Legal Update

March 18, 2020
National Retail Competition Program Law 
"Ley de Góndolas"

On March 17, through the publication in the Official Gazette of Decree 268/2020, the Executive Branch enacted Law No. 27,545 creating the National Retail Competition Program, also known as " Ley de Góndolas" (the "Law"), which was approved by the National Senate last February 28, 2020, during the Extraordinary Sessions period.
The provisions of the Law will be of public order and will be implemented in conjunction with Laws No. 24,240 on the Consumer Defense, No. 27,442 on the Defense of Competition and Decree No. 274/2019 on the Fair Trade Regime. In the event of any doubt regarding the interpretation of the principles established by these laws, the one that shall prevail is the one most favorable to the weakest sectors involved in the chain of production, commercialization and consumption of the products covered by the Law.

Main objectives:
  • To contribute to price transparency and promote competition in relation to food, drink, hygiene and household cleaning products;
  • to maintain a balance among the subjects reached by the law, avoiding anti-competitive commercial practices that distort the markets; and
  • to extend the supply of national artisanal and/or regional products produced by micro, small and medium-sized companies ("MiPyMes") as well as to promote products made by the family, rural and indigenous agricultural sector (Law No. 27,118), products of the popular economy (Decree No. 159/2017) and products made by cooperatives and/or mutual associations (Laws No. 20,337 and 20,321).
Parties and products subject to the Law
The scope of the Law is specifically limited to hypermarkets, supermarkets, superstores, self-service food stores, self-service non-food stores, retail chains, wholesale supply organizations, classifier-packers of perishable products and shopping centers (as defined in Law No. 18,425), excluding those economic agents whose turnover may be equivalent to that of a MiPyMes[1] (the "Stores") (Article 3).
Regarding which products are covered by the Law, Article 4 of the Law limits its application exclusively to food, beverages, personal hygiene products and household cleaning items that are marketed in the Stores.
The enforcement authority shall, within 90 days after the enactment of the Law (i.e. June 2020), list the different categories of products covered by the Law and determine the means of advertising the list.

Directives for display on shelves and virtual locations (e.g., websites, e-commerce marketplaces and mobile applications)
  • The exhibition of products from the same supplier or business group may not exceed 30% of the space available for products of similar characteristics. This space must include at least five different suppliers or business groups.
  • For products of similar characteristics and different brands, 25% of the space available for the exhibition of products produced by MiPyMes and/or produced by cooperatives and/or mutual associations must be guaranteed; and an additional 5% for products originating from family, rural or indigenous agriculture and popular economy sectors.
  • On shelves, the lower priced products should be at an equidistant distance between the first and last shelf. In the case of virtual platforms, these must be guarantee that the lowest priced products are published on the first display of products in that category.
  • On island displays and on displays next to the check-out counters, products manufactured by MiPyMes and/or those produced by cooperatives and/or mutual associations must take up 50% of the space.
  • The exhibition of imported products may not exceed the percentage set by the enforcement authority regarding the available space for each product category.
The Law states that in the event of non-compliance with the rules of exhibition of products in certain categories, resulting in the impossibility of temporary compliance due to lack of competition, the Stores must inform the enforcement authority of the reasons for such non-compliance and the expected period of time to comply with the rule (which cannot exceed 30 days, extendable only once for the same period of time).
Exemption from compliance with the limits established for exhibition on shelves may only be granted in those cases where the enforcement authority verifies the factual impossibility of offering the products that the Law seeks to promote.
Stores will have a period of 120 calendar days from the enactment of the Law (i.e. July 2020) to adapt to the established provisions (Article 16).

Commercial relationship between the Stores and their suppliers
In order to reduce costs for the suppliers of the Stores and to establish limits to the abuse of dominant position, in the course of their commercial relationships, the following conditions must be met (Article 8):
  • The maximum payment period to MiPyMEs shall not exceed 60 calendar days. In the event of unjustified late payments, suppliers may apply Banco de la Nación Argentina's lending rate in order to calculate the interest;
  • Stores shall not demand financial contributions or advances from their suppliers, nor shall they unilaterally apply economic retentions or debits;
  • Contract negotiation shall not be conditioned to the delivery of goods made free of charge or below the cost of provision;
  • Other suppliers' conditions or price variations shall not be imposed when negotiating prices;
  • Suppliers shall not be required to bear the costs of reverse distribution nor the costs of replacing products;
  • The costs that result from the promotional sale of products, or those that result from the generation of residue or shrinkage, shall be agreed contractually and on the basis of equitable criteria;
  • All contract obligations shall be in writing; and
  • The exchange of commercially sensitive information which is inappropriate for the business relationship or which involves information regarding the supplier's relationship with other market players or competitive information, is prohibited.

In addition, the Law promotes a specific framework for the purchase and contracting of regional products (Article 9).


Competition encouragement

In order to promote competition in relation to each category of products covered by the Law, Stores shall be required to comply with the following provisions:
  1. prohibition of generating an anti-competitive exclusion of suppliers by renting space on shelves or virtual spaces, or preferential space on shelves or virtual spaces; and
  2. prohibition of establishing payment of fees and/or commissions which by their characteristics or amount compel the supplier to choose a single distribution channel.

Article 11 of the Law establishes the creation of a "Code of Good Commercial Practices for Wholesale and Retail Distribution" (the "Code of Good Practices"), which will be mandatory for all Stores with a gross annual turnover of more than 300,000,000 mobile units[2] -which to date amounts to Ar$12,183,000,000 (Argentine pesos twelve billion one hundred and eighty three million)-, taking into account the entire economic group for this calculation.


The Code of Good Practices, which is to be drawn up by the enforcement authority, shall: 

  1. detail those practices considered to be abusive that arise from the Law and from current commercial regulations on fair trade, competition and consumer protection;
  2. contemplate the appointment of a corporate compliance officer under the Code of Good Practices, whose appointment will be notified to suppliers and to the enforcement authority;
  3. provide that contracts include an alternative dispute resolution procedure and that a copy of the Code of Good Practices be attached to the contracts; and
  4. stipulate that the required information on compliance with the Code of Good Practices is to be reported to the enforcement authority on a regular basis.

Enforcement Authority

The Law does not define which government body will act as the enforcement authority, delegating this power to the National Executive Branch. However, considering the scope of the Law, it could be presumed that the Secretary of Domestic Trade shall be the body in charge of monitoring its compliance.

Sanctions
In the event of failure to comply with the provisions of the Law, the sanctions established in the Fair Trade regime[3] will be applied, either independently or jointly, namely: warning, fine ranging from one (1) to ten million (10,000,000) mobile units[4] -which to date amounts to $406,100,000 (Argentine pesos four hundred and six million one hundred thousand)-, suspension from the national registry of state suppliers for up to 5 years, loss of concessions, privileges, special tax or credit regimes, or closure of the establishment for a period of up to 30 days.


Notwithstanding the aforesaid, sanctions may also be applied in accordance with the procedure established by the Defense of Competition Law (Law No. 27,442) and the Law on Consumer Defense (Law No. 24,240).

Enforceability

Regarding the enforceability of the Law, considering that the enacting decree does not provide for specific rules, the general rule provided by the National Civil and Commercial Code[5] on the validity of laws shall be applicable. The Law will therefore enter into force on March 25, 2020.

[1]  Resolution 563/2019 - Secretary of Entrepreneurs and Small and Medium Sized Companies
[2] Mobile Units established according to Law 27,442, which can be automatically updated every ONE (1) year using the variation of the Consumer Price Index (CPI) published by the INSTITUTO NACIONAL DE ESTADÍSTICA Y CENSOS (INDEC), or the official inflation indicator that replaces it in the future.
[3] Decree No. 274/2019
[4]  Same as note 2 above
[5]  ARTICLE 5.- Validity. The laws are in force after the eighth day of their official publication, or from the day determined by them.  

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Mitrani, Caballero & Ruiz Moreno has extensive experience on the evaluation and management of commercial behavior and regularly provides legal and practical business advice on commercial behavior and avoidance of anticompetitive practices. Our specialists have assisted clients in establishing regulatory compliance, as well as in the drafting of corporate policies, personnel training, and monitoring and control of activities. We have a team of professionals especially devoted to regulatory compliance issues, navigating through administrative, civil and criminal investigations or proceedings.
This Newsletter is a free service provided by Mitrani, Caballero & Ruiz Moreno for informative purposes only. 
 
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