VZCZCXRO7157
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #6249/01 3542222
ZNR UUUUU ZZH
P 202222Z DEC 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9987
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 006249 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
SIPRNET 
 
STATE FOR WHA/MEX/WOLFSON AND EEB/TPP/MTA/VOLTMER 
STATE PASS FTC FOR RUSS DAMTOFT 
DOJ FOR CALDWELL HARROP 
 
E.O. 12958: N/A 
TAGS: ECON PGOV MX
SUBJECT: TOUGH YEAR'S END FOR PRO-COMPETITION FORCES IN 
MEXICO 
 
REF: MEXICO 6248 
 
¶1. (U) See action request para 7. 
 
Summary 
------- 
 
¶2. (U) The year closed on a somewhat disappointing note for 
advocates of greater competition in Mexico.  A bill to beef 
up the penalties the Federal Competition Commission (COFECO) 
can impose for anti-competitive conduct was allowed to 
languish, and a federal appeals judge ruled in favor of 
Mexico's telephone monopoly Telmex in knocking down the 
national telecommunications regulator's plan to eliminate 
long distance charges on calls to neighboring areas. 
Nonetheless, we believe pro-competition forces are gaining 
strength in Mexico, and Post is cooperating with COFECO to 
help build its enforcement capacity and raise awareness of 
the economic benefits of free and fair competition among the 
judiciary and civil society.  End summary. 
 
¶3. (U) A proposed amendment to the Federal Competition Law 
that would have increased maximum fines for anti-competitive 
conduct from approximately USD 7 million to up to 15 perecent 
of a company's assets or total annual income had appeared 
headed for passage in the Chamber of Deputies (the lower 
house of Mexico's Congress) before bogging down in 
inter-party politics last week.  The chair of the Chamber's 
Economic Committee, Adriana Rodriguez of the center-right 
ruling party (PAN), announced that the bill in its current 
form could not win consensus of the major parties and thus 
would have to be opened up to negotiation again when Congress 
re-convenes in February 2008.  Some PAN deputies originally 
supported the bill, but legislators from the PRI (the 
center-left opposition party) and other PAN deputies were 
pushing for lower ceilings of 4-8 percent.  The bill's 
author, far-left opposition party (PRD) deputy Alejandro 
Sanchez, publicly accused both the PAN and the PRI of being 
beholden to the special interests of Mexico's oligopolists, 
who would continue to laugh at the minimalist fines COFECO 
can impose under current law, which are among the lowest of 
all OECD countries.  He also called out flagship Mexican 
industrial giants such as Telmex (telecoms), Modelo (beer), 
Femsa (soft drinks), Televisa (television), and Bimbo (bread) 
for trying to block his bill.  COFECO Commissioner Eduardo 
Perez Motta had lobbied on behalf of the stronger penalties, 
arguing that they would help improve Mexico's investment 
climate by inhibiting anti-competitive practices, and 
expressed disappointment that the bill did not pass. 
 
¶4. (SBU) A COFECO official who spoke with econoff about the 
bill being shelved until next year said that the PRI (which 
had been the uncontested ruling party of Mexico up until 
2000) had very close ties to the mega-companies that would 
likely be on the receiving of stronger penalties, and 
consequently PRI deputies in the lower chamber were staunchly 
opposed to the 15 percent maximum penalty level.  The PAN, 
which does not control a majority of the seats in either the 
lower chamber or the Senate, has depended on PRI support to 
move a number of President Calderon's 2007 legislative 
initiatives, and will likley continue to do so next year. 
For that reason, the PAN decided that it would be wiser to 
continue discussing the bill next year and reach a level of 
sanctions that everyone could live with than to ram this down 
the PRI's throat now.  Our COFECO contact predicted that the 
bill would pass early next year after some watering down -- 
not the ideal result, but better than nothing. 
 
¶5. (U) Reftel provides more details on the recent court 
ruling granting an injunction to fixed-line telephony 
monopoly Telmex against implementation of a government plan 
to force it stop charging long-distance rates on calls made 
between neighboring areas.  The Federal Telecommunications 
Commission will appeal the judge's decision. 
 
¶6. (U) Despite these reverses, public sentiment has become 
much more averse to Mexico's oligopolists in the past year. 
President Calderon, members of his economic cabinet, and -- 
most outspokenly of all -- COFECO chief Perez Motta have used 
their bully pulpits to explain why more competition within 
Mexico is so important to Mexico's global competitiveness, 
and though they have yet to engage in all-out assaults on the 
 
MEXICO 00006249  002 OF 002 
 
 
companies that dominate many of the country's key economic 
sectors, they have begun to take small bites aimed at 
reducing their concentrated market power.  Likewise, leading 
economists and opinion leaders from both left and right have 
been blistering in their critiques of the huge wealth that is 
channeled to such a small slice of the Mexican population not 
because of technological or managerial innovation or 
excellence, but because they do not have to face competition. 
 The designation of Telmex owner Carlos Slim as the world's 
richest man this year helped to stoke anti-cartel sentiment. 
Rather than a source of pride, most Mexicans viewed the news 
of a compatriot passing Bill Gates with disgust.  While 
Mexico's largest industrialists argue (disingenuously) that 
the country has no private monopolies because they are not 
permitted by the Constitution, many in the business community 
now recognize that the high costs for everything from 
telecommunications services to electricity are a huge 
impediment to economic growth, a message that is amplified by 
the strong newspaper coverage devoted to OECD and World Bank 
reports that continue to give Mexico low ranks relative to 
other countries in terms of its doing business environment. 
Without concrete measures and stronger enforcement, however, 
it is unlikely that the situation will improve dramatically. 
 
¶7. (U) COFECO has approached the USG seeking help in three 
specific areas: (1) inviting U.S. judges and competition 
experts from FTC and DOJ to engage with Mexican judges and 
COFECO officials on the legal and economic issues involved in 
competition enforcement cases (Mexican judges frequently 
uphold appeals from big companies that COFECO has targeted 
for anti-competitive conduct); (2) arranging capacity 
building trips to the U.S. for COFECO officials responsible 
for specific sectors that require significant technical 
knowledge; and (3) supplying U.S. speakers (including USG) 
for a post-graduate program on competition studies being 
established at Anahuac University in Mexico City.  Post's 
ECON and USAID sections convened a December 10 digital video 
conference (DVC) with officials from DOJ, FTC, and COFECO to 
explore how best to meet COFECO's needs in these areas.  As 
per that DVC, Post has requested Washington's assistance in 
identifying federal judges and competition experts from both 
the public and private sectors willing to engage with their 
Mexican COFECO and judicial counterparts and participate as 
speakers in the Anahuac University program. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT