Mexico: Competition or Competitiveness?

The debate begins in Mexico’s Congress on a new Law of Economic Competition

On July 7, 2004 Senators of the National Action Party (PAN) presented a bill named "Federal Law for Economic Competition and Competitiveness" (hereinafter the "Bill") which intends to repeal the Federal Law of Economic Competition ("LFCE") in effect since June 22, 1993.

The Bill represents much more than a simple name change to the LFCE. The Bill pretends to modify the approach and scope of application of the LFCE to turn it into a promotional instrument of "competitiveness", representing a diametrical change of the present approach of the LFCE and rejecting current international tendencies for the modernization of antitrust or competition law.

Among the most important aspects of the Bill vis-à-vis the LFCE are the following:

1. Eliminates the obligation to notify mergers and acquisitions and any type of concentrations regardless of the size of the transaction. Currently, under the LFCE, when the merger or concentration is above certain thresholds, the economic agents or relevant parties shall notify in advance the Mexico’s Federal Competition Commission ("CFC"), a mechanism that the CFC uses today as a preventive instrument of control of concentrations and creation of monopolies;

2. Eliminates the prohibition of the "relative monopolistic practices" set out in the LFCE, which are commercial practices mainly identified with vertical restrictions or agreements among firms at different levels in a distribution chain (such as vertical market agreements, resale price maintenance, tied sales, exclusive dealing, refusals to deal, etc.) practices which currently the CFC analyzes under the "rule of reason" approach. That is where, in its analysis, the CFC balances the pro-competitive aspects of an agreement or practice against its anti-competitive aspects to decide about the legality or illegality of the practice at issue;

3. Limits the prohibition of the named by the LFCE as "absolute monopolistic practices", identified with horizontal agreements or arrangements between competitors or undertakings operating at the same level of the production or distribution chain (such as price fixing, output restriction, market division and bid rigging) only to those practices that fulfills certain criteria and to which currently the CFC treats like prohibited per se and legally void;

4. Limits the fines that under the LFCE the CFC can impose to the different economic agents or parties in particularly serious cases;

5. Establishes a leniency program ("beneficio de indulgencia") by means of which any economic agent who has incurred or is carrying out a monopolistic practice may apply for leniency to the CFC, as long as the CFC has not initiated the corresponding investigation, where the economic agent confesses its practice and take advantage of the referred beneficio de indulgencia, entailing a substantial reduction of the applicable sanctions; and

6. Establishes that the administrative procedure before the CFC may be initiated at the request of a party, with the novelty that the claimant will be able to do it in writing "or by electronic means" as will be set out in the implementing regulation of the Bill.

We believe that the Bill tends to debilitate the authority of the CFC as a regulator of the behavior of the markets and protector of the competition process to preserve a free market economy. Also, the Bill seems to confuse the concepts of "economic competition" with the one of "competitiveness". Even though economic competition is an element to increase the level of competitiveness, it is not the only one. It is generally agreed that the main purpose of competition law is to protect and encourage the competitive process, resulting in an optimum allocation of resources and the maximization of consumer welfare; whereas competitiveness is a much more complex concept. The increase of the level of competitiveness requires the implementation of public policies that among other aspects implements an effective cooperation and coordination between authorities of all the levels of government, represses bribe and corruption, encourages private investment, facilitates and simplifies the bureaucratic administrative burden to start and expand business in general and drives, to the strongest possible point, the expansion of the economy and employment based on regional and national assets, either natural or those created by the productive sector, which tend to increase the general living standards in the country.

We hope that in the parliamentary debate the Bill is modified and refocused on its main purpose before it repeals the LFCE in effect and becomes law in Mexico. The above in order to consider recent recommendations to Mexico by the Second OECD Peer Review on Competition Law and Policy in Mexico 2004, as well as claims by officers of the CFC in diverse forums to update and modernize the competition law in Mexico to strengthen the CFC and make it a more efficient governmental agency.

It will be our pleasure to keep you informed about the evolution of the Bill. Should you require additional information with respect to the Bill, or of other legislative initiatives in Mexico, please do not hesitate to contact us.

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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