Mexico Revamps Its Competition Framework

Mexico Revamps Its Compe11on Framework

Paseo de los Tamarindos 150 – PB, Av. Ricardo Margáin 444 Bosques de las Lomas, Torre Norte Mezzanine “A” 05120 México D.F. Valle del Campestre (55) 5091 0000 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

2.   Price Control: Maximum Prices

3.   Judicial Review: Specialized Courts

4.   Structural Balance

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

9. New Cartel Offense

10.   Increasing Ver-cal Restraint Offenses

11.   S h a p i n g M e r g e r C o n t r o l Proceedings

12.   Harshening Administra-ve Fines and Administra-ve and Criminal Sanc-ons

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. [email protected]

Ricardo Pons M. [email protected]

Compe11on Team

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

Bernardo Ledesma U. [email protected]

San1ago Ferrer P. [email protected]

Mexico Revamps Its Competition Framework

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