Providing effective mechanisms to fight barriers to competition in Mexico

Master in Competition and Market RegulationAcademic Year 2014/2015

Master Project

Providing effective mechanisms to fight barriers to competition in Mexico

Fernando Cota AcuñaJune, 2015

• Mexico’s problem with the regulatory barriers to competition

• Limited powers of the Competition Authority to deal with those barriers

• International experience: Spanish LGUM

• How to apply that experience?

Outline

Providing effective mechanisms to fight barriers to competition in Mexico

• In Mexico, most of competition barriers are due to regulations.

• According to the OECD Indicators of Product Market Regulation show that Mexico has one of worst regulatory environments in terms of competition:

• This barriers show a wide dispersion between Mexican states and municipalities.

Mexico has pernicious and pervasives regulatory barriers to competition

Providing effective mechanisms to fight barriers to competition in Mexico

Source: OECD’s Indicators of Product Market Regulation Homepage

* Commonly used slide in COFECE’s public presentations

The Competition Authority in Mexico (COFECE) is aware of it:

Providing effective mechanisms to fight barriers to competition in Mexico

• The Governor of Baja California Sur has the power to restrict the entry of milk or meat from other States.

• The associations of producers have to give its approval before producers in other states can introduce their products.

• Of course, the producers have incentives to impede the entry of competition in their State…

• … the consumers in Baja California Sur and the producers in the rest of Mexico will be adversely affected.

An example: Livestock Act of Baja California Sur

Providing effective mechanisms to fight barriers to competition in Mexico

• The recent Constitutional reform (2013) allows Cofece to “order measures to remove barriers to the competition and free participation in the markets”

• However, the Federal Law of Economic Competition do not provide effective mechanism to remove regulatory barriers to competition.

• In fact, the current law only allows COFECE:• to issue non-binding opinions regarding those barriers• to notify to the Federal Government the existence of barriers at the state or

municipal level

• It is necessary to reform the Federal Law of Economic Competition in order to fulfill the constitutional mandate

What can COFECE do? Today, not much

Providing effective mechanisms to fight barriers to competition in Mexico

International experience: Spanish LGUM

Providing effective mechanisms to fight barriers to competition in Mexico

GOAL

HOW?

ENFORCEMENT

Guarantee the liberties of establishment, movement and access to markets across the country.

Allows that firms that operate in different jurisdictions may only apply the rules of their jurisdiction of origin, without adapting it to the destination.

Non-binding and binding procedures that allows any affected agent to complain about regulations that involve barriers.

• The Spanish Government faced a similar problem: The decentralization process created 19 autonomous regions with economic regulations that, in some cases, resulted in significant barriers to competition.

• To solve this, the Parliament approved the Law of Guarantee of Market Unity.

Enforcement: Articles 26 and 28

Providing effective mechanisms to fight barriers to competition in Mexico

Economic agents or consumers can complain before the CUM about

any regulatory obstacle to the freedoms of establishment,

movement and access to markets.

The Council for the Unity of theMarket (CUM) will inform theauthority responsible of the

regulation.

The authority may inform within15 days what resolution it willadopt in order to solve the issue.

If the authority does not adoptany solution or if the economicagent is not satisfied with thesolution, they can resort to theprovisions of article 27.

Enforcement: Article 27

Providing effective mechanisms to fight barriers to competition in Mexico

Economic agents or consumers can complaint before the CNMC about

any regulatory obstacle to the freedoms of establishment,

movement and access to markets.The CNMC can also initiate this

procedure ex officio.

CNMC can file an administrative appeal against those obstacles.

CNMC can request the suspension of provision denounced and other

preventive measure. The suspension it will be granted automatically

Is Mexico ready for a similar arrangement?

Providing effective mechanisms to fight barriers to competition in Mexico

CONSTITUTIONAL INDEPENDENCE

CONSTITUTIONAL RIGHT

• The Constitution recognizes economic competition and free concurrence in the markets as fundamental rights.

• It also explicitly prohibit the States to tax or forbid the entry, transit or exit of any good, and to issue or maintain in force laws or regulations that discriminate on grounds of origin.

• Other Constitutional principles related: National unity, free choice of employment, freedom of movement and the duty of the authorities to foster competitiveness.

More important: Constitution explicitly gives COFECE the faculty to remove barriers to competition.

2014 reform: COFECE as a fully autonomous competition authority:

• Autonomous budget

• Professional commissioners (they cannot be politicians)

• Pre-selected in a non-political process

• They cannot be removed (except impeachment)

• Specialized Courts to review COFECE’s decisions

Little risk of regulatory capture by politicians

Reforming Mexico’s Law

Providing effective mechanisms to fight barriers to competition in Mexico

Reaffirm in the Law the rights to compete freely

Effective communication mechanisms between agents, COFECE and authorities

Give COFECE the power to appeal before the Courts anti-competitive regulations

Allow for suspension of those regulations Reinforce Constitutional challenges

Master in Competition and Market RegulationAcademic Year 2014/2015

Master Project

Providing effective mechanisms to fight barriers to competition in Mexico

Fernando Cota AcuñaJuly, 2015