Disputes

Competition enforcement

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

Mexico is considered as one of the most competitive countries in this market in terms of avaiable products. In terms of the automotive industry there are well over 50 brands with a presence in Mexico and around 2,600 auto parts companies.

In competition matters, the 2014 Federal Economic Competition Law, along with an amendment to the Constitution, created a new Federal Economic Competition Commission (Cofece). Even though this commission follows the legal framework established by the previous one on monopolistic practices, some changes have been introduced regarding defining entry barriers to competition and access to essential raw materials. Even though Cofece has been very aggressive with its investigations and fining activities in other industrial sectors, there has as yet been no major competition litigation related to the automotive industry in Mexico.

Cooperation between the competition enforcement agencies of Canada, the United States and Mexico has continued to strengthen, and Mexico’s participation in joint investigations has increased. If a company is being investigated by one of these countries for a possible antitrust violation, its conduct and statements could also be reported and investigated by the authorities of the other countries.

Annual trilateral meetings of the aforementioned countries take place with the objective of ensuring and improving cooperation and coordination of antitrust policies and their enforcement.

Dispute resolution mechanisms

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

Disputes in the Mexican automotive industry are often resolved through arbitration if an agreement includes such provision. If parties involved in the dispute are also United States-Mexico-Canada Agreement (USMCA) parties they often resolve their dispute through the special arbitration provisions applicable for said countries, which mechanism has generally been maintained from the former North American Free Trade Agreement (NAFTA) (which is replaced as of July 1. and with some specific provisions authorising NAFTA investment-related claims being submittable in a term of up to three years after the USMCA comes into effect). Likewise, if parties are signatories to any other trade agreement that Mexico has entered into, an arbitration solution may be available for them.

Mexican courts recognise and enforce awards obtained by these mechanisms; however, if such dispute resolution mechanisms are not available to them, the dispute must be resolved through the application of Mexican law by the competent courts and may not be as expedient as arbitration.

Finally, Mexican courts do not enforce remedies such as injunctions or other equitable remedies except for preliminary relief specifically enumerated in the Commercial Code, as well as stay of execution of the claimed act (similar to injunctions or stop orders) in amparo proceedings. Mexican courts do not award damages other than actual, direct and immediate damages and lost profits, and may not enforce judgments awarding them.

Distressed suppliers

What is the process for dealing with distressed suppliers in the automotive industry?

To strengthen the supply chain, tier 1 and 2 companies and original equipment manufacturers are generally clustered near assembly plants. Nevertheless, sometimes supply interruptions can arise and adversely impact operations and organisations. Therefore, a first important step to avoid these scenarios is for manufacturers to be aware of the status, finance and reputation of their suppliers.

Although there are no legally established processes for this situation (other than bankruptcy laws), generally it is recommended for the manufacturer to consider three main preventive activities regarding its suppliers:

  • reviewing information such as financial statements and analysing internal performance and price trends to develop a risk profile of each supplier;
  • identifying issues such as distinguishing troubled suppliers from healthy ones and determining most likely areas of distress; and
  • analysing and, if necessary, undertaking different options such as changing supplier (if alternative suppliers are an option and an efficient transition is commercially feasible), investing or acquiring said supplier, developing efforts with the supplier to improve communication and material process flows or creating an inventory stock to be used as a reserve.

 

We recommend having provisions included in the agreements entered into by manufacturers and suppliers that cover scenarios in which the supplier is distressed or failing. Obligations for suppliers to ensure an efficient transition to a new provider are common practice in similar agreements. As did NAFTA, the USMCA notably contains certain regional value content specific to the automotive industry that has been increased from those found in NAFTA, so that manufacturers with a high North America export rate must be careful to comply directly, and through their suppliers, with such regional content to keep exporting into the United States and Canada. The rules of origin in the automotive industry were political fuel for the US-driven effort to replace NAFTA, and thus those changes are not insignificant and must be carefully analysed and implemented by any company in the sector with cross-border trade.

Intellectual property disputes

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

The current state of intellectual property (IP) protection in Mexico is an ongoing concern. The legal system is sometimes considered inefficient and violations are punished with weak penalties. Therefore, it is highly recommended for automotive companies to aim for appropriate protection of IP rights upon doing business in Mexico.

Although registering IP rights in another country may offer some benefits, foreign protection does not always extend to Mexico. As such, to ensure and duly protect IP rights, such property must be registered and enforced under Mexican law.

Local legal advice is needed when licensing and transferring technology or any IP right to prepare the agreements and fully protect IP from unauthorised use; franchising is a growing option to be considered.

Notwithstanding, intellectual property rights have received improved protection under the USMCA. This treaty proposes: a copyright term extended to 70 years, prohibitions on circumvention of technological protection methods, and criminal and civil penalties protections for trade secret theft, among other things.