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Mexico Antitrust Reform: Bleak Outlook

Antitrust reforms in Mexico face serious challenges, including opposition from vested interests and effective enforcement.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue   

Mexican President Felipe Calderón on April 5 sent lawmakers a proposal to toughen antitrust laws and give the Federal Competition Commission more power to investigate and punish anticompetitive practices. How big a problem are monopolies and oligopolies for Mexico's economy? What chances does the antitrust initiative have in Mexico's Congress given Calderon's recent difficulties in winning support for broad reforms?

Alejandro Schtulmann, head of research at Emerging Markets Political Risk Analysis in Mexico City: The lack of competition in key sectors of the economy and the persistence of monopolies in the public sector is one of the country's most acute structural problems, contributing to the high costs that make it difficult to do business in Mexico and stifle economic growth. Under the current conditions, competition has been artificially limited in a number of strategic areas such as telecommunications and banking—where tariffs count among the highest in the world. As a result of such dominant market positions, Mexicans generally pay considerably more for products and services than consumers in any other country in the region. The country's political situation suggests a pessimistic outlook for the antitrust initiative. With only [a week] left before the end of the spring session in Congress on April 30 and frictions between the PAN and the PRI around the upcoming state and local elections, the initiative will not be discussed until the fall congressional session which begins on Sept. 1. The fact that Calderón took such a long time to send this important initiative to Congress has limited the chances of passing a far-reaching reform. Ideally this initiative should have been introduced in the first half of Calderón's term when he had more negotiating power. Although this initiative enjoys some support within the opposition, this could change due to pressure from business interests who will try to block or dilute its components. But even assuming a comprehensive reform is passed, the greatest challenge resides in its implementation. As has happened with other previously approved reforms (notably education and energy), progress will be difficult to achieve as attention is focused on other contingent issues. Finally, even if the initiative could help abolish monopolistic practices by private companies, this legislation will not affect state monopolies (i.e., oil, gas and electricity), which have by far a greater impact on the economy.

Iker I. Arriola, partner at White & Case in Mexico City: Monopolies and oligopolies are among the heaviest burdens for sustained and fair development of Mexico's economy. Not only do they seriously affect the growth, competitiveness and efficiency of the Mexican economy, but many of them also represent factual powers beyond the Mexican government, which proactively operate in the country's political scene. Hence, the enactment and vigorous enforcement of a renewed antitrust framework should be a priority for Mexico, particularly from an economic perspective, but also, and more generally, for the benefit of the country's public affairs. Contrary to President Calderón's other recently proposed bills, which have generated fruitless political disputes, it is difficult to find public detractors of this proposed reform. There may be differences concerning certain specific details of the reforms or the technical approach to address one topic or another, but at this stage we don't see this bill generating the type of controversy in Congress that could eventually block its passage. However, dissatisfied dominant enterprises could try to fight the initiative. In any case, even if these reforms are approved as proposed and eventually supplemented in substance by Congress, the renewed framework must be accompanied by a long-term antitrust public policy with budgetary and inter-institutional support for enforcement. Without that, Mexico would have antitrust legislation that meets international standards but produces no results.

Pamela Starr, associate professor in Public Diplomacy and the School of International Relations at the University of Southern California: President Calderon's proposal to increase the sanctioning and investigative powers of the Federal Competition Commission (Cofeco) would finally transform it into an effective tool of Mexican competition policy. Sadly, the likelihood that this proposal will be approved by the legislature without being heavily watered down is extremely low. The monopolies and oligopolies that dominate key sectors of the Mexican economy—including transport, beverages, building supplies energy, and telecommunications—enfeeble the competitive pressures that are essential to efficient markets. The resulting high prices for essential production inputs stunt growth and job creation. High prices for consumer goods deepen Mexico's already profound inequalities by transferring wealth from poor and middle income consumers to the wealthy owners of these firms. Most Mexicans innately understand this and thus see competition as a good thing. So we are unlikely to hear anyone directly criticize the president's objective of promoting increased competition in the coming debate. Nevertheless, the monopolists will still wield their enormous economic and political clout to block an effective reform. Their influence over electoral competition in democratic Mexico is paired with a Congress whose members are unaccountable to voters (due to a lack of re-election and several other perverse election laws). The outcome is a legislature that has a significant incentive to respond to the monopolists' demands and gut the president's proposal, albeit without appearing to do so. Early comments from the legislative opposition indicate that this is precisely what is going to happen—they will kill the reform by supposedly making it 'better.'

Alejandro Calvillo, director of consumer advocacy group El Poder del Consumidor in Mexico City: Mexico is known for its monopolistic practices in various sectors. To note just a few examples: in telecommunications, one company controls more than 90 percent of the fixed–line telephone market (Telmex) and more than 70 percent of the mobile sector (Telcel); in broadcast television, two companies control 90 percent of the audience; two companies control the cement market, two the dairy market, one the poultry and egg market and one the bread products industry. It is estimated that monopolistic practices raise prices by 30 to 40 percent in the controlled markets (according to a study by Carlos Ursa of the Federal Competition Commission), which amounts to about 7 percent of monthly spending for the poorest families. The chances of the president's anti-monopoly initiative being approved are slim, since the de facto powers have a strong influence in the legislature, especially in the PRI. In fact, the PRI leader in the Senate, Manlio Fabio Beltrones, has already begun efforts to weaken the president's proposal and ensure that the Federal Competition Commission is appointed by the legislative rather than the executive branch. This would mean that the political parties would divide up the posts, like they have already done in other regulatory entities, rendering them completely ineffective.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

 

 

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