The Federal Law on Economic Competition (LFCE), with its specially
created agency Federal Competition Commission (CFC), ensures fair
competition in business and outlaws monopolies in Mexico.
The regulation of economic competition in Mexico began with the 1917
Federal Constitution, when article 28 banned monopolies for the first
time. This led to the Law Regulating Article 28 of the Constitution,
published on 28 June 1926, which had among its purposes the opposition
of monopolies that may affect the supply of goods necessary for
consumption.
A second law was published on August 22 1931 with the same name,
repealing the former law. It introduced the definition of private and
government monopolies and the penalisation of cartels resulting from
practices such as market sharing, price predation and others that grant
unfair advantages to certain individuals in prejudice of consumers.
Seventeen years after article 28 was first introduced, on August 31
1934, the Law Regulating Article 28 of the Constitution in the Area of
Monopolies was published, which sought 'to eliminate all kinds of
conducts which might harm consumers'. Despite their good intentions,
these three laws were not applied extensively and provided neither a
special procedure nor a specialised agency to pursue enforcement.
In the 1980s Mexico left behind its traditional imports substitution
policies and adhered to the General Agreement on Tariffs and Trade
(GATT). At the same time the country transformed its regulation of
anticompetitive practices with the enactment of the LFCE -published
December 24 1992 and effective June 2 1993. For the first time, the LFCE
created a specialised agency with the authority to investigate, prevent
and penalise practices harmful to trade, and regulations to that law
were published on March 4 1998.
The LFCE has been amended several times, the most relevant of which
are those published on May 10 2001 and 28 June 2006. New regulations to
the LFCE were published on October 12 2007 and repealed the former
regulations from 1998.
The LFCE regulates economic competition in all fields of economic
activity, with the main purpose of protecting competition and free
access by means of the elimination of monopolies, monopolistic practices
and other restrictions impairing the efficient functioning of the
market of goods and services.
All 'economic agents', whether companies or individuals and acting
for or not for profit, as well as branches and entities of the federal,
state or municipal governments, business chambers or any other form of
participation in the economic activity (generally referred to under the
law as 'economic agents') are subject to the LFCE. The labour unions are
not subject to the LFCE, and activities carried out by the government
within the realm of its authority in the fields of oil and other
hydrocarbons, mail, electricity, nuclear energy generation and
radioactive minerals, among others, are not considered monopolies by the
LFCE.
Regulating authority
The CFC, created by the LFCE, is a de-concentrated administrative
agency of the ministry of economy. It has technical and operational
autonomy with the duty to prevent, investigate and oppose monopolies,
monopolistic practices and prohibited consolidations according to the
LFCE.
As an administrative agency, the CFC discusses the cases in a
collegiate manner and decides them by majority vote. The CFC is
comprised of five commissioners, where one of them is the president and
has a casting vote and the Commission decides the cases sitting en banc.
The CFC also has an executive secretary who is in charge of the
operational and administrative coordination of the commission. At
present the executive secretary coordinates with the different
operational areas of the commission the completion of the dossier of
each case, to be submitted by him or her to the president of the
commission to be decided en banc by the latter.
On April 25 2012 the senate approved a bill of amendments to the LFCE, that creates the figure of the reporting commissioner (Comisionado Ponente),
aimed at improving the plenum's decision-making. The reporting
commissioner will have the duty of completing the dossier of the case in
coordination with the different administrative units and the executive
secretary and their support, in order to submit to the plenum a draft
resolution of the case. This amendment is still pending approval by the
house of representatives.
Practices prohibited by the LFCE
Consistent with article 28 of the Constitution, the LFCE forbids
private and government monopolies as well as those absolute and relative
monopolistic practices which may diminish, harm or impair free
competition and free access in the production, processing, distribution
and trade of goods and services.
Consequently, for all commercial transactions, trade practices, legal
acts, corporate restructurings, mergers and acquisitions, as well as
public procurement procedures seeking government concessions, it is very
important to consider any potential implications regarding the
provisions of the LFCE.
Absolute monopolistic practices
The LFCE and its regulations define absolute monopolistic practices
as those incurred by means of the execution of contracts, agreements,
arrangements or combinations between economic agents who are
competitors, should the purpose or the effect of those practices be:
- Fixing, increasing, agreeing or managing the sale or purchase price of goods or services.
- Establishing the obligation of not producing, processing,
distributing or trading, or that of acquiring a limited amount of goods
or a limited rendering of services.
- Dividing, distributing, assigning or imposing shares of an actual or
potential market of goods or services by means of pre-established
customers, suppliers, times or spaces.
- Establishing or agreeing bids or abstentions in procurement procedures, competitive biddings, auctions or judicial sales.
Relative monopolistic practices
The LFCE considers relative monopolistic practices as those acts,
contracts, agreements, proceedings or combinations where their purposes
or effect is or may be displacing improperly other agents from the
market, impairing substantially their access or establishing exclusive
advantages in favour of one or several persons in certain cases, as set
forth below:
- Between economic agents who are not competitors, the fixing,
imposition or establishment of the exclusive trading or distribution of
goods or services by reason of subject, geographic situation or periods
of time.
- The sale or transaction subject to the condition of buying, selling
or supplying an additional good or service, or subject to not using,
acquiring, selling, trading or providing goods or services produced,
processed, distributed or traded by a third party.
- The unilateral action of refusing to sell, trade or provide goods or
services to specific parties, while normally offered to third parties.
- The arrangement among economic agents, or the invitation to them to
exert pressure against another agent, or to refuse selling, trading or
acquiring its goods or services.
- The systematical sale of goods or services below their medium total
price or their incidental sale under their medium variable cost.
- The granting of discounts or incentives to buyers with the
requirement of not using, acquiring, selling or trading the goods or
services produced by a third party.
- The use of the profits obtained from the sale or trading of a good
or from the rendering of a service, to finance losses resulting from the
sale or trading of another good.
- The establishment of different prices or purchase and sell
conditions, for different buyers or sellers being in the same
circumstances.
In order for any of the foregoing conducts to be considered a
relative monopolistic practice, the economic agent must have substantial
power over the relevant market and the conduct must exist with respect
to the goods or services corresponding to that relevant market. In order
to determine the relevant market, as well as to determine whether the
economic agent has substantial power in the relevant market, the LFCE
sets out the criteria to be used.
Consolidations
For purposes of the LFCE, a consolidation is the merger, acquisition
of control or any act whereby corporations, partnerships, stock, equity
interest, trusts or assets are concentrated, when arranged between
competitors, suppliers, customers or any other economic agents.
According to the LFCE, certain consolidations must be notified to the CFC before they are completed.
- When the act or series of acts amounts to more than $89.8 million, regardless of the place where the act was performed.
- When the transaction implies the gathering of 35% or more of the
assets or stock of an economic agent, whose annual assets in Mexico or
its sales originated in Mexico exceed $89.8 million.
- When the transaction implies the gathering in Mexico of assets or
corporate capital exceeding $41.9 million, and two or more economic
agents with assets or annual sales exceeding $239 million, jointly or
individually participate in the consolidation.
Please note that as the LFCE provides the thresholds applicable to
each case, referring to the minimum wage for the Federal District, the
one currently in force ($62.33 MXP) and an exchange rate of $12.50 MXP
per USD are used in the points above.
Notification to the CFC in the foregoing instances is not required
when the consolidation implies a corporate restructuring if the economic
agent belongs to the same group of economic control, and no third party
takes part in the transaction.
The notification must be filed with the CFC by the economic agent
participating directly in the consolidation. This must happen before the
same is perfected or the condition precedent to which the same was
subject is perfected, before the legal or actual control is acquired or
exercised directly or indirectly by another economic agent, before the
merger is performed, or before the last act is perfected if a series of
acts was required. The CFC must also be notified regarding
consolidations deriving from legal transactions executed abroad, before
they become effective in Mexico.
Procedures for notifications or authorisations
The procedure for notification to CFC for the authorisation of those
transactions governed by the LFCE is initiated with the filing of a writ
where the economic agents involved must be identified and their
participation in the market must be shown. A description of the relevant
facts and of the proposed transaction must be provided, together with a
copy of a draft of the document to be executed by the parties.
Procedure for investigation of violations to the LFCE
As part of its authority, the CFC may initiate an investigation on
its own motion or upon denouncement by an economic agent, in order to
determine whether an infringement of the LFCE has occurred and impose
the appropriate penalties.
According to the LFCE, any party in the case of absolute monopolistic
practices, or the affected party in the case of any other practices and
consolidations prohibited by the LFCE, is entitled to initiate an
investigation procedure before the CFC, by means of the filing of a
denouncement in writing.
In all investigations ordered through its own motions or upon third
party denouncement, the CFC must issue a resolution ordering the
commencement of the investigation, and an excerpt of the resolution must
be published in the Federal Official Daily Gazette.
The authority granted to the CFC for the performance of its duties is
far-reaching. It includes the ability to request information,
documents, and the appearance of the individuals and economic agents it
considers to be relevant or in the possession of information for the
investigation. It is also entitled to carry out verification visits, set
up cooperation mechanisms with authorities and administrative
organisations, take or order any action it considers necessary to
determine or clarify the facts under investigation, and request the
support of the law enforcement officers if so required.
When providing information within the proceedings, the economic agent
is entitled to request that the CFC classify those proceedings as
confidential, provided the reasons are justified. The CFC has in turn
the discretion to classify the information contained in the dossier, as
reserved, confidential or public.
The duration of the investigation period must be a minimum of 30
business days and a maximum of 120 business days, extendable up to four
more times for subsequent 120 business day-periods.
Should the investigation show after completion that sufficient
grounds to uphold the existence of facts infringing the LFCE exist, the
CFC must then issue the probable cause resolution within 60 business
days following the resolution declaring the completion of the
investigation, and such presumable infringement must be notified to the
economic agent in order to initiate the administrative procedure.
Once notified, the economic agent has a 30 business day-term to file
its defence with CFC, providing supporting evidence. The CFC must in
turn provide a term for the clearing of evidence and the filing of
arguments, in order to complete the dossier and issue the resolution
within 40 business days.
Should a violation of the LFCE be established, the CFC may order as a
part of the penalty the correction or suppression of the relevant
monopolistic practice or consolidation, or may order a partial or total
de-consolidation. A corresponding fine for the infringement may be
imposed, and a criminal accusation could be filed, should a crime be
also imputable to the economic agent.
According to certain amendments to the LFCE and the Code of Federal
Civil Procedure, published on August 30 2011 and effective February 29
2012, those having suffered damages or losses as a consequence of a
monopolistic practice may bring action individually or collectively for
the defense of their interest.
Immunity and Sanctions Reduction Program
An advantage of the May 10 2011 amendment of the LFCE is the benefit
granted to economic agents to request a reduction of the sanctions that
may be imposed on them. Any economic agent may acknowledge their
activity before the CFC and request the immunity or sanction reduction
benefit, for up to 50, 30 or 20% of the maximum allowed.
In order to obtain the immunity benefit, the economic agent must be
the first among all economic agents involved to provide the supporting
evidence to prove to the CFC the existence of the monopolistic practice.
He must cooperate in a total and continued manner with the CFC until
the completion of the investigation and in any trial. The economic agent
must also take all necessary actions to finish its participation in the
monopolistic practice violating the LFCE.
Legal remedies available to the economic agent
According to the LFCE, a party affected by a resolution issued by the
CFC may file a reconsideration remedy with the CFC within 30 business
days, in order for it to revoke, modify or confirm the resolution being
challenged. The CFC must issue the decision on the remedy within 60
business days following filing, and failure to do so is construed as a
confirmation of the resolution being the subject matter of the remedy.
Alternatively, the economic agent may file for an ordinary
administrative procedure before a district court or before a specialised
court in the area of economic competition within 30 business days
following the notification of the CFC's resolution to be challenged, or
following the expiration of the term for CFC to rule on the remedy.
While the possibility of those specialised courts in the area of
economic competition becoming available has generated great expectations
in view of the complexity and urgency of many of the economic
competition cases, those courts have not been created yet, nor the rules
to be applicable for ordinary administrative procedures.
The CFC was particularly active in 2011 because of the amendments to
the LFCE, and its 2011 annual report is telling in this regard. Of the
cases considered in 2011, 95 were pending from 2010, and 381 were
received in 2011. Last year, 396 were completed leaving 80 to be
resolved this year.
Recent important cases
With regard to the coordination of CFC with other agencies, it is
worth mentioning the so-called 'Bidding 21', which was called by the
Federal Communications Commission (COFETEL) in order to award
concessions for the provision of mobile services such as cellular
telephone. CFC intervened in two different areas. The first instance
related to establishing the limits for spectrum accumulation in order to
avoid the rising of economic agents with a substantial power in the
relevant market to result from the new concessions. The second consisted
of approving the economic agents that would participate in the bidding
procedure, such as Grupo Salinas, Grupo Nextel-Televisa, Grupo
Telcel-Telmex, and Grupo Telefonica.
Back in 2011, the CFC imposed a fine on Telcel for $959 million, the
highest ever, for alleged injuries to the competition process in the
fixed and mobile telephone markets. This was on the basis of
interconnection tariffs applicable to calls from other networks
(off-net) being artificially high and clearly higher than those used by
Telcel in calls within its own network (on-net).
On May 3 2012 the plenum of the CFC resolved a reconsideration remedy
filed by Telcel and decided by unanimous vote to cancel the fine.
Instead they accepted five commitments submitted by Telcel, which the
CFC considered to be appropriate to solve the competition problem
identified originally in the CFC resolution.
| Fernando Estavillo-Castro
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Fernando Estavillo-Castro is founding partner of the law firm Miranda
& Estavillo in Mexico City. He has experience in different areas of
law including international business transactions, commercial
arbitration, M&A, joint ventures, public procurement, administrative
law, mining, competition and unfair trade practices.
Estavillo-Castro is a member of the Mexican Bar Association and the
Illustrious and National Lawyers' Collegium. He is also a member of the
International Court of Arbitration of the International Chamber of
Commerce, ICC Latin American Arbitration Group, Latin American Users'
Council of the London Court of International Arbitration as well as many
other associations.
He is a professor in the Graduate Program on International Commercial
Arbitration at Escuela Libre de Derecho/ICC Mexico, Mexico City. He is a
past professor in the Masters in Corporate Law, Universidad
Panamericana, Mexico City. He has also authored articles on arbitration
and alternative dispute resolution, public procurement, antitrust,
transfer of technology, telecommunications, and commercial law.
Miranda & Estavillo
Paseo de la Reforma 2654 piso 9, Col. Lomas Altas, México D.F. C.P. 11950, MÉxico • T: + 52 (55) 2167-2554 • Email: festavillo@mirest.com • W: www.mirest.com
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| Citlali Perez-Renteria
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Citlali Perez-Renteria is a partner of the law firm Miranda &
Estavillo in Mexico City. She has experience in administrative law,
government procurement, arbitration, mining law, corporate law,
antitrust and business immigration.
Perez-Renteria is a member of the Mexican Bar Association and is
secretary of the arbitration committee of its commercial law commission.
She is a member of Rocky Mountain Mineral Law Foundation, the Young
Arbitrators Forum of the Arbitration Commission of the Mexican Chapter
of the International Chamber of Commerce, and the Economic Competition
Commission of ICC Mexico.
She was admitted 2001 after attending Universidad La Salle, and
Queen's University in Ontario, Canada where she earned her degree in
International Environmental Law. She has also completed post graduate
programmes in International Commercial Arbitration and International
Trade.
Miranda & Estavillo
Paseo de la Reforma 2654 piso 9, Col. Lomas Altas, México D.F. C.P. 11950, MÉxico • T: + 52 (55) 2167-2554 • Email: cperez@mirest.com • W: www.mirest.com
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