Developing World Antitrust

By Francisco Beneke*

There is hardly a stronger way to show a state’s commitment to the goals of competition law than the “Pacto for Mexico”. This pact is a multi-partisan agreement in which competition is put at the center of the government’s policy to promote the development of the country. As a result of the pact, the constitution was amended and the Mexican competition authority was elevated to the category of an autonomous constitutional entity. Also, a new competition law was enacted on July this year. Whatever opinion anyone has on the substance of the constitutional amendments and the new competition law, Mexico’s intent is pretty clear: improve the country’s economic performance through the protection of the competitive process.

The new law gives greater investigative powers to the Comisión Federal de Competencia Económica (the Comisión), adds more types of conducts to its list of forbidden behavior and separates, to some extent, the investigative and adjudicative functions of the authority. However, what prompts me to write a post on this law are not these interesting issues but something that I believe troubles Mexican firms the most.

The wording of the law is a signal of Mexico’s distaste for concentrated market structures. Article 2 states among the objectives of the law to severely punish and suppress monopolies, monopoly behavior, unlawful mergers and so on. The part that I have underlined contrasts sharply with the general idea that antitrust authorities are not there to fight monopolies but monopoly behavior. The article talks separately about the latter so there is little room to construe that there was a confusion of concepts. Mexican legislators did mean to attach a negative connotation to the term monopoly.

But what makes the new Mexican law more unique is not its general call for arms against monopolies but its specific mechanism to suppress them: a special procedure in which, if the authority determines that the market lacks effective competition (“condiciones de competencia efectiva” in Spanish), injunctions and divestitures can be ordered and regulations regarding access to essential facilities can be issued (article 94 of the law). This special type of investigation is not to be confused with the procedures that deal with anticompetitive behavior. A firm may not be engaging on conduct that violates articles 53 to 56 of the law but may still be ordered to abstain from certain behavior, sell some of its assets or let competitors use them if the authority determines that there is little competition.

So far, the Comisión has not started any special investigation under article 94. Neither has the Instituto Federal de Telecomunicaciones, which possesses exclusive jurisdiction on competition law matters in telecommunication markets. As Mexican firms must be, I am eager to learn what lack of effective competition means. Also, according to the law, if the firm under investigation proves that a given conduct or essential facility has pro-competitive effects that compensate any negative impact on consumer welfare then no injunction, divestiture order or regulation will be issued. The pro-competitive effects can include dynamic considerations such as innovation arguments, so it will be interesting to see how the authorities handle this criterion.

From the paragraph above, it seems that the law on lack of effective competition will be very facts-specific and, therefore, one thing is pretty clear: the enforcement of article 94 will be surrounded by a high degree of uncertainty. Luckily for me, I can sit back and relax while I wait for developments on this area but I don’t think firms operating in Mexico share this attitude. Most likely they are wishing for the Comisión and the Instituto Federal de Telecomunicaciones to forget about this special procedure or at least to establish a high hurdle to prove a lack of effective competition.

Co-editor, Developing World Antitrust