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Identifier
Created
Classification
Origin
06MEXICO2708
2006-05-19 23:07:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Mexico
Cable title:  

NEW COMPETITION LAW BRINGS INTERNATIONAL STANDARDS

Tags:   ECIN  ECON  EFIN  EIND  EINV  ENRG  ETRD  MX 
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VZCZCXRO1444
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2708/01 1392307
ZNR UUUUU ZZH
R 192307Z MAY 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0908
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0349
RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
						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
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