NEW COMPETITION LAW BRINGS INTERNATIONAL STANDARDS

UNCLAS SECTION 01 OF 03 MEXICO 002708 SIPDIS SENSITIVE SIPDIS PARIS FOR USOECD STATE PLEASE PASS FTC/INTERNATIONAL ANTITRUST TRITELL JUSTICE FOR ANTITRUST DIVISION E.O. 12958: N/A TAGS: ECIN ECON EFIN EIND EINV ENRG ETRD MX SUBJECT: NEW COMPETITION LAW BRINGS INTERNATIONAL STANDARDS TO MEXICO REF: A. MEXICO 594 ¶B. MEXICO 1080 ¶C. MEXICO 1716 Sensitive but unclassified, entire text. ¶1. (SBU) SUMMARY. Despite significant opposition to proposed changes to Mexico's competition law, the Federal Competition Commission (CFC) negotiated an agreement with the business community led by the Mexican Business Coordination Council (CCE),an umbrella group of trade associations. This agreement became the basis for the new Mexican competition law passed April 25 in the Chamber of Deputies and April 27 in the Senate. President Fox should sign the bill shortly. The new law puts CFC's authority on par with similar organizations in other countries. Some, such as CFC President Eduardo Perez Motta, believe that the new competition law will become the most significant law passed in recent years as time progresses and businesses learn its effects. The new law not only improves CFC's ability to regulate private monopolies but allows it to monitor the activities of public monopolies as well. END SUMMARY. LONG ROAD TO AGREEMENT -------------- ¶2. (SBU) Econ Mincouns and Econoff met with CFC President Eduardo Perez Motta on May 12. Econ Mincouns asked what had changed to allow the new law to pass since as recently as February (REF A) Perez Motta had doubted the law would pass. He said Telmex and the CCE were the two principal opponents of the new law and had held up an agreement for nearly nine months. Telmex, fearful of having its monopolistic market share reduced, has used the court system for the last ten years to prevent changes to the monopoly rules. Perez Motta stated that the private sector over eight months of discussions had rejected 40 of 130 proposed changes, including: the ability to arrest for up to three days someone found guilty of monopolistic practices on multiple occasions; the ability to use necessary government resources during an investigation and to execute its findings; and the ability for CFC to ask for police assistance to enforce its findings. Perez Motta explained that as discussions continued, CCE's members found that they could support pasage while Telmex's opposition continued. CFC and CCE struck a compromise on �0A;April 6. This agreement became the basis for the new law passed by the Chamber of Deputies on April 25 and the Senate on April 27. Perez Motta told Econ Mincouns he felt that Congress passed the bill quickly and with virtually no changes as they were aware of how publicly active the CFC had been in recent months, including its opposition to some bills such as the Radio and Television Bill that President Fox had supported (Refs B and C). Many politicians and several of the political parties had lost significant political capital due to the Radio and Television Law and were afraid to oppose the competition bill. Telmex, perhaps the company most affected by the passage of the new bill, sent its lawyers to the Chamber of Deputies while the bill was being debated in hopes of convincing enough legislators to vote against it. CFC NOW ON PAR WITH SIMILAR INTERNATIONAL ORGANIZATIONS -------------- -------------- ¶3. (SBU) Perez Motta explained that the new law puts the CFC on the same level or above similar organizations in other countries. The designs of similar organizations worldwide were used when crafting the law. The law allowed the CFC to reinstate regulations that had been stricken in past modifications of the competition law, create a leniency program for organizations that commit violations but assist the CFC, and create a "witness protection program" for whistleblowers. The CFC will also gain powers that similar organizations in other countries do not have, including its ability to publish rules covering other Mexican regulators, thus strengthening the relationship between the judiciary and the CFC. Perez Motta mentioned he feels this is the rule that will affect Carlos Slim, President of Telmex, the most. LAW WILL REDUCE THE NUMBER OF APPEALS -------------- ¶4. (SBU) Econ Mincouns questioned how the new law would affect court appeals of CFC decisions, a common tactic used by businesses to prevent them from having to comply with MEXICO 00002708 002 OF 003 CFC's rulings. Perez Motta explained that the new law cannot prevent appeals as they are a right guaranteed in the constitution. However, the new law raises the costs of appeals and the probability of winning them. The new law fills in may "black holes" in the previous law that companies used as justifications for appeals. Perez Motta pointed to a growing number of court victories in favor of the CFC. He pointed to a meeting he had just left with an association that had recently won a seven-year appeal to stop a monopolistic merger. TELMEX WILL BE MOST AFFECTED BY NEW LAW -------------- ¶5. (SBU) Telmex has had an appeal pending against the CFC for over four years that allows it to withhold information from the CFC. Once the new law takes affect, Perez Motta explained that Telmex would have to re-appeal if CFC were to request information again. CFC has taken Telmex to court on a variety of issues over the last ten years. Telmex has responded with 57 appeals -- making Telmex the company which has used the legal system the most to repel the CFC -- attacking virtually every article of the competition law. Telmex has refused to comment on the issue. Gerardo Soria Gutierrez, a lawyer specializing in telecommunications, notes that until the Constitution is modified to remove the possibility of appeal, companies such as Telmex will be able to continue to use the appeal process to protect their monopoly position. MONOPOLIES MUST CHANGE THEIR PRACTICES -------------- ¶6. (SBU) Perez Motta pointed to recent changes in the Mexican airline industry as positive examples of effective anti-trrust regulation. While CFC participated from the beginning in the deregulation of Mexico's airline industry, monopolies, such as Telmex, were created before the CFC came into being, making them more difficult for the CFC to regulate. However, Perez Motta now predicts that Telmex and other private monopolies will have to change their practices to avoid penalties imposed under the new law. Sanctions could be as high as 1,500,000 times the minimum salary in Mexico City or ten percent of the annual revenue of a company. While the CFC had previously investigated CEMEX, the national cement monopoly, without finding any sanctionable violations, the new law will allow them to investigate the company again. PUBLIC MONOPOLIES FAIR GAME TOO -------------- ¶7. (SBU) CFC will also regulate public monopolies, such as PEMEX and CFE (Federal Electric Commission) under the new law. Although they cannot be divided or sold, the law allows them to be sanctioned for taking advantage of their monopolistic position in areas that are not of "strategic importance," such as PEMEX's actions in gas distribution according to Perez Motta. COMPETITIVENESS VISITORS FROM U.S. BENEFICIAL -------------- ¶8. (SBU) Perez Motta commented to Econ Mincouns that recent DOS and USAID sponsored visits to Mexico by Federal Trade Commission representatives and Justice Ginsberg have helped fuse the relationship between the CFC and the Mexican judicial system. Perez Motta suggested that in the future the CFC hopes to have courts in Mexico dedicated to handling economic issues. While Perez Motta could not predict how future administrations would handle the new competition law, he suggested future USG involvement be low profile to avoid the appearance that the U.S. is attempting to dictate Mexican policy. He suggested combining U.S. support with assistance from other countries, academic institutions, or international organizations such as the OECD. Perez Motta suggested picking sectors that are in need of both structural and regulatory reform and organizing symposiums with academic and technical participants on necessary reforms. He suggested telecommunications and transportation may be ripe for focus and believed it would be useful to invite representatives from countries which had succesfuly reformed these areas. Perez Motta was also receptive to working with the Embassy to publicly defend NAFTA as 2008 and the complete opening of all MEXICO 00002708 003 OF 003 agricultural markets occur. He also agreed that furthering relationships with the AMCHAM could assist the CFC in advancing its interests. CFC MOVES INTO NEW FIELDS -------------- ¶9. (SBU) The CFC announced that in the coming months it will release to the public opinions on several key sectors. These include railroads, metropolitan airports and radio and television content. Perez Motta also explained that CFC is currently working with the Bank of Mexico and the National Commission for Retirement Savings (CONSAR) to ensure there are not barriers to entry and that the market is operating efficiently in providing retirement savings accounts. The CFC is also investigating customs brokers to ensure that anticompetitive practices are not placing extra costs on importers and exporters. COMMENT -------------- ¶10. The willingness of courts to deny appeals to the new law will dictate the impact of this law on economic conditions in Mexico. This bill, coupled with recent legal rulings in CFC's favor, as well as CFC's efforts to have its activities promoted in the press may be the right combination to demonstrate the advantages of competition to the general population. Perez Motta is a staunch advocate of competition and is not afraid to fight for it. He will be a key contact, particularly in the new administration, to help advance our economic interests. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity KELLY