Antitrust Regulation by Gustavo Brauer

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Mexico’s legal system has provisions regulating monopolies and similar activities since at least 1917, when the current Mexican Constitution was enacted.

Said Constitution prohibits the creation of monopolies and the performance of monopolist activities, save for a few reserved to the Federal government, such as the issuance of currency, and oil extraction.

For many years, however, antitrust regulation was not a major obstacle to businesses, except for a very few of considerable size. The opening of the Mexican economy during the early 90’s, however, gave way to a number of investments by foreign entities that set up new companies or purchased all or substantially all the stock of a number of Mexican companies that played leading roles in their industry, and made them grow in such a fashion that local competitors did not have much of a chance.

It was under these circumstances that the current Federal Law on Economic Competition (“Ley Federal de Competencia Económica”) was enacted, in 1992.

The North America Free Trade Agreement (NAFTA), effective in México since January 1, 1994, made it even easier to US and Canadian investors to take over Mexican companies and carry out cross borders transactions. All this caused some damage to Mexican industries, in some cases because a sound management, scale economies and large volume production resulted in lower prices, but in others because such low prices were more the result of dumping and other predatory practices.

The Federal Law on Economic Competition (FLEC) is, as its name indicates, a federal law, applicable in all of México. Its main purpose is to ensure the existence of a free competition process, by preventing and eliminating monopolies, monopolist practices, and other restrictions affecting or impairing the efficient functioning of goods and services markets.

Said FLEC is applicable in regards to all economic activities, be them performed by individuals, business organizations, unincorporated entities, government agencies, etc.

The authority in charge of supervising compliance with the FLEC is the Federal Commission on Competition (the Commission), which is authorized to, among other activities, prohibit or impose a fine on those found liable of monopolist practices, or of carrying out mergers made with the purpose of creating a monopoly.

Under the provisions of the FLEC monopolist practices are those practices among competitors, clients or suppliers that diminishes, damages or prevents competition and free access to production, processing, distribution and commercialization of goods an services.

The FLEC provides also that certain concentrations regulated in said law are subject to the prior approval of the Commission. A concentration is defined as the merger, acquisition of control or any other act whereby corporations, associations, organizations, shares, partnership interests, trusts or assets in general are concentrated among competitors, suppliers, clients or any other economic agents.

The Commission is obligated to object to and impose sanctions on concentrations made with the purpose of lessen, diminish, deteriorate or prevent competition on or the freely accessible offer of products or services that may be deemed to the same, similar or substantially related.

The law provides for a procedure whereby the Commission determines if certain economic practice is deemed as monopolist (in which case the Commission may declare it null and void), or if a concentration may be approved. Acts carried out against the FLEC may result also heavy fines. The maximum fine may reach an amount in Pesos roughly equivalent to US$1,500,000.00.

Although more on the anecdotic than as a description on the applicable legal provisions, we believe it should be noted that the Commission was perceived at first to be rather benign. However, after the Commission was harshly criticized for allowing, a few years back, the purchase of Cablevisión, S.A. de C.V., the largest, and one of very few, cable vision companies in Mexico, by Telefonos de Mexico, the only telephone company, it changed its attitude and is now perceived as very firm on the strict compliance with applicable legal provisions.

To summarize, Mexico’s economy and legal system, after the opening started in the 90’s, NAFTA, the Free Trade Agreement with the European Union, the Free Trade Agreement with Israel, both signed in 2000, and other free trade agreements already signed with other countries (plus some others currently undergoing a negotiation process, such as Japan), offers a wide variety of activities that may be performed and market niches of all sizes, but this should not be interpreted as a form of permissiveness conducive to unfair commercial practices, such as monopolies and cartels.