Mexico: Federal Economic Competition Commission
Anti-cartel enforcement activity was greatly solidified by COFECE (Federal Economic Competition Commission) in 2017.
Ongoing efforts include numerous high-profile cartel investigations, such as those surrounding Mexican government-bond intermediation, pharmaceutical commercialisation and distribution, gasoline as well as liquid-gas petroleum retailing, among others. Our probe into pharmaceutical commercialisation and distribution cartels may well be the most ambitious the commission has ever undertaken as it means scrutinising the entire sector’s value chain. Between 1 January and 31 December 2017, we received a total of 15 leniency applications, including five first-ins.
Additionally, significant investigations have led to relevant sanctions. In May 2017, COFECE imposed its highest fine ever for cartel practices. It was in the pension-fund administration services market for having set limits on savings-account transfers between retirement-fund administrators. Fines totalled 1.1 billion Mexican pesos and it was the first time Mexico’s financial sector was scrutinised for collusive practices.
Another sanction of note relates to cartelisation in the Jalisco corn tortilla market. In a first for a public official, the state’s Minister of Rural Development was sanctioned for facilitating an agreement to fix the retail price of tortillas, within a range of nine and 14 Mexican pesos per kilogram. This gave other providers the incentive to raise their own prices. In another instance, COFECE determined taxi companies operating at the Mexico City International Airport had colluded to increase fares, starting in 2011, to the detriment of some 12 million users. Resultant fines totalled 23.6 million pesos.
Public-procurement corruption is a huge issue in Mexico. Bid-rigging is part of the problem with companies conspiring, at times with the support of public servants, to overcharge their government clients. Legitimate competitive bidding in public procurement means the government obtains optimal prices, quality and finance terms. On the contrary, the absence of such competition leads to the illegal diversion of public resources to companies that are awarded contracts without having really competed for them. Anti-bid-rigging efforts are and will continue to be a COFECE enforcement priority.
Probes continue into alleged cartelisation related to public toothbrush and blood banks procurement in our public health sector. COFECE is also investigating public procurement issues in the market of steel and watt meters bought by the Federal Electricity Commission (CFE). In the past 10 years, the CFE has allocated more than 15 billion Mexican pesos to the acquisition of watt-hour meters through diverse public tender processes. For the first time, we just recently announced a probe related to public works contracting.
The total of 2017 sanctions related to big-rigging issues was 257 million pesos in fines, to companies that rigged bids or abstained from participating in public-health sector bidding for latex-glove provision, a vast, key resource in government-provided healthcare. We additionally imposed a more than 7 million peso fine for rigged media-monitoring bids or non-participation in limited-tendering award protocols in no fewer than 24 instances at various Mexican government institutions. Such actions had given rise to an average 14.5 per cent over-charge on media-monitoring contracts.
Regarding mergers, 156 where notified in 2017. It is no great surprise to say that we are receiving increasingly more complicated global merger reviews. We imposed structural remedies on several, including the Boehringer/Sanofi animal health deal, Dow/Dupont and ChemChina/Syngenta. We blocked the Rea Magnet Wire Company and Xignux merger as well. Rea is a US-based magnet and non-ferrous wire producer and Mexico’s Xignux maintains four lines of business: cables and electrical conductors, transformers, infrastructure and food. COFECE ruled against the proposed move as to protect magnet wire-production and distribution. Wire is used in automobile, electronic and electrical household appliances, lighting material, etc. The operation would have merged North America’s first and third-largest magnet wire-production and distribution competitors. The merged entity would have garnered significant market-sales share that might have brought on increased prices in a context where no other competitors could counteract the price hike.
We know some practitioners have unfavourable perceptions of our merger reviews’ pace and procedural predictability. To address issues of improved quality and effectiveness, we developed and launched an Electronic Merger Filing System, designed to pass on considerable time savings to all parties involved.
After the agency’s four-year emphasis on effectiveness and results, COFECE contracted McKinsey & Company to undertake an effectiveness survey, whose late-2017 delivery provided an external, independent and impartial performance evaluation. While needed improvements have been identified, the study did highlight we have taken on a high-profile reputation for technical capabilities, strengthening market competition and dissuading anticompetitive conducts. More than half of interviewees believe COFECE’s anti-monopolistic practices and illegal mergers efforts have increased deterrent effects.
As always, 2017 was highly active when it came to advocacy. As in previous years, COFECE pushed the adoption of pro-competitive legislation to regulate disruptive technologies, this time related to the financial sector. In October, COFECE submitted considerations to Mexico’s Senate regarding a draft law to regulate financial technology (fintech) institutions, specifically highlighting the discretional power authorities were given in the draft law to license these new-business models and an unclear provision related to the ownership of consumers’ transactional data. The Senate chose to incorporate many of COFECE’s considerations into the draft law.
Mexico will elect a new president and congress in July 2018. We wanted to use this transition as a window of opportunity to reinforce competition policy’s value as an instrument for creating inclusive growth. It is also a great moment in which to highlight how over time poor regulations have generated significant concentration levels in certain Mexican markets. All these considerations led to the COFECE publication entitled Economic Competition: A Platform for Growth 2018–2024.1 The document proposes specific pro-competition actions in strategic economic sectors.
In addition to its work in favour of pro-competitive regulations, in 2017 COFECE rolled out several innovative strategies to build awareness of the costs that arise due to a lack of competition. One prime example is our ‘Most Absurd Regulatory Obstacle to Competition and Entrepreneurship’ award. We invited entrepreneurs to nominate anticompetitive regulations and their associated costs and received more than 600 submissions. The award went to an infamous ‘Regulation for Notary Allocation and Operation’ that leads to appointing notaries who are not necessarily qualified to supply quality services. At the same time, it fosters notary scarcity and notaries’ ability to legally price-fix. This novel advocacy effort even provoked a group of notaries to lodge a human rights complaint before Mexico’s Human Rights Commission on the grounds that the notaries’ professional reputation had been maligned. For us, this claim is a clear reflection of the niche market that incumbents want to keep protecting.
Not least of all, the World Bank highlighted COFECE internationally for its advocacy efforts in Mexico’s retail gasoline market, awarding the report entitled ‘Transition to Competitive Retail Gasoline and Diesel Markets’ its top prize in its 2016–17 competition advocacy contest.
In the international arena, COFECE launched its third edition of the Latin American and Caribbean Competition-Agency Fellows Program. COFECE hosted fellows from five national authorities (Argentina, Brazil, Panama, Peru and the Dominican Republic) and participated in an annual, trilateral meeting of North American competition enforcers. We also formalised a strategic alliance with the leaders at the corresponding Argentine, Brazilian, Chilean and Peruvian agencies. In the context of NAFTA renegotiations, we participated as advisers to the Mexican federal government in the competition policy chapter discussions. We also cooperated with other competition agencies in seven merger-analysis investigations.
Regarding our senior agency staff, the Mexican Senate confirmed me for another four years as chairwoman, until September 2021. I’m thrilled to have the opportunity to keep on strengthening Mexico’s antitrust agency. Our board of commissioners appointed a new chief prosecutor, Sergio López, in August 2017. López joined COFECE in 2001 as deputy director for contentious affairs, before eventually becoming the agency’s technical secretary, in charge of matters related to mergers, administrative procedures and economic analyses. The Senate also appointed former agency chief-of-staff, Alejandro Faya, to fill a nine-year commissioner position that had been vacated.
Last but not least we’re proud of our new, two-year EDGE recertification. EDGE is a leading global methodology for assessing gender-equality standards. This recertification endorses actions we undertook throughout 2017 to further close the gender gap2 in our workplace and recognises us as an institution that offers equal opportunities to both women and men. With this and other capacity-building actions, we strive to bring the principle of competition and merit to all that we do, including our people.
In sum, I would say that 2017 marked a year in which COFECE started reaping the benefits of the competition system implemented in 2013. It was a year of unprecedented activity regarding anti-cartel and abuse of dominance enforcement. We achieved a record-breaking year regarding cartel fines.
As I have said on other occasions, a competition authority’s credibility depends, to a large extent, on its capacity to address and react to anticompetitive practices. In this sense, we are a more credible institution now than four years ago. However, I cannot leave aside the need to step up our efforts for competitive markets. Our commitment is to provide a level playing field where companies and innovators can thrive.
2 Such actions include recruitment processes where neither an applicant’s name nor gender is revealed until a final-stage, in-person interview; an annual promotion process where major variables are based on each individual’s performance evaluation results, applied to all COFECE personnel; expanded paternity leave from five to 15 consecutive working days; and the implementation of a one-year-programme known as ‘Women Ascending’ that promotes senior-level commission women’s leadership and management capabilities.