Pro-competitive recommendation for the steel industry

On May 26, 2009, the Argentine Antitrust Commission (the “Commission”) authorized a transaction in the stainless steel industry. The transaction consisted of the acquisition of M.T. Majdalani y Cia. S.A. (“MTM”) by the Arcelor Group (the “Transaction”). The Commission found no competitive concerns and authorized the Transaction but it issued a pro-competitive recommendation suggesting a customs duties reduction in a specific relevant market.

The Commission analyzed the Transaction following the guidelines for the control of economic concentrations stated in Resolution No 164/2001 issued by the Secretary of Competition, Deregulation and Defense of the Consumer (the “Guidelines”).

Under said Guidelines, after defining the relevant markets, the Commission should measure the level of concentration to decide whether there are competition concerns. If no competition concerns arise, the transaction should be authorized.

In the event that the Commission finds competition concerns, there are further issues that the Commission must assess (e.g., the existence of high or low entry barriers in the relevant market and competition from imported products.).

The assessment of entry barriers includes a review of all the efforts that a company should perform in order to produce and/or commercialize the product in the given relevant market. According to the Guidelines, these aspects should include: the planning and design of the strategy to launch the product; the necessary administrative capacity to launch the product; obtaining of all legal permits; the construction of productive or commercialization facilities; and the promotion and commercialization expenses.

There are three main aspects that should be evaluated regarding the possible entry of new competitors to the relevant market: time required to enter; probability of entrance; and importance of entrance.

The Guidelines also state that competition from foreign products that could be imported to the country should be considered to identify potential competitors. Custom duties are one of the main elements considered to assess the influence of imports.

If customs duties are low enough to allow the imported products to be competitive, the importance of said imports should be analyzed. Additionally, when analyzing the value of customs duties, their expected evolution should also be considered.

In the assessment of the Transaction, the Commission evaluated entry barriers and the importance of imported products. Regarding imports, it analyzed the characteristics of the imports of cold rolled steel and hot rolled steel.

The Commission confirmed that cold rolled steel was imported without paying any customs duties and was imported from countries outside the economic community comprising Argentina, Brazil, Paraguay and Uruguay (MERCOSUR). The Commission concluded that importing cold rolled steel without paying any customs duties was very important in terms of competition.

On the contrary, the possibility of importing products without paying customs duties was not verified in the market of hot rolled steel that was even more concentrated from a supply point of view. The Commission understood that positive effects on competition could also be achieved in this market if a reduction of the customs duties to import from outside the MERCOSUR was implemented.

The Commission issued a pro-competitive recommendation suggesting that the pertinent Argentine authorities carry out a review of the customs duties for hot rolled steel products.

The analysis of the Transaction shows the importance that the Commission gives to imported products while performing a competitive assessment. It also evidences that the Commission particularly analyzed customs duties in order to verify the importance of imported products from a competition stand point.

Lastly, the Commission took an active role in this case by issuing a pro-competitive recommendation suggesting the reduction of customs duties of hot rolled steel products.

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