Chile: Latin American Competition Law

Chilean Leap Of Faith Against An Old Monopoly
Last Updated: 5 February 2003
Article by Fernando Albino

" . . . newcomers to traditionally monopolistic sectors should expect resistance . . . and take into account . . . long . . . anti-monopolistic battles."

When CLB Corporation moved into the Chilean air cargo transport business there was much publicity about the religious beliefs of its American investors. CLB is domiciled in Salt Lake City, Utah and its directors are members of the Church of Jesus Christ of Latter-day Saints, commonly known as the Mormons.

Alpine Air, the Chilean vehicle, is 85% owned by CLB and 15% by a Chilean businessman. The company started operations in mid December 2002 with a fleet of 3 Beechcraft 1900 aircraft. It aimed at the niche market of overnight parcel delivery where, Alpine claimed, there was no one willing or able to operate. Their success was believed to be guaranteed and Jorge Matthei, Alpine Air’s vice-president, confidently stated that both his American business partners and he "had a lot of faith in Chile".

Faith or no faith on 2 January 2003, less than three weeks after starting up, Alpine Air announced that it would present a formal complaint to the Fiscalia Nacional Económica, the local economic competition watchdog, against Lan Chile, the incumbent national carrier. Alpine Air is said also to be considering a civil claim for loss of profits in the Chilean commercial courts.

Alpine Air contends that immediately after it started operations its only competitor, Lan Chile, reduced its prices on transport of cargo to such levels that it completely distorted competition.

Alpine Air argues that the current price of US$ 22 cents per kilo is three to four times below any reasonable market price and therefore Lan Chile is in breach of the domestic Chilean competition and fair trade rules. Lan Chile meanwhile denies these charges and argues that its tariffs vary, as they always have, according to the origin, type of product and destination.

Perhaps the most interesting aspect of this story is the way in which it repeats similar events dating back to 1996. The Chilean market then saw fierce competition between Lan Chile, National, Ladeco and a smaller airline, Aerovias Dap, which operated certain minor routes to southern Chile.

Aerovias Dap resorted to the courts, along similar lines now raised by Alpine Air, and Lan Chile, Ladeco and National were eventually ordered to pay a fine of US$400,000 to the Chilean State. Aerovias Dap, in the meantime forced out of the market, is still waiting for the outcome of its civil claim against Lan Chile for breach of competition rules. Ladeco and National have also since disappeared from the market.

Another interesting fact is the lone crusade of a local member of parliament, Zarko Luksic, who claims that it is high time tougher actions are taken to protect newcomers to the aviation market from the "predatory pricing policy" by the well established operators.

Finally, in a recent interview to a local newspaper the Fiscalia’s Director, Pedro Mattar, explained that Lan Chile’s market presence is permanently under scrutiny. According to Mr. Mattar the Fiscalia is looking carefully into Lan Chile’s pricing policy for the carriage of passengers and cargo in some domestic routes.

Whilst history is against Air Alpine and other smaller operators is the mood perhaps swinging in Chile? Might this at least be the beginning of the end of Lan Chile’s alleged monopoly in the Chilean market?

In 1997, when Lan Chile and Ladeco merged, they represented 90% of the market. Subsequent to the approval of the merger, the "new" Lan Chile was immediately subjected to a series of restrictions by the Fiscalia in respect of their pricing policies. Despite these pricing restrictions, the 90% share is not sufficient in itself to trigger any further fines or investigations by the Fiscalia as it is not sufficient evidence of unfair or market distorting practices.

A complaint by an interested party, such as Alpine Air in this case, is always necessary for the Fiscalia to conduct further investigations and assess in casu if the actions of the other party, in this case Lan Chile, effectively distort the market and the "healthy competition" between the industry’s players.

The Fiscalia process is a long one that can take as much as 3 or 3½ years before a final decision by the "Comision Resolutiva".

The civil claim for commercial damages, the only effective way for a competitor to recoup its losses, usually has to wait for this final decision. As shown in the Aerovias Dap case, the civil claim can easily take more than 3 years including appeals up to the "Corte de Apelaciones".

The conclusion must be that commercial entrepreneurship must always take account of economic, legal and social factors in the local market. Whether big players or small enterprises, newcomers to traditionally monopolistic economic sectors, like airfreight in Latin America, should always expect difficulties and resistance by their long established and powerful opponents and take into account long, and often uncertain, anti-monopolistic legal battles.

With special thanks to Chilean lawyer Ricardo Irarrazabal of Santiago law firm Philippi, Yrarrazaval, Pulido & Bruner for his help in preparing this article.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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