Mexico: Mexico’s Congress Approves Important Amendments to The Competition Law Which Will Force Companies Operating in Mexico to Review and Change Their Business Practices in Mexico

After 9 months of intense negotiations, Mexican Federal Congress approved last week one of the most important structural reforms in recent history by amending, adding and deleting several provisions of Mexico’s Federal Law of Economic Competition ("FLEC"). We expect that President Fox will promulgate and publish said amendment in Mexico’s Federal Official Gazette any day now, and afterwards, the amendment will be valid and enforceable in Mexico.

The amendment to the FLEC amends 24 articles; it adds 11 new ones and deletes 1 other. The main objective of the amendment is to strengthen Mexico’s Federal Competition Commission ("FCC"), which is the Mexican regulatory agency in antitrust matters, to empower it with the required authority to severely punish monopolistic practices and illegal mergers, as well as allow the FCC to protect with efficiency the process of competition and free access to the Mexican market.

The amendment keeps the basic structure of the current FLEC, but reflects many recommendations from international organizations such as from the Organization for Economic Co-operation and Development (OECD) and is inspired mainly from the EC Competition law.

The reform to the FLEC includes, among other, the following:

  • The authority of the FCC to impose ordinary fines to companies that infringe the FLEC as high as Mx$73,005,000.00 (approximately equivalent to US$6,760,000.00);
  • Introduces new practices that will be prohibited under the FLEC;
  • Repeat offenders, instead of facing ordinary fines, will be subject to the higher of a fine equal to double the ordinary applicable fine, the equivalent to 10% of the prior year sales or 10% of the value of its assets;
  • Upon a third strike offense by offending companies, the FCC, instead of imposing the ordinary economic penalties previously referred, will be able to require to a competent judicial authority to execute a structural measure against the company, such as mandatory divestiture of assets and/or shares or force the reorganization and division of the violating company;
  • Authority is granted to the FCC to impose joint liability for the intellectual authors responsible of a prohibited conduct performed by a company;
  • The FCC is vested with authority to carry out down raids and require from the economic agents the exhibition of information and all types of documents that had been previously requested in an investigation and that had not been completely and adequately delivered. However, the FCC must secure a Court order prior to carry out said dawn raids.
  • Individuals and companies (including their officers) involved with an FCC investigation, are mandated to provide the FCC the information they know or possess and appear to declare and fully cooperate with the FCC investigations;
  • Two different leniency programs are introduced in order for companies to dramatically reduce the amount of their fine liability. The first leniency policy is applicable to relative monopolistic practices (vertical agreements subject to a rule of reason), as well as to mergers that were not notified as directed by the FLEC. This leniency policy is designed to allow companies to autocorrect their activities under the FLEC. The second leniency policy is applicable to absolute monopolistic practices (horizontal agreements prohibited per se). This second leniency policy intends to destabilize cartels among competitors. However, to benefit from any of those leniency programs, companies shall comply with certain specific requirements;
  • Information obtained by the FCC will only be confidential if confidentiality is requested by the owner of such information and evidence of the confidential nature of such information is shown to the FCC. To be able to comply the foregoing, the company shall provide a summary of the confidential information which the FCC will be able to publish;
  • A mechanism is introduced to allow the Federal Executive branch to fix official prices (either maximum or minimum) to products and/or services regarded essential to the national economy or that are of popular consumption, provided that the FCC had resolved that the relevant market is distorted;
  • An increase of the thresholds for the notification of mergers, therefore, less mergers shall have to be notified to the FCC;
  • The obligation for economic agents involved in a merger notification to the FCC to refrain from executing the merger in a period of less than ten (10) days following the filing of a merger to the FCC. The purpose of the prohibition herein is to prevent the closing of a merge that it is likely that the FCC will block, or approve with certain conditions, in its final resolution due to the possible negative effects on the markets to be brought by that merge;
  • A quick proceeding for certain merger notifications where the FCC shall resolve during the following fifteen (15) business days after the FCC receive the merger notification, provided that the FCC accepts the argument and evidence provided by the interested parties that the merger under review has not the purpose or effect to decrease, damage or impede competition or free access to the markets;
  • To grant the authority to the FCC to issue binding opinions to federal agencies, entities and administrations in charge of public policies and programs, as well as about preliminary legal provisions, rules, agreements, orders of regulation and other administrative acts of general character.

The statutory Mexican framework of the Competition Law is substantially strengthen by the amendment to the FLEC and compels companies to review and revise the way they operate in their respective markets. This legislation combined with the energetic leadership brought to the FCC by Dr. Eduardo Pérez Mota, emphasizes the need for all companies and officers to receive the adequate legal counsel in order to accomplish with their new obligations and avoid the imposition of sanctions by the FCC. In terms of Competition Law, the "this does not matter in Mexico" attitude must be vanquished in Mexico, or else, severe consequences will arise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Mario Emilio Gutierrez-Caballero
 
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