Ecuador: unfair competition will not be tolerated

Recorte del artículo de Francisco Gallegos, de CorralRosales, publicado en International Trademark Association

DETAILS

DATE: 24-02-2023

PROFESSIONALS INVOLVED IN THE ARTICLE:

Francisco Gallegos

It is no secret that, in recent years, trademark infringement in Ecuador has intensified through bad faith trademark applications and registrations filed by third parties and counterfeiters. What is the reason for this increase? Our partner Francisco Gallegos explains in a new article written for the International Trademark Association (INTA) that it may be due to the fact that there is now a greater awareness of well-known trademarks in the market, especially with regard to foreign trademarks.

Francisco Gallegos explains in his article that in Ecuador unfair competition will no longer be tolerated and will be punished. To this end, he analyzes a specific case: on August 3rd of last year, “an appeal (file number OCDI-2019-055-AN), filed by Baldoré Cía. Ltda, the National Service of Intellectual Rights (SENADI), issued a groundbreaking pioneer decision by determining that the trademark DON CASTELÓ SPECIAL and the design granted in favor of Coello & Coello Coelcem Cía. Ltda. were null and void for having been obtained to perpetuate, facilitate, or consolidate an act of unfair competition, taking advantage of the prestige and position achieved by the legitimate owner”. It also adds that there were “reasonable grounds” to establish that this registration contravened the Common Regime on Intellectual Property of the Andean Community (Decision 486), as well as the principles of legal competition and good faith.

Baldoré Cía. Ltda. had not registered its trademark DON CASTELÓ in Ecuador; however, it did provide evidence of marketing authorizations and invoices that demonstrate the availability of DON CASTELÓ products in that market, as well as the sales made, and the market positioning achieved.

“Based on this evidence, SENADI concluded that the disputed registration constituted an act of unfair competition and that the improperly granted registration influenced the market by intentionally confusing the consuming public about the origin of the product, and harmed the true owner of the trademark,” Francisco explains.

It is important to keep in mind that, according to article 259 of Decision 486 of the Common Regime on Intellectual Property of the Andean Community, “any act that could create confusion among consumers in the market would be considered an act of unfair competition”. Therefore, since both parties are in direct competition, it would be a mistake to maintain the registration of the trademark since this would create confusion amongst consumers.

The author of the text concludes with the following perspective: “This decision is groundbreaking, as SENADI rarely deals with unfair competition issues and in limited cases has protected unregistered trademarks, as in this case (Ecuador has a first-filing jurisdiction). As one of the first decisions in Ecuador to address the issue and punish a bad-faith registration, SENADI sets an important precedent for trademark protection”.

If you want to read the full article, click here.

Operation of economic concentration in the pharmaceutical market is denied by the Superintendence for the Control of Market Power – LIR

Recorte de "The Legal Industry Reviews", el artículo escrito por Christian Razza

DETAILS

DATE: 23-02-2023

PROFESSIONALS INVOLVED IN THE ARTICLE:

Christian Razza

On August 9, 2022, the acquisition of Leterago del Ecuador S.A. (hereinafter, Leterago) was denied to Distribuidora Farmacéutica Ecuatoriana DIFARE S.A. (hereinafter, Difare) by the Superintendencia de Control del Poder de Mercado (SCPM). Our associate, Christian Razza, writes about it for The Legal Industry Reviews (LIR).

To understand the current situation, one must also know the context: Difare is an Ecuadorian company dedicated to the distribution and commercialization of pharmaceutical products that manages the Pharmacys pharmacy chains and the Cruz Azul and Comunitarias franchise systems. Leterago, on the other hand, is a national company that primarily markets and distributes all types of pharmaceutical products.

Razza, in order to explain why the operation was denied, states that “the economic concentration operation was denied by the authority when considering that it generates multiple risks for the competitive scheme of the following relevant markets: distribution of pharmaceutical products at national level and commercialization of pharmaceutical products at local level”.

The Superintendence for the Control of Market Power carried out an investigation in which it was determined that there were high levels of concentration resulting from the operation. This produced a joint share of more than 60% within the pharmaceutical distribution market, “due to the fact that the transaction involves the concentration of the two main distributors of pharmaceutical products in Ecuador, eliminating the independence of Difare’s main competitor”, he adds.

After the study, the authority determined that “there are no behavioral or structural measures that would mitigate the reduction of the competition schemes of the defined markets, without sacrificing the current efficiency levels of the sector, as well as the welfare of the clients of the operators involved”. It also adds that “the measures proposed by Difare did not solve the risks identified by the SCPM, since they would not have modified the structure of the market, nor the behavior of the participants to generate or make viable a dynamic competitive environment”.

This operation is not the first to be denied by the SCPM. It is the fourth economic concentration operation denied throughout its history, the three previous ones being: the merger between Holcim Ltd. and Lafarge S.A. (2014), the acquisition of Swissgas del Ecuador S.A. by Indura Ecuador S.A. (2014) and the acquisition of International Laboratories Services Interlab S.A. by Synlab Sociedad Anónima.

Razza, to conclude the article, also focuses on detailing how the first three cases were denied:

“The first case was denied since the merger between Lafarge and Holcim would result in a concentration in the Ecuadorian cement market with more than 95% share by the merged entity, thus there would be a serious risk of anticompetitive practices.

The second case was rejected on the basis of a highly concentrated market and regulators’ concerns about the potential for collusion.

The third case was denied since the parties opted not to proceed with the transaction, for which the withdrawal of the notification was requested, but the SCPM considered that Synlab failed to comply with the condition of subscribing a document of commitments within the 90-day term determined in the resolution of January 7, 2021 and therefore denied the authorization of the economic concentration operation”.

If you want to read the full article, click here.

Suspension of working day on Monday, February 06, 2023

Edificio de cristal con el logo de CorralRosales

On January 27, 2023, by means of Executive Decree No. 655 (hereinafter the “Decree”), the President of the Republic, Guillermo Lasso, accepted the request of the National Electoral Council (CNE) to suspend the working day on Monday, February 6, alluding to the 2023 sectional elections, in the following terms:

•    The President of the Republic, Guillermo Lasso, suspended the regular working day on Monday, February 06, 2023, for the public and private sector. The decision responds to the request sent by the National Electoral Council (CNE).
•    According to the presidential disposition, the suspended working day will be recovered, in the public sector through an additional hour during the following eight working days. While in the private sector, the recovery will be established by mutual agreement between employers and workers.
•    Likewise, for Monday, February 6, the provision of basic public health services, firefighters, airports, air, land, maritime and river terminals, and banking services must be guaranteed. Therefore, the competent authorities must have the minimum personnel available to serve the public.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Organic Law for the Development, Regulation and Control of financial technology services, also known as the fintech law

Imagen para boletín legal de CorralRosales, firma de abogados de Ecuador. Aparece una imagen oscura con destellos más claros

The Organic Law for the Development, Regulation, and Control of Financial Technology Services, also known as the Fintech Law (the Law), came into effect on December 22, 2022 through its publication in the second supplement of the Official Register No. 215. Its main objective is to provide legal security to financial technology companies operating in the country, promote foreign investment, and provide users with secure access to services that protect their data. The Law also includes new members to the payment system, the private financial system, the securities market, and the private insurance system. Additionally:

  1. It establishes that regulatory and control bodies must identify and prevent risks of each service;
  2. It grants wide powers to regulatory and control bodies so that they can fulfill their responsibilities adequately;
  3. It includes regulatory Sandboxes (“Test Environments”) that allow continuous monitoring of a technology project, which will allow for greater precision when regulating certain activities in the sector.

Further, the Law reforms the Monetary and Financial Organic Code, the Organic Law of Enterprises and Innovation, the General Insurance Law, and the Securities Market Law.
 
The Law regulates activities related to the development, provision, use, or offering of payment means based on technology, financial technology services, specialized companies in electronic deposits and payments, technological services in the securities market, and insurance. Accordingly, financial technology companies must meet the following requirements:

  1. Authorization from the Superintendency of Banks, Popular and Solidarity Economy, or the Central Bank, as appropriate;
  2. Specific and exclusive object for Fintech activities;
  3. Registration as ecuadorian companies or branches of foreign companies;
  4. Be subject to a territorial application of the Law, i.e., when they operate anywhere in Ecuador;
  5. Respect the prohibition on investment by private financial entities, since these cannot participate in the capital of Fintech companies.

Furthermore, Fintech companies will be regulated in their operations by the Monetary Policy and Regulation Board and Financial Policy and Regulation Board, according to their competencies, and will be supervised and controlled in the corporate area by the Central Bank of Ecuador, the Superintendency of Companies, Securities, and Insurance, the Superintendency of Banks, or the Superintendency of Popular and Solidarity Economy, according to their competencies. Further, the determination of which financial activities based on technology represent a high risk will correspond to the Financial Policy and Regulation Board.

Consequently, the Law establishes responsibilities and sanctions for Fintech companies, as well as protection measures for the users of their services. It also provides a system for the registration and supervision of Fintech activities, and for the creation of a Fintech Association for the regulation and promotion of the sector.
 
Finally, the Law provides for the possibility of obtaining resources through various mechanisms, (venture capital, angel, seed), ratifies the validity of credit titles issued in electronic support and establishes the obligation of the State to maintain citizen data stored in Ecuadorian territory.

Rafael Serrano, asociado de CorralRosales, con traje y corbata. En el fondo, una parte de Guayaquil (Ecuador)

Specialist in Data Protection and Technology
Rafael Serrano, associate at CorralRosales
rserrano@corralrosales.com
+593 2 2544144

Specialist in Data Protection and Technology
Edgar Bustamante, associate at CorralRosales
ebustamante@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Regulatory guidelines for remote work agreements and right of disconnection from work

Edificio de cristal con el logo de CorralRosales

On December 23rd 2022, by Ministerial Agreement No. MDT-2022-237 (hereafter the “Agreement”) the Labor Ministry established regulatory guidelines for remote work agreements and the exercise of the right to remain disconnected from work, in accordance with the following terms:

•    Employees rendering their services under remote work have the same rights and obligations as employees working on a presence-based modality. 
•    By mutual agreement, the scope of the labor relationship may be remote from the beginning or change to remote at any time thereafter. In any case, the duration must be specified.
•    The employer must provide the necessary inputs and equipment to perform the remote work agreement. Any payment in relation to equipment or supplies required to work remotely are not considered as part of the employee remuneration.
•    The employer must control that safety and occupation health regulations are complied with in the workspace. 
•    The employer has 30 days to register the remote work agreement and 15 days to register the agreement that changes the labor relationship form a presence-based modality to a remote modality in the “Sistema Único de Trabajo” (SUT).
•    The employee has the right to remain disconnected for at least 12 consecutive hours in a period of 24 hours and the employer must control this period of disconnection is complied with. The latter does not imply that 12-hour workdays may be established.
•    Within 90 days from the issuance of the Agreement (until March 23rd, 2023) the employer must establish an internal policy that ensures disconnection time. The policy should include at least the following:

a)    Training and education on the respect of working time and the right to disconnection.
b)    Guidelines for the formulation of requirements whilst the employee is not on working time.
c)    Guidelines so that the use of technology and information does not affect the right of disconnection. 
d)    Internal complaints procedure regarding non-compliance of the right to disconnection.

•    The Agreement overrides the Ministerial Agreement No. MDT-2020-181 of the 14th of September 2020, which regulated remote work.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a consequence of acting or not acting on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Tax assessment proceedings carried out by the municipality of Quito

Manos con las uñas pintadas de rosa haciendo uno de una calculadora. Pieza para un boletín tributario de CorralRosales: aparece el logo de CorralRosales también en la pieza gráfica

The Municipality of Quito has carried out a mass notification of tax assessment procedures regarding property tax corresponding to fiscal year 2020, fire department contribution and citizen security tax, through the following acts:

  1. Mass communications of Difference Assessments OCD-DMTJRM-2022-0491-M, OCD-DMTJRM-2022-0492-M, and OCD-DMT-JRM-2022-0493-M published in the Digital Tax Gazette. The taxpayers were granted a 10-day term to answer said communication.
  2. Mass notification of Tax Assessments for the Payment of Differences LDP-DMT-JRM-2022-0251-M, LDP-DMT-JRM-2022-0252-M, and LDP-DMT-JRM-2022-0253-M published in the Digital Tax Gazette of its web page on December 29 and 30, 2022 and January 3, 2023.
  3. These liquidations can be downloaded through the following links, to identify if the taxpayer is in the lists, we recommend using the browser search engine (CTRL +F): 
  1. Gaceta_Digital_No_0317M_2022.pdf
  2. Gaceta_Digital_No_0318M_2022.pdf
  3. Gaceta_Digital_No_0319M_2022.pdf

According to the law, these tax assessments may be challenged before the Tax Authority or before the Tax Court.

Andrea Moya - CorralRosales - Lawyer Ecuador

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Caterpillar successfully opposes the registration of FUNKY CAT based on its CAT marks – WTR

Recorte del artículo sobre "Caterpillar se opone con éxito al registro de FUNKY CAT basado en su marca CAT" en WTR

DETAILS

DATE: 18-01-2023

CORRALROSALES IN THE NEWS:

-Katherine González

The National Service of Intellectual Rights (SENADI) has declared, after resolving three oppositions against applications for trademark FUNKY CAT in classes 9, 35 and 37, that said trademark is not registrable. The reason: there is a risk of confusion or association with the CAT trademark. In this case, our associate Katherine González H. writes for World Trademark Review (WTR).

On December 22, 2021, Great Wall Motor Company Limited filed applications for registration of mark FUNKY CAT. Caterpillar Inc. filed oppositions based on its trademark CAT in several classes and also claimed that its trademark CAT is well-known.

On June 7, 2022, Great Wall Motor answered the oppositions and claimed that the applied-for marks were distinctive enough, insisting on the oppositions to be rejected and the applications granted.

FUNKY CAT registration resolution

Our associate explains that, through Resolutions No. 2000627, 2000632 and 2000631, SENADI accepted the oppositions and rejected the registration of trademark FUNKY CAT in Classes 9, 35 and 37.

SENADI argued that consumers could be confused between the goods and services offered by each company, as there are similarities between the conflicting marks, and “could be led to believe that they are provided by the same company.” SENADI concluded that there is a high risk of confusion or association and accepted the oppositions. It also considered that the inclusion of the term “Funky” was not sufficient to avoid the likelihood of confusion among consumers.

González concludes her analysis with an interesting comment: “Besides recognizing the opposing’s party’s rights, avoiding registration of similar trademarks, these cases are interesting, since usually the Ecuadorian IP Office tends to dismiss oppositions just based on the coexistence of the conflicting word in the relevant classes. However, in these cases the IP Office did not focus on this aspect and considered the overall similarities between the conflicting marks as a whole, as ordered by the Court of Justice of the Andean Community.”

If you want to read the full article (under subscription), click here.

Reduction of Several Taxes Tariffs

Manos con las uñas pintadas de rosa haciendo uno de una calculadora. Pieza para un boletín tributario de CorralRosales: aparece el logo de CorralRosales también en la pieza gráfica
 
The President of the Republic, issued the Executive Decrees 643, 644 and 645 on January 10, 2023, by which the reduction of the following taxes tariffs was ordered:

1.    Gradual reduction of the Foreign Exchange Tax (ISD) according to the following schedule:


a.    As of February 1, 2023, the tariff of the Foreign Exchange Tax will be 3.75%. 
b.    As of July 1, 2023, the tariff of the Foreign Exchange Tax will be 3.50%. 
c.    As of December 31, 2023, the tariff of the Foreign Exchange Tax will be 2%.

2.    Reduction of the Value Added Tax (VAT) tariff from 12% to 8% levied on the provision of services related to tourism activities during the following holidays:

a.    Carnival: February 18, 19, 20 and 21, 2023.
b.    Easter: April 7, 8 and 9, 2023.
c.    All Souls’ Day and Cuenca Independence Day: November 2, 3, 4 and 5, 2023.


3.    Reduction of the Excise Tax (ICE) tariff for the following goods:



 

Andrea Moya - CorralRosales - Lawyer Ecuador

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Shareholders Annex

Manos con las uñas pintadas de rosa haciendo uno de una calculadora. Pieza para un boletín tributario de CorralRosales: aparece el logo de CorralRosales también en la pieza gráfica
 
The Internal Revenue Service issued the Regulation NAC-DGERCGC22-00000065 on December 30, 2022, by which the rules for the disclosure of the corporate structure were amended. The most important changes are summarized below: 


1.    The last level of the corporate structure to be disclosed is the one that identifies the individuals who are the beneficial owners of the entity and/or are tax residents in Ecuador. This information excludes nominal or formal holders. 


2.    If the local entity has as -direct or indirect- shareholder an entity which is not a tax resident in Ecuador, this shareholder will be considered as the last level of the corporate structure to be disclosed if the individuals at the end of the chain own -individually or jointly with their related parties-, less than 10% of the local entity’s share capital.


However, if at the end of the chain there are individuals who are tax residents in Ecuador, such individuals will be considered as the last level of the corporate structure to be disclosed, regardless of their percentage of ownership in the local entity. 


3.    If the local entity has as -direct or indirect- shareholder an entity listed in a foreign stock exchange, it will have to disclose the part of the entity’s share capital that is not traded or that is reserved to a limited group of investors. With respect to such part of the capital it shall report: 

a.    Any shareholder holding -directly or indirectly- 2% or more of its share capital. 
b.    All shareholders who are tax residents in Ecuador, regardless of their percentage of ownership.

4.    The shareholders’ annex for the fiscal year 2022 may be filed until March 28, 2023.

 

Andrea Moya - CorralRosales - Lawyer Ecuador

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Which is the best procedure to request the reimbursement of the amount paid for safeguard measures?

Foto de José María Flores, asociada de CorralRosales + foto de un edificio + Logo de CorralRosales

Ecuador unilaterally adopted safeguard measures on goods imported from Colombia and Peru, due to their currency devaluation against the dollar. Even though, the General Secretariat of the Andean Community (“SGCA“) rejected the corrective measures, ordered their termination and the refund of the values paid for such concept, the Ecuadorian Customs Administration (“SENAE“) has rejected the reimbursement claims filed by the affected importers.

On December 24, 2014, Ecuador requested the SGCA to authorize the application of emergency measures on imports of goods originated in Colombia and Peru to restore normal competitive conditions altered by the recent currency devaluation in those countries. The request was registered on January 6, 2015, by the SGCA.

The SGCA has one month from receipt of the request to issue a ruling. If the SGCA does not do so, the member country that requested the measures may adopt them and, subsequently, the SGCA must decide on their maintenance, modification, or suspension.

Not having passed the term mentioned above, Ecuador, through Resolution 050-2014 issued on December 29, 2014, by the Committee on Foreign Trade (“COMEX“) decided to apply a safeguard equal to 7% of the ad valorem tariff for products originated in Peru and 21% for products originated in Colombia.

On February 6, 2015, through Resolution 1762, the SGCA: i) rejected the application of safeguards for imports from Colombia and Peru; ii) ordered their immediate removal; and iii) recommended Ecuador to establish mechanisms to reimburse the companies affected by the application of such measures. Ecuador revoked the corrective measures on March 6, 2015, through Resolution 010-2015 issued by COMEX.

Although the measures were revoked, Ecuador should have refunded the amount paid by importers during the period the measures were applied. It is important to bear in mind that, by virtue of the supremacy principle, the Andean Community regulations prevails over domestic law; therefore, the CAN member countries are obliged to accept the Andean Community regulations, create mechanisms for their application and enforcement, and not obstruct them.

The purpose of this article is to identify the best alternative to obtain the refund of the amount paid for these safeguards and thus comply with the order of the SGCA.

SENAE’s position has been to reject the claims submitted to obtain the refund of the safeguard, arguing that: i) the safeguard was in accordance with the Cartagena Agreement; ii) the amounts paid for the safeguard were in compliance with the applicable regulations; and iii) Resolution 1762 only recommended the refund.

SENAE´s interpretation is incorrect. Resolution 1762 obliges to refund the affected importers and recommended the establishment of adequate mechanisms to exercise this right. Therefore, it is not a recommendation. What was ordered by the SGCA is to reimburse the affected companies the amounts paid since January 5, 2015, after verifying that none of the conditions alleged by Ecuador to authorize the corrective measure were fulfilled.

In response to the refusal at the administrative proceeding, the importers filed lawsuits against the resolutions of the SENAE that rejected the administrative claims. However, the Tax Court (“TDCT“) and the Administrative Court (“TDCA“) have had contradictory opinions regarding the competent authority to review the case.  Even when the National Court of Justice (“CNJ“) has already stated that the competent court is the TDCT.

The CNJ has established that, although safeguards are not taxes, judgments have recognized that the safeguard is an economic measure adopted by the State that causes an increase in taxes on international trade; therefore, it has been recognized as a taxation matter.

This delay, both in the administrative and judicial process, has caused evident damages to importers who have not yet received a refund of the amount paid.

The remedies and actions provided by Ecuadorian law are not adequate mechanisms to guarantee the proper recognition of the importer’s right to a refund of what has been unduly paid. 

Faced with this situation, the Andean Community regulations allows the affected party to initiate a legal action for non-compliance against the member country, before the SGCA and the Court of Justice of the Andean Community (“TJCA“), a measure that excludes the possibility of simultaneously appealing to the national courts.

To file the action, the conduct that causes the non-compliance with the Andean community regulations and the violation of the individual’s rights must be demonstrated. The SGCA issues a non-binding opinion about the existence of the damage. However, if the non-compliance persists, the person affected may appeal to the TJCA, which through a judgment will determine the responsibility of the member country and the obligation to adopt the necessary measures for its compliance. The judgment constitutes a legal instrument to claim the member country the execution of the judgment and compensation for damages.

María José Flores
Associate at CorralRosales
mflores@corralrosales.com