MEXICO: An Introduction to Competition/Antitrust
White & Case SC
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Mexico: An introduction to Competition
The 2013-2014 overhaul of Mexico’s legal and constitutional competition framework prompted the Federal Economic Competition Commission (COFECE) to become the main driver of competition enforcement, policy and advocacy in the country.
In a country where private antitrust litigation does not exist and that has not traditionally seen class actions, COFECE’s ex post behavioural and structural investigations, as well as ex ante merger control authorisations, pave the way for developments in the competition practice area in Mexico.
COFECE enjoys constitutionally granted autonomy from other branches of government and it fully exercises it. It has also successfully defended its jurisdiction in court against other authorities, including the Federal Telecommunications Institute (IFT), the only other antitrust agency in the country (solely for the telecoms and broadcasting sectors).
Below we outline relevant developments, enforcement trends and recent cases underscoring the current landscape of competition law in Mexico.
New Leadership and Clashes with the Federal Branch
Since 2018, President Andrés Manuel López Obrador has publicly and repeatedly expressed doubts about the role of constitutionally autonomous agencies in Mexico, including COFECE and IFT.
It is unlikely that the President will gather the necessary support in Congress to successfully implement constitutional amendments that could threaten COFECE’s or IFT’s current autonomy or powers, but the situation may change after the 2024 elections.
Mr. Obrador’s administration and Congress (dominated by the President’s ruling party, Morena) have placed pressure on the budget and revolving-door rules in all federal authorities and regulators, including COFECE and IFT. This situation may result in challenges for COFECE to attract and retain talent during the remaining years of the current administration.
In September 2021, Ms. Alejandra Palacios concluded her eight-year term as the chair of COFECE’s Board of Commissioners (which is normally made up of seven commissioners) a few months before her formal tenure as member of the Board was due to end. She was substituted by Ms. Brenda Hernández, as interim chair. Ms. Palacios’s exit followed the retirement of one of the commissioners and the unfortunate passing of another.
As a result, COFECE is currently operating with a Board of Commissioners made up of just four of a total of seven members, which threatens to weaken its enforcement actions since the Panel is the decision-making body of COFECE. The Panel needs a quorum of at least 4 commissioners to legally meet; cases can be decided by a majority of votes, as long as at least 3 commissioners cast their votes, so COFECE’s Panel is taking decisions within the statutory limits.
Nonetheless, certain decisions, including (i) voting on structural remedies in certain investigations; (ii) issuing secondary regulations and internal organizational rules; and (iii) removing the head of COFECE’s investigation authority require a qualified 5-vote majority, which COFECE cannot meet as long as new commissioners are not appointed.
The problem is a serious one, since the appointment of new commissioners requires the Mexican President to propose candidates (within a pool of pre-qualified aspirants) for the Senate to ratify. Mr. López Obrador has failed to propose any candidates since 2020 and as of mid-2022.
For the same reasons, IFT (whose commissioners’ appointments follow the same procedure) is experiencing a similar situation, currently operating with only 4 out of 7 commissioners as well (although able to meet with a 3-commissioner quorum).
Jurisdictional Conflicts vs IFT
In 2020, a federal tribunal specialized in competition, telecom and broadcasting matters ruled that COFECE enjoyed sole jurisdiction to authorize a merger in markets involving digital platforms, following a challenge by IFT in connection with the authorization of the Uber/Cornershop transaction. In 2021, the federal courts ruled that COFECE and not IFT had jurisdiction to investigate social media, cloud computing and search engine markets.
The Mexican Supreme Court is expected to decide the most new jurisdictional dispute between IFT and COFECE during 2022 (Controversia Constitucional 195/2021). The dispute involves COFECE’s authorization of the Televisa-Univision-Google joint venture, which IFT challenged. The decision could create a binding precedent for lower courts on whether COFECE or IFT holds jurisdiction in markets involving digital platforms.
Litigation and Advocacy in the Energy Sector
In 2020, COFECE achieved its greatest advocacy success to date when Mexico’s Supreme Court invalidated a sectorial policy issued by the Ministry of Energy (SENER, Secretaría de Energía) that COFECE had challenged on constitutional grounds and which was deemed to interfere with its constitutional mandate to foster competition.
In 2022, however, the Supreme Court dismissed a constitutional challenge brought by COFECE on constitutional and competition related grounds attempting to nullify major amendments to the Power Industry Law (Ley de la Industria Eléctrica).
Merger Control and Enhanced Gun Jumping Enforcement
During 2020-2021, COFECE managed and solved ~292 merger control cases, despite constraints imposed by the COVID-19 pandemic. During the period, it blocked only 2 transactions (including the failed Walmart/Cornershop merger) and imposed remedies in only 2 cases as well.
Since 2017, COFECE amended secondary regulations to create a special non-statutory procedure to step up its enforcement of gun jumping cases where parties failed to notify reportable transactions and obtain pre-merger control authorizations. Whether COFECE holds enough power to create a procedure not governed by Antitrust Statute (Ley Federal de Competencia Económica) is a still unsettled constitutional question (the Mexican Supreme Court held back in 2018 that COFECE did not have such power in the case of a different non-statutory investigation procedure).
During 2017-2022, COFECE has initiated or concluded ~20 gun-jumping investigations and levied fines in 18 of them (the largest amounting to ~MXN56 million). In 2021, COFECE levied 1 gun-jumping fine, but in the first half of 2022, it has levied fines in 3 cases.
Ironically, most of these cases begin in the context of merger control procedures of transactions that were actually reported to COFECE. COFECE seizes these procedures to make backward-looking questions about previously closed transactions that could potentially be considered gun jumping and uses the responses as basis to open investigations. The legality and constitutionality of this practice is also unsettled, but parties face little incentives to challenge it, as it would further delay closing of their most recent transaction.
Recent Enforcement Activity
Throughout these years, the Commission has continued to focus on high-profile cases in “priority sectors” of the Mexican economy (including energy, commodities, health and public procurement). Recently, COFECE’s enforcement efforts have focused on financial, transportation and digital markets.
Governmental Bond Rigging Cartel
In early 2021, COFECE’s Panel confirmed the findings of its Investigation Authority that 7 major banks and 11 individuals (traders) engaged in cartel conduct in connection with 142 trades involving government bonds (docket IO-006-2016).
According to COFECE’s final resolution, the trades were made between 2010 and 2013, causing an estimated damage of MXN29.38 million to the secondary market. Based on the estimated damage to the market, COFECE levied fines totalling an amount of MXN35.75 million. Despite this multi-year antitrust probing, one of the largest in the financial markets, the fines felt short of the expected deterrence-inducing effects set forth in previous cases (such as the 2017 Pension Fund’s (AFORE) cartel case, where fines amounted to MXN903.47 million).
Professional Soccer Teams Cartel
In 2018, COFECE’s Investigation Authority launched an investigation into the Mexican professional soccer labour market (docket IO-002-2018); specifically, to probe the anticompetitive effects caused by the salary caps for female players and the hiring restrictions faced by professional soccer players due to a common understanding among the Mexican soccer clubs (informally known in the sports sector as the gentlemen’s agreement).
In 2021, the Investigation Authority preliminary found that Mexican professional soccer clubs colluded to impose caps on female players’ salaries ranging between MXN500.00 - MXN2,000.00 (monthly). Younger players (under-17) were not paid, but only received aid for education and living expenses. Regarding the gentlemen’s agreement, the authority found that the clubs maintained the right to retain players even after their employment agreements ceased. A new team would have to get the authorisation of the player’s current team and often pay such a team before hiring the player.
In late 2021, COFECE’s Panel confirmed such findings and levied fines to: (i) 17 major soccer clubs; (ii) the Mexican Soccer Federation (Federación Mexicana de Futbol), and (iii) 8 individuals, such fines amounted to MXN177.6 million. This case was the first antitrust probing in Mexico related to labour markets.
Although cartel conduct is a federal crime since 2011, COFECE remains unsuccessful in bringing sufficiently robust complaints before the criminal prosecutors to open crime investigations or achieve convictions against individuals participating in cartels.
Vertical restraints and abuse of dominance
In 2022, COFECE’s Panel confirmed the preliminary findings of its Investigation Authority that the Mexico City Airport had engaged in exclusionary conduct by refusing to grant access to an entrant bus company to offer passenger services to/from the airport. The Panel levied an MXN848 million fine to the AICM (including for recidivism, since AICM had been previously fined in 2016 for a similar conduct involving taxis).
COFECE has recently opened ongoing investigations in digital markets, including: (i) a vertical restraints investigation in the digital advertising markets in 2020 (docket IO-003-2020); and (ii) a barriers to entry/essential inputs special structural investigation in the online retail markets in 2022 (docket IEBC-001-2022). Preliminary findings of these investigations are expected during mid and late 2023.
Special structural investigations
Card Payments Investigation and Structural Remedy Proposal
In late 2020, COFECE’s Investigation Authority issued a preliminary report analysing the activities of the two main clearing houses for card payments in a special structural investigation on the existence of barriers to entry in the cards payments markets. In such a report, the authority proposed not only major amendments to the payment regulation and corporate governance of the clearing houses, but a structural remedy consisting of a divestiture order directed to the current shareholder banks of such entities (docket IEBC-005-2018).
The two main regulators of payment’s systems, Mexico’s Central Bank (Banco de México) and National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores), submitted formal opinions challenging the findings of the Investigation Authority. The case has not been finally decided by COFECE’s Panel since the proposed divestiture remedy requires a 5-vote majority which, as discussed above, COFECE is currently unable to meet.
Depending on the date in which COFECE is able to resume this procedure, the involved firms and financial regulators may render additional evidence demonstrating the antitrust concerns raised by the Investigation Authority had been addressed in a different manner, or the market has suffered important changes rendering the analysis of the authority inapplicable due to the current conditions.
Interplay with other regulators
In 2020, COFECE’s Panel issued its first decision triggering regulatory powers of other authorities in regulated markets. COFECE found a lack of effective competition in several routes of railway fright of chemical products, thus, triggering special powers under the Railway Services Statute (Ley Reglamentaria del Servicio Ferroviario) in favour of the Railway Regulatory Agency (ARTF) to issue maximum rates regulations. Both COFECE’s decision and ARTF’s rate regulations were challenged before federal courts.
Then final decisions by the judiciary on this case may lay the groundwork for future investigations by COFECE that could trigger similar special-power provisions in other regulated sectors, including air, ground and sea transportation.
COFECE has also been active in terms of its advocacy activities, issuing recommendations on the improvement of the procurement regulations of the Institute for the National Housing Fund for Workers or issuing regulatory provisions for handling privileged attorney-client communications.
Takeaways and Future Outlook
COFECE remains one of the most technical and independent regulators in Mexico, with a professional and highly competent team that managed to weather the pandemic by gradually implementing online procedures (following its successful 2020 translation to fully electronic merger control procedures).
Although COFECE has embraced electronic procedures, as the pandemic recedes, companies should expect a resurgence of COFECE’s traditional investigation tools, such as on-site dawn raids and witness summons. Private parties should also expect continued gun-jumping enforcement as evidenced by COFECE’s increased activity during the first half of 2022.
Both COFECE and IFT may be at an inflection point, and will probably face challenges to remain effective under political pressure. They may also have incentives to align some of their enforcement policies to the current administrations’ goals if they wish to break the current deadlock surrounding the pending appointment of commissioners.
The judiciary may play a crucial role in the coming months, potentially setting precedents to further clarify the markets where COFECE and IFT hold jurisdiction. In addition, the recent creation of additional specialized courts in competition and telecom could lead to faster resolutions that contribute to much-needed additional certainty and judicial review of COFECE’s and IFT’s broad powers and recent enforcement attempts.