Introduction
The Mexican government has proposed a reform to the Federal Economic Competition Law (LFCE) that aims to strengthen sanctions against monopolistic practices. The reform includes doubling fines to 20% of the offending economic agent’s income, establishing a new National Antimonopoly Agency (CNA) to replace the Cofece, and providing preferential treatment for strategic state-owned enterprises.
Background and Context
For decades, Mexico has been dominated by large corporations and capital that dictated economic conditions. The proposed reform, signed by President Claudia Sheinbaum on April 24, seeks to correct abuses of power by groups prioritizing their interests over the well-being of Mexicans. The government argues that monopolies have created an environment where businesses do not consider shared welfare, allowing certain groups of businesspeople and politicians to monopolize entire sectors and regions, hindering the growth of new enterprises.
Key Changes in the Proposed Reform
Increased Fines
The reform proposes to impose fines of up to 20% of an economic agent’s income for absolute monopolistic practices and up to 15% for relative monopolistic practices. The current LFCE, amended in 2014, sets fines at 10% and 7%, respectively. Additionally, illegal concentrations would be penalized with up to 15% of the offender’s income, with the same fine applying for failing to meet conditions set for mergers.
New Antimonopoly Agency
The reform establishes the creation of the National Antimonopoly Commission (CNA), replacing the Cofece. The CNA will be a decentralized body under the Ministry of Economy, maintaining technical independence in decision-making, organization, and operation.
- The CNA will have five commissioners instead of the current seven, with terms lasting seven years.
- The Executive will appoint commissioners, subject to Senate ratification, with staggered appointments.
- The CNA will maintain a separation between the authority conducting antimonopoly investigations and the full body responsible for final case resolutions.
Shorter Investigations
The reform aims to reduce the maximum time for investigating monopolistic practices from up to five 120-day periods to four 120-day periods. New sanctions will also be imposed on investigated agents who obstruct verification visits by the Investigative Authority, with penalties reaching 200,000 Units of Measure and Update (UMA).
The reform will also enable closer scrutiny of mergers, as investigations into anti-competitive effects of non-notifiable mergers (up to three years old) will now be allowed, extending the current one-year limit.
Exclusion of State Enterprises
In line with a constitutional reform regarding strategic state industries (promulgated in October of the previous year), the proposed LFCE states that its guidelines will not apply to state-owned enterprises.
- This means that companies like Pemex or the Federal Electricity Commission (CFE) cannot be investigated or penalized for substantial market power abuse.
Telecommunications
As anticipated, the reform specifies that the new competency body for telecommunications and broadcasting sectors will be the CNA.
- The CNA will determine preponderance in both markets, analyzing whether a single entity holds 50% + 1% market share.
- Regulatory asymmetry will be imposed, supervised, and enforced by the Agency for Digital Transformation and Telecommunications (ATDT).
Transition and Implementation
The reform ensures that, until the new CNA Plenum is established, the Cofece will continue its functions.
- Ongoing proceedings before the new governing body’s establishment will continue under existing regulations at initiation.
- The Investigative Authority’s current head will remain in office, and Cofece human resources will transition to the CNA.
Key Questions and Answers
- What is the main objective of the proposed LFCE reform? The primary goal is to strengthen sanctions against monopolistic practices and promote fair competition in Mexico’s economy.
- What changes are being proposed to fines for monopolistic practices? Fines will be doubled, with absolute monopolistic practices facing up to 20% of an offender’s income and relative monopolistic practices facing up to 15%. Current fines are 10% and 7%, respectively.
- What is the purpose of creating a new National Antimonopoly Agency (CNA)? The CNA will replace the Cofece, maintaining technical independence while investigating and sanctioning monopolistic practices.
- How will the investigation process be affected by the reform? Investigations will have shorter timeframes, and new sanctions will be imposed for obstructing verification visits. The CNA will also have broader authority to investigate mergers.
- Which state-owned enterprises will be excluded from the LFCE’s regulations? Companies like Pemex and CFE will not be subject to investigation or penalties for substantial market power abuse.
- What role will the Agency for Digital Transformation and Telecommunications (ATDT) play? The ATDT will enforce regulatory asymmetry in telecommunications and broadcasting sectors.
