Understanding the Importance of Legal Certainty for Investments
Economic development scholars agree that one of the key conditions for attracting investments is legal certainty. As Ronald Coase famously stated in his theorem, “if property rights are well-defined and transaction costs are low, efficient resource use can be achieved.”
However, legal frameworks that fail to clearly define property rights or impose high costs for resolving disputes will result in inefficient outcomes, attracting only investments with highly disproportionate returns. This loses potential investors who are closer to a competitive level.
Asset Divestiture: A Corrective Measure
Asset divestiture is a corrective measure where a company sells production plants, production lines, brands, shares, or any other advantageous assets to prevent an unfair competitive edge over rivals. This measure is typically applied by competition authorities to protect the market from dominant structures that hinder new entrants or restrict existing participants’ ability to compete.
- AT&T (1982): The company was forced to split into seven regional companies (“Baby Bells”) to break its telecommunications monopoly.
- Microsoft (2000): The U.S. Department of Justice proposed splitting Microsoft into two companies due to abuse of dominant position with its Windows operating system. Although the divestiture did not occur, it set a global precedent.
Recent Reform to Mexico’s Federal Competition Law
In this context, the recent reform to Mexico’s Federal Competition Law, particularly Article 131, stands out. It allows for asset divestiture based on a competition authority’s resolution, even if it is under judicial review. Previously, the case had to be finalized, including a judicial sentence before an indirect appeal.
However, the reform approved on July 1, 2025, lowers this standard, requiring only an administrative authority’s decision.
Potential Legal and Economic Issues
Ordering asset divestiture without a firm judicial resolution can create several legal and economic problems.
- Legal Issues: It may violate the presumption of innocence or legality. If a resolution can still be challenged through an amparo lawsuit, enforcing measures like divestiture could be premature or even unconstitutional. There’s also the risk of nullity or reversal: if an act is executed and later the resolution is overturned, restitution of assets can become complex or impossible if they’ve already been sold or transferred.
- Economic and Financial Consequences: Loss of asset value: Rushed sales may occur under unfavorable conditions, affecting market value. Uncertainty for investors: Executing measures without legal certainty can erode trust in the regulatory environment, impacting investment.
This reform represents a step backward for Mexico’s legal and competition framework, which aims to attract investments for job creation and population well-being. The message to investors is that the rule of law may not protect their investments with the same standard as in other jurisdictions, and administrative resolutions can order asset divestiture without a completed judicial process that could reverse the administrative decision.
Awaiting Judicial Resolution
It remains to be seen how the first constitutional challenges will address this legal modification and whether new judges and magistrates in competition and telecommunications courts will rule according to international parameters and national jurisprudence.
