A new test for Mexico’s structural changes: antitrust reform – key points in one chart

by DLA Piper
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Mexico’s President Enrique Peña Nieto has signed a bill formalizing the implementation of important amendments to the Mexican Constitution that primarily cover telecommunications, media and antitrust.

The adoption of these constitutional amendments has been widely heralded as extremely positive, even in the absence of the implementing legislation. The constitutional amendments are already in effect, having become effective on the day following their publication in the Official Gazette on June 12, 2013. 

The New Antitrust Law (Ley Federal de Competencia Economica), part of this implementing legislation, will be in place soon. In February, President Peña Nieto submitted to the Mexican Congress a draft bill to enact new implementing legislation that would replace the 21-year-old Federal Economic Competition Law. 

The New Antitrust Law has been passed by both houses of Congress and was signed by President Peña Nieto on May 22, 2014 and published the following day in the Official Gazette.  The New Antitrust Law becomes effective on July 7, 2014 (45 calendar days after its publication in the Official Gazette) and will supersede the Economic Competition Law.

The New Antitrust Law aims to revamp the structure of the antitrust regulator and update Mexican antitrust regulations by adopting OECD practices and standards, as well as tracking and satisfying the mandates of the constitutional amendments.

As highlighted below, the law:

  • creates two regulators with broad new powers
  • implements a new regulatory regime for general antitrust matters
  • implements a special framework for antitrust matters related to telecommunications and media and
  • creates specialized courts to resolve antitrust and concentration matters.

This entirely new framework should be carefully analyzed by investors in structuring their Mexico-related M&A transactions and managing their existing operations.

Companies operating in the Mexican market will need to revisit their management processes, consider adopting and monitoring new business practices, and adopt revised codes of conduct addressing the do’s and don’ts of proper competitive behavior.

Key features of the New Antitrust Law are:

 

New Antitrust Law

Regulator

Two regulators:

1. New Federal Economic Competition Commission (“FECC”) oversees all matters except telecom and media

2. Federal Telecommunications Institute (successor to the Federal Telecommunications Commission) oversees all matters related to telecom and media

Authority and powers of regulator

FECC is vested with broader authority and powers to eliminate barriers to competition, mandate divestiture of assets and issue regulations and opinions.

Of particular interest is the broad authority of the FECC to investigate and determine the absence of effective competition, the existence of barriers to competition and free access or essential resources (insumos esenciales, covering inputs and facilities) that may generate anticompetitive effects in a market, and the FECC’s authority to resolve the same, even ex ante, by imposing corrective structural or behavioral interim measures, including the determination of access conditions and prices.

Except in those cases where the FECC orders the divestiture or sale of assets, rights or equity interests, the implementation of the FECC’s resolutions are not subject to a judicial stay pending the outcome of litigation.  Preventive measures (medidas cautelares) may be imposed, but may be suspended if the economic agent provides adequate guarantees.

Process

An Investigation Unit (IU) within FECC is created to conduct antitrust (anticompetitive practices and concentrations) inquiries and related analyses. If the IU concludes that there is a case to be pursued, then it can open an administrative process in which it will act as the prosecutor, the alleged violators will be defendants, and the FECC will preside over and decide the case.

Outright (horizontal) anticompetitive practices

In addition to those contemplated by the Economic Competition Law:

(i) actions or omissions which have the purpose or effect of collusion related to the participation in all types of private bidding processes; and

(ii) sharing of information among competitors with the purpose or effect of price manipulation, impact supply of goods or services, or market segmentation.

Apparent (vertical) anticompetitive practices

In addition to those contemplated by the Economic Competition law:

(i) denial of, or restriction to, access, or discriminatory access to essential resources and

(ii) margin compression related to an essential facility.

Concentrations

The thresholds set forth in the Economic Competition Law are maintained.

The most relevant changes are:

(i) the parties may not close a transaction until FECC clears it (closing after lapse of the ten-day period without the issuance of a stop order, permitted under the existing Economic Competition Law, is no longer allowed)

(ii) FECC is permitted to seek information from third parties and government agencies

(iii) the parties forming part of the concentration may propose conditions (related to future structure or administration of the concentrated assets to address the adverse effects of the proposed market concentration) in order to secure the approval of the concentration prior to the FECC ruling and

(iv) FECC clearance will be effective for six months, extendable for one additional six-month period

Penalties

Penalties (administrative and criminal) and fines have been strengthened and new fines and penalties are in place, such as the divestiture of assets, regulation of essential resources and barring of individuals from participating as agents, officers or members of the board of directors as a consequence of their direct or indirect participation in illegal antitrust or market concentration practices.  Administrative fines go up to 10% of a violator’s revenue, in addition to civil and criminal liabilities exposure

Statute of limitations

Ten years from the date the concentration occurred or the antitrust conduct ceased

Vacatio legis

Processes related to concentration clearance or anticompetitive determinations commenced prior to the effective date of the New Antitrust Law shall be conducted and resolved pursuant to the Economic Competition Law.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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