This content is from: Local Insights

Mexico

Significant legislation in Mexico sets out to protect the process of competition, through the prevention and elimination of monopolies and monopolistic practices and any other restraints of trade. It is applicable to all economic participants involved in the Mexican economy and commercial banks, financial institutions and foreign corporations should be aware that some commercial practices, formerly tolerated in Mexico, might now be illegal under these rules and regulations. The legislation was first enacted on December 24 1992 in the form of the Mexican Antitrust Act (Ley Federal de Competencia Económica, the MAA). Additional procedural regulations were published on March 1998, with the enactment of the Regulations to the Mexican Antitrust Act (Reglamento de la Ley de Competencia Económica, the RMAA).

Illegal practices

The MAA identifies two areas that are illegal and prohibited: absolute and relative monopolistic practices. Absolute monopolistic practices are those without any competitive effect whatsoever which cannot be justified under any circumstances and these receive harsh treatment by the MAA, and are generally regarded as horizontal restraints. Relative monopolistic practices require the plaintiff to prove that the defendant has market power in the relevant market in order to be deemed illegal and are generally regarded as vertical restraints.

Horizontal restraints under the MAA

Absolute monopolistic practices are generally known as horizontal restraints because they can only be conceived between two or more competitors. These restraints are defined in article 9 of the MAA as agreements between competitors with the purpose or effect of eliminating competition and always have a negative impact on economic efficiency. These types of agreements, generally regarded as horizontal, force the monopolization of markets by producing artificial prices for commodities and services. There are four types of agreements the MAA classifies as horizontal restraints: price fixing, output restrictions, territorial allocations and bid rigging.

Defining horizontal restraints

The four types of agreements sanctioned by the MAA can be briefly defined as follows:

  • price fixing: any contract or combination with the purpose or effect of fixing, raising, manipulating or exchanging information regarding the price of a product or service;
  • output restrictions: contracts or combinations with the purpose or effect of restricting the distribution, commercialization, production or process of products or services;
  • territorial allocations: contracts or combinations with the purpose or effect of assigning, distributing or dividing a market for products or services;
  • bid rigging: contracts or combinations with the purpose or effect of manipulating public auctions.

Comparative view of horizontal restraints under US law

The basic provision identifying horizontal restraints in the US is contained in section 1 of the Sherman Act, that states that "Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared illegal." For almost all of the twentieth century, the federal courts in the US have assumed that they must choose between two extreme methods of analyzing conduct under section 1: a per se rule that deems certain conduct illegal on its face, or, a rule of reason that inquires into all conceivable circumstances before determining the legality of a particular restraint. After almost a century of debate today the rule of reason is the method adopted in practically all federal courts and courts would probably decline to use the per se model, even in naked price-fixing cases.

The Mexican method

Any combination in the form of trust or otherwise between economic entities competing between themselves with the purpose or effect of: fixing prices, restricting or limiting output, dividing markets and/or bid rigging is a violation of the MAA. The MAA and the Mexican Antitrust Commission (Comisión Federal de Competencia, the MAC) have characterized horizontal violations as being illegal per se. The US legal system has evolved in such a way that horizontal restraints on trade have shifted from a strict per se approach to a rule of reason approach that takes into account other elements like market share, pro-competitive justifications and, in rare cases, ethical considerations. However, the Mexican approach, adopted by the MAC, has been characterized by a per se approach which considers certain conduct illegal on its face without considering additional elements.

Conclusion

The Sherman Act has been a model for antitrust provisions worldwide and Mexico is no exception. Article 9 of the MAA looks very familiar to section 1 of the Sherman Act; nevertheless, there is a substantial difference in the way the antitrust analysis is conducted in both nations. Due to the Mexican per se approach, national and foreign investors should be very cautious when entering into agreements with competitors in order avoid falling into a horizontal restraint in violation of the MAA and the RMAA.

Marco A Mascarúa

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