2007/CPDG/WKSP/006 Competition Policy and SMEs: Pilotage Services in Callao Harbor

Transcription

1 2007/CPDG/WKSP/006 Competition Policy and SMEs: Pilotage Services in Callao Harbor Submitted by: Peru 3rd Training Course on Competition Policy Singapore 1-3 August 2007

2 COMPETITION POLICY AND SMEs: Pilotage services in Callao Harbor Erickson Molina Pradel Senior Assistant of the Defense of Competition Chamber Indecopi The 3 er APEC Training Course on Competition Policy for APEC Member Economies Singapore, August 1-3, 2007

3 Free Competition Law Legislative Decree Nº 701, commonly known as the Peruvian Free Competition Law, is intended, as stated in Article 1, to eliminate monopolistic practices, controls and restrictions of free competition in the production and marketing of goods and services, so that private enterprises can flourish for the greatest benefits of users and consumers. This law is applicable to all economic sectors except telecommunications where the sectoral regulator (Osiptel) exerts, at the same time, the role of competition enforcement.

4 SME s: Informal enterprises Indecopi is working to enforce the Competition Law in informal sector activities. In Peru, the informal sector accounts for a sizable share of economic activity. There is the need to evaluate the enforcement of competition law and authority in this sector. SME s provide services and goods in the informal sector. They are numerously than medium and big enterprises. Indecopi has to make them know the importance of the Legislative Decree Nº 701, Indecopi s role in Competition Policy, prohibited practices and proceedings. It knowledge will permit to SME s use these tools to promote free competition in markets where they provide services and goods to consumers. The Competition Authority has adopted different methodologies depending on the nature of conflicts (i.e. Indecopi identifies and enhances the abolition of technical barriers to trade and bureaucratic barriers to market access).

5 The Actors The Plaintiff: Peruvian Association of pilots and others, who are dedicated to provide the pilotage service at Callao Harbor. The Defendant: Pilot Station and seventeen pilots who were managers of this enterprise. It is a company dedicated to provide pilotage service at Callao Harbor. Callao Harbor is located in the coast of Lima. It is the most important harbor of the country.

6 Background Pilotage service is regulated by the Supreme Decree Nº /DCG as follow: (i) Pilots need a license to provide the service. The license allows them to provide pilotage services in a limited area. If the pilots want to work in a different area, they need to get a new license and they have to start as aspirants. (ii) Every Navy is obligated to contract pilotage services at Callao Harbor. This service is non fungible. (iii) Pilots can provide a limited pilotage services per day. (iv)pilots who have gotten a license are the only allowed to train aspirants to become pilots.

7 The Claim In 2002, Peruvian Pilots Association submitted charges against Pilot Station and others for abuse of dominant position, consistent in: (i) the celebration of an exclusive agreement with pilots who had licenses for working at Callao Harbor. (ii) to submit judicial and administrative charges against every pilot who did not respect exclusive agreements. (iii) unjustified refusal to train aspirants for pilots. (iv) unjustified refusal to provide pilotage service.

8 Pilot Station s justifications The justifications exposed by Pilot Station to sustain the denial and the agreements were: They contracted with every pilot to provide them social benefits and a permanent job until they get retired. There were seven more enterprises providing pilotage services in the market. Judicial and administrative charges against pilot pretended to be a self-defense. Pilots decided to stop training new aspirants.

9 Actors at pilotage service SHIPPING COMPANY SHIPPING COMPANY REPRESENTATIVE (make the agreement to provide the service) PILOT REPRESENTATIVE ENTERPRISE PILOTS

10 Investigation Period Commission: investigation period should start when Pilot Station celebrated the exclusive agreements with all pilots who had a license to provide the service at Callao Harbor. Pilot s appeal: the Defense of Competition Chamber considered before those agreements were not illegal. Therefore the Commission could not begin an investigation period. On the other hand, investigation period had finished when the Commission made an interview to its manager. Defense of Competition Chamber: even it considered before that agreements were not illegal, when Pilot Station celebrated them, it got a dominant position. Plus, interview did not let Pilot Station to know what charges were submitted against him.

11 Vertical relationships Commission: relationships between Pilot Station and every pilot was considered as vertical relationships because both actors have different levels in distribution line of pilotage service. Defense of Competition Chamber: Pilot Station and every pilot have an employment contract. It means that both are part of the same productive unit because pilots have a subordinated relationship with Pilot Station.

12 How to determinate an abuse of dominant position A B Relevant product Geographic Market Delimitation of the Relevant Market (RM) Determination of Dominant Position (DP) in MR Investigation elements No: End Yes Justification of the practice Yes: End No: Sanction

13 Dominant position: relevant issues Pilot Station had 88% of pilots with licenses to provide pilotage service at Callao Harbor (31 pilots). Pilot Station provided 78% and 60% of services during 2001 and 2002, respectively, at Callao Harbor. Enterprises competitors only were a reduced number and got lower market shares in providing those services. Structure of pilots market forced Navies to contract the service provided by Pilot Station.

14 Dominant position: relevant issues Competitors were not able to train new pilots because law forced trainers to get their licenses at Callao Harbor. There are legal limits for pilots to provide services every day and pilots had to apply to obtain different licenses to work with each category of ship. Even when the competitors provided 40% of services and every enterprise had only 4 pilots, Pilot Station had the majority of their pilots off. Considering that there were many legal barriers to trade access and market exit, Pilot had a dominant position

15 Illegal practice: employment contracts Employment contract with an exclusive agreement while pilots get licenses to provide the service. Pilot Station pretended to estipulate that pilots who decided to end contracts had to pay a penalty of US$ ,00. It was an indication that Pilot Station wanted to impose barriers to market exit and to impede pilots to move to other enterprises. Although the Defense Competition Chamber said that employments contract were not anticompetitive practices, new context and the intention of the enterprise created barriers for competitors. For that reason this practice was considered an abuse of dominant position.

16 Illegal practice: unjustified refusal to train aspirants for pilots Pilot Station pretended to reduce the number of pilots in the market, refusing to train aspirants for pilots. Pilot regulation law establishes that aspirants for pilot must have 30 hours of training before they can provide pilotage service. The trainer must be a pilot with license to provide the service at Callao Harbor. Competitors have the obligation to train aspirants even they work for other enterprises. However, Pilot Station refused to train them.

17 Illegal practice: charges against pilots Pilot Station submitted judicial and administrative charges against every pilot who did not respect exclusive agreements. Competitors decided to contract pilots of Pilot Station offering them better conditions of employment. However, Pilot Station submitted judicial and administrative charges against them seeking judicial authority to suspend their licenses. It defense was sustained in the agreements established on employment contracts. The Commission and the Defense of Competition Chamber both considered that this situation implicated a restriction of free competition because competitors could not contract any pilot with license to provide services at Callao Harbor.

18 Illegal practice: denial to provide pilot services to harbor operators The unjustified refusal to provide pilot services to harbor operators forced them to contract disadvantage agreements. Justification exposed by Pilot Station to sustain the refusal to provide services to harbor operators was that there was not a contract to provide services to them. Furthermore, Pilot s defense said that some harbor operators requested for services when the term for it was over. However, Pilot provided services to some other harbor operators even when there was not a contract with them either. Plus, in the letters that Pilot Station sent to harbor operators, did not say that the refusal to provide them pilotage services was the expiration term.

19 Conclusion The Commission and the Defense of Competition Chamber ordered Pilot Station and managers to abstain those practices and imposed to the defendant a fine of 81,2 Impositive Tax Units (aprox. US$ ,00). An abuse of dominant position could constitute a market exit to SME s who do not have knowledge about Indecopi s role in Competition Policy, prohibited practices and proceedings.

20 Thank you Contact information: Website: