Antitrust as Industrial Policy Mexico in Focus

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Antitrust as Industrial Policy?Mexico in Focus
Gabriel Castañeda Castañeda y Asociados Bosque de
Ciruelos 186-102 Col. Bosques de las Lomas C.P.
11700 Mexico City Mexico Tel. (52-55)
5251-9550 gcastaned_at_prodigy.net.mx

• ABA Section of International LawLegal Challenges
  for Foreign
• Investment in Latin AmericaMay 8-9. Sao Paulo,
  Brazil

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1. The issues

• Chemically pure antitrust all efficiency, all
  the time (Exists only in theory)
• Chemically impure antitrust efficiency plus
  other industrial goals, like employment,
  wealth-redistribution, protection of national
  champions. (Even advanced jurisdictions incur in
  pecadillos)

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2. The main driving forces

• Discrimination granting advantages, either to
  offset alleged imbalances or to obtain policy
  goals
• Among national industries.
• National players vis-à-vis foreign firms

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3. Available forms

• Regulatory red-tape i.e. requesting foreign
  firms to file translated documents in the host
  jurisdiction in the pre-merger review process.
• Regulators turtle-paced attitude lack of
  transparent rules or process, to cause delay.
• Regulators being captured by domestic firms,
  assisted by domestic politics.
• Uneven interpretation of statutes, or uneven
  enforcement of rules.
• Bland or negligent law enforcement, which
  indirectly create anticompetitive advantages for
  domestic incumbents.

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4. Mexico before 1993.

• 1934 Anti-monopolies Laws industrial policy
  impurities
• Powers to the government to impose price
  controls.
• Powers to the government to grant subsidies to
  national industries.
• Powers to the government to prevent excessive
  competition.
• Powers to the government to restrict output to
  prevent over-production.

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5. Mexico after 1993.

• 1993 Federal Law on Economic Competition
• Framers explicitly refrained from including
  industrial policy impurities.
• The statute explicitly states that its goal is
  the efficient functioning of markets. Period.
• Imposes serious restrictions on the government in
  setting price controls.
• Provides no discrimination against foreign firms.
• Provides wide powers to the enforcement agency to
  issue advocacy opinions to eliminate
  bottle-neck regulations and anticompetitive
  discrimination.

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6. Mexican precedents.

• Theoretically, Mexican law does not allow the
  incorporation of KIERETSUS.
• Sinergia. The three largest supermarket chains
  join forces in 2004 to create a purchasing cartel
  (explicitly prohibited by the statute) to
  allegedly take on Wal-Mart Stores. Parties
  creatively opted to pre-notify the incorporation
  of a corporate vehicle, in a transaction that did
  not imply the transfer of any assets. The FCC
  cleared the transaction with some mild
  conditions. Suppliers complain in the press from
  time to time.

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6. Mexican precedents (Continued)

• Kansas City Southern/TFM. In 2003, KCS a US
  railroad company, purchased the shares of stock
  of Mexican railroad company TFM. KCS filed for
  clearance at the competition agency, as well as
  with the foreign investment regulator. Both
  clearances were held-up for some time, allegedly
  due to heavy lobbying by Ferromex, a powerful
  railroad joint-venture controlled by a prominent
  Mexican entrepreneur and the US giant Union
  Pacific. Ferromex claimed that a strategic
  railroad company would be controlled by
  foreigners, after more than a century.
  Fortunately, the antitrust agency did not yield
  to such claims and cleared the transaction. And
  after some time, the foreign investment regulator
  also cleared the transaction.

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6. Mexican precedents (Continued)

• In chapter II of this story, in 2006 Ferromex
  purchased the only remaining railroad competitor,
  Ferrosur. The antitrust agency, despite having
  refused to allow the merger, has not been able to
  un scramble the railroad eggs. A de facto
  railroad national champion?
• FCC opinion on amendments to the Foreign
  Investments Law. In 2007, the FCC issued an
  advocacy opinion which recommended to eliminate
  the 49 cap on foreign investment in the
  telecommunications industry, even if there is no
  reciprocity conditions in the foreign investor's
  jurisdiction. The FCC rightly stated that such
  move would foster competition, improve
  technological innovation and reduce rates to the
  benefit of consumers. 

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7.  Mexico's foreign investment policy.

• Today, Mexico is one of the most powerful
  recipients of foreign investment. Many areas of
  the economy are now open to foreign investment.
  (See restricted areas in the annex). Thus, it is
  no coincidence that the antitrust agency's work 
  in merger review is overwhelmly dedicated to
  transactions carrying some kind of foreign
  investment. In conclusion, today Mexico's heavy
  dependency upon foreign investment makes it
  difficult for formal discrimination to be
  included in antitrust regulations. Subtle forms
  of discrimination may arise from time to time, as
  it probably happens in most jurisdictions.

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7.  Mexico's foreign investment policy
(Continued).