Mexico: Federal Economic Competition Commission
As I've written previously, Mexico's 2013 constitutional reform on competition provided the Mexican Competition Commission (COFECE) with unprecedented opportunities for improving market-competition conditions. Ever since then, we've worked hard to grow COFECE into a stronger, more efficient and more transparent institution.
2016 offered highly positive outcomes when it came to moving our mandate forward and positioning ourselves as a more credible and solid institution. In enforcement matters, there was a significant increase in the number of initiated and concluded investigative procedures. In terms of advocacy, the Commission has become increasingly involved in designing pro-competitive regulatory frameworks. More and more, I'm seeing companies invest greater amount of resources in the implementation of antitrust compliance programmes.
Several highly visible cartel investigations were initiated over the course of 2016, in markets that are critical to Mexican consumers such as healthcare, food, banking and transportation. For example, the Commission was able to impose sanctions on seven companies and 10 individuals as well as on Mexico's national sugar producers' organisation with an 88.88 million Mexican peso (approximately US$4.7 million) fine for their involvement over 42 days in absolute monopolistic practices that occurred between October and December 2013. The sanctioned parties conspired to manipulate sugar prices as well as restrict sales to wholesalers and suppliers, leading to an approximately 6.2 per cent price increase and market damages in the arena of 106 million Mexican pesos (US$5.6 million).
The Commission also fined Mitsubishi Heavy Industries and Denso Corporation 72 million Mexican pesos (US$3.8 million) for their involvement in an international air-conditioner compressor cartel. Both companies took part in a private offering from General Motors to purchase automobile air conditioning compressors. MHI and Denso exchanged sensitive business information throughout the process in order to manipulate compressor prices rather than participating independently as legitimate competitors. This case is especially relevant because owing to one of the companies' refusal to fully cooperate with COFECE, we were obliged to rescind its leniency programme benefits for the first time since the programme was instituted.
Regarding the financial sector, in 2016 COFECE issued a statement of probable responsibility for suspected collusion in the pension fund administration services market. Our investigation alleged that economic agents colluded to reduce transfers among Afores (ie, retirement fund administrative entities), possibly reducing competition between companies that offer these services. In May 2017, COFECE's Board of Commissioners confirmed that several companies and individuals were responsible for manipulating the pension fund administration services market. Fines totalled 1.1 billion Mexican pesos (US$58.8 million), the highest Mexico's antitrust agency has ever imposed.
The healthcare sector is a priority for the Commission because it includes essential products widely consumed by 120 million Mexicans. Between 2010 and May 2016, the consumer price index for medicines topped out 10.4 per cent higher than the Mexico's overall consumer price index. Moreover, in 2014, Mexico's lowest-income households allocated 42 per cent of their spending on medicines. COFECE is currently carrying out several anticompetitive investigations in this sector, such as laboratory testing and blood banks services; medical-use latex, oxygen, nitrogen and argon. Investigations into bid-rigging practices that are detrimental to the public healthcare system are a top priority. At the end of 2016, several economic agents were served with a statement of probable responsibility notice for allegedly rigging bids in relation to the production, distribution and sales markets for the medical-grade latex surgery/examination gloves that Mexican public health institutions buy.
In 2016, COFECE also launched an investigation into the pharmaceutical production, distribution and commercialisation markets. It could well be the most ambitious anti-cartel investigation ever, since it includes scrutinising the entire pharmaceutical value chain.
At the same time, we also launched a market study on off-patent drugs as well as the price effect of generic medicines' market entry. Our findings show that generic-competitor numbers and their rate of market entry are low, leading to a major impact on prices Mexicans pay for medicines they need daily.
In the transportation sector, in early 2016 COFECE's investigative arm issued its preliminary finding on essential facilities, barriers to entry and slot allocation at Mexico City's International Airport (AICM). The investigation found that take-off and landing slot allocation, evaluation and monitoring procedures at AICM exert anticompetitive effects on air transport services. These inefficiencies affect market entry on the part of new domestic and international carriers serving Mexico City and lead to low industry growth, high prices and scant innovation when it comes to routes. In June 2017, the Commission issued its final resolution. It determined that landing and takeoff slots and use and control of airport infrastructure are essential facilities. How they are accessed leads to inefficiencies and anticompetitive effects in the regular passenger transport sector. The Board of Commissioners established corrective measures to be adopted by AICM in terms of transparency, control and criteria for the monitoring of the use of slots with the objective of avoiding the degradation in quality of services provided by the airlines, in addition to increasing the possibility of new entrants.
In addition to these and other enforcement efforts, as of February 2017, COFECE's Prosecutor prepared and lodged our first criminal complaint with the Office of the Attorney General against several individuals involved in healthcare sector cartel activities. This marks a major step forward in the Mexican competition enforcement system. These kinds of sanctions aimed at cartels have been contemplated in Mexico's Criminal Code since 2011, and were subsequently strengthened in 2014.
The Commission is currently working towards more effective merger review. Of the 128 cases analysed last year, on 95.5 per cent of the cases, authorisations were handed down in 20.06 working days, on average - nearly 40 days ahead of the 60-business-day legal deadline. Five mergers required in-depth review, in which cases decisions were handed down on average after 76 days; Mexico's Federal Economic Competition Law stipulates a legal deadline of 100 business days.
Without a doubt the Delta Air Lines/Aeroméxico merger was a 2016 landmark. If approved on its original terms, it could have substantially reduced competition in the US-Mexico passenger airline market, both for direct and connecting routes, since cross-border flights where the airlines overlapped meant Delta disciplined Aeroméxico's prices by at least 5 per cent and because there is a limit to additional competitors at Mexico City's entirely saturated airport. The Commission imposed several conditions on the airlines, including the surrender of as many slots at AICM that Delta controlled in 2015.
New legislation presents opportunities for creating new legal precedents in competition. As COFECE has started to exert its new powers, they have been subject to legal challenge. Judiciary decisions made by specialised courts clarify how the new law should be implemented. Competition policy is always a work in progress.
In 2006, Mexican specialised courts ruled there is no need to prove a formal and legal relationship between corporate bodies and private individuals (such as the company's directors and officers) to establish the personal liability of someone who engages in absolute monopolistic practices on behalf of a company. Thus, COFECE need not prove any ‘business relationship' before imposing sanctions.
As it currently stands, neither the Competition Law nor its regulatory provisions recognise the principal of attorney-client privilege. Some information COFECE has gathered in 21 dawn raids over the course of 2016 is being challenged in courts as a possible information exchange between the investigated party and its client. In addition, the immunity revocation related to the international cartel in air conditioner compressors is being challenged. We await these judicial precedents in order to modify the way we apply the law, if necessary, and to strengthen our enforcement activities.
Most of COFECE's 2016 advocacy efforts focused on the energy sector and specifically the gasoline market.
A major constitutional reform was approved in Mexico in December 2013, designed to modify the structure of the gasoline sector from a fully monopolised and vertically integrated industry (controlled by PEMEX) to an open and competitive market with numerous participants in all energy sector activities. The reform is expected to promote competition by reducing market-entry barriers and by allowing private, domestic and foreign investment, in upstream, midstream and downstream activities. In particular, retail gasoline and diesel prices will no longer be officially administered but rather determined by market forces throughout 2017.
When a market in liberalised, lower prices and new players cannot be brought on by decree or by establishing specific dates for their participation, and therefore it will be necessary to proactively foster new participants' entry in all value chain segments (refining, transport, importation, storage, wholesale and retail sales).
With this in mind, COFECE published its ‘Transition to Competitive Retail Gasoline and Diesel Markets' in July 2016. The study identified a number of potential barriers to competition and 25 specific recommendations for adopting regulatory and public policy measures ranging from pricing systems, quality standards and infrastructure to retail infrastructure and sales. The document has proven quite influential and has helped expedite different public agencies' official decisions.
In addition to the cited report, COFECE issued several opinions in 2016, in relation to:
- a proposal for accelerating possible to-Mexico gasoline and diesel importations to encourage the availability of alternative supply and reduce PEMEX dominance;
- a 2017-2018 gasoline and diesel pricing-liberalisation schedule to be established by the Federal Energy Commission;
- applicable guidelines for local gasoline service-station construction and operation; and
- recommending various adjustments to supplier and franchise contracts PEMEX signs with retailers, to foster independent commercialisation models and greater retailer mobility.
Acceptance of these measures in fuel markets was exemplary and established COFECE as a mandatory reference point for both public and private companies with regard to these matters. Notably, the 2016-2017 World Bank-ICN Competition Advocacy Contest awarded first prize to COFECE for its efforts in this area.
As we all know, the US Federal Trade Commission has been sending a message about economic liberty, specifically people's freedom to engage in trade and commerce. The Economic Liberty Task Force urges state and local governments to reduce requirements for engaging in a given occupation to a reasonable minimum while still addressing health and safety concerns. Along similar lines, in February 2016, COFECE issued an opinion regarding a proposal in Mexico's Congress to modify the nation's Constitution in order to establish higher entry requirements for legal professionals. Among other recommendations, COFECE advocated eliminating compulsory bar membership and any other entry requirement not duly justified for the public good. Congress abandoned the proposal.
If we seek excellence as an institution, we must strive to attract and retain the most talented women and men in our sector. In 2016, COFECE received gender-equity certification from the EDGE Certified Foundation, which recognises institutions that proactively work to create an optimal workplace of equal opportunities for men and women alike. EDGE is the leading global assessment methodology and business-certification standard for gender equality. The initiative was launched at the World Economic Forum in 2011 to reduce gender gaps worldwide. With the EDGE Certification, COFECE joined other leading institutions worldwide that are committed to closing the gender gap; it was the first public institution in Mexico, and Latin America, to do so.
Finally, we are now approaching the four-year mark. Our 2014-2017 Strategic Plan sets forth our strategic and tactical planning; defines our mission, vision, institutional values and objectives; and indicates the short-term projects that must be carried out to achieve stated objectives. By the end of the year, we will assess how well we did in implementing this plan and make that institutional assessment public, as we look forward to specifying our new goals and objectives for the coming four years.