Fair trade - Decree 274/2019

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Legal Update

On April 22, 2019, emergency decree 274/2019 on fair trade was published in the Official Gazette. The main goal of the decree is to ensure fairness and transparency in commercial relationships and to guarantee access to essential information on products and services traded through physical or digital means in the Republic of Argentina.

Fair trade, unfair competition and antitrust. In general terms, Antitrust Law 27,442 protects the correct functioning of the market and, ultimately, the consumer. Claims among competitors or from suppliers against customers (or vice versa), filed under the antitrust regime must demonstrate the negative effect caused by a specific act or conduct within a relevant market, the latter being an economic concept that requires a general analysis of how the demand and supply sides behave (except in the case of collusive activities (cartels), where a per se presumption exists).

Statistically, a large number of these claims do not meet the referred to requirement, as they exclusively deal with the specific situation of the claimant. Therefore they are considered as non-punishable under antitrust regulations.

In order to fill in this gap, the Decree aims at supplementing the provisions of Law 27,442 with a legal framework that penalizes those behaviors that affect the functioning of the market itself, or the competitive position of a determined market player, without taking into account the consumer protection goals which characterize the antitrust regulations. As it can be seen below, this goal has been partially fulfilled.

According to sections 4 and 9 of the decree, unfair competition conducts shall be penalized provided that they:

- occur within the market. The definition of “market” is broad and formal: the environment in which offerors and purchasers of a good or service carry out one or more commercial transactions (section 1, second paragraph). That is to say that the act simply requires a commercial materialization between the parties;

- have a competitive purpose. The competitive purpose of the act is presumed when it is objectively suited (that is to say, adequate and appropriate) to obtain, maintain or increase the competitive market position of the person that performs it, or of a third party;

- affect the competitive position of a person or entity or the correct development of the competitive process;

- use improper means.

It is important to highlight that the Decree sanctions the ability of the conduct to cause damage, being actual or potential.

Section 10 identifies the acts that are considered unfair competition. The following list is exhaustive for the purposes of the imposition of sanctions by the application authority (the Secretariat of Domestic Trade) but is non- exhaustive as regards judicial claims filed by affected parties. Furthermore the Decree specifies that the judge may also apply the general clause of section 9 of the Decree in order to identify additional unfair behaviors that have not been expressly listed in section 10.

The unfair conducts identified in section 10 are:

a) Misleading acts: regarding the characteristics, benefits or conditions of the goods or services.

b) Confusion acts: related to the business origin of the activity, the establishment, owned goods or services, in a way that they are perceived as having a different origin.

c) Breach of regulations: make use of a significant advantage derived from competing while breaching legal regulations.

d) Abuse of an economic dependence situation: take advantage of a situation of economic dependence of a client or supplier which does not have an equivalent alternative for the performance of its activities in the market.

e) Unlawful obtaining of commercial conditions: the obtaining, using a threat of terminating commercial relationships, of pricing or payment conditions, sale structures, payment of additional charges and other conditions that had not been established in the agreement or are unreasonable under trade practice.

f) Below costs sales: when this is part of a strategy to hinder the entrance of a competitor to the market or to eliminate it.

g) Improper exploitation of third party’s reputation: take advantage of an improper exploitation of the business or professional image, credit, fame, prestige or reputation of a third party inducing consumers so that they mistake the owned goods, services, activities, distinctive signs or facilities of a certain business with those of another.

h) Unfair imitation: when they are suitable to lead to confusion regarding the origin of the goods or services, or that entail taking unfair advantage of a third party’s reputation or efforts.

i) Defamation acts: undermine the image, credit, fame, prestige or reputation of a competitor, unless the statements issued in said regard are exact, pertinent and true.

j) Breach of secrecy: disclosure or exploitation without prior authorization by the owner, of third party’s business secrets to which the access was lawfully obtained, but with duty of reserve; or through unlawful access.

k) Inducement to contractual breach: inducement to employees, suppliers, customers or other parties to breach contractual obligations undertaken with a competitor.

l) Discriminatory acts: discriminate among purchasers when the seller or the distributor has previously published a pricelist, unless there are valid reasons for that.

m) Comparative advertising: advertising that explicitly or implicitly refers to a competitor, or its trademark, or to the products or services offered by a competitor. This kind of advertising is allowed only when it meets all the characteristics exhaustively listed in the Decree (not to mislead the consumer; to compare equivalent goods in an objective way, not to denigrate the competitor, among others).

The difference between the protected legal rights of the Decree and the Antitrust Law results in that the latter requires injury to the consumer in order to render those conducts illegal (for instance, the breach of rules (paragraph c) or discrimination (paragraph l)), while under the Decree said behaviors are per se prohibited. The regulation of the Decree on below cost sales (item f) clearly contradicts the Antitrust Act.

Misleading advertising promotions and contests. The Decree prohibits misleading advertising in any of its forms, while the broadcasting of advertisements shall not be subject to prior authorization or supervision.

Promotions and contests continue to be subject to a general prohibition softened by the current regulations which shall remain in force until a new regulation replacing it is issued.

Commercial information. Product identification and denomination of origin are regulated in Title III of the Decree. Regarding the information on the identification of products, the Decree’s regulation shall set forth the means through which said information will be provided.

Enforcement authority. The enforcement authority shall be the Secretariat of Domestic Trade dependent from the Ministry of Production and Labor, which shall have exclusive jurisdiction for administrative matters and shall be empowered to act both in monitoring and ensuring the fulfillment of the regulation, even if the alleged infringements exclusively affect local trade.

Special administrative procedure. The proceedings to impose penalties shall be initiated ex officio by the corresponding authority or through a filing made by any natural person or legal entity, public or private, and subject to a special procedure.

Penalties. The main news is the increase of fines up to a maximum amount of ten million (10,000,000) Mobile Units, which currently equals to two hundred million Argentine Pesos (AR$ 200,000,000, approximately US$ 4,600,000). The maximum fine set forth in Act 22,802 was five million Argentine Pesos (AR$ 5,000,000, approximately US$ 115,000).

Legal actions. Regarding unfair competition and unlawful advertising, the affected party may file the following claims: (i) action requesting cessation or prohibition of the act; (ii) compensation action for the damages caused by the unfair competition behavior; (iii) precautionary measures. The process shall be subject to the rules of the National Civil and Commercial Procedural Code, and the jurisdiction for these matters shall correspond to the Federal Commercial and Civil National Courts, or to the Federal Courts that may correspond in the provinces of the Republic of Argentina. These claims may be brought by the affected parties without needing to prompt the administrative procedure established in the Decree. If the affected party chooses to prompt said administrative procedure, once it has been initiated, the legal action shall preclude, except for claims seeking compensation of damages.

Supplementary procedural rules. The National Civil and Commercial Procedural Code shall apply on supplementary basis to decide on issues not expressly set forth in the Decree and in its regulation.

Consumer protection. Specific amendments are implemented in order to promote the simplification and digitalization of the amicable settlement system for consumer relationships, mainly through digital ways to file claims and to facilitate the access of consumers to the out-of-court methods for the settlement of conflicts.

Abrogation of Act 22,802 on fair trade. The Decree abrogates Act 22,802 and its amendments. Nevertheless (i) the claims in process that had already been filed under Act 22,802 and its amendments prior to the date of effectiveness of the Decree shall continue their procedure according to said Act 22,802; and (ii) norms that supplement and regulate Act 22,802 and its amendments shall be interpreted as supplementing and regulating the Decree as well.

Public order. Private understandings cannot set aside the provisions of this Decree; however, the parties in a legal claim shall be entitled to settle or to find alternative ways of solving conflicts in the hearing the acting court may summon to said effect.

In order to access the decree (available in Spanish only), please click here.

Should you need further information, do not hesitate to contact Francisco Gutiérrez and/or Marcelo den Toom and/or Adrián Furman.