APEC IMPROVED AND REVISED INDIVIDUAL ACTION PLAN REGARDING
COMPETITION POLICY (2004)

Mexico


REVISED AND IMPROVED FORMAT GUIDELINES (DRAFT)

a) A description of the competition policy framework, covering policy objectives and instruments for promoting them, including relevant laws and regulations and their intended scope;

b) An outline of any plans for the review of competition policy and/or laws and their enforcement; and

c) A statement of any plans for implementing the technical assistance and cooperation arrangements envisaged by the Osaka Action Agenda.

MEXICO'S INDIVIDUAL ACTION PLAN

a) Description of the Mexican competition policy framework Introduction

Glossary:

DOF: Federal Official Daily Gazette

FCC: Federal Competition Commission

FLEC: Federal Law of Economic Competition

MDW: Minimum Daily Wage

RFLEC: Code of Regulations to the Federal Law of Economic Competition

Principles

Mexico� competition policy and law are based on the following principles:

Non-discrimination. The FLEC does not make any distinction between national and foreign economic agents, providing equal rights and obligations to both of them.

Comprehensiveness. The FLEC applies to all economic agents, whether private or public. However, it identifies economic areas that do not qualify as monopolies, such as:

- exclusive state functions performed in strategic areas (the minting of coins; postal, telegraph and radiotelegraph services, the issuing of banknotes by a single bank that is a decentralized agency of the federal government; oil and other hydrocarbons; basic petrochemicals; radioactive minerals; the generation of nuclear power; public electricity services)

- trade and labor unions

- privileges granted to intellectual and industrial property

- export cooperatives (under certain conditions)

Transparency. The FCC publishes the following documents:

- annual economic competition report

- economic competition gazette, containing all resolutions and criteria of the FCC (every four months)

- announcements in the DOF about the initiation of investigations, stating the alleged anticompetitive practice or merger and the market where it is taking place

Summaries of the FCC� resolutions available at the website (weekly or biweekly)

Competition Legislation

The FLEC regulates Article 28 of the Constitution regarding economic competition, monopolies and free market participation. The purpose of this law is to protect the competition process, and the free market access, by preventing monopolies, monopolistic practices and other restrictions that deter the efficient operation of the goods and services market.

It applies to all private or public economic agents. Although it identifies economic areas that do not qualify as monopolies (see comprehensiveness principle above) Nevertheless, the FLEC establishes specific provisions in order to avoid the execution of anticompetitive practices in those areas.

The FCC was created simultaneously to the enactment of the FLEC, as an autonomous agency empowered to:

On March 4 1998, the RFLEC entered into force. Its objective is to promote further transparency and guidance in the enforcement of the Mexican Competition legislation. To this end, more precise time limits were scheduled for the proceedings brought before the FCC and some measures were established to simplify mergers procedures and to specify some anticompetitive practices.


Anticompetitive practices

Articles 9 and 10 of the FLEC distinguish two broad categories of illegal behavior (i) absolute and (ii) relative monopolistic practices.

(i) Article 9. Absolute monopolistic practices are often referred to as "horizontal practices" and are prohibited "per se". The principal absolute monopolistic practices considered in the Law are the
following agreements between competitors:

  1. Price fixing,
  2. Output restriction
  3. Market division
  4. Bid rigging

These practices can be denounced by any person and are considered to be anticompetitive per se, thus, they do not require an extensive analysis.

(ii) Article 10. It identifies six types of vertical conducts, which are evaluated under a "rule of reason" approach because they may imply pro-competitive effects as well as anticompetitive effects in the market. Therefore, the Commission must asses these effects in order to determine if the FLEC is being violated. The principal relative monopolistic practices considered in the Law are the following:

  1. vertical market division,
  2. resale price maintenance,
  3. tied sales,
  4. exclusive dealing,
  5. refusals to deal and
  6. collusive boycott.

Other types of vertical agreements may be reached under the catch-all provision in section VII of this article.
For these practices to be considered illegal, the FLEC requires that the alleged responsible parties must have substantial power in the relevant market.

Article 7 of the RFLEC implements Article 10, section VII of the FLEC by adding five items to the list of relative monopolistic practices:

  1. predatory pricing,
  2. loyalty discounts,
  3. cross-subsidization,
  4. discrimination in price or conditions of sale, and
  5. raising rivals�� costs.

The RFLEC also clarifies the criteria applied both for defining the relevant market and for determining the existence of market power.

It also allows a defendant to offer a defense for relative monopolistic practices on grounds of efficiency.

Mergers and acquisitions

Article 16 of the FLEC: Merger, acquiring the control or any other action through which corporations, associations, stocks, equity interest, trusts and assets in general are carried out amongst competitors, suppliers, customers or any other economic agents. This article also prohibits mergers whose objective or effect is to reduce distort or hinder competition.

Article 17 requires the FCC to consider whether the merging parties would be able to fix prices unilaterally, substantially restrict competitors�� access to the market, or engage in unlawful monopolistic conduct.

Article 18 adds the requirement that, in analysing mergers, the Commission must identify the relevant market and determine market power.

The FLEC empowers the FCC to sanction an unlawful merger by ordering partial or full divestiture, as well as other conduct relief and a fine.

Article 20 establishes pre-merger notification requirements if a transaction exceeds 12 million MDW (about $49 million USD), or if the transaction results in holding more than 35% of the shares or assets of a firm with sales or assets exceeding that amount. Notification is also required if the parties�� assets or annual sales total more than 48 million MDW� ($199 million USD) and the transaction involves an additional accumulation of assets or shares of over 4.8 million MDW� ($19.9 million USD).


The RFLEC establishes additional criteria to determine if a merger must be blocked or conditioned to certain divestiture. These Regulations also contain provisions with respect to international mergers. Such mergers should be notified before any legal and material effects occur in Mexico. When foreign parties involved in the transaction do not acquire control of Mexican companies nor accumulate additional capital shares, the merger does not need to be notified.

In July 1998, the Commission issued a statement designed to supplement the treatment of market definition of the Code of Regulations. The statement describes two concentration indexes. One is the familiar Herfindahl index (HHI). The second is an �ndex of dominance��, calculated as the sum of squares of each firm� share of the HHI. The statement notes that these concentration-based indicators are not determinative, and that the FCC will also examine other factors that are relevant in determining whether the merged entity may obtain power to control price or substantially restrict competitors�� access to the market.


Proceedings

Proceedings before the FCC. According to Article 33 of the FLEC, these are:

I. The alleged responsible shall be summoned, and shall be notified about the nature of the investigation, where applicable, a copy of the complaint shall be attached;

II. The party summoned shall have a thirty calendar day term to submit an affidavit of defense and to attach the documentary evidence in his possession and shall submit all evidence that should be reviewed;

III. When the evidence has been reviewed, the Commission shall set a term no longer than thirty calendar days to submit verbal or written pleas; and


IV. Upon integration of the file, the Commission shall issue a resolution within the following 60 calendar days.

Provided that this conditions are met, there is no discretionary
power for the Commission to reject a case.

Appeal for review

Appeal for Review. An appeal for reconsideration of a resolution may be filed before the Commission. The objective of the appeal is to revoke, amend, modify or confirm the resolution appealed. Pursuant to Article 39, economic agents have the right to file this
appeal for review before the Commission so that it proceeds to review its first instance decision. In addition, foreign entities as well as nationals, have the right to start the �mparo��.

Amparo Proceeding. The Mexican Constitution establishes in Articles 103 and 107 that all persons are protected against unconstitutional acts by the government. This protection is available to any party who can raise a claim that he is being subjected to an unconstitutional statute or that his due process rights are being infringed. Due process, in this context, is not limited to procedural issues but can attack the merits of an agency� decision because the definition of due process in Article 16 of the Mexican Constitution requires that agency orders articulate the �egal basis and justification for the action taken��.

Penalties

The FLEC establishes fines up to the equivalent of 375,000 times the MDW (about $1.53 million UDS) for having engaged in absolute monopolistic practices and sanctions up to 225,000 times the MDW (about $918,750 USD) for engaging in relative monopolistic practices.

As for penalties regarding mergers, the FLEC considers fines up to 225,000 times the MDW (about $918,750 USD) for participating in a concentration prohibited by this Law, and a fine up to 100,000 times the MDW (about $408,000 USD) for failing to notify a concentration to the Commission. In addition, the FLEC gives the CFC authority to impose conditions or to block parties from proceeding with a proposed merger and to dissolve a completed merger or to order a partial or total divestiture of what has been unduly concentrated, regardless of the fine that may be applicable in such cases.

b) An outline of any plans for the review of competition policy and/or laws and their enforcement.

The FCC is drafting a bill to reform the FLEC to strengthen its powers and autonomy.

This initiative is subject to discussion and approval by the Congress.

c) A statement of any plans for implementing the technical assistance and cooperation arrangements envisaged by the Osaka Action Agenda.

The FCC, promotes and supports international cooperation by deepening the dialogue on international aspects of competition policy in APEC as in other international fora. This includes its commitment to encourage a more intensive relation with other competition authorities within and outside the APEC region to facilitate the development of consultation processes and technical assistance programs regarding competition policy.

For this purpose the FCC participates in the discussion of international cooperation aspects of competition policy within the framework of:

The United Nations Conference on Trade and Development (UNCTAD), Intergovernmental Group of Experts on Competition Law and Policy (ad hoc meeting on peer review), UNCTAD XI preparatory workshop for Competition Policy in the promotion of competitiveness and development.

The Organisation for Economic Co-operation and Development (OECD), Competition Committee (before Competition Policy and Legislation Committee).

The Global Competition Forum

The International Competition Network (ICN) as vice-president and chair of the advocacy working group. Also in the General Framework Subgroup of the Cartel Workgroup; Advocacy Subgroup of the Competition Policy Implementation Workgroup, Subgroup 1 of the Antitrust Enforcement in Regulated Sectors Workgroup, and the Notifications and Procedures Subgroup of the Mergers Workgroup. The former President of the FCC chaired the Steering Committee of the ICN from August 2003 to September 2004.

At the WTO, in the Trade and Competition Policy Interaction Group.

FTAA. In the Competition Policy Working Group of the Free Trade Area of the Americas

APEC. The FCC is currently the Convenor of APEC� Competition Policy and Deregulation Group (CPDG) (refer to CPDG Report)

Activities within APEC:

As Project Overseer, the FCC is co-organizing the APEC-OECD seminars on regulatory reform with the OECD� Programme on Regulatory Reform, the seventh workshop of this initiative was held in November 1st, 2004 in Bangkok, Thailand.

The FCC also participated in: the High Level conference on Structural Reform, convened by the SELI on September 8-9 in Tokyo, Japan; the Enforcement in Competition Policy Seminar organized by Australia on May 26, 2004; and the 3rd and 4th APEC Training Programs on Competition Policy, held in Kuala Lumpur, Malaysia, on 1-3 March and in Ho Chi Minh, Viet Nam on 3-5 August, respectively.