Impact Of NAFTA On Recent Developments Of Mexican Anti-Trust Policy

Monday, October 24, 2011 - 11:05

Editor: Tell our readers about your law firm.

Dominguez-Torrado: Our law firm has been around for 106 years with our core business being intellectual property. Twelve years ago we opened the corporate department.  In total, we are 60 professionals with 150 supporting staff.

Ninety-five percent of our practice is patent and trademark filing for foreign companies and related litigation and consulting.  Like the U.S., Mexico is a signatory to the Berne Convention on copyrights. We litigate unfair competition cases involving claims that an intellectual property owner may have against infringers or defend our clients against claims from our Federal Trade Commission (Comision Federal de Competencia) either initiated by a third party or directly launched by the Commission.

Editor: Tell us about your background.

Dominguez-Torrado:  While in law school, I started at the firm as a law clerk and, after graduation in 2000, became an associate. In 2001, I went to the University of Virginia for my LLM and then came back to head the corporate department, becoming a partner in 2007.

Editor: It would help our readers to give a brief history of competition or antitrust policy in Mexico. 

Dominguez-Torrado: The Mexican Federal Law of Economic and Competition was first published in the Federal Official Gazette on December 24, 1992, and last reformed on June 28, 2006. In its first provision it states that this law regulates article 28 of the Constitution regarding economic competition, monopolies and free market participation. It is binding in the entire Mexican Republic and applies to all sectors of economic activity. As antitrust constitutional provisions preceding the Constitution of 1917 (the current one after the Mexican Revolution), we find the Constitution of Cádiz, which gave exclusive privileges to inventors and authors for a limited time and the Constitution of 1857 that contained a written prohibition of monopolies in its article 28 that provided that there would be no monopolies of any kind, except those relative to coinage, the post office and privileges the law grants for a limited time to inventors or improvers. Its great significance comes from the fact that it was in force for a long time, and there were few substantive changes; therefore it is the most immediate antecedent of our current article 28 of the Constitution of 1917 which proscribes monopolies and restraints of trade, except for labor unions, certain export cartels, intellectual property and specified strategic activities reserved to the government. 

The first legislation that existed in Mexico on economic competition was the Regulatory Law for Article 28 of the Constitution, which was limited to combat monopolies that could affect the supply of necessary goods for consumption. The second law with the same name, published in 1931, defined monopolies and certain anti-competitive conduct, such as price-fixing, market division and other anti-competitive activities. The third law published in 1934, had as its main purpose to eradicate all conduct that harmed consumers in general; it also contained penalties for specific behaviors such as revealing trade secrets. 

As a consequence of the signature of NAFTA between Canada, the United States and Mexico, the Mexican Congress passed the Federal Law of Economic and Competition of 1992 (Ley Federal de Competencia Económica) to promote economic efficiency through the protection of free competitive process. The Federal Competition Commission (Comisión Federal de Competencia Económica) may issue a preventive injunction when investigating monopolistic practices.  

Before the opening of Mexico to the outside world, fighting monopolies did not make much sense since the government favored public monopolies and intervened in the official pricing of many products. Prices were not fixed by the market but were determined in meetings between producers and the government. It was not until the North American Free Trade Agreement that Mexico would require a new antitrust law that was essential to upgrade the economic law to reflect Mexico’s new vision. The 1992 law underwent amendments in 2006 and 2011.

Editor:  Would it be fair to say that NAFTA has been a driving force in competition policy among Mexico, the U.S. and Canada?

Dominguez-Torrado: Absolutely,  and it should be noted that our Supreme Court has ruled that international treaties trump federal law and have the same legal effect as the provisions of our Constitution.

Editor: Would it also be fair to say that NAFTA operates as a moderating template in the sense that none of the three signatory nations is free to enact legislation or regulation that conflicts with the principles in the compact?

Dominguez-Torrado: It has established the framework for us.

Editor: Has there been increased convergence of the antitrust laws of the U.S. and Mexico?  Have penalties increased?

Dominguez-Torrado: Since the beginning, the current Mexican Antitrust Law adopted some language, trends and ideas from the Clayton Act, the Sherman Act and the Federal Trade Commission Act, including International Treaties. On May 10, 2011 our Competition Act was reformed to include the possibility of class actions and increased fines, hence increasing the convergence between the U.S.’s and Mexico’s laws.  The administrative penalties that are imposed for engaging in monopolistic conduct have increased, and today a company may be fined ten percent of its taxable income for a collusive behavior or tying conduct (agreements between competitors) and ten percent for abuse of dominant power. In addition, certain activities are now characterized as criminal, e.g., price fixing, conspiracy to restrain trade or colluding in public bids, and are punishable with jail time ranging from three to ten years.  The Federal Competition Commission has new powers to investigate the illicit conduct, such as the ability to conduct surprise inspections and, in the event that there may be imminent danger of serious injury to competition, temporary injunctive relief orders.

Editor: That sounds like a serious increase in enforcement.

Dominguez-Torrado:  It remains to be seen whether our FTC will apply the law in a strict fashion.  We still have monopoly or duopoly power in certain sectors, such as telephony.  However, after the reform a significant fine was levied against Telmex. 

Editor: Who composes the Federal Competiton Commission?

Dominguez-Torrado: The Commission is a decentralized administrative body, part of the Ministry of Economy, and has technical and operational autonomy. There are five commissioners, including the President of the Commission.   They decide the enforcement actions by majority vote. Commissioners cannot abstain from voting, and commissioners who are absent during the plenary sessions must issue their vote with a written explanation within five working days after the session.  The commissioners are nominated by the President of Mexico and confirmed by the Congress for a ten-year term. The President of the Commission is likewise nominated  from the commissioners  by the President of Mexico and confirmed by the Congress, but only for a four-year, once renewable term, after which he or she reverts to being a member of the Commission for the balance of his or her ten-year term.  This system results in non-synchronous terms with that of the President of Mexico, who is limited to one six-year term.

Editor: Have there been any recent changes in the Commissioners that would indicate a change of policy?

Dominiguez-Torrado: In Mexico there have been no changes to the head of the Federal Competition Commission since five years ago. According to the applicable Mexican law, Mr. Eduardo Perez-Motta will remain in office for ten years, so he will remain as President of the Commission until 2016. Mr. Pérez-Motta has been pressuring legislators to improve the regulation on economic competition. In fact, under his term big companies, from industries ranging from telecommunications, entertainment to beverage companies, have received exemplary fines for monopolistic practices.

Editor: Have the recession and other recent trends in the economy of Mexico affected antitrust?

Domingues-Torrado: Although the recession did not hit Mexico as hard as some other countries, the proximity and the close business dependency with the U.S. certainly slowed economic growth and foreign investment in Mexico. In addition, the President has been struggling with Congress to pass structural legal reforms that will allow sustainable economic growth. These reforms include fiscal, labor, economic competition and energy policies. Due to this backlog small and medium-size firms in strategic sectors, such as energy and telecommunications, cannot qualify to bid for many government contracts, specifically with Mexican government-owned petroleum company, Petroleos Mexicanos.  

Editor: Are there any traps or assumptions that a U.S. company might make about Mexico’s antitrust laws that might expose it to enforcement in Mexico? 

Dominguez-Torrado: We do not believe that many U.S. or other foreign companies think so. They are more interested in the opportunity to compete in areas that were previously reserved either for the government or companies that were majority-owned by Mexican citizens. 

Editor: Are Mexican companies contemplating business operations in the U.S. deterred because of the litigation climate or other factors here?      

Dominguez-Torrado: In fact, there are very few Mexican companies that have the possibility of transferring part or their whole operation to the United States, so we feel this issue is not really relevant in Mexico. However, for those that may be in a position to do so, they may be deterred, particularly since the antitrust laws can be enforced more harshly and the costs of a possible litigation are certainly higher than in Mexico.

Editor: How does Mexico treat companies that have become dominant in their markets?

Dominguez-Torrado:  If a Mexican company gains dominance because of better business and financial practices than those of its competitor(s), it will not be sanctioned by the laws of Mexico. The actions that are prohibited are specifically included in the law, for example, mergers that result in a monopoly. To avoid this, some mergers have to be previously authorized by the Commission.

Editor: Are there any final thoughts that you have?

Dominguez-Torrado: I believe that right now with these changes of the law, and certainly what is happening in the country between the big companies, including the telecommunications services, will show us where we are headed. The last resolutions from the Commission have been harsh against big companies that are monopolies. These new rules will allow foreign investment in areas that were previously closed. 

Editor: Would you hazard to guess that this would also be true with regard to the energy sector?

Dominguez-Torrado: It is changing, allowing private companies now to produce energy that was reserved to the state, so more and more companies are starting to come into Mexico. One example is the French company Alstom, which is building a huge energy plant. This is good for Mexico because the companies are starting to change from the state-owned service companies to privately owned energy services that certainly are cheaper. I read yesterday that one of the big automobile companies is building a new plant here. Their kilowatt-hour cost is going to drop from seven pesos per kilowatt hour to four-and-a-half pesos.  But the petroleum monopoly is still reserved to PEMEX. 


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