VZCZCXRO1444
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2708/01 1392307
ZNR UUUUU ZZH
R 192307Z MAY 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0908
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0349
RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 MEXICO 002708 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PARIS FOR USOECD 
STATE PLEASE PASS FTC/INTERNATIONAL ANTITRUST TRITELL 
JUSTICE FOR ANTITRUST DIVISION 
 
E.O. 12958: N/A 
TAGS: ECIN ECON EFIN EIND EINV ENRG ETRD MX
SUBJECT: NEW COMPETITION LAW BRINGS INTERNATIONAL STANDARDS 
TO MEXICO 
 
REF: A. MEXICO 594 
 
     ¶B. MEXICO 1080 
     ¶C. MEXICO 1716 
 
Sensitive but unclassified, entire text. 
 
¶1.  (SBU)  SUMMARY.  Despite significant opposition to 
proposed changes to Mexico's competition law, the Federal 
Competition Commission (CFC) negotiated an agreement with the 
business community led by the Mexican Business Coordination 
Council (CCE), an umbrella group of trade associations.  This 
agreement became the basis for the new Mexican competition 
law passed April 25 in the Chamber of Deputies and April 27 
in the Senate.  President Fox should sign the bill shortly. 
The new law puts CFC's authority on par with similar 
organizations in other countries.  Some, such as CFC 
President Eduardo Perez Motta, believe that the new 
competition law will become the most significant law passed 
in recent years as time progresses and businesses learn its 
effects.  The new law not only improves CFC's ability to 
regulate private monopolies but allows it to monitor the 
activities of public monopolies as well.  END SUMMARY. 
 
LONG ROAD TO AGREEMENT 
---------------------- 
 
¶2.  (SBU)  Econ Mincouns and Econoff met with CFC President 
Eduardo Perez Motta on May 12. Econ Mincouns asked what had 
changed to allow the new law to pass since as recently as 
February (REF A) Perez Motta had doubted the law would pass. 
He said Telmex and the CCE were the two principal opponents 
of the new law and had held up an agreement for nearly nine 
months.  Telmex, fearful of having its monopolistic market 
share reduced, has used the court system for the last ten 
years to prevent changes to the monopoly rules.  Perez Motta 
stated that the private sector over eight months of 
discussions had rejected 40 of 130 proposed changes, 
including: the ability to arrest for up to three days someone 
found guilty of monopolistic practices on multiple occasions; 
the ability to use necessary government resources during an 
investigation and to execute its findings; and the ability 
for CFC to ask for police assistance to enforce its findings. 
 Perez Motta explained that as discussions continued, CCE's 
members found that they could support pasage while Telmex's 
opposition continued.  CFC and CCE struck a compromise on 
April 6. This agreement became the basis for the new law 
passed by the Chamber of Deputies on April 25 and the Senate 
on April 27.  Perez Motta told Econ Mincouns he felt that 
Congress passed the bill quickly and with virtually no 
changes as they were aware of how publicly active the CFC had 
been in recent months, including its opposition to some bills 
such as the Radio and Television Bill that President Fox had 
supported (Refs B and C).  Many politicians and several of 
the political parties had lost significant political capital 
due to the Radio and Television Law and were afraid to oppose 
the competition bill.  Telmex, perhaps the company most 
affected by the passage of the new bill, sent its lawyers to 
the Chamber of Deputies while the bill was being debated in 
hopes of convincing enough legislators to vote against it. 
 
CFC NOW ON PAR WITH SIMILAR INTERNATIONAL ORGANIZATIONS 
--------------------------------------------- ----------- 
 
¶3.  (SBU)  Perez Motta explained that the new law puts the 
CFC on the same level or above similar organizations in other 
countries.  The designs of similar organizations worldwide 
were used when crafting the law.  The law allowed the CFC to 
reinstate regulations that had been stricken in past 
modifications of the competition law, create a leniency 
program for organizations that commit violations but assist 
the CFC, and create a "witness protection program" for 
whistleblowers.  The CFC will also gain powers that similar 
organizations in other countries do not have, including its 
ability to publish rules covering other Mexican regulators, 
thus strengthening the relationship between the judiciary and 
the CFC.  Perez Motta mentioned he feels this is the rule 
that will affect Carlos Slim, President of Telmex, the most. 
 
LAW WILL REDUCE THE NUMBER OF APPEALS 
------------------------------------- 
 
¶4. (SBU)  Econ Mincouns questioned how the new law would 
affect court appeals of CFC decisions, a common tactic used 
by businesses to prevent them from having to comply with 
 
MEXICO 00002708  002 OF 003 
 
 
CFC's rulings.  Perez Motta explained that the new law cannot 
prevent appeals as they are a right guaranteed in the 
constitution.  However, the new law raises the costs of 
appeals and the probability of winning them.  The new law 
fills in may "black holes" in the previous law that companies 
used as justifications for appeals.  Perez Motta pointed to a 
growing number of court victories in favor of the CFC.  He 
pointed to a meeting he had just left with an association 
that had recently won a seven-year appeal to stop a 
monopolistic merger. 
 
TELMEX WILL BE MOST AFFECTED BY NEW LAW 
--------------------------------------- 
 
¶5.  (SBU) Telmex has had an appeal pending against the CFC 
for over four years that allows it to withhold information 
from the CFC.  Once the new law takes affect, Perez Motta 
explained that Telmex would have to re-appeal if CFC were to 
request information again.  CFC has taken Telmex to court on 
a variety of issues over the last ten years. Telmex has 
responded with 57 appeals -- making Telmex the company which 
has used the legal system the most to repel the CFC -- 
attacking virtually every article of the competition law. 
Telmex has refused to comment on the issue.  Gerardo Soria 
Gutierrez, a lawyer specializing in telecommunications, notes 
that until the Constitution is modified to remove the 
possibility of appeal, companies such as Telmex will be able 
to continue to use the appeal process to protect their 
monopoly position. 
 
MONOPOLIES MUST CHANGE THEIR PRACTICES 
-------------------------------------- 
 
¶6.  (SBU)  Perez Motta pointed to recent changes in the 
Mexican airline industry as positive examples of effective 
anti-trrust regulation.  While CFC participated from the 
beginning in the deregulation of Mexico's airline industry, 
monopolies, such as Telmex, were created before the CFC came 
into being, making them more difficult for the CFC to 
regulate.  However, Perez Motta now predicts that Telmex and 
other private monopolies will have to change their practices 
to avoid penalties imposed under the new law.  Sanctions 
could be as high as 1,500,000 times the minimum salary in 
Mexico City or ten percent of the annual revenue of a 
company.  While the CFC had previously investigated CEMEX, 
the national cement monopoly, without finding any 
sanctionable violations, the new law will allow them to 
investigate the company again. 
 
PUBLIC MONOPOLIES FAIR GAME TOO 
------------------------------- 
 
¶7.  (SBU)  CFC will also regulate public monopolies, such as 
PEMEX and CFE (Federal Electric Commission) under the new 
law.  Although they cannot be divided or sold, the law allows 
them to be sanctioned for taking advantage of their 
monopolistic position in areas that are not of "strategic 
importance," such as PEMEX's actions in gas distribution 
according to Perez Motta. 
 
COMPETITIVENESS VISITORS FROM U.S. BENEFICIAL 
-------------------------------------------- 
 
¶8.  (SBU)  Perez Motta commented to Econ Mincouns that recent 
DOS and USAID sponsored visits to Mexico by Federal Trade 
Commission representatives and Justice Ginsberg have helped 
fuse the relationship between the CFC and the Mexican 
judicial system.  Perez Motta suggested that in the future 
the CFC hopes to have courts in Mexico dedicated to handling 
economic issues.  While Perez Motta could not predict how 
future administrations would handle the new competition law, 
he suggested future USG involvement be low profile to avoid 
the appearance that the U.S. is attempting to dictate Mexican 
policy.  He suggested combining U.S. support with assistance 
from other countries, academic institutions, or international 
organizations such as the OECD.  Perez Motta suggested 
picking sectors that are in need of both  structural and 
regulatory reform and organizing symposiums with academic and 
technical participants on necessary reforms.  He suggested 
telecommunications and transportation may be ripe for focus 
and believed it would be useful to invite representatives 
from countries which had succesfuly reformed these areas. 
Perez Motta was also receptive to working with the Embassy to 
publicly defend NAFTA as 2008 and the complete opening of all 
 
MEXICO 00002708  003 OF 003 
 
 
agricultural markets occur. He also agreed that furthering 
relationships with the AMCHAM could assist the CFC in 
advancing its interests. 
 
CFC MOVES INTO NEW FIELDS 
------------------------- 
 
¶9.  (SBU)  The CFC announced that in the coming months it 
will release to the public opinions on several key sectors. 
These include railroads, metropolitan airports and radio and 
television content.  Perez Motta also explained that CFC is 
currently working with the Bank of Mexico and the National 
Commission for Retirement Savings (CONSAR) to ensure there 
are not barriers to entry and that the market is operating 
efficiently in providing retirement savings accounts.  The 
CFC is also investigating customs brokers to ensure that 
anticompetitive practices are not placing extra costs on 
importers and exporters. 
 
 
COMMENT 
------- 
 
¶10.  The willingness of courts to deny appeals to the new law 
will dictate the impact of this law on economic conditions in 
Mexico.  This bill, coupled with recent legal rulings in 
CFC's favor, as well as CFC's efforts to have its activities 
promoted in the press may be the right combination to 
demonstrate the advantages of competition to the general 
population.  Perez Motta is a staunch advocate of competition 
and is not afraid to fight for it.  He will be a key contact, 
particularly in the new administration, to help advance our 
economic interests. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
KELLY