Overview of the Mexican Antitrust Law
On June 22 1993 the Mexican Federal Law of Economic Competition became effective. At the same time the Federal Competition Commission was created as the agency in charge of enforcing the Law. The Law regulates Article 28 of the Mexican Constitution regarding monopolies and monopolistic practices.
The Law applies to all those engaged in business, whether individuals or corporations, agencies or entities of the federal, state or municipal public administration, associations, professional groups, trusts, or any other form of business entity. Likewise, the Law applies to any area of the economic activity. Its main purpose is to protect the competition process and the free market participation through prevention and elimination of monopolies, monopolistic practices and other restrictions that may encumber the efficient operations of markets in goods and services.
The Commission is the authority in charge of enforcing the Law and therefore is empowered to conduct investigations of violations under the Law, issue administrative rulings, assess penalties for violations and render advisory opinions regarding competition policy questions.
The Law prohibits monopolies and market controls, as well as practices that, as a result thereof, decrease, harm or hinder competition and free market participation in production, processing, distribution and commercialization of goods and services.
Merger controls
Regarding merger controls, the Law's approach is basically preventive. In investigating combinations, the Commission considers whether the combination confers or could confer: (i) the power to fix prices unilaterally or substantially restrict the supply or provision in the relevant market without competing agents being able, at the time or potentially, to counteract such power; (ii) has or could have as purpose improperly displacing other economic agents or preventing them from having access to the relevant market; and (iii) having as purpose or effect substantially facilitating exercise of monopolistic practices.
Under the Law, the following factors must be considered in determining whether an economic agent has "substantial influence on the relevant market": (i) its ability to fix prices unilaterally or restrict supply without competitors counteracting its efforts; (ii) the existence of barriers to entry; (iii) the existence and influence of its competitors; and (iv) its degree of control over essential inputs.
The Law requires that certain transactions that could qualify as "concentrations" be notified to the Commission, when the value of such transactions exceed certain thresholds. If the notified "concentration" is found by the Commission to have anticompetitive effects in the Mexican market, the Commission may add conditions to or, in an extreme case, prevent the transaction.
For the purposes of the Law, a "concentration" means any merger, acquisition of controlling interest or any other act whereby companies, partnerships, shares, equity interest, trusts or assets, in general, are concentrated by competitors, suppliers, customers or any other business entity.
According to Article 20 of the Law, concentrations exceeding the following thresholds must be reported to the Commission:
If the value of a single transaction or a series of transactions amounts to over 12 million times the daily minimum wage prevailing in Mexico City. Considering that the daily minimum wage in Mexico City is Mex$40.35 ($4.44), such a limit would be Mex$484.2 million ($53.3 million).
If a single transaction or series of transactions results in an accumulation of 35% or more of the assets or shares of a business entity, and such an entity has assets or annual sales of more than 12 million times the daily minimum wage prevailing in Mexico City.
If two or more business entities take part in the transaction, and their assets or annual volume of sales, jointly or severally, total more than 48 million times the daily minimum wage prevailing in Mexico City (Mex$1.9 billion), and said transaction implies an additional accumulation of assets or capital stock in excess of 4.8 million times the daily minimum wage prevailing in Mexico City (Mex$193 million).
Notwithstanding the above, the Regulations of the Law (enacted on March 5 1998) establishes that a concentration involving the transfer of shares or other ownership interests in foreign entities need not be notified to the Commission if the economic agents involved do not acquire control of Mexican companies, nor accumulate in Mexico shares or other ownership interests or assets in general, in addition to the ones they own directly or indirectly prior to the transaction.
The Regulations states that a "concentration" must be notified by the economic agent who: (i) will survive the merger; (ii) will acquire control of the company; or (iii) pretends to accumulate the shares or other ownership interests or assets subject matter of the transaction, notwithstanding the fact that any of the parties to a transaction can notify the concentration. The notification of the transaction to the Commission must be made prior to any legal or material effect the transaction may have in Mexico.
The Commission, within the 45 calendar days of the notification, must resolve whether there is any objection. This period may be interrupted if any additional information is requested by the Commission. Failure to resolve within said term will mean no objection was found. In exceptionally complex cases, the Chairman of the Commission may extend such term up to an additional 60 day period.
According to the Law, concentrations expressly authorized by the Commission can not be challenged, as well as those that do not require prior notice to the Commission for their formation provided, however, one year has elapsed since the concentration occurred.
Penalties for failure to notify a concentration
With the intention of dissuading and minimizing actions that infringe the Law, severe monetary penalties are established in view of the fact that financial profits obtained out of monopolistic practices are generally high. Fines up to 100,000 times the daily minimum wage in Mexico City (Mex$4 million) for failure to notify a concentration may be imposed by the Commission. Likewise, the Commission may issue injunctions, orders for correction or termination of the concentration or its partial or total disconcentration.
Agreement between Mexico and the US on the application of their competition laws
On July 11 2000, Mexico and the US entered into an Agreement on the application of their competition laws in order to: (i) promote both enforcement and technical cooperation between the competition authorities of the parties; and (ii) avoid conflicts arising from the application of their competition laws. In accordance with the Agreement, the parties must notify one another with respect to their enforcement activities that may affect important interests of the other party, including mergers and acquisitions in which a company organized under the laws of the other party is involved. Under the Agreement, the parties acknowledge the need of cooperating in the detection of anti-competitive activities in both territories in the context of global economic integration and economic activities whose effects cross national borders.
North American Free Trade Agreement
Under Chapter XV of the North American Free Trade Agreement (NAFTA), Mexico, the US and Canada agreed to: (i) adopt or maintain competition laws; (ii) consult from time to time about the effectiveness of competition measures undertaken by each party; and (iii) cooperate with mutual legal assistance, notification, consultation and exchange of information.
Franck, Galicia y Robles
"Torre del Bosque"
Blvd Manuel Ávila Camacho No. 24- 7° piso
Lomas de Chapultepec
11000 México, DF
Tel: +525 540 9200
Fax: +525 540 9202