Reforms to the Mexican competition law – Cofece and IFT extinction

During the legislative process, some deputies and senators proposed alternative reforms, but the Congress finally opted to approve President Claudia Sheinbaum's reform that seeks to reform some aspects of the 2014 law.

The key points of this reform, in light of the 2024 constitutional reform that ordered the disappearance of the Federal Economic Competition Commission (Cofece) and the Federal Electoral Institute (IFT), are summarized as:

• New authority: A new authority is created that will be in charge of applying the Mexican competition policy, coordinating some of its powers with the new Agency for Digital Transformation and Telecommunications (Agency), as well as the new Telecommunications Regulatory Commission (CRT);
• Strengthened Law: Certain aspects of the Federal Economic Competition Law are strengthened, through the increase of sanctions, the reduction of thresholds for the control of concentrations, the simplification of civil actions for damages, among other aspects; and
• New facet of competition policy: A new facet of the Mexican competition policy beings, since Mexico adopted, for the first time in the early nineties, several obligations provided in the now extinct Free Trade Agreement with the United States and Canada.

Summarizing, below we detail the most relevant aspects of this new reform and its main implications:

A. New and sole competition authority: National Antitrust Commission (CNA)

1. Extinction of Cofece and IFT. Cofece and the IFT will be cease to exist the day after the appointments of the new commissioners who will compose the CNA Board are ratified. The procedure to compose the new board of the CNA will begin at the time this reform becomes effective (i.e., the day after publication in the DOF). The Executive shall elect the Presiding Commissioner within 10 days of the selection of the members of the Board of the CNA.

2. Legal nature and autonomy. The new CNA will be a decentralized public body, sectored to the Ministry of Economy that will have administrative autonomy and technical and operational independence.

3. Integration. The CNA will be made up of two separate bodies: (i) a Board composed of five commissioners, and (ii) a "Unit" that will lead the investigation procedures, whose head will be the Investigating Authority. During the first years, the current head of Cofece's Investigative Authority will maintain his position.

4. Appointments. The Commissioners will last 7 years in their position without extension and will be appointed in stages by the head of the Federal Executive with the ratification of the majority of the Senate. The head of the Investigating Authority will last 4 years in his position, extendable only once, and will be appointed by the Plenary of the CNA with the favorable vote of its Presiding Commissioner. They may be removed for serious motives.

5. Regulatory framework. The Executive will issue a the regulations of the Antitrust Act. In addition, the CNA may issue regulatory provisions, an organic statute, and may issue guidelines, technical criteria, and guides of a guiding nature.

6. Public position of the Commissioners. The CNA shall publish the position of each of the Commissioners with respect to all the lists in the plenary sessions that are discussed.

B. Changes in Absolute Monopolistic Practices. No new conduct is sanctioned; however, there are important changes in the field of cartels:

1. Cartels between potential competitors. All absolute monopolistic practices can now also be configured between potential competitors.

2. Illicit exchanges of information. Information exchanges between competitors will now be considered as a form of collusion to commit an absolute monopolistic practice, and not as an independent monopolistic practice.

3. Increase in fines. The fine for engaging in absolute monopolistic practices increases by up to 15% of the economic agent's income. Prior to the reform, the maximum fine was up to 10%.

4. New sanctions. Disqualification from 6 months to 5 years to participate in public procurement procedures for those who collude in public tenders.

5. Criminal sanctions are maintained. Once an Statement of Objections has been issued, the Investigating Authority may file its complaint with the Office of the Attorney General of the Republic.

6. Limitation of the immunity program. The benefits of the reduction of penalties are restricted depending on the time at which it is requested: (i) a minimum fine only if it is the first economic agent to request it before an investigation is initiated and (ii) a reduction of 50, 30 or 20 percent of the fine if it is requested after the investigation has begun and until before the publication of the agreement that extends the investigation period for the third time. Additional benefits are granted to applicants such as: that they are not disqualified and that they are not sued in class actions for damages promoted by the CNA.

C. Changes in Relative Monopolistic Practices. No new conduct is sanctioned. However, there are important changes in terms of "abuse of dominant position":

1. Increase in fines. The fine for engaging in relative monopolistic practices increases by up to 10% of the economic agent's income. Prior to the reform, the maximum fine was up to 8%.

2. Expansion of theories of damage. In addition to conducts that have an exclusionary effect, those that have an exploitative effect that limits the ability of other economic agents to compete in markets are considered illegal.

3. Elements to determine substantial power. To determine the substantial power of an economic agent, additional factors are added such as: (i) the degree of positioning of the goods in the market; (ii) lack of access to imports or the existence of high costs of importation; and (iii) the existence of high costs that consumers may face when going to other providers.

4. Changes to the benefit of penalty reduction. If it is requested during the investigation period (prior to the third extension of the investigation period), the file is closed without imputing responsibility. Now this benefit can also be requested during the procedure followed in the form of a trial, imputing responsibility and with a reduction in the fine of up to 50%.

5. Technical Criteria. The existing technical criteria for determining individual and joint substantial power were incorporated into the law.

D. Tougher penalties

1. Minimum fine. For all fines, the minimum fine is always at least one Unit of Updated Measurement (UMA) in force.

2. Recidivism. Recidivism and the sanction of disincorporation will no longer require that the previous sanction be final in court, the issuance of the administrative resolution will be enough to be considered a repeat offender and impose a fine of up to double.

3. Statute of limitations for damages. The statute of limitations to claim damages will now be counted from the time the CNA issues its resolution.

4. Dissuasive fines. It is expressly ordered that the fines imposed be of a deterrent nature. The basis for the amount of the fines should not necessarily be based on the estimate of damage.

5. Generalized increase in the amount of fines. In addition to the increases in fines for monopolistic practices, there is a significant and generalized increase in all the fines provided for in the LFCE.

6. Strengthening of enforcement measures. Daily fines increase by up to 8,000 UMAs [MXN $905,120.00] for each day that the CNA's order is not complied with (for example, discharging a request for information).

7. New fines. For: (i) failing to attend appearances or not answering questions; (ii) for obstructing dawn raids; (iii) for failing to comply with disqualifications; (iv) for delaying procedures and (v) those relating to procedures in the telecommunications sector.

8. Precautionary measures. The possibility of lifting precautionary measures by setting a bond is eliminated.

E. Recognition of compliance programs

1. Certification. The CNA will certify, after payment of fees, the compliance programs of companies in matters of economic competition. This certification will be valid for 3 years.

2. Mitigating circumstance of responsibility. When imposing sanctions, the CNA may assess as a mitigating factor of liability the fact that the company has a certified compliance program.

F. Merger control

1. More operations will have to be notified to the CNA. The thresholds for merger control that must be authorized by the CNA before they are carried out are reduced and some exceptions to the obligation to notify certain operations are eliminated. The new thresholds would be as follows:

2. Streamlining of the procedure. The CNA's deadlines for the analysis of merger control are reduced.

3. Succession of acts. In the case of successions of acts, the CNA may analyze each of the acts that give rise to the concentration, and, where appropriate, for each act, order the necessary measures deemed appropriate to protect competition.

4. Merger control investigations. The period in which the CNA may investigate concentrations that did not require a notification is increased from 1 to 3 years.

5. Indications of unlawful gatherings. The reform incorporates, as an indication that a concentration is illegal, whether the transaction may substantially affect competition conditions in the relevant or any related markets.

G. Attorney-Client Communications Protection

1. Attorney-Client Privilege. Only communications with external counsel will be considered protected by the lawyer-client privilege, reiterating that internal counsel with whom the economic agent has an employment relationship are not protected.

2. Exclusion Procedure. The procedure for exclusion in an investigation of communications protected by the Attorney-Client privilege was expressly incorporated into the law.

H. New powers of the Investigating Authority

1. New investigative powers. New investigative powers are granted to the Investigating Authority: (i) to conduct inspections, (ii) to conduct surveys, and (ii) to collect data through any tool.

2. Prescription of the authority's power. The 10-year term of the authority to initiate " investigations" is changed to initiate "procedures."

3. Complaints from the Ministry of Economy. The Investigating Authority will have the burden of perfecting the deficient complaints presented by the Ministry of Economy.

4. Telecommunications. In the broadcasting and telecommunications sectors, the CNA will coordinate with the Agency and the CRT. However, it may: (i) impose limits on the concentration of frequencies and cross-ownership of media, (ii) determine preponderant economic agents at the request of the Agency and the CRT, and (iii) declare the non-existence of conditions of effective competition.

5. New powers for the Investigating Authority. The Investigating Authority is granted the express power to process the procedures to determine essential inputs or barriers to competition and to resolve market conditions. Likewise, it is expressly empowered to participate in the procedure followed in the form of a trial, to participate in the preparation of draft guides, guidelines and technical criteria of the CNA, and for the procedures of the telecommunications sector.

I. Changes in the procedures before the CNA

1. Reduction of various deadlines of the authority. Various deadlines for the authority to carry out its investigations, act in the procedure followed in the form of a trial and issue its resolution, as well as to resolve concentrations, are reduced.

2. Hearing of pleadings. Within trial-like procedures, final arguments must now be formulated in the final oral hearing.

J. Special regime for state-owned public enterprises

1. Regime of exception. The Antitrust law will not be applicable to the activities carried out by public enterprises of the State and those expressly indicated in other laws issued by the Congress of the Union.

2. Regulatory exception for the hydrocarbons sector. An exception to the maximum price procedure applicable specifically to the hydrocarbons sector is incorporated, in accordance with the Hydrocarbons Sector Law.

K. Transitional regime

1. Transitional regime. The constitutional reform on organic simplification will come into force the day after the CNA Board is integrated. While the CNA Board is being integrated, Cofece will continue with its functions in accordance with the previous legal framework. The procedures initiated by Cofece and IFT before the CNA Board is integrated will also be governed by the previous legal framework.

2. Deadline for the appointment of new commissioners. The period for the appointment and ratification of the new commissioners must begin at the time this reform becomes effective.

3. Investigation procedures. The investigations underway by the Investigating Authority of Cofece and the IFT will be suspended the day after the publication of this reform in the DOF, and will be resumed the day after the CNA Board is integrated. Such matters will be identified in due course.

4. Secondary regulation. Within a period of no more than 180 days after the CNA Board is integrated, the Organic Statute of the CNA and the secondary regulations must be issued.

5. Integration of the IFT into the CNA. The structure of the IFT related to the fulfillment of functions in matters of economic competition, preponderance and cross-participation, will be the only structure integrated into the CNA.

6. Possible changes in rates and uses. Within a period of no more than 180 calendar days from the date of the CNA Board is integrated, the CNA may determine the rates and considerations derived from the use of the goods and services it offers, focused on contributing to the economic capacity of the CNA and financing its operation.

The approval of this reform represents a historic change in the institutional and operational design of competition policy in Mexico and its implementation will imply significant adjustments for both authorities and agents, who will have to anticipate new obligations, processes and interpretation criteria.

Authored by Omar Guerrero Rodríguez, Ricardo Arturo Pons Mestre, Alan Ramírez Casazza, Martín Michaus Fernández, and Priscila Barba Rivas.