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Antitrust bill Mexico Now may 2014 final

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Antitrust bill Mexico Now may 2014 final

  1. 1. 1 Critical Mexican Competition Law under Senate Scrutiny By Carlos Angulo - Congressman President Peña Nieto presented last year a series of constitutional amendments initiatives that were past in an unprecedented spree of fast moving political consensus. Many countries of the World have praised this achievement by Mexico, a country that has one of the most difficult political environments to deal with structural changes. One of these changes was developing the constitutional framework for a modern antitrust or competition law. During March 2014, the Chamber of Deputies of the Mexican Congress approved the presidential initiative for a new antitrust law ("Federal Law of Economic Competition") that was based under the recently adopted constitutional framework. However, this initiative suffered more than 90 changes made by the Lower House. The bill that was passed by the Chamber of Deputies now is in the process of being reviewed by the Mexican Senate. The Senate has started a series of appearance of Congressmen that were involved in the approval of the bill, by organizations of the private sector that are going to be regulated under the new law and by a panel of expertsin which the author was invited to participate. My main concern is about the unprecedented powers that would be bested on the new Federal Antitrust Commission to regulate the economic players, on the one hand, and the watered down powers that the Commission has to rule on government policy and executive regulations that interfere with market fair play. The focus of this article is to present the above mentioned challenges that the Mexican Senate has in making the necessary adjustments in the Anti-trust bill that is under review. To honor the truth, the bill that was passed by the Mexican House, in general terms, is a quantum leap on the current Antitrust Law that impedes the regulator to sanction and prosecuteAnti-trust actions of the economic players. What is the issue in the bill under review? One of the principal issues of the new law is that the new regulator does not have sufficient powers to change government policy, executive regulations and
  2. 2. 2 administrative actions that distort the markets avoiding a level playing field to have a sane development of competition. To describe the matter, we would need to make a quick historical run on how Mexico developed its industrialization. From the forties to the early seventies of the past century, Mexico made a bold move to industrialized the Country, trough a policy known as Desarrollo Estabilizador or "stabilizing growth policy", by creating protected environments for Mexican entrepreneurs that wanted to invest in creating industries, by granting them monopolistic positions in areas that were non-existing in Mexico, and were subject to importation of final goods. For instance, if one wanted to manufacture copying machines, the Mexican entrepreneur first entered into a license agreement with one of the big worldwide copying machine manufacturers, made a business plan that was presented to the government, to get approval to create a monopoly to develop in Mexico the manufacturing and/or assembly of copying machines. As a result, the government banned all importations of copying machines in Mexico that where not of the brand name authorized to the Mexican businessman, as well as the all importations of all necessary inputs for the manufacturing of copying machines. The authorized company was then able to import and sell copying machines, manufacture and assemble copying machines of the brand name under license, thus generating a protected and nurtured monopoly for copying machines. With this policy Mexico created the so called “Mexican miracle”, developing all kinds of industry, from cement, breweries, automotive, packing, mills, steel producers, and also the government developed all kind of government owned business, like telephone services, toll roads, paper mills, fish processors, railroads, movie studios and theaters, hotels, even tortilla manufacturers.All had monopolistic positions, and continue to have so, even after the government started to privatize its businesses in the eighties. Although this policy was successful at the beginning, it started to collapse in the early seventies. Finally when Mexico entered into the General Agreement on Tariffs and Trade, the World Trade Organization and NAFTA, it had to dismantle all this protectionist system. But the monopolies had already penetrated the markets and were not impeded to continue operating, even after the government sold the businesses to private enterprises. When President Salinas enacted the first antitrust law in Mexico in December 1992, an antitrust regulator was created for the first time, but it did not had sufficient powers to fight the economic players that were monopolies or had dominant positions in the market and were abusing such position.
  3. 3. 3 The principal problems of the Competition Federal Commission(Comisión Federal de Competencia or COFECO, by its Spanish language acronym) were that the sanctions provided by law, were too weak, and that the loopholes in thelaw, permitted an endless sequence of recourses that made COFECO worthless in fighting monopolies and abuses in dominant positions. This situation can be illustrated by the fact that it took COFECO more than a decade to rule in last instance the dominant position of Teléfonos de México or TELMEX. The last amendment made to the Salinas antitrust law was in April of 2012. The principal changes made in this amendment by President Calderón administration, had to do with enhancing the capabilities of COFECO to pursue antitrust conducts, including changes in the law to avoid any legal chicanery that left COFECO without teeth to enforce the law. Now with the constitutional changes in place and the new antitrust law presented by President Peña, we have an antitrust regulator, Comisión Federal de Competencia Económica, or COFECE, with a vigorous mandate and with sufficient teeth to enforce antitrust violations made by economic players. But, what are the challenges that the Senate has in approving this new law under its review? Considering the above described monopolistic culture developed by government policy in Mexico, there is still a great deal of distorted markets that would need to get fixed by COFECE. This could be accomplished by issuing binding rulings that would obligate the government to change its policies, executive orders and non-congressional regulations that create these market-unfair policies. However the Peña Nieto initiative only grants COFECE the capability of issuing non-binding rulings to such effect. But the Constitution grants COFECE, as an autonomous body, with the powers to request to the Mexican Supreme Court laws or regulations of economic competition nature. However, this power is limited to constitutional issues only, and not to a wide range of anti-competition matters that the government has created and need to be fixed. In another situation there is a wide range of markets that have barriers to trade and have anti-competition issues, that are “natural”, that is, that were not either created by distortions promoted neither by government actions or omissions nor by economic players that have violated the law. The issue here is that the proposed bill, paradoxically, grants COFECE powers to intervene in such markets notwithstanding that there are no violations of the law coming from the economic agents or players involved in such market. In such respect, Terry Calvani, the former Commissioner of the Federal Trade Commission of the U.S. Government that made a review of the Presidential initiative, mentioned the following: “Presumably the
  4. 4. 4 proposed legislation focuses on those markets that fail to perform competitively for reasons other than government regulation. Intervention in such markets might make the market more competitive, but it might not. In any event, there are costs associated with punishing market participants, who have otherwise broken no law. I have already mentioned the inherent unfairness of being punished when one could not have anticipated the illegal quality of one’s situation and the resulting deterrence of investment for fear of crossing what is a very unclear—indeed invisible—line.” He added:” But there are other costs. Intervention may be inefficient. There is ample economic evidence that some firms are large because they are efficient (which regularly results in better offering and/or pricing conditions to consumers), and efforts from government to de-concentrate may yield smaller inefficient firms. As someone who has served in the competition agencies of two countries, I appreciate the strengths and weaknesses of competition agencies. I do not believe that competition enforcement agencies are well placed to intervene absent illegal behavioral conduct in an effort to make things better. I would not have had confidence that either of the competition law enforcement agencies with which I was associated would have had the requisite experience and expertise to re-engineer markets.” In conclusion, the bill under review in the Senate must be corrected by granting to the new regulator a broad range of powers to re-direct government policy that has distorted the markets, and by eliminating the authority that COFECE has in intervening in this “natural markets” that have distortions not created by government policy or by economic agents that are not in violation of law. If COFECE would have these powers, we believe that Mexico could loose further competitiveness, because this may discourage new innovative companies to invest in Mexico, because of the threat that they may be subjecting their products to price controls and other government interventions without any violations of statutes. The new law, grants many opportunities for Mexican consumers to have a first world set of markets with prices that are competitive, and the right to have economic players doing their best to enhance quality, and customer satisfaction. But granting to COFECE powers that do not exist in any other country that has developed markets for the benefit of consumers, not only may deny Mexican consumers in having state of the art products, but also Mexico may loose investment opportunities because of the uncertainty that this issue may create. We hope that the Senate takes the challenge in granting COFECE sufficient powers to move the government in changing its anti-competition practice at all levels, including Municipal, State and Federal
  5. 5. 5 authorities, including the Federal District, and have COFECE confine itself enforcing and prosecuting violations of economic agents that violate the law, with relative and absolute monopolistic practices, collusions, cartels, abuse in dominance and un-authorized concentrations. This will send a clear massage to investors that Mexico can now guarantee free access to domestic markets, a level playing field to economic players, and is not a treat to innovative and successful companies that do not violate antitrust provisions.