Mexico: Federal Economic Competition Commission
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In 2022, the Federal Economic Competition Commission (COFECE) has stood out for its important achievements in law enforcement and advocacy. It concluded its first non-poaching investigation, and, for the first time, disqualified executives from holding senior management positions. In a court decision, COFECE won jurisdiction over the digital markets of online searches, social networks and cloud computers. COFECE also managed a smooth transition of its senior leadership. Notwithstanding the above, the challenge of having three ongoing vacancies in its Board of Commissioners persists. This article provides an update on the most relevant actions and describes some of COFECE’s achievements in 2021.
- Personnel changes at the agency
- Stand-out cartel sanctions
- Performance before the courts
- Jurisdiction over digital markets
- Advocacy in key regulated sectors
Referenced in this article
- Non-poaching agreements in football industry: fines
- Distribution and retail pricing of medicines: fines and disqualification of directors
- Sale collusion in nappies and sanitary protection: fines
- Lack of competition in maritime passenger transportation: resolution
- Lack of competition in LP gas distribution: preliminary opinion
- Soriana/Famsa: blocked merger
- Clean energy certificates study
- Rail freight transport market study
In an environment of considerable external and internal challenges, Mexico’s Federal Economic Competition Commission (COFECE) continues to consolidate its resilience, guaranteeing the promotion and surveillance of competition in sectors that are strategic for national development and have a high impact on the welfare of families.
With respect to challenges from external stakeholders, it is important to note that COFECE’s Board of Commissioners has three ongoing vacancies (out of seven positions). This is particularly significant in terms of arriving at decisions in certain competition cases because affirmative votes from at least five commissioners are required. This has led the authority to undertake action to prevent these vacancies from impairing the fulfilment of its responsibilities, including the filing of a constitutional controversy before the Supreme Court to ensure that the Federal Executive complies with its mandate to appoint the missing commissioners.
In terms of internal issues that have been resolved recently, the agency successfully completed important changes in its management positions. During the second half of 2021, Brenda Hernandez became acting chair commissioner and Manuel Haro assumed the position of head of the Investigative Authority, and, early in 2022, Nery Pérez became head of the Planning, Liaison and International Affairs Unit. Together, the new leadership accumulates several decades of experience in competition matters, accrued through senior positions in the Commission itself or in other economic regulators. This has enabled a seamless transition of leadership and has guaranteed that most cases have continued to be processed as usual. Consequently, economic agents and COFECE staff have been provided with an environment of security and certainty.
In this context, COFECE was able to implement its powers during 2021, including:
- analysing 165 merger filings;
- reaching a decision in its first non-poaching investigation;
- investigating two major cartel cases in the health sector, one of which suspended executives from holding senior managerial positions, in a first for COFECE;
- analysing two cases on the lack of effective competition, one in the maritime passenger transportation market and the other in the distribution of LP gas;
- having 47 out of 57 decisions upheld by the judiciary (82.46 per cent);
- achieving a specialised court decision that granted COFECE the jurisdiction to resolve cases in the online search, social networks and cloud computing services markets;
- executing key advocacy actions, which promoted competition in the electricity and rail freight transport sectors; and
- creating a new online training platform.
The Commission estimated that the economic benefits of its interventions accounted for four times its annual budget.
Competition law enforcement
One landmark case of 2021 was the Commission’s first non-poaching agreement decision in which it imposed fines on 17 football clubs, the Mexican Football Federation and eight unidentified individuals. COFECE determined that the clubs colluded to avoid competition in the draft market by engaging in two types of conduct: one related to an agreement to set a salary cap for female football players, and the other concerned restrictions of movement of male players through a ‘gentlemen’s pact’. Professional football is the sport with the most followers in Mexico and this case highlighted important restrictions on the movement of male players and significant wage inequalities between the men’s and women’s leagues. It therefore received significant national media coverage. Even the Mexican Minister for Labour publicly expressed satisfaction with the COFECE fine, calling it ‘historic’.
In the health sector, the Commission was able to resolve two major cartel cases. The first of these was a milestone case that involved agreements to fix, manipulate and increase the price of medicines and restrict their supply to pharmacies. In this case, in a first for the Commission, 10 directors of the sanctioned companies were disqualified from serving in management positions for terms ranging from six months to four years. Fines were also imposed.
In the second case, the Commission imposed maximum fines on companies and individuals that colluded in the sale of nappies, sanitary protection and incontinence products to supermarkets and wholesale stores. The companies participated in meetings to exchange information, agree on price increases or eliminate promotions, and to verify compliance with the agreement. The Commission determined that the participants of the agreement knew the illegality of their actions and went to great lengths to ensure the secrecy of their communications. Furthermore, the Commission proved that the conduct was prolonged and that it affected the supply of essential products for the health and hygiene of Mexican families.
The Commission assessed two cases of lack of effective competition, which both involved enforcement procedures. These can be initiated ex officio or at the request of a sector regulator or an affected market participant, as long as a specific sector-specific regulation expressly empowers the Commission to issue an opinion on a regulation relating to competition in a market. To remedy ineffective competition conditions, the Commission may request the imposition of price caps, tariff regulation or access rules.
In the first case, COFECE investigated lack of effective competition in the maritime passenger transportation sector, specifically on six ferry routes in the state of Quintana Roo, which is an important tourist destination in Mexico. The Board of Commissioners ruled that the economic agents operating these services have high market shares, and that there are barriers to entry, infrastructure limitations and several conditions that reduce the levels of competitive pressure. The resolution allows the Mexican Navy to regulate the tariffs for these services. COFECE is currently working hand in hand with the Navy in its efforts to develop pro-competitive regulation in this regard.
In the second case, COFECE preliminarily established lack of effective competition in 213 of the 220 geographic markets for the distribution of LP gas to end users. In its preliminary opinion, it found high concentration in multiple regional markets, as well as entry and regulatory barriers for potential competitors. LP gas is widely used by Mexican consumers as 76 per cent of families use it. Therefore, competition problems deriving from price increases have a serious negative effect on consumers, especially those in lower income households, who allocate 3.5 times more of their income to this energy form.
With respect to merger control, the Commission blocked a potential merger agreement between Soriana and Famsa, two major Mexican retailers, which consisted of assigning Famsa the lease rights of certain Soriana stores and operate as a competitor to Soriana. COFECE informed the parties that the notified concentration had the risk of affecting competition. However, the parties failed to provide any remedies to address the Commission’s concerns. In its resolution blocking the merger, COFECE considered that Famsa did not have the ability or means to remain a viable and effective competitor of Soriana, nor would operate it as a self-service store if the merger was authorised.
Digital markets jurisdiction
The Mexican Constitution establishes that the Commission is the competition authority for all national markets, with the exception of the telecommunications and broadcasting sectors, which are under the exclusive jurisdiction of the telecoms regulator (the Federal Telecommunications Institute (IFT)). There have been isolated cases in which there are doubts regarding which authority must resolve a particular matter.
The development and use of multiple technologies have allowed the digitalisation of markets; consequently, many traditional businesses and economic agents now operate through digital platforms in which the internet is a necessary element. The specialised courts on competition, telecommunications and broadcasting had previously determined that certain markets use the internet as a facility, and therefore jurisdiction on competition matters within specific markets must be analysed on a case-by-case basis, on the merits. To this end, competition law provides that, in cases where COFECE and the IFT cannot agree on which is the competent authority to resolve a matter, this shall be determined by a specialised court through the resolution of an administrative jurisdictional conflict.
In 2021, a specialised court was requested to determine which authority was competent to resolve a matter concerning an investigation initiated by the IFT on possible barriers to competition and essential facilities in the markets for online search services, social networks, mobile operating systems and cloud computing services. The judicial decision issued by the court determined that COFECE was competent to resolve matters in the online search services, social networks and cloud computing services markets and that the telecoms regulator was competent to resolve matters in the mobile operating systems market. Through this determination, the judiciary granted greater jurisdictional certainty to COFECE, the IFT and digital economy participants.
In 2013, Mexico carried out a constitutional reform in the electricity sector to transition from being a country with one state-owned enterprise to one with private participation in the generation and wholesale of electricity. This reform also fostered increased participation in clean energy generation. The current government has taken steps to discourage the installation and operation of new electricity projects, including those based on clean sources. The Commission considers that these measures could severely affect competition in the generation and wholesale of electricity (a sector that impacts the whole economy) and could result in higher electricity rates, greater subsidies and reduced business competitiveness, which would have a negative impact on the achievement of the country’s clean energy production goals and international commitments. In response to these measures, COFECE carried out an advocacy strategy, including opinions and constitutional controversies concerning agreements and policies issued by the government and laws passed by Congress. In one controversy filed against a government-issued regulation, the Supreme Court ruled in favour of the Commission, declaring the provisions that most affect competition as unconstitutional.
The Supreme Court dismissed a second controversy filed against a new electricity law passed by Congress, based on a lack of legitimate interest by the Commission. However, private parties may appeal the law with the judiciary. In addition to these advocacy efforts, the Commission: published a study titled ‘Transition towards competed energy markets: The Clean Energy Certificates in the Mexican electricity industry’, which was mandated by the Energy Transition Law to evaluate clean energy certificates (CELs); and issued recommendations to improve the competition conditions in the related market. The study covers a wide range of topics, including:
- an overview of the electricity industry since the energy reform of 2013, and a definition of the CEL, emphasising the importance of complying with Mexico’s international clean energy goals;
- an analysis of the demand and supply sides of the CEL market, considering the aspects that favour or hinder their performance and providing recommendations from a competition perspective;
- the aspects that impact the commercialisation of CELs and recommendations to address them;
- a description of the mechanisms for monitoring and compliance of CEL obligations; and
- a conclusion, with the aid of forecasting methods, on Mexico’s ability to comply with its clean energy commitments.
In 2021, the World Bank and the International Competition Network presented an award to COFECE for its actions to preserve competition in the electricity industry.
In August 2021, the Commission published its ‘Study of competition in the public service of rail freight transport’, which concludes that competition in the railway system is scarce and that the railway network operates in a disarticulated manner. The document makes recommendations aimed at the reconfiguration of the network to promote greater competition and a more efficient railway service. Following these recommendations, a legislative proposal to reform the Railway Service Regulatory Law was presented before Congress by the largest representative party.
Another relevant advocacy effort carried out during 2021 was COFECE’s participation in MootComp, which is a mock trial contest that consists of the resolution of hypothetical antitrust cases by teams of university students, in which judges (competition authority officers, court officials, legal and economic consultants, corporate lawyers and academics) decide the winners of the competition. In the 2021 contest, COFECE, in collaboration with MootComp and other competition authorities and institutions, launched the call for the fifth edition of MootComp, the first with an international focus, particularly for the Latin American region. This resulted in the registration of 200 students from 57 universities, in seven countries, and the participation of 98 team coaches, 70 judges (including the Commission’s technical secretary) and three general directors. The winning teams came from universities in Mexico, Chile and Ecuador. Given the success of 2021’s international competition, COFECE and MootComp opened the 2022 competition (which is underway at the time of writing) to the same international field.
Despite the challenges it faced, the Commission has demonstrated its capacity for adaptation and continuity in the exercise of its powers. It has not only reaffirmed but has consolidated itself as an autonomous institution facing these challenges, and guaranteeing the promotion and surveillance of competition in priority economic sectors that are strategic for national development and that may have a high impact on the welfare of families.
 Constitutional controversies are legal tools for constitutional control, which are used to resolve conflicts arising between different levels of government.
 See Federal Economic Competition Commission (COFECE) Press Release Cofece-030-2022, available at www.cofece.mx/wp-content/uploads/2022/09/COFECE-030-2022_ENG.pdf.
 See ‘Relevant actions that strengthen competition 2021’, available at www.cofece.mx/wp-content/uploads/2022/02/15-2021-dots-verIngl.pdf.
 Rules regarding access to certain infrastructure, which can be issued by the sectoral regulator.
 See Press Release Cofece-020-2021, available at www.cofece.mx/wp-content/uploads/2021/06/COFECE-020-2021_ENG.pdf.
 The Supreme Court found that the new electricity law does not affect COFECE’s constitutional powers to defend and promote competition in the markets of generation and wholesale of electricity. In this regard, the court ruled that COFECE lacked legitimate interest to file the constitutional controversy and therefore dismissed it.
 See ‘Cuarto Informe Trimestral 2021’, available in Spanish at www.cofece.mx/wp-content/uploads/2022/01/4IT2021-1.pdf#pdf.
 See ‘COFECE en Números 2021’, available in Spanish at www.cofece.mx/wp-content/uploads/2022/07/20220714-VerOKCofeceEnNum2021.pdf.