The Executive Branch Pushes for Reforms to the Supply Law

On August 5, 2014, the National Executive Branch (the “NEB”) introduced a bill at Congress (the “Bill”) aimed at amending Supply Law No. 20,680.
The objective of said Bill, as cited in the message sent to Congress by the NEB, is to “avoid abuses and protect the general interest of the population by guaranteeing its basic or essential needs”.
The Bill was presented along with other NEB initiatives regarding regulation of trade and businesses, and has raised strong criticism from different political and business sectors (also see “The Executive Branch Pushes for Reforms to the Antitrust Law” and “Consumer Relations: The Executive Branch Introduced a Bill on Conflict Resolution” in this edition of Marval News).
On August 26, a joint session of several Senate committees gave the Bill its initial approval, with minor changes. The text approved by these committees will now be discussed by the full Senate House.

1. Main provisions of the Bill
The Bill upholds the general mechanism originally provided in the Supply Law, whose validity and constitutionality is presently questioned. In the following, we refer to the main provisions of the Bill, according to the text approved by the relevant Senate committees.

a. Powers of regulation and economic control
The Bill confers broad delegations of powers on the Trade Secretariat of the Ministry of Economy and Finance (the "Trade Secretariat"), in its capacity as enforcement authority, in line with those already provided by the Supply Law.
The Bill maintains the power of the Trade Secretariat, inter alia, to set profit margins, reference prices, maximum and minimum price levels, and the power to order for private individuals to continue the production, manufacturing, marketing, or supply of goods or services.
The Bill introduces the power of the Trade Secretariat to (i) demand documentation relating to commercial transactions and (ii) require the publishing of sales prices and the availability of goods produced or services provided.
It also provides that in a situation of shortage or scarcity of goods or services, the Trade Secretariat may order their sale, production, distribution and delivery throughout the territory of the Nation.
Among the amendments provided by the Bill, it is established that the exercise of the powers granted to the Trade Secretariat is conditioned by any breach of the Supply Law by the relevant companies. It also provides that compensation will be granted in cases where companies are ordered to keep producing in the red.
Finally, another innovation is that the Bill excludes micro, small and medium enterprises – as defined by Law No. 25,300 – from the scope of the Supply Law, as long as these do not hold a dominant market position as considered under the Competition Law No. 25,156.

b. Enforcement Authority
The Bill specifically designates the Trade Secretariat as its enforcement authority at  federal level.
It further states that the Trade Secretariat shall have the capacity to issue “complementary regulations as may be necessary” to ensure compliance with the Supply Law.
The Bill upholds the capacity of Provincial Governors and of the Mayor of the City of Buenos Aires to make use of some of the powers provided in the Supply Law (including the fixing of maximum prices), in their respective jurisdictions and as long as the federal authority does not make use of these powers.

c. Sanctions
As regards the sanctions applicable for breaching the provisions of the Supply Law, or the regulations or acts issued by the enforcement authority, the Bill:

• Upholds the possibility of ordering temporary closures for up to three (3) days during inspection procedures, with the possibility of extending such closure up to thirty (30) days, but it is provided that this extension will require prior judicial authorization.
  
• Raises the amount of the fines to a maximum of ten million pesos ($10,000,000).
  
• Upholds closure for up to ninety (90) days.
  
• Raises the maximum period of disqualification from commerce and holding public office, from three (3) to five (5) years.
  
• Includes as a sanction the loss of concessions, privileges and special tax or credit regimes.
  

Meanwhile, the Bill eliminates the sanctions of: (i) arrest; (ii) detention; (iii) publishing of convictions; (iv) suspension on the use of patents and trademarks; and (v) definite closure (which was provided for cases of recidivism).
While the Bill generally maintains the guidelines for the fixing of sanctions under the Supply Law, the Bill provides new parameters to this end: (i) the offender's market position (ii) the profit generated by the conduct in breach and its duration; and (iii) the damage inflected to the market or consumers.
It further provides that the penalties of special disqualification and closure will be effective only with prior judicial authorization, at the request of the Trade Secretariat.
The Bill also clarifies that in cases of offenses committed by legal persons, the fines will also apply to board members, managers and administrators participating with willful misconduct or gross negligence.

d. Procedural Aspects
As regards the procedural provisions of the Supply Law, in the Bill:

• Deadlines to file defenses in enforcement proceedings, including evidence, and to file direct appeals against decisions imposing sanctions are extended, both from five (5) to ten (10) business days.
  
• The jurisdiction to review decisions imposing sanctions is transferred from the Criminal Courts of First Instance to the Federal Court of Appeals on Administrative Law Matters or to the corresponding Federal Courts of Appeals of the relevant province, depending on the seat of the intervening administrative authority.
  
• To appeal a fine, the Bill establishes a requirement to first deposit the amount, unless this may cause irreparable harm to the plaintiff. Thus the possibility of replacing the deposit of the fine with a security interest or a lien as authorized by the Supply Law would no longer be available.
  
• Administrative Procedure Law No. 19,549 (the “APL”) shall have supplementary application, instead of the Criminal Procedural Code.
  

2. Preliminary Comments
If passed, the Bill will undoubtedly provide the Government with tools to interfere heavily with the economy and trade, and to impose restrictions on property rights and individuals’ freedom of contract.
While the Bill does eliminate some of the more controversial provisions of the Supply Law (in particular, imprisonment sanctions), it simultaneously promotes changes that may be questioned on a constitutional basis.
Today, in addition to the challenges relating to its lack of current validity, the Supply Law is seriously questioned as regards the constitutionality of several of its provisions. Therefore, those provisions of the Bill which reiterate and, in some cases, broaden the powers that the Supply Law gives to administrative authorities –with neither deadlines nor intelligible standard for their exercise– will be subject to similar objections.
The same holds regarding the reforms envisaged in the Bill which –as especially with the prior payment of fines– imply a severe limitation of the right of defense and access to justice. It is evident, moreover, that the expansion of powers to require information and documents as well as the right to order the sale, production, distribution or supply of goods or services may similarly curtail other procedural and substantive constitutional guarantees.
Lastly, the displacement of the jurisdiction of the Criminal Courts of First Instance to exercise judicial review on these matters and the supplementary application of the APL in lieu of the Criminal Procedural Code, also constitute changes that may adversely affect the exercise of individuals’ right of defense, to the extent that they are deprived of the guarantees governing criminal procedure.