Guatemala Approves Landmark Competition Law, set to transform Market Practices starting January 2025
 

Alegalis - In the early hours of Wednesday 20 November, Congressional Decree 32-2024, the Competition Law for Guatemala, was approved, making Guatemala one of only two countries on the continent, along with Cuba, that did not have a regulation of this kind. Many readers of this article will surely have already seen general analyses of what this new regulation contains and may have heard that it will not affect a certain sector or that, in general, it will enter into force in two years’ time. However, this is not the case.

Many of the provisions, including the creation of the new management body and the prohibition of monopolistic practices, will enter into force on 1 January 2025. For this reason, it is important to know:

What will happen on 1 January?

At the beginning of 2025, the administrative functions of the new Competition Superintendence will start and the prohibitions of anti-competitive conduct will come into force. The Superintendence of Competition will be completely autonomous and decentralised from the rest of the State bodies, and will be in charge of investigating and sanctioning anti-competitive practices.

The Superintendence will be composed of two superior authorities: the Board of Directors and the Superintendent.

The Board of Directors is the highest decision-making, resolution and sanctioning body of the Superintendence and will be composed of three members. In order to become a member of the Board of Directors, candidates shall submit to a competitive examination designated by their respective nominating entity. The entity that conducts the corresponding examination shall be an institution of recognised international prestige in competition matters.

One of the directors will be appointed by the President of the Republic in a Council of Ministers, the second by the Monetary Board and the third by the Economic Commission of the Congress of the Republic. Each appointment is for a term of six years and may be renewed only once. Among the most important functions, the Board of Directors must oversee the internal functioning of the Superintendency and authorise or deny authorisations for economic concentrations, as appropriate. These positions shall be appointed within one hundred and twenty (120) days from 1 January 2025.

The superintendent shall be appointed for a single term of six years by the board of directors and shall be the senior administrative authority and the highest executive officer of the superintendency. In other words, it will be the superintendent who will conduct the investigation that will then be presented to the board for a determination.

Importantly, these authorities will be appointed and operational by 1 May 2025. This means that, although they do not yet have sanctioning powers, they will be able to start their investigations by the time they do have them, in two years’ time.
In order to be as clear as possible, before May 2025, the Superintendence of Competition will have already started to form its internal files to start sanctioning in 2027. It is worth noting that the law provides that the time limit for the penalty for anti-competitive acts to expire is four years, which will start to run from January 2025 for acts committed after that date.

Key concepts and their definitions

To begin with, we must understand the scope of application of the new law. Article 1 of the Competition Act states that the purpose of the law is to promote and defend competition in order to strengthen economic efficiency and, through this, to improve consumer welfare. This is in line with Article 2, which states that the Competition Law is of general application throughout the Republic and must be applied to all economic agents, i.e. both domestic and foreign companies operating in Guatemala. Furthermore, this article establishes that, in case economic agents are subject to specific regulations or to the control of a sectoral authority (e.g. in areas such as telecommunications, energy or banking), the provisions of the Competition Law will be applied on a supplementary basis, but the general competition provisions will prevail in case there is no sectoral regulation covering certain aspects. This ensures that, irrespective of special regulations, the fundamental principles of competition apply in all markets.

The law is concerned with defining key concepts in its first articles, such as economic agents, economic activity and relevant market, among others. Specifically, article three establishes precise definitions for these terms, which is essential to understand how the authority will apply the law.

A key aspect of the law is that it focuses on free competition, a concept that describes the type of market in which firms can enter and exit without restrictions, in which prices are set fairly and in which consumers have a wide range of choices. For this to happen, it is necessary that economic agents neither set up barriers to prevent the entry of competitors nor agree to harm consumers. In other words, the law seeks to eliminate monopolies and unfair practices that distort free competition.

On the other hand, the term ‘economic activity’ refers to any production or marketing of goods and services for the purpose of economic profit. This includes anything from a small local shop to a multinational corporation operating in the country. In addition, the article defines what it means to be in a dominant position in a market, which is defined as a situation in which a company has so much control over a given market that it can influence prices and market conditions without other companies being able to compete with it. Dominance is not an infringement in itself, but requires that it is abused.

Finally, we focus on the definition of economic group, which refers to the grouping of two or more economic agents that are interconnected through a common shareholding or administrative control. This means that, although the economic agents within the group may be independent legal entities, they are under joint control that allows them to coordinate their activities, which could potentially influence the relevant market in a way that harms competition or consumers.

Shareholder control implies that one legal entity owns shares in others, which gives it power or influence over their decisions, while common managerial control refers to entities that share directors or operational strategies, even without direct shareholding links.

Promotion of free competition:

Articles twenty-four (24) and twenty-five (25) of the Competition Law highlight a more public focus of the Competition Superintendence in promoting free competition in markets. The authority is to foster a culture of competition, both domestically and internationally. In addition, the law grants it the function of issuing advisory opinions on new regulations, advising the Executive on competition policies and conducting sectoral studies that contribute to the identification of anti-competitive practices. This underlines the importance of the Superintendency not only as a regulatory agency, but also as a key actor in the design of public policies that favour competition and consumer welfare.

On the other hand, article twenty-six (26) establishes the obligation to publish the studies and opinions carried out by the Superintendency, which guarantees transparency and public access to information on market practices.

The new Competition Law is not the only thing brought by this decree; changes are also made to the Commercial Code, the Consumer Protection Law, the State Contracting Law, the Penal Code and the Law regulating the use and reception of satellite signals and their distribution by cable.

The most relevant changes are in the Commercial Code, where it is now considered an act of unfair competition to provide goods or services without having the rights granted by the right holder, and in the Consumer Protection Law, where it is now illegal to hoard products to cause them to rise in price.

Conclusions:

Contrary to what has been discussed, the Guatemalan market has very little time to prepare for some of the most severe regulatory changes in the history of our country. As of 1 January 2025, several practices that were considered commonplace in the Guatemalan market, such as price-fixing among competitors, will become illegal and anti-competitive.

Undoubtedly, law firms and companies alike face an avalanche of work in the coming months, before the first board of directors is appointed and the first investigations begin.

About Alegalis:

With over 50 years of combined experience, Alegalis has accompanied leading multinational companies in their industry as well as small and medium-sized enterprises in their growth covering all areas of law, with a special focus on: Corporate Law, Litigation, Real Estate Development and Energy.
The positive response from its clients has earned Alegalis the recognition of the international rankings Chambers&Partners and Legal500 as one of the ‘Leading Firms’ in Guatemala.

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