new competitors.
The terms of the standard license agreement have been defined following public discussion promotedby ANP.  Also, the Brazilian government is currently defining the terms of the government take  -
including royalties and other taxes - which will apply to exploration and production of oil.  In
downstream activities - refining and distribution - competition, which already exists to a certain
extent, will be expanded through the authorization,  to be granted by ANP, for distribution companies
to import oil derivatives.  In preparation, the Brazilian government is currently revising the pricestructure of oil derivatives in Brazil, so as to  bring it in line with international standards.
In telecommunications, competition will result from privatization through the sale of
government-held shares in the national plant.  Providers of local services  - currently, companies
operating in each of the 27 federated states - will be regrouped under 3 regional companies and
privatized.  As a second step, to be initiated in 1998-1999, biddings will be opened for the provisionof services by a second company - the mirror  company - in each of those three regions, thereby
effectively installing competition in thos e markets.  Embratel, the provider of long distance and data
transmission services , will also be privatized.  Effective competition will be assured as from 2003,
when a second carrier will be allowed to operate the long-distance and data-transmission market.WT/WGTCP/W/93
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Finally, competition has already been initiated in the market for cellular services : the national market
was divided in 10 regions, where services began to be provided by B-band  companies, alongside the
government controlled - or A-band  - companies, following public bidding.  Government-controlled
companies will now be regrouped for purposes of privatization under 8 regions.  As from 2003, access
to this market will be liberalized completely.  Restrictions on horizontal market concentration wereissued by ANATEL.
The national market for electricity is undergoing a major reshuffling, whereby the unbundling
of generation, transmission and distribution activitie s, previously carried out by individual state-
controlled companies, will be accompanied by privatization of the resulting companies, which has
already begun.  The unbundling, coupled with rules governing issues such as activities of independent
power producers and access to transmission networks, will ensure competition.  ANEEL has issued
rules governing limits to participation by individual groups in each of the generation and distributionsectors, as well as cross-participation limits.  Those limits may occasionally be exceeded as a result of
individual privatization auctions, but divestiture rules have been issued by ANEEL to ensure that they
are subsequently restored.
Finally, the Brazilian government has been adopting measures to ensure the working of
effective competition in activities related to infras tructure with respect to which a regulatory agency
has not yet been set up, and which are still subject to the jurisdiction of a government department.
The market for air transportation services, in particular, has been subject to increased competition as a
result of government action which liberalized promotional fares, the offering of charter flights, the
concession of new routes, as well as access to central airports.
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