Mexico: Federal Economic Competition Commission

In 2015, Mexico’s Federal Economic Competition Commission (COFECE) celebrated two years of operations. After a period of institutional strengthening that included the implementation of a new institutional design, the enactment of a new Federal Economic Competition Law (FECL), as well as the publication of guidelines and technical criteria, the Agency has begun to deliver important results when it comes to vigorous competition enforcement and advocacy activities.

Inspiring legal certainty

Arising from a 2013 constitutional reform, the new COFECE has laid the groundwork and institutional setting to become a more mature and robust competition authority. As the Agency enters its third year, it will be critical to continue efforts that guarantee and facilitate a more predictable and transparent application of the law.

To that end, last year we published a number of legal and technical documents supporting the execution of the Agency’s legal mandate, including seven guidelines and three technical criteria covering both substantial and procedural aspects, such as COFECE’s leniency programme, the investigation of monopolistic practices, the merger review system and market concentration measurement, among others.

Notably, in 2016, COFECE received the Antitrust Writing Award in the ‘Best Soft Laws’ category for our ‘Guideline on Information Exchange between Economic Agents,’ which offers guidance regarding competitors’ information exchanges that have the object or effect of fixing prices, creating supply restrictions, market allocation or bid-rigging, which are illegal under the FECL.

These publications not only seek to offer certainty to economic agents but also contribute to a general understanding of how the COFECE operates internally and carries out its activities. In 2016 we will see the publication of additional guidelines on matters such as non-competition clauses and the Agency’s media communications protocol.

Enforcement

A competition authority’s credibility depends on its capacity to address and react against anticompetitive practices. As part of its 2015 enforcement activities, COFECE’s Investigative Authority managed to reduce investigation times and improved efficiencies in the handling of simultaneous cases. At the same time, it initiated several cartel conduct and abuse of dominance investigations into markets that are critical to Mexican consumers such as tortilla, health services, transport, entertainment and salt.

COFECE’s investigations are now being taken more seriously. For example, the leniency programme has proved to be a cornerstone of cartel enforcement. Since its inception in 2006 it has been increasingly coherent, predictable and accepted by the bar and business. In 2015, there were 18 leniency applications; a three-fold increase from those received the previous year. In another example, when COFECE’s Investigative Authority opened an investigation for an alleged cartel in Mexico’s egg production, distribution and retail markets, prices of eggs fell by 35 per cent just days after the probe was initiated.

For the first time two investigations into essential facilities and competition barriers were launched in 2015, pursuant to new powers the Mexican Constitution conferred on the Agency in 2013, under the procedure marked by FECL’s Article 94. In particular, an investigation into slot allocation protocols and their market impact at Mexico City’s International Airport (AICM) drew particular attention. AICM is Mexico’s most important airport and is the world’s ninth-largest in terms of operations. In February 2016, COFECE’s Investigative Authority handed down preliminary findings, in which it determined the existence of an essential facility and proposed corrective measures to help eliminate certain anticompetitive access impediments. These findings are currently subject to comments from affected parties and, eventually, to COFECE’s board of commissioners’ final decision.

Perhaps one of the most important legal precedents that affect Mexico’s competition system was handed down in April 2015. Mexico’s Supreme Court upheld a competition ruling against several pharmaceutical manufacturers for having participated in bid-rigging practices to the detriment of IMSS (the nation’s main public health institution). In this case, the Commission investigated bid-rigging ranging from 2003 to 2006. In its ruling, the Court recognised that as cartels tend to eliminate evidence it is quite a difficult task for an authority to find proof of their existence, and so endorsed the use of economic analysis alongside other circumstantial evidence as proof of malfeasance: ‘The existence of cartel-like actions can be proved only exceptionally, through direct evidence, which explains why the authority legally used indirect evidence, which has been comprehensively analysed in conjunction with other evidence and creates sufficient proof of cartel-like actions.’

In our enforcement yearly highlights, it is worth mentioning that COFECE’s investigative authority head, Carlos Mena Labarthe, was selected by this publication as one of the top 40 competition experts under the age of 40. Mena Labarthe was selected as part of a group of seven public officials along with leaders from the United States Department of Justice and Federal Trade Commission, as well as from the United Kingdom and Denmark competition agencies.

Mergers

One of Mexican history’s most complex mergers – retailer Soriana’s purchase of Comercial Mexicana, a deal between two of the nation’s largest supermarket chains – was assessed last year. The Board of Commissioners analysed the effects the operation could have on 160 identified relevant markets and concluded that this concentration could significantly reduce competition in 27 of them. COFECE conditioned the transaction: Soriana had to refrain from buying stores in those 27 markets or, alternatively, buying them and then selling them to purchasers previously approved by the Commission. It was the first time COFECE implemented structural remedies.

Additionally, on November 2015, the Commission fined Alsea US$1.5 million and Grupo Axo US$174,000 for failing to notify their concentration when they had the obligation to do so. This marked the first time the Commission imposed a fine for failure to give prior notice of a transaction under the FECL.

Another important case we analysed in 2015 was the IEnova/Pemex merger. In December 2015, COFECE blocked IEnova’s (Sempra Energy’s Mexican subsidiary) purchase of Pemex’s 50 per cent equity interest in the Gasoductos de Chihuahua joint venture. The Commission objected to the transaction as the related assets were already affected by a previous ruling by the competition authority by means of which Pemex was supposed to sell such assets many years ago through a competitive bidding.

Advocacy

Among various opinions, COFECE issued in June 2015 an opinion regarding the impact network transportation services (TNCs) have upon the competition processes. The ruling recommended local governments to encourage these services through their formal recognition and, where there is a need to regulate them, security concerns alone should be addressed. Soon thereafter, Mexico City’s Department of Transportation issued a specific regulation on TNCs, which drew heavily on the COFECE opinion and allowed TNCs to operate throughout the city. Other Mexican states have followed suit. The World Bank and the International Competition Network (ICN) recognised this intervention in their 2016 Competition Advocacy Contest.

Additionally, COFECE published its Report on Competition Conditions in the Agri-Food Sector, a thorough assessment of that market which considered structural, regulatory and behavioural issues. It put forward 27 specific policy recommendations that foster competition conditions to subsequently generate increased agri-food product supply and lower prices. An interdisciplinary group made up of various government agencies, like the Ministries of Commerce and Agro-Industrial Affairs, assessed these recommendations for possible implementation.

We are currently working on several other projects, of which I should highlight one. Under the new energy framework, gasoline and diesel prices will be let to the market as of 1 January 2018. In order to achieve the proposed energy reform benefits – particularly with regard to gasoline and diesel prices and availability conditions – COFECE has closely assessed those markets and has identified several barriers that must be eliminated, as well as certain measures that need to be implemented on different fronts. We are soon going to issue an opinion, with public policy and regulatory recommendations applicable to the various segments of the industrial chain (ie, production, importation, shipping, storage, commercialisation and final sales).

International cooperation

We are clear at COFECE that continued bilateral and multilateral international cooperation helps the Agency to grow as a competition authority. Recent cooperation with US antitrust authorities with regard to mergers was critical and helped us to apply best practices as we upgraded general levels of analysis.

When it comes to international mergers, we cooperate not merely by sharing information (while always observing pertinent confidentiality clauses) but also by presenting points of view on cases and time frames. Recent reforms to the Mexican antitrust law have also helped us to improve our levels of cooperation, as analysis time frames are more flexible.

A recent example of case cooperation is the Aeroméxico-Delta Airlines joint venture. At the end of 2015, in the context of the recent Mexico–US ‘Open Skies’ Aviation Agreement, both airlines announced their intention to enter into a new high-level integration (or joint venture) and requested approval from both the antitrust authority in Mexico and immunity from antitrust laws from the US Department of Transport (DOT). COFECE approved the operation pending certain terms and conditions in May 2016, following consultation with US Department of Justice (DOJ) and DOT regarding the transaction’s effects in both jurisdictions.

To promote the institutional strengthening of competition agencies in the region, in March 2015 the Commission launched the first Capacity Building Internship Program for Competition Authorities in Latin America/Caribbean, and hosted and funded five fellows from Argentina, Ecuador and Nicaragua, who participated in investigations, enforcement actions and other projects with COFECE attorneys, investigators and economists. We also organised and hosted an April 2016 OECD Latin America/Caribbean Competition Forum in conjunction with the Inter-American Development Bank and Mexico’s Federal Telecommunications Institute.

In conclusion

Recent developments have allowed COFECE to position itself as a more credible, solid and transparent institution. It has been a period of hard work and we have undergone profound changes. As a natural stage of this process we have started exercising the Commission’s extended powers and have significantly boosted enforcement activity.

That being said, the road ahead is long and full of ambitious expectations when it comes to outcomes. We will keep working hard to consolidate and strengthen a competition policy that is durable and sustainable, as we truly believe that it constitutes one of the most powerful tools to bring about – especially in Mexico – economic development and social welfare.