On May 23, 2014 a New Mexican Competition Law, approved by the Mexican Congress on April 29, 2014, was published in the Official Federal Gazette. The New Law will came into force in the next 45 days (from the date of publication) introducing some major changes to the antitrust framework in Mexico.
The new law strengthens the existing powers of the Mexican competition authority (Federal Economic Competition Commission or "Cofece") but also introduces new powers and novel legal concepts, some of which have attracted controversy. The desire to strengthen the country's antitrust regime is in line with other jurisdictions, such as the UK, which recently adopted new competition rules to achieve a similar purpose.
What's different - at a glance
The most significant developments in the new law include:
- Dawn raid powers are now stronger:
- Cofece can now access any place, storage device, electronic device, or any other source of evidence, obtain and take away copies of information, and secure those during the raid;
- Cofece can demand explanations from any officer, representative, or member of the inspected company regarding any document or information obtained during the raid.
- Decisions to initiate an investigation will no longer be published in the Federal Official Gazette, limiting a target’s ability to respond or defend itself. Under the currently effective law, potential targets of a Cofece investigation learn that an investigation is being conducted from such publication (although the name of the target is not disclosed, the information on the conduct being investigated as well as the involved markets most of the times suffice to identify potential risks). Companies may now be facing dawn raids at any time without prior knowledge that an investigation has been initiated in the markets where they are active. This is similar to the approach taken in other jurisdictions, such as the EU and the UK.
- Cofece will have powers to file a claim or complaint regarding presumed criminal conduct in antitrust matters, with no need to wait until a final resolution is issued by the Plenary in the administrative stage. This means, in practice, that individuals engaged in cartel conduct may face criminal prosecution even before Cofece decides whether or not a violation to the antitrust law has occurred.
- Coercive measures have been strengthened. Cofece may order the arrest of individuals for obstructing an investigation, for instance when refusing to answer requests for information or for non compliance with orders issued by Cofece.
- Elimination of the administrative appeal, so now only judicial review (through anamparo trial) is available to challenge Cofece's resolutions.
- Private actions for damages made easier. The rules on private actions for damages that an affected party may initiate, either individual or class (collective) actions, which will now have more possibilities to succeed, even under the opt in model. Specifically, there will be a longer limitation period to claim for damages at specialized Federal Courts in economic competition issues, which are bound by Cofece findings of fact.
- The exchange of information between competitors, when resulting in, or having the purpose of, price fixing, allocation of markets, restricting output or rigging bids, has been incorporated as a criminal offense in the Federal Criminal Code. Individuals potentially involved in exchanging information with competitors may face severe consequences (up to 10 years of imprisonment), even when the information exchange occurs without the intention of violating the antitrust laws.
- New conduct has been incorporated in respect of relative monopolistic practices (analyzed under the rule of reason):
- Companies with a dominant position may not refuse, restrict, or grant discriminatory access to essential inputs, an issue that has generated concern, since regulation of efficient companies' assets may occur, as no clear rules have been established as to when or under what circumstances an input may be deemed essential (only some general elements for its definition have been incorporated to the New Law); and
- Margin squeeze (i.e. to reduce existent margins between the price for accessing to an essential input, provided by one or several undertakings, and the price for products or services, that used such essential input, offered to end customers)
- Incorporation of the concept of "barriers to free competition," a topic closely related to that of essential inputs.
As in the case of essential inputs, the New Law has no clearly defined elements for its definition, and it only indicates that they are "any structural characteristics of the market, facts, or acts of economic agents the purpose or effect of which is to impede competitors' access or limit their ability to compete in the markets; those that impede or distort the free competition process, as well as legal provisions issued by any level of the Government that unduly impede or distort the free competition process".
The concept itself as well as the proceedings to deal with the relevant cases, seems to be designed, or at least could be used, for over-regulating efficient economic agents, a situation that creates greater concern given Cofece's authority to order the divestiture of the assets of such agents.
- Cofece will have authority to regulate access to essential inputs; order measures to eliminate barriers to competition; and order the divestiture of assets.
- An "Investigating Authority" in charge of conducting investigations on monopolistic practices and illegal concentrations has been formed within Cofece, where the Plenary (integrated by 7 Commissioners) will remain as the body deciding the cases. The strengthening of the Investigating Authority is accompanied by controls to prevent abuses, which include increasing transparency and accountability, for instance, the creation of the Internal Comptrollership, and the incorporation of rules for interaction of economic agents with Cofece officials, as well as the disclosure of such contacts and other acts of the authority (resolutions, plenary sessions, and rulings).
Merger control considerations All modifications on this topic are of a procedural nature and, in our opinion, unnecessary as the merger control process has been working efficiently. The most relevant changes are:
- The New Law prevents mergers from being completed until clearance is obtained. Currently Cofece is able to issue a freeze or stop order only for those transactions requiring a detailed analysis, whereas the majority of the reported transactions, as they do not have an impact on the affected markets, can be carried out after waiting 10 days from the filing if Cofece does not issue the referred order; such an approach will no longer be possible.
- Modification of the filing thresholds: Only the annual sales originated in Mexico and/or assets in the Mexican territory will be taken into consideration, instead of such amounts at a global level. Under this modification, a large number of transactions that are currently subject to notification will no longer be analyzed by Cofece, missing an opportunity to prevent those with a negative impact on the market.
- Extension of the resolution period, from 35 business days to 60 business days (maintaining the possibility to extend the term for 40 additional business days in complex cases). The current 35-day term has proven to be more than enough to complete the procedure; therefore, there seems to be no justification for such extension. The negative impact is even greater considering that all the transactions must wait until Cofece issues its authorization before closing.
- Increase in the regulatory burden for the parties. New elements have been incorporated into the list of "basic" information; Cofece has been given powers to require information at any stage throughout the procedure; in general, the terms to require information have been extended; and additional formal requirements will be set for documents and translations. This is at odds with the approach taken in other jurisdictions, such as the EU, which recently took steps to reduce the level of information that parties need to provide when notifying mergers to the European Commission.
- Cofece will be obligated to inform the parties via a notification procedure of any possible risks to competition that may result from a transaction notification, in order for the parties to submit remedies or conditions proposals, a change that is deemed positive.
Companies and individuals should be aware of the relevant changes introduced to the antitrust enforcement environment in Mexico, considering Cofece strengthened powers; in particular:
- Companies should be prepared to deal with dawn raids in full cooperation with Cofece whilst protecting their rights.
- Individuals that may interact with Cofece officials during a dawn raid should be trained and prepared to respond to potential inquiries without compromising privileged communications and documents.
- Adequate antitrust compliance policies and programs should be put in place to reduce the potential risk of being investigated and sanctioned. In addition, companies should consider what types of training and monitoring procedures are adequate to mitigate these heightened risks.
- Companies should also establish clear guidelines on how to deal with competitors and other third parties (i.e. suppliers and clients), covering potential areas of risk such as, information exchange with competitors, distribution policies, incentives and rebates, among others.
- In the merger control arena, companies will now have to deal with more stringent information requirements and may face delays in their approval processes. This should be factored into the deal timetable.