By Marcelo Viveiros de Moura and Francisco Werneck Maranhão*
1. - The concept of "Regulatory Agencies", meaning agencies whose purpose is to regulate certain segments of the market, with the enactment of rules, inspection of the activities of the main players within such segment, and investigation and punishment of those who fail to abide by its guidelines, is not, in any manner, a new concept within the realm of Brazilian law.
2. - The Central Bank and CVM1, entities created in 1964 and 1976, respectively, are classic examples. Both perform activities that are very similar to the activities of "modern" regulatory agencies. They act as "executive" agents of governmental policies, they have "legislative" duties (through their normative activities), administrative "judiciary" duties, as well as inspecting and punitive duties. It is also possible to mention several other agencies that act in specific technical areas with varying degrees of regulatory power. This is how CADE regulates free competition, INPI regulates intellectual property, IBAMA regulates federal environmental matters, etc., etc.
3. - The distinctive trait of the regulatory agencies that were created with the onset of the privatization process in the nineties - particularly the National Telecommunications Agency - ANATEL, the National Petroleum Agency - ANP and the National Electric Power Agency - ANEEL - is precisely their independence from the Executive Branch, which they are part of, in the capacity of indirect administrative bodies. Such independence translates into the lack of hierarchical subordination between the agencies and other administrative bodies and the fact that their officers - technical people chosen for their knowledge of the matter under regulation - cannot be dismissed by unilateral decision of the President of the Republic (dismissal ad nutum).
4. - In Brazil there is no single model for independent regulatory agencies, since the authority and attributions of each agency are defined in the specific law that institutes it. For purposes of this analysis, we shall concentrate on ANATEL, which, among all the others, is the agency with the most thorough legal-institutional structure set forth in the law and whose independence, perhaps for that very reason, has been widely challenged by the Ministry of Communications, to which it is linked, but without any hierarchical subordination.
5. - ANATEL was instituted by the General Telecommunications Law as a special agency with: (i) administrative independence; (ii) lack of hierarchical subordination; (iii) fixed term of office and tenure of its officers; and (v) financial autonomy.
6. - The so-called General Law was successful in sharing, in a clear and undisputable manner, the powers between the agency and the other bodies of the federal administration. Therefore, among the powers ascribed to ANATEL by article 19 of the General Law, the following should be highlighted: (i) implementation of the national telecommunications policy; (ii) exercise of the duties of granting authority; (iii) issuance of rules relating to the licensing, rendering and enjoyment of public telecommunication services; (iv) issuance of rules relating to the rendering of private services, equipment standards, interconnection etc.; (iv) resolution on the interpretation of the telecommunication laws; and (v) ultimate decision on the matters under its jurisdiction (emphasis added).
7. - On the other hand, the General Law establishes that the Executive Branch is in charge of defining the political guidelines to be adopted by ANATEL, by means of the following mechanisms: (i) institution or exclusion of the rendering of certain types of services in the public regimen; (ii) approval of the general licensing plan; and (iii) approval of the general plan of universalization targets. The Executive Branch is also in charge of appointing the members of the Agency’s Board of Governors, who shall hold office for a fixed term, upon the prior approval by the Senate.
8. - A close examination of the provisions of the General Law reveals the unequivocal intention by the lawmaker to grant ANATEL independence from the Executive Branch in the performance of its regulatory activities, which should, however, always be in line with the political guidelines set out by the Executive Branch.
9. - And, in our opinion, what would be the benefits the lawmaker sought to achieve in establishing the independence of ANATEL? As we see it, such benefits are: (i) fast and efficient decisions, oriented by technical and not political criteria; (ii) "shielding" against political influences, given that the ultimate decisions are made by collegiate bodies composed of heterogeneous participants (considering that the officers’ terms of office begin and end on different dates); (iii) stability of rules, with the adoption of long term policies; and (iv) legal stability of the sector, which attracts new investments.
10. - It is worth noting that the concept of officers appointed for a fixed term of office without the possibility of dismissal ad nutum by the President, is also not new in the Brazilian law.
11. - Principals of Federal Public Universities, for example, cannot be dismissed "ad nutum" by the President of Republic, a stand that has been confirmed by the Federal Supreme Court in Precedent 47.
12. - Likewise, in the sixties, the independence of the Pension Institution of Industrial Workers (I.A.P.I.), created by Law No. 3807/60 was discussed on the records of the Writ of Mandamus No. 8693, which gave rise to Precedent No. 25, of the Federal Supreme Court ("STF"). Even though Precedent No. 25 - recently revoked by the decision on the injunction sought in the Direct Unconstitutionality Action ("ADIN") No. 1949-0, in 1999 - found the secure tenure of officers of bodies of the indirect administration to be unconstitutional (in a decision that was oddly contrary to Precedent 47 with regard to the principals of Federal Universities, as said above), due to the understanding that the power to appoint granted to the President of Republic would include the power to dismiss such officers, it is important to note the still very current dissenting vote of Justice Victor Nunes Leal, one of the most distinguished jurists to occupy a seat in our Supreme Court, which is reproduced in small excerpts below:
"the figure of the Presidency of the Republic must be considered on an impersonal basis (...) and, taken as such, the Chief of the Executive Branch will always have participation in the appointment."
"those who are held in office only for as long as they please others cannot, for that very reason, maintain an independent standing in light of the wishes of the others".
"the caution of the lawmaker in instituting the fixed term of office is not directed specifically to this or that officer in particular. It is a guarantee of independence in the exercise of the duties of office against any Chief of the Executive Branch, even against the President responsible for the appointment."
13. - Therefore, the discussion on the independence of bodies of the indirect administration and the tenure of their officers is not an avant-garde one. Such matter has just been through a revival in the current Government, a few years after the creation of the new independent regulatory agencies, upon the onset of the privatizations during the nineties, and the modification in the former standing of STF, in the decision on the injunction sought in ADIN No. 1949-0, in 1999.
14. - It is important to note that the independent regulatory agency model was so successful in Brazil, and adjusted so easily into our legal order, that agencies that were not independent in the past sought their independence, while new agencies were created based on the existing ones.
15. - That is how CVM, by means of Provisional Measure No. 8 of October 31, 2001 (later converted into Law No. 10411 of February 26, 2002) acquired its "independent administrative authority, lack of hierarchical subordination, fixed term of office and tenure of its officers, and financial and budgetary autonomy", like ANATEL. No one challenges that.
16. - In that regard, one of the structural reforms that have been extensively defended by the Government is the grantal of autonomy to the Central Bank2. In that respect, it is important to note the following excerpt from the document "Economic Policy and Structural Reforms", published last April by the Government:
"It is necessary to distinguish between the role of the government - definition of the policy rules in those fields - from the role of the agencies - management of the policies defined by the government. The main purpose of the design is to ensure the definition of the goals of the sectorial policy without short term discretionary interferences, therefore, reducing the risk of public policies being determined by private sectorial interests that are contrary to public interests."
"In the case of monetary policy, what is intended is a reform that ensures a more efficient and transparent management of the monetary policy by means of the grantal of operational autonomy to the Central Bank. Pursuant to such reform, the government defines the economic policy, particularly the guidelines of the monetary policy to be implemented by the Central Bank, whose management can be publicly evaluated according to its ability to comply with the established guidelines. In that scenario, a greater rectitude in the monetary policies defined by the government is ensured, and evaluation mechanisms are created with regard to the execution of such policies by the Central Bank." (emphasis added)
17. - That is incongruent: the same Government, on the one hand, accuses the regulatory agencies of having become a "fourth branch" and of lacking "democratic legitimacy", given that their current officers were not appointed by the current President of the Republic elected by the vote of millions of Brazilians and, on the other hand, vehemently defends the independence of the Central Bank and its operational autonomy.
18. - However, what is the Central Bank, but a special agency, with regulatory powers in its field of activity, "executive" duties with regard to the governmental policies, "legislative" duties (through their normative activities), administrative "judiciary" duties, as well as inspecting and punitive duties, as mentioned above? How is an independent Central Bank different from ANATEL, ANEEL or ANP, except for the fact that the current Government will have appointed their officers? As we see it, there is no difference and, for that reason, we are favorable to the independence of the Central Bank, so that it can be safeguarded against the political influences that affect the Executive Branch.
19. - We find it intriguing that there should be mention of "lack of democratic representativity" of officers whose tenure outlasts the term of office of the President who appointed them - which is one of the arguments widely used in this discussion. One wonders if the Justices with the Federal Supreme Court, for example, would lack "democratic legitimacy", since they are appointed by the President of the Republic for a life tenure, holding office until they are compulsorily retired or die, whichever comes first. The answer, obvious and uncontestable, is no! Clearly we all want a Supreme Court that is independent and unaffected by the political influences of any Government in the performance of its duties, so that the Executive Branch has the necessary stability and the proper equilibrium among the constitutional branches is ensured. So, why wouldn’t that same principle apply to regulatory agencies?
20. - Some would say that is because an Agency is not the Supreme Court and, if such comparison were to prevail, another argument mentioned above would be strengthened: that regulatory agencies have become a "fourth branch", given that their activities are not subject to any type of revision or inspection.
21. - However, that is not true. First, the Regulatory agencies are subject to the control of the Executive Branch itself, both because they must abide by the public policies established by the Executive Branch and because the Executive Branch appoints their officers.
22. - It should be noted that one cannot mistake the submission of the Agencies to the public policies defined by the Executive Branch for hierarchical subordination, which does not exist in the current regimen. None of the bodies within the Executive Branch is in charge of reviewing the activities of ANATEL, for example, as some defend, with the submittal of undue hierarchical appeals to the Ministry of Communications. That is because, as mentioned above, the General Law is clear in its determination that ANATEL is in charge of ultimately deciding the matters relating to its jurisdiction.
23. - On the other hand, even though their decisions are not subject to review by another body within the Executive Branch, the acts of regulatory agencies are certainly subject to the control of the Judiciary, given that "the law cannot exclude from the examination of the Judiciary damages or threats to existing rights" (article 5, XXXV, of the Federal Constitution).
24. - Besides, since the authority of the Agencies are established by law and can be altered or even suppressed (as some defend) as a result of the enactment of a new law, the Agencies are also subject to the Legislative Branch. It should be noted that the Senate is in charge of previously approving the appointment of officers by the Executive Branch and that, evidently, the activities of the Agencies can be inspected by the Audit Court, an ancillary body of the Legislative Branch.
25. - Finally, the regulatory agencies are subject to the control of the very entities they regulate, in light of the fact that the normative acts of the agencies must be preceded by a public consultation and that the proper statement of justification must accompany their decisions. Obviously the regulated entities are assured the right to complain, to appeal and to exercise full defense.
26. - The existence of the different mechanisms of control described above confers the celebrated "democratic legitimacy" to regulatory agencies and, in our opinion, annuls any attempt to justify the need for abrupt changes in the rules currently in force.
27. - The premises for the institution of the regulatory agencies, in the form established by the current laws, are still in full force. Therefore, a profound reform is unnecessary and unwarranted. That being so, it is surprising - and disturbing - that some sectors of the Federal Government demonstrate a clear intention of altering the legal regimen governing regulatory agencies.
28. - Such intention is more evident and constant in the telecommunications sector, but it is also present in other sectors. An example of such behavior is the recently enacted Decree No. 4635/03, which creates the Telecommunications Office within the Ministry of Communications, with the following authorities, among others: (i) orienting, following up and inspecting the activities of ANATEL, pursuant to Law No. 9472/97; and (ii) recommending the regulation and technical ruling relating to the rendering of public and private telecommunication services3. Said Decree also created the Department of Universalization Services, with authority to supervise the activities of ANATEL, pursuant to the public policies defined by the Executive Branch, and to protect the proper compliance with the policy by the Agency4.
29. - It is obvious that such Decree is a clear attempt at the establishment of hierarchical subordination between ANATEL and the Ministry of Communications, in a patent and explicit conflict with the General Law. Besides, depending on the actual manner in which the provisions of Decree No. 4635/03 are applied, it is possible that the authorities of ANATEL and of the Ministry of Communications will collide, in a flagrant violation of the clearly established authorities defined in the General Law of Telecommunications.
30. - In that same regard, two weeks ago the Government submitted to the evaluation of the players in the telecommunications market the first draft of a new Decree that allegedly dealt with the public policies of the new government for the telecommunications sector. However, the wording of said draft suggests the intention of the Government of dealing with not only long term public policies, but also eminently regulatory matters, such as the definition of interconnection rates, public rates, portability of codes and local and long distance call invoicing, which are clearly under the exclusive jurisdiction of ANATEL, pursuant to the General Law of Telecommunications. It should be noted that the market players initiated talks with the Ministry about the Decree, as informed by the newspapers, even though such Decree is clearly in divergence with the provisions set forth in the law currently in force. A second version of the Decree has recently been issued.
31. - Another indication that the current model of independent regulatory agencies is in serious jeopardy is Legislative Bill No. 413/2003, by Congresswoman Telma de Souza (PT/SP), which intends to put an end to the independence of the agencies by means of the suppression of the legal reference to the lack of hierarchical subordination and secure tenure of the officers, with the express authorization for dismissal of officers "due to violation of the policies established by the Ministry or Higher Body".
32. - Characteristics that are fundamental and essential for the proper operation of the regulatory agencies, such as the secure tenure of their officers and the lack of hierarchical subordination should not be discussed at this time, for the simple reason that the benefits the current model entail are undeniable, and that the institution of such model gave rise to a secure environment as to the stability of rules, predictability of behaviors and compliance with contracts that enabled the investment of over R$70 billion5 in the Brazilian telecommunications market alone between 1998 and 2002.
33. - It would be better if the current debate was replaced by one on long-term public policies that the Government intends to adopt, within the authorities granted by the General Law, with regard to the telecommunications sector as of the second semester of 2003 and as of 2005, when the policies defined by the former Government, dealing with the establishment of universalization and quality targets, will draw to an end.
34. - In that sense, it would be fit that the Federal Government sets aside the discussion on the independence of ANATEL and other regulatory agencies - especially in light of the intended independence of the Central Bank - and focus the discussions on matters such as what can be expected in terms of convergence of the different telecommunication services and what can be done to ensure that telecommunication services become actual means of access to knowledge, education, democratic process, welfare, and entertainment for the less affluent portion of the population.
35. - Instability of rules and abrupt changes in regulatory environments chase away investors and foreign capital. That is not what Brazil needs at this time.
* Marcelo Viveiros de Moura and Francisco Werneck Maranhão, partner and associate lawyer in the Corporate Area of Pinheiro Neto Advogados.
1 The Brazilian Securities Commission.
2 And the recent approval of Constitutional Amendment No. 40, of 39th May 2003, leads the way to the fast implementation of such reform.
3 Article 11, items II and III, Decree No. 4635/03.
4 Article 12, item III, Decree No. 4635/03.
5 Source: Revista Exame, March 26, 2003.
This article has been written strictly for information and discussion purposes and should not be construed as a legal opinion on any specific matter or transaction.
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