Mexico Revamps Its Competition Framework

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Information about Mexico Revamps Its Competition Framework
News & Politics

Published on March 7, 2014

Author: BSTL


Mexico  Revamps  Its  Compe11on   Framework   Paseo  de  los  Tamarindos  150  –  PB,   Bosques  de  las  Lomas,       05120  México  D.F.     (55)  5091  0000                                                                            Av.  Ricardo  Margáin  444      Torre  Norte  Mezzanine  “A”    Valle  del  Campestre    66265  San  Pedro  Garza  García,  N.L.  

Why  a  New  Compe--on  Bill?   •  Implementa1on  of  the  June  2013   Cons-tu-onal  Amendment    that   created  a  new  telecom  and  compe11on   authori1es  and  framework   •  Empower  the  Federal  Economic   Compe--on  Commission  (“Cofece”)  and   the  Federal  Ins-tute  of   Telecommunica-ons  (“IFT”)  to:   –  (i)  remove  barriers;    (ii)  determine   essen-al  facili-es  and  (iii)  order   dives-ture  of  assets   –  Impose  harsh  penal-es       –  Sanc1on  new  compe11on  offenses   •  Crea1on  of  Specialized  Courts  in      the  First  Circuit  (Mexico  City):    

15  Major  Changes:  Compe--on  Reloaded   1.  Empowerment   of   Compe--on   Authori-es   9.  New  Cartel  Offense   2.  Price  Control:  Maximum  Prices   10.  Increasing   Ver-cal   Restraint   Offenses   3.  Judicial   Review:   Specialized   Courts   11.  S h a p i n g   M e r g e r   C o n t r o l   Proceedings   4.  Structural  Balance   12.  Harshening   Administra-ve   Fines   and   Administra-ve   and   Criminal   Sanc-ons   5.  Inves-ga-on   and   Prosecu-on   Reloaded   6.  Essen-al  Facili-es  Doctrine   7.  Determina-on   of   Barriers   to   Entry   8.  Dives-ture  of  Undertakings   13.  Private  Relief  and  Class  Ac-ons   14.  Watching   the   Overseers:   Hearings   and  Comptroller’s  Office   15.  Electronic  Filings  and  Transparency    

1.  Empowerment  of  Compe--on  Authori-es   •  Cofece   is   the   7-­‐Commissioner   independent   authority   with   jurisdic1on   to   hear   compe11on  cases,  except  for  telecoms,  radio  and  TV   •  IFT   is   the   7-­‐Commissioner   independent   authority   with   regulatory   and   compe11on  jurisdic1on  ONLY  in  telecoms,  radio  and  TV   •  The  Bill  empowers  and  provides  rules  for  Cofece  and  the  IFT  to:   •  Remove  barriers   •  Determine  essen-al  facili-es   •  Order  dives-ture  of  undertakings   •  Create  interim  measures   •  Appoint  an  Inves-ga-ve  Authority   •  Enact  regula-ons  and  statutes   Hot   Topic!   Is   the   delega1on   of   powers   from   Congress   to   Cofece   to   implement   substan1ve   concepts,   procedural   rules   and   regula1ons   excessive?  

2.  Price  Control:  Maximum  Prices   •  The  Bill  allows  for  the  President  of  Mexico  to  determine  what  products  are   “necessary   for   the   na1onal   economy”   or   have   “popular   consump1on”   or   whose  “distribu1on  brings  as  consequence  an  unjus1fied  raise  of  prices”   •  The  Ministry  of  Economy  will  set  maximum  prices     •  Prior   Cofece’s   determina-on   as   to   whether   or   not   there   is   effec1ve   compe11on   •  Speedy  proceedings  in  case  of  specific  request  of  the  Execu1ve     Hot   Topic!   No   defini1on   of   what   it   means   that   products   are   “necessary   for  the  economy”  or  “popular  or  na1onal  consump1on”  

3.  Judicial  Review:  Specialized  Courts   •  Economic  agents  will  have  no  right  to  appeal  Cofece’s  and  IFT  decisions     •  Only  a  cons1tu1onal  trial  (amparo  indirecto)  and  its  federal  appeal  (recurso  de   revisión)  will  be  available   •  Crea1on  of  specialized  federal  courts  sea-ng  in  Mexico  City  to  deal  with:   •  Amparo   indirecto   against   Cofece   and   IFT  decisions   •  Federal  appeals  of  judgment  of  district   courts   •  Cofece’s  and  IFT  jurisdic1on   •  Professional  disqualifica1ons   •  Ac1ons  for  damages  and  private  relief   Hot   Topic!   Would   two   specialized   federal   courts   produce   sufficient   diversity  and  different  opinions?    

4.  Structural  Balance   •  Finding   equilibrium   and   independence   within  Cofece  and  the  IFT    by:   •  Separa-ng   the   inves1ga1ve   and   decision-­‐ making  process   •  Crea1ng  of  an  Inves-ga-ve  Authority     •  Inves1ga1ve   Authority   in   charge   of   inves-ga-ng  and  prosecu-ng     •  Preserving  Cofece  and  the  IFT  the  decision-­‐ making  bodies   Hot  Topic!  Could  the  Inves1ga1ve  Authority  be  independent  if  appointed   and  removed    by  the  Cofece  and  the  IFT,  respec1vely?  

5.  Inves-ga-on  and  Prosecu-on  Reloaded   •  Renewed  importance  of  related  markets   •  Enhanced   dawn   raid   powers   by   allowing   on-­‐site   interviews  of  employees  and  representa1ves   •  Dawn   raids   will   last   up   to   two   months   with   one   equal  extension     •  Cofece/IFT   may   ask   for   any   and   all   documents   and  informa1on,  including  electronic  devices   •  Public  force  available   •  Documents  and  objects  can  be  secured   Hot   Topics!   Are   fundamental   rights   and   procedural   guarantees   being   protected?  Is  the  indirect  amparo  available  against  dawn  raids?  

6.  Essen-al  Facili-es  Doctrine   •  Cofece  and  the  IFT  may  start  proceedings  to   determine  essen1al  facili1es     •  Such   determina1on   shall   depend   on   3   elements:   •  Hold  control  of  a  facility  by  one  or  a  reduced   number  of  undertakings   •  Impossibility   to   replicate   the   essen1al   facility,  and   •  Indispensability,   non-­‐subs1tutability   of   the   essen1al  facility   •  Determina1on   of   the   essen1al   facility   may   be  revoked  through  a  new  process     Hot   Topics!   Should   the   determina1on   of   essen1al   facili1es   be   available   for   all  markets,  or  only  for  regulated  networks?  The  regula1on  of  all  markets  is   too  broad  and  unnecessary  

7.  Determina-on  of  Barriers  to  Entry   •  Cofece/IFT   may   start   proceedings   to   determine  the  existence  of  barriers  to  entry     •  Such   determina1on   shall   be   conducted   according   to   Cofece’s   guidelines   (not   enacted  yet)   •  Cofece   will   have   the   ability   to   eliminate   such   barriers   •  Ex   post   and/or   ex   ante   elimina1on   of   barriers   Hot   Topic!   No   clear   rules   and   procedures   for   the   determina1on   and   elimina1on   of   barriers   to   entry,   nor   for   the   par1cipa1on   of   undertakings   in   such  determina1on    

8.  Dives-ture  of  Undertakings   •  Cofece   may   start   proceedings   to   divest   undertakings’  shares,  businesses,  etc.     •  Dives1tures  will  follow  from:   i)   recidivism   or   being   second   offender   of   ver1cal  viola1ons  and  illegal  concentra1ons    ii)  any  other  inves-ga-ons   •  Undertakings  may  file  alterna-ve  op-ons  for   such  dives1ture     •  Dives1ture   is   limited   to   the   tackling   of   an1-­‐ compe11ve  effects   Hot   Topic!   No   clear   rules   and   procedures   for   determining   Undertakings’   dives1tures  

9.  New  Cartel  Prac-ces   •  Proposed   Bill   preserves   previous   cartel   behavior:   •  Price  fixing  (or  informa1on  exchange  with   such  purpose  or  effect);   •  Market  alloca1on;   •  Output  restric1on;  and   •  Bid  rigging   •  New  and  prohibited  conduct  includes  the   exchange  of  informa-on  among  compe1tors   with  the  object  or  effect  of  restric1ng   compe11on   •  Exchange  of  informa1on  can  be  applicable                 to  the  4-­‐above  cartel  behavior   Hot  Topic!  The  Bill  does  not  contemplate  a  sellement  proceeding  for  cartel   cases  

10.  Improving  Ver-cal  Restraints   •  Ver1cal   restraints   are   subject   to   determining   undertakings’   individual   or   joint   dominant   posi-on  or  collec-ve  dominance   •  No  rules  for  determining  collec-ve  dominance   •  Predatory   pricing   reshaped   the   test   of   “below   cost  pricing”   •  The  Bill  includes  two  new  viola-ons:     •  Margin  squeeze:  margin  reduc1on  between   the  wholesale  price  and  the  retail  price   •  No  access  to  an  essen-al  facility:  restric1on   of  access  to  an  essen1al  facility   Hot  Topic!  A)  Could  the  new  viola1ons  and  changes  inhibit  pro-­‐compe11ve   conduct?  B)  No  rules  to  determine  the  concept  of  joint  dominant  posi1on  

11.  Shaping  the  Merger  Control  Proceedings   •  The  substan1ve  analysis  remains  the  same:  ex  ante  analysis   •  The  Bill  subs1tutes  “no-fica-on”   for  the  need  of  an  “authoriza-on”   as  condi1on   precedent   •  Modifies   certain   thresholds   of   interna1onal   transac1ons   to   decrease   pre-­‐merger   clearances   •  Provides   for   publishing   of   the   remedies   for   a   15-­‐day   term   offered   for   public   comment   •  Decisions  are  valid  for  a  period  of  six  months  and  one  similar  extension   Hot  Topic!  No  opportunity  to  receive  formal  feedback,  preliminary  decision   or  alike  before  the  formal  decision.    Thus,  this  could  be  one-­‐1me  shot  

12.  Harshening  Administra-ve  Fines  and  Sanc-ons   •  Minimum  prison  term-­‐sentence  increases  from  3  to  5  years     •  Thus,  cartel  behavior  will  be  punished  from  5  to  10  years  of  imprisonment  (this   term  also  increases  the  term  for  the  statute  of  limita1on  for  criminal  malers   to  7.5  years)   •  10%   turnover   for   any   abuse   in   the   control   of   essen1al   facili1es   and   for   not   complying  with  the  elimina1on  of  a  barrier   •  Joint   liability   for   those   having   decisive   Influence   or   control   over   a   decision   related  to  a  compe11on  viola1on   •  Public  notaries  and  lawyers  will  also  be  liable  for  compe11on  viola1ons   Hot  Topics!   Dispropor1onality  in  the  minimum  prison  sentence  and  loss  of   criminal  benefits  

12.  Harshening  Administra-ve  Fines  and  Sanc-ons   •  The  scope  for  recidivism  or  being  second  offender  changed  to  include  “any”   second  compe11on  offense   •  Cofece/IFT   may   professionally   disqualify   any   incumbent’s   employee   for   5   years   •  Increased  fines  for  contempt  behavior   •  Dives-tures  of  Undertakings   •  Joint  and  severally  liability  of  undertakings   •  Statute  of  limita-ons  to  commence  criminal  inves1ga1ons  increased  from  5   to  10  years   Hot  Topics!  Disqualifica1ons  may  be  uncons1tu1onal  &  recidivism/second   offender  defini1on  is  improper  and  excessive  

13.  Private  Relief  and  Class  Ac-ons   •  Class   Ac-ons   may   be   filed   against   Undertakings   that   commit   an1compe11ve   behavior   •  Ac1ons   for   private   relief   will   be   available,   irrespec1ve   of   any   administra1ve   sanc1ons   and/or  imprisonment  of  individuals   •  Need   to   have   a   defini1ve   resolu-on   from   the  Cofece/IFT   •  Specialized   federal   courts   will   have   jurisdic1on   to   hear   and   adjudicate   private   relief  ac1ons   Hot  Topic!  There  is  an  inconsistency  as  to  the  need  for  a  final  decision  or  an   uncontestable  decision  in  order  to  start  any  private  relief    ac1on  

14.  Watching  the  Overseers:  Hearings  and   Comptroller’s    Office   •  Mee1ngs  with  Commissioners  can  only  be  carried  out  by  a  hearing  in  the   presence  of  at  least  one  Commissioner   •  All   hearings   will   be   recorded   and   videotaped.   The   objec1ve   is   to   avoid   “Regulator  Duress”   •  Registry  of  claimants  and  the  scheduled  appointment  will  be  made  public   •  Crea1on   of   a   Comptroller’s   Office   in   charge   of   “overseeing”   the   Cofece’s   ac1vi1es  and  monies   •  Sessions  for  case  discussion  should  be  public.   •  Need  to  clarify  access  to  discussion  of  cases  before  the  Cofece/IFT   Hot   Topic!   Need   to   have   clearer   rules   and   procedures   to   conduct   hearings.     Mee1ngs  with  staff  could  be  jeopardized  

15.  Electronic  Filings  and  Transparency   •  The   Bill   contemplates   a   strict   transparency   and   publicity   policy   regarding   the   Cofece’s   decisions,   criteria,  Board  sessions,  etc.   •  The   Cofece   will   have   to   keep   up   with   a   digital   management   of   files,   inves1ga1ons  and  cases   •  Undertakings   and   Cofece   will   be   able   to   interact   through   electronic   means   (e.g.   electronic   filings,   electronic  signature,  etc.)   Hot  Topic!  Does  this  mean  that  Cofece  will  serve  process  to  Undertakings   electronically  and  give  proper  access  to  the  docket  without  1me-­‐constraints   or  addi1onal  burden?  

What  is  Next?   •  Shortly,   Congress   (meaning   the   House   of   Representa1ves   and   subsequently   the   Senate)   will   discuss   and   approve   the   proposed   Bill.   If   the   Bill   passes,   the   President   (if   no   veto   is   exercised)   will   publish   it   at   the   Official   Journal   and   it   will   enter   into   force   45   days   aper   its   publica1on   •  Cofece/IFT   need   to   issue   regula1ons   and  internal  structure  rules   •  Mexico’s  lep  wing  party  (“PRD”)  has  also  sent  a  proposal  to  amend  the   compe11on  law,  including  providing  for    harsh  criminal  sanc-ons     Hot   Topic!   It   is   expected   a   quick   discussion   at   the   House   of   Representa1ves.     It   is   a   risk   to   approve   the   proposed   bill   in   its   terms   without  a  deep  discussion  and  understanding  of  its  terms  

Cofece’s  Strategic  Plan   •  The   Cofece   issued   in   January   2014   a   Strategic   Plan   to   analyze   the   following   industries:   •  Banking  and  financial  ins1tu1ons   •  Telecommunica1ons   •  Energy   •  Airlines   •  Railroads   •  Beer  industry   •  Food  and  beverage  industries,  and   •  Construc1on   •  Cofece  will  priori-ze  its  policy  towards  those  sectors  with  most  incidence  in  the   economic  sphere:  consumable  goods,  expenditure  of  the  low  income  popula1on,   sectors  with  transversal  impact  and  sectors  with  restric1ve  regula1ons   Hot  Topic!  It  is  necessary  to  file  comments  to  this  strategic  plan  by  relevant   target  industries  

Luis  Omar  Guerrero  R.   Bernardo  Ledesma  U.     Compe11on  Team   San1ago  Ferrer  P.       Ricardo  Pons  M.   NOTE:  This  presenta1on  is  not  an  advice  and  the  ideas  so  presented  could  change  as  a  consequence   of  the  discussion  at  Congress.    Please  feel  free  to  contact  us  in  case  of  queries  

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