ANNUAL ECONOMIC COMPETITION REPORT
1995-96
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The Plenary of the Federal Competition Commission Commissioners
Fernando Sánchez Ugarte, President
Javier Aguilar Álvarez de Alba
Pedro Bosch García
Pascual García Alba Iduñate
Fernando Heftye Etienne
Presentation
I am pleased to present the third annual report on the work of the Federal Competition Commission. By issuing and publishing it, we are complying with the provisions contained in Section III of Article 28 of the Federal Law of Economic Competition.
During the period 1995-96, the Commission's activities increased considerably. This evolution is consistent with the progress made in creating a culture of competition, with the greater alertness of economic agents to monopolistic practices, and with the structural transformation taking place within domestic markets. It is also the result of the Commission's active participation in privatization processes and in increasing competition, and of the new duties conferred on the Commission by different sectorial laws.
Thanks to the strengthening of the regulatory framework that protects and promotes competition, its coordination with sectorial authorities, and the professionalism of the civil servants who work in this institution, the Commission has effectively met its obligation of preventing those practices, both public and private, that affect the processes of competition and market freedom.
Fernando Sánchez Ugarte
President
Mexico City, November 1996
Contents
Introduction 11
I. Competition Policy 13
II. Mergers and Acquisitions 21
III. Monopolistic Practices and Other
Restrictions to Competition 51
IV. Opinions 75
V. Consultations and
Reconsideration Appeals 85
VI. International Affairs, Communi-
cation and Administration 93
Appendix
Statistics 101
Mergers and Acquisitions 105
Monopolistic Practices and Other
Restrictions to Competition 119
Consultations 121
INTRODUCTION
The 1995-96 period has been the busiest since the Federal Competition Commission was created three years ago. The number of cases concluded rose 77% over the previous year's figure. At the same time, the opinions issued reflected the major restructuring effort being made in the economic arena by the current administration.
The large increase in the number of cases attended points to both the progress made in market dynamics and a fundamental change in the attitude of economic agents. The number of Mexican businessmen who demand protection from growing competition is ever smaller, whereas those who remain alert for restrictions to the competitive process are constantly on the increase. By meeting its obligations, the Commission protects companies from anti-competitive practices that could restrict their growth, curtail their opportunities, and displace them from the market. Similarly, the effective enforcement of the Federal Law of Economic Competition brings benefits for consumers.
Unlike previous years, competition legislation and the Commission's functions are now increasingly familiar to broad sectors of the business community. This progress must be strengthened through closer links with economic agents and a broader dissemination of competition policy, as described in detail in this report. The report also includes an overview of the work carried out, and this panorama is supplemented with a brief exposition of the permanent efforts made to increase the effectiveness and timeliness of the enforcement of the competition law, based on the experience accumulated through the work of the past three years.
This document contains several innovations from the previous report. In the first place, it provides a thorough description of the reasons for the mergers and acquisitions of which the Commission received notice. The main reasons include the following: challenges faced by companies following the intensification of competition in the domestic and international markets; new opportunities arising as a result of revised regulatory frameworks; privatizations; and the need to return businesses affected by the economic crisis to a sound footing. The report then goes on to study the risks and advantages arising from mergers and acquisitions that influence market functioning, efficiency, and competitiveness.
In this section we submit a detailed review of several resolutions undertaken by the Commission's Plenary. Of particular interest here is the emphasis placed on eliminating anti-competitive elements, in order to protect competition and, at the same time, to allow the development of the social and private benefits that would arise from the operations of which the Commission received notice. In other words, the Commission has enforced the law rationally, prohibiting only those operations presenting an insurmountable anti-competitive content.
In the second place, this 1995-96 report describes a greater number of cases of interest. This is consistent both with the significant increase in the Commission's activities and with its task of reporting, with as much detail and as many examples as possible, on the enforcement of the Federal Law of Economic Competition.
In particular, attention should be paid to the presentation of cases that illustrate the criteria developed by the Commission to determine the existence of monopolistic practices, which are indicated generically in Article 10, Section VII, of the Federal Law of Economic Competition: for example, predatory pricing and granting discounts to retailers in order to unduly displace competitors. Also of special interest are the declaration regarding the existence of restrictions to the flow of merchandise into one of the nation's states, and the recommendations made to several state governments to eliminate administrative restrictions on competition.
In the third place, this report describes the Commission's participation in designing the public auction for radio-frequency concessions and in drawing up the plans for the privatization of port terminals and authorities, Almacenes Nacionales de Depósito, S.A., and the railway system. In all these cases, the report describes the measures implemented to allow the development of conditions of competition and restrict anti-competitive abuse.
Also of particular interest is the inclusion in this report of a section dealing with appeals for reconsideration, and a statistical appendix covering the cases heard. In addition, as in the previous reports, the appendix lists all the cases resolved over the 1995-96 period.
Finally, it should be pointed out that this report covers the period from June 23, 1995 to June 22, 1996. Henceforth, the Commission will meet its obligation of reporting annually on its activities in accordance with the calendar year. Thus, the next report will cover a six-month period (July to December 1996). Consequently, the following annual report will cover 1997 and will be submitted during the first months of 1998.
I. COMPETITION POLICY
The federal government has placed great emphasis on the importance of fighting monopolistic practices and promoting competition. In the 1995-2000 National Development Plan (NDP), competition policy is included within the provisions established for promoting the efficient use of resources in order to achieve economic growth. Similarly, the Foreign Trade and Industrial Policy Program states that competition policy helps "...to spread the benefits of economic growth among the country's population by opening up opportunities for everyone, and to create an environment favorable for industrial progress. Thus, fighting and preventing monopolistic practices not only increases efficiency; it also leads to better income distribution and facilitates the establishment of an economic structure that rejects the centralization of power..."1Inspired by these goals, over 1995-96 the Federal Competition Commission (known by its Spanish abbreviation, CFC) both consolidated the advances made in competition and continued to effectively enforce the relevant legislation. The following factors had a major influence in the development of that policy during the period:
The trend towards globalization within world markets and its growing influence on the evolution of business in Mexico.
The process of privatizing public companies and the increased liberalization of certain key sectors within the Mexican economy.
The financial restructuring required by some companies as a result of the financial crisis affecting the country.
The experience earned from processing complaints and ex officio investigations during the first three years' work.
As a result of the globalization of commercial activities, competition within domestic and international markets has heightened substantially. Now, local companies must face a growing number of foreign competitors within their domestic markets. To successfully adapt to these new circumstances, domestic companies have been forced to consolidate their positions in traditional markets and to expand their operations overseas. At the same time, multinational companies have developed defensive strategies to maintain their share of world markets.
The modern company meets the globalization challenge by improving its efficiency: in other words, by cutting costs, raising product quality, expanding its scale of operations, and extending or connecting to international marketing networks. Mergers and strategic alliances are often the vehicles that companies use to attain those goals.
The competition policy proposals consider the growing globalization of the world economy and, consequently, of competition. Thus, the Commission's analyses and resolutions on mergers and acquisitions and alleged monopolistic practices have taken into account the effects within the country of real or potential overseas competition. Furthermore, when dealing with mergers and acquisitions, they have also considered the gains in efficiency and competitiveness arising therefrom, the need to raise those factors to international levels, and, when appropriate, corrective measures applicable to anti-competitive threats.
In general terms, the mergers and acquisitions that have taken place in Mexico as a result of globalization fall into three categories:
International mergers and acquisitions that have effects within the country but take place abroad as a part of parent companies' global strategies.
Mergers and acquisitions initiated by Mexican companies to expand their productive efficiency and capacity in order to better meet international competition.
Acquisitions of Mexican companies by foreign investors with the aim of gaining or expanding access to domestic markets.
Within the international markets, 1995 was characterized by what have been called mega-mergers among multinational companies in different industrial sectors. Throughout the year, in the United States alone, a record number of 8,956 mergers took place, with a total value of USD $457.9 billion.
Some of these operations had repercussions in Mexico, when the companies involved also had business interests within the country. One such example is that of Kimberly Clark, which recently acquired Scott Paper; both are U.S. corporations. The chief aim of the merger was to consolidate Kimberly Clark's competitive strength, particularly with regard to consumer goods. The operation's effects were not restricted to the United States: the consequences were also felt in Mexico as well as in Canada and the European Union.
In ruling on this international operation, the competition authorities of the different nations involved acted both rationally and consistently. On the one hand, they preserved the legitimate benefits of the merger as hoped for by the companies involved while, on the other, they protected the process of competition within each of the affected regions.
Particularly notable among the mergers and acquisitions initiated by Mexican companies to expand their productive efficiency and capacity, as well as to better meet international competition, was the purchase of Univex by Alpek. The aim of this operation was to consolidate Alpek's competitive position among nylon producers.
As some multinationals merged to consolidate their global positions, certain Mexican companies also gained a greater international presence through similar processes. Such was the case with Cemex, which purchased several cement businesses in Central America and Colombia, with the chief aim of consolidating its position outside Mexico. Another example was the acquisition of control over the U.S. firm Prodigy by Grupo Carso; the aim here was to participate in providing Internet connectivity services and to open a space for corporate consolidation in the face of competition from mergers involving U.S. and Mexican telecommunications companies.
Recent years have seen growing Mexican involvement in the globalization process. Mexican companies have now acquired a greater presence on the international arena. Recently (on July 8, 1996), Business Week magazine reported that 16 Mexican corporations have now grown to become multinationals within the markets in which emerging countries participate. Mexico is thereby in an advantageous position when compared to other nations with a similar level of economic development, such as Brazil or Argentina.
Among the acquisitions of Mexican companies by foreign investors --whose aim is to gain or expand access to domestic markets and even use Mexico's comparative advantages to strengthen their international operations-- one notable example was the operation involving Paccar Inc. and Vilpac, S.A. Such operations strengthen competition in domestic markets and help develop the country's export potential.
The new international trends in market deregulation and liberalization reflect the interest of national authorities in raising the efficiency and competitiveness of sectors that traditionally have been regulated or managed by the State. Mexico is at the forefront of these efforts, in that it was one of the first countries to open up key sectors of its economy to competition. Thus, during 1995 and 1996, Mexico enacted new versions of its Federal Telecommunications Law, Civil Aviation Law, Railroad Service Regulatory Law, Airports Regulatory Law, and Natural Gas Regulations. The new regulatory framework either allows or substantially expands private investor participation in those sectors. The Commission's work in creating an environment favorable for competition in those areas has been intense. It has been active in preparing drafts of bills, decrees, and other regulatory provisions, and it has participated at different inter-government forums organized to study and design liberalization and privatization mechanisms suitable to Mexico's needs.
The design and implementation of the measures and actions needed to strengthen market forces and incentives in those sectors set major challenges for competition and, consequently, for the Commission. Indeed, there is a need to propose realistic formulas that will allow increased competition and market freedom within sectors that currently involve only one or very few participants or that are highly extensive and largely indivisible. Given this state of affairs, the Commission has striven to insure that the legal and administrative provisions, along with the privatization and deregulation processes themselves, include criteria for safeguarding competition. These criteria include the following:
Establishing rules that strengthen the Commission's role in developing and protecting conditions of competition. For example, in the sectorial legislation outlined above, companies interested in participating in those activities are required to obtain the Commission's prior approval. These laws also allow the establishment of official prices when, in the CFC's opinion, true conditions of competition do not exist.
Privatization schemes designed to favor the development of conditions of competition in the provision of services. For example, the railway legislation provides for the establishment of rights of way in order to allow rail companies to compete with each other.
Transfers of rights granted under concessions or permits for exploiting nationally owned property and for providing public services must receive the Commission's approval. In this way, the new sectorial legislation strengthens the preventive role of the competition authority.
To summarize, competition policy has helped enable divestitures to take place within a framework of fairness and transparency. It has also insured an adequate balance between competition and the pursuit of the goals of efficiency and modernization that underlie the privatization program.
Various companies have faced burgeoning financial difficulties since the economic crisis began in 1995. This phenomenon has led to changes in business ownership and in market structures. Thus, in the worst-case scenario, the elimination of companies --fewer participants-- could negatively affect the competitive environment. At the same time, mergers and acquisitions represent both risks and advantages for competition, since they can equally lead to either a lesser number of participants with greater power or the preservation of threatened companies. The Commission has responded creatively to these challenges. The policy followed over 1995-96 allowed mergers and acquisitions to go ahead under conditions guaranteeing real protection for competition and it enabled socially and privately efficient solutions to be identified.
To solve their financial problems, many companies have adopted merger or association plans. This has been particularly noticeable in the financial sector, where several banks and financial institutions have been recapitalized by accepting new partners, mostly of foreign origin. Mergers and acquisitions are unquestionably a useful mechanism for helping companies out of critical situations. When it made no objections to such operations, the Federal Competition Commission took into consideration the factors favoring competition that derive from returning companies to a sound financial footing and insuring the continued presence of competitors.
The Commission's resolution in the operation involving Aeroméxico, Mexicana and Cintra is one of the most useful examples of applying solutions of this kind to such problems. The two airlines had been going through difficult times financially and were in need of thorough restructuring. The Commission analyzed this case in depth and resolved the matter in a way consistent with competition: preserving the number of competitors and the commercial independence of the airlines, establishing safeguards, and enabling the companies to carry out the necessary financial and administrative restructuring.
There are other interesting examples. The auction of Asemex --a company privatized a couple of years ago and subsequently subjected to government intervention on account of inappropriate financial management within Grupo Asemex-Banpaís-- required a detailed analysis of its effects on competition and on the efficiency of the insurance industry. In this case, as in the bank operations, the Commission took into consideration the financial soundness of the sector and the heightened competition therein that had resulted from its liberalization.
Experience shows that the Commission has been effective in adapting competition policy to changing conditions in the economy. Its investigations and resolutions have responded to both immediate and long-term circumstances faced by markets and companies alike. Competition policy has therefore become, in and of itself, a key economic policy instrument, capable of helping overcome crisis situations without losing sight of the correct road ahead for the long term.
The processing of complaints and ex officio investigations during the Commission's first three years, together with its involvement in deregulation and privatization processes, has been a source of invaluable experience and has contributed to the Commission's consolidation. During that period a great number of cases involving both monopolistic practices and mergers or acquisitions were dealt with. The diversity of these cases and the complexity of some of them required an analysis of all the practices and operations covered by competition legislation. Using the lessons learned over the previous three years, the Plenary has defined criteria that facilitate the interpretation of competition law and the judicial and economic analysis of monopolistic practices and of mergers and acquisitions. It has also striven to expedite investigations of cases and strengthen compliance with the law.
Experience shows that competition policy must be viewed within the new openness of the domestic economy and the globalization of trade and investment flows. Thus, the Commission considers that domestic companies compete against other firms established in the country and, to an increasing extent, against those located in other countries. When appropriate, its studies into the markets affected by the relative monopolistic practices and mergers or acquisitions investigated include imports of similar or substitute goods. Similarly, in determining the market power of the economic agents investigated, the Commission also considers the foreign companies that are either directly or indirectly involved in the Mexican market or that represent a potential source of competition for domestic producers. In this way, although under the terms of the competition law the relevant market cannot go beyond national borders, the determination of power within that market does require a regional or global approach. Failure to include this aspect can lead to overestimating the market power of the companies against which complaints are made, or which are involved in mergers and acquisitions and, consequently, to mistaken perceptions and resolutions. In effect, even a company of considerable size within the domestic market does not necessarily have the capacity to manipulate it when competing against much larger companies with major shares of global markets.
At the same time, although experience has shown that the competition law is an effective instrument, the Plenary believes that procedures for complaints and ex officio investigations could be expedited by following the mechanisms contained in the Federal Civil Proceedings Code. This is an attempt to bring about a greater streamlining of the administration of justice while fully observing all the legal details that guarantee sound, balanced proceedings.
The actions undertaken by the Commission during its first three years show that it is an important instrument, supporting competitors in their defense against monopolistic abuses or market power situations that could unduly affect their performance. That role still needs strengthening, but major progress has unquestionably been achieved.
Finally, it would be useful to make a series of comments on the distinction between protecting the competitive process and free market access on the one hand, and income distribution on the other. Misconceptions regarding this matter usually arise from confusing the companies participating in markets with their owners. The Federal Law of Economic Competition was created to insure that companies participate competitively in different markets and not to improve income distribution, although the positive effects it indirectly has in that area should not be ignored.
Occasionally the belief is voiced that the accumulation of wealth by companies or a particular individual automatically reduces competition, but that is not necessarily the case. The accumulation of companies is one matter, while a company or monopoly that hinders competition by retaining or gaining substantial power in a market is quite another.
The purpose of the competition law is to protect competition and free market access, regardless of to whom the company involved belongs. It would, of course, be desirable for there to be a more equitable distribution of wealth in Mexico, for company ownership to be spread more widely across the board, and for a greater number of investors to be involved. Unfortunately, our country has not attained a true democratization and breakdown of corporate ownership: the largest companies, some of which now have an international dimension, belong to a small number of stockholders. But this fact, while not a desirable state of affairs, is not necessarily of relevance to competition policy or, at least, to the way in which that policy is defined and structured within current legislation.
To summarize, the experience earned by the Commission during its third year of work has been wide-ranging and fruitful. Competition policy has become an important instrument within Mexican economic policy. There is no doubt that its role still needs to be strengthened. However, the work of the past three years has set the foundations for the consolidation of this policy, for it to become a powerful tool in establishing competitive economic development with opportunities for all, and for attaining the goals of equality, justice, and a balanced distribution of wealth.
Economic Competition within the Foreign Trade and Industrial Policy Program
The chief aim of the 1995-2000 National Development Plan is to "...promote vigorous and sustainable economic growth to strengthen national sovereignty and to further the social well-being of all Mexicans and their coexistence based on democracy and justice."2 Among the five main strategies for achieving this growth proposed in the NDP, the following are worthy of special note: Promoting the efficient use of resources for growth; for this, it is necessary to address shortcomings in infrastructure and in the quality and cost of basic components, technological backwardness, and the problems of excessive regulations and restrictions on competition. The effective enforcement of the Federal Law of Economic Competition will allow the creation of the conditions necessary for solving these problems.
Applying relevant sectorial policies; this will strengthen the action of general instruments in the sectorial sphere, interconnecting them and complementing the sectorially specific instruments that already exist. Among its other general proposals, the Foreign Trade and Industrial Policy Program includes provisions dealing with economic competition, deregulation, and the upgrading of technology and infrastructure.
The chief aim of the Program is to create an internationally competitive industrial plant. With this in mind, industrial policy must insure that a growing number of regions, sectors, productive chains, and companies make good use of the competitive advantages available within our economy. In order to make progress toward this goal, the Program is centered around three main strategies:
"I. Creating conditions of high and permanent profitability within the direct and indirect export sectors, and expanding and strengthening domestic products' access to export markets.
"II. Creating mechanisms to accelerate the development of regional and sectorial industrial groupings with high levels of international competitiveness, and promoting the growing involvement within those groupings of very small, small, and medium-sized businesses.
"III. Promoting the development of an internal market and efficient import substitution, as the basis for domestic industry's incorporation into the international economy."
Competition policy is centered around these guidelines, and is also related to other more general strategies intended to boost the efficiency of the domestic economy: deregulation and the upgrading of technology and infrastructure. Similarly, it also contributes to the pursuit of the following sectorial policies:
Promoting the integration of productive chains.
Promoting external competition by addressing tariff and duty issues, fighting unfair international trading practices, and setting technical regulations for foreign trade.
Competition policy helps create the conditions for establishing and consolidating a profitable export sector, developing the domestic market, and encouraging efficient import substitution. Indeed, the elimination of anti-competitive practices within the nation neutralizes distortions restricting the development of the domestic market, reducing the profitability of exporters, and limiting the competitiveness of Mexican companies. This is of particular relevance in those sectors only recently opened up to competition: communications, transport, and the supply of energy. The Commission's actions in those areas, along with those of the regulatory authorities, help create and preserve the competitive environment necessary for expanding and modernizing infrastructure and raising the efficiency with which those services are provided.
The removal of regulations that unnecessarily increase the cost of doing business, impose artificial barriers to entry or grant preferential treatment helps the proper functioning of markets and, more particularly, the competitiveness of domestic industry. With this aim, the Commission is working closely with the Secretariat of Commerce and Industrial Development (Secofi) on economic deregulation.
Preserving a competitive environment with clear, transparent, and predictable rules stimulates the technological modernization of industry. The Commission assists the development of this important issue by enforcing competition law. Therefore, when dealing with mergers and acquisitions that have an anti-competitive slant but would nevertheless lead to technological improvements, the Commission assigns top priority to identifying solutions that will eliminate their anti-competitive aspects but not affect the gains in competitiveness arising therefrom.
Competition policy combats the undue displacement of competitors and the establishment of barriers to market entry, regardless of whether such actions come from public or private agencies. In addition, the Commission helps remove restrictions to the free transit of goods between the nation's states and administrative measures that restrict free market access. In this way, it creates conditions that, (1) allow a growing number of regions, sectors, productive chains, and businesses to take advantage of our economy's competitive advantages, and, (2) that enable very small, small, and medium-sized companies to compete against or negotiate with larger, more powerful firms on an equal footing.
Finally, special mention should be made of the Commission's role in trade liberalization. The CFC cooperates with Secofi on competition issues involving commercial defensive and protective measures on international markets. The Commission will also fight monopolistic practices occurring abroad that have repercussions within Mexico. To this end, it is establishing closer communications with our main trading partners' competition authorities, and is encouraging cooperation on competition issues within international forums.
II. MERGERS AND ACQUISITIONS
In recent years there has been a substantial increase in the number of mergers and acquisitions taking place across the world. This trend is basically a response to the process of globalization that the international economy is undergoing. This phenomenon explains many of the mergers and acquisitions of which the Commission is notified. In addition, in Mexico a great number of these operations are the result of the reviewed regulatory framework for economic activities, the privatization of nationalized industries, and the financial restructuring that has taken place to counter the effects of the economic crisis facing the country. The volume of cases studied by the Commission increased substantially over 1995-96, with the following results of particular interest:
Notifications were received regarding 164 cases,3 an increase of 67.3% over the previous year. This number is close to the 190 cases of which the Commission received notification during its first two years of existence. A total of 166 cases were concluded,4 of which 152 arose from notifications served by the parties involved, 12 from ex officio investigations into operations for which no notifications were served, and 2 from complaints. This number represents an increase of 82.4% over those concluded in 1994-95. Furthermore, it is particularly noteworthy that the number of notifications concluded with a resolution during the period covered by this report is similar to the total resolved during the whole of the two previous years.
The value of the operations for which notification was required under the competition law totaled more than 82.432 billion pesos. To put the figure in perspective, this amount is equal to 4.6% of 1995 GDP.
A careful analysis of the goals and possible effects on the market of the mergers and acquisitions arising in the conditions described would be useful. Among the goals, the following are particularly notable: (a) growth and creation of companies or groups that are more efficient and able to meet international competition; (b) exploiting opportunities arising from the removal of legal barriers to entry and the opening up of new areas to private participation, the development of which demands experience, specialized technology, and major investment; (c) tackling financial problems that threaten companies' performance or survival. Achieving these goals would bring unquestionable benefits for strengthening the domestic economy and the population's well-being, provided that they do not occur along with negative repercussions on efficient market functioning.
In protecting competition and free market access, the Commission has enforced the Federal Law of Economic Competition rationally and with precision. In strict accordance with the law's terms and spirit, mergers and acquisitions are not objected to per se. In other words, objections are made only when their aims or effects are clearly anti-competitive. Operations with neutral or favorable effects on competition are invariably approved. With the aim of assuring the greatest benefits for the country, the Commission has established the policy of approving mergers and acquisitions with anti-competitive elements when those elements can be eliminated by subjecting the operations to certain conditions. The goal is clear: achieving solutions that are competitively neutral or favorable without sacrificing the ability of companies to enter into partnerships that would allow them to meet the challenges present in the current economic environment and take advantage of its opportunities.
Thus, the resolutions issued during 1995-96 included one case that was objected to on account of its adverse effects on competition within a recently deregulated sector, 14 in which conditions were imposed to remove anti-competitive risks, and 146 that were not objected to on account of their having neutral or favorable effects on the process of competition and free market access.
Without exception, the cases notified in accordance with the law were resolved within the time scales established therein. Resolutions on mergers and acquisitions arising from participation in auctions of public companies were issued within the periods stipulated in the corresponding requests for bids and auction rules.
The efficient processing of notifications has allowed competition to be protected without hindering business development or market dynamics. These results reflect the priority given to administrative measures intended to reduce costs associated with enforcing and observing the competition law. The Commission has persevered with its policy of administrative simplification, reducing response times, cutting back on formalities, and streamlining its paperwork. In addition, it has established internal procedures that substantially expedite resolutions on operations that are merely administrative restructurings. Thanks to these measures, greater resources can now be channeled into solving the more complex cases.
In order to illustrate the application of the policy guidelines described above, the following pages outline the most representative cases resolved during 1995-96. The choice of cases was made in accordance with the factors most often behind the operations notified to the Commission. The first set of cases features responses to economic globalization; the second group relates to the new regulatory framework; and the third includes situations that arose because of financial problems caused by the economic crisis.
A. Globalization of economic activity
1. International Mergers
Mergers between companies with subsidiaries in several countries are one of the most notable features of economic internationalization. In general terms, these operations are a response to intensified competition in global markets and the need to redistribute activities in order to adapt to new conditions in national and regional markets. Thus, the merging companies restructure their international production, distribution, and marketing strategies in terms of their strengths in those processes and the different geographical markets in which they participate.
International mergers generally lead to a wave of notifications being submitted to the competition authorities in the markets of countries where subsidiaries operate. In Mexico, the law requires notification when operations have an effect within the country, regardless of whether the operation originates at home or abroad. As a result, during the period covered by this report, notifications regarding the following operations were received: Kimberly Clark and Scott Paper, Interbrew and John Labatt, Robert Bosch and Allied Signal, Walt Disney and Capital Cities, and others. On account of their particular interest, each of the cases cited is described below.
Interbrew, S.A./N.V. / John Labatt, Ltd. / Femsa Cerveza, S.A. de C.V.
In July 1995, the Belgian company Interbrew, S.A./N.V., through its Canadian subsidiary John Labatt, Ltd., informed the Commission of its plans to carry out an acquisition. Although the operation took place in Canada, notice was given to the Mexican authorities on account of its effects within this country. The operation involved the purchase of John Labatt, Ltd. by Interbrew, S.A./N.V. John Labatt had a 22% holding in the capital stock of Femsa Cerveza, S.A. de C.V.
The relevant market of this operation was that of the production and marketing of domestic and imported beer in Mexico. This market involves Femsa Cerveza, S.A. de C.V. and Grupo Modelo, S.A. de C.V., which have established alliances with John Labatt, Ltd. and Anheuser-Busch, respectively, in order to take advantage of their distribution networks in the countries in which they operate, thus enabling their products to more easily penetrate international markets.
Since John Labatt, Ltd. and Interbrew, S.A./N.V. do not command a significant share of the relevant market, and since Femsa was already distributing both foreign companies' products prior to operation regarding which notice was served, it was decided that the acquisition would not have a significant effect on conditions of competition. The Commission therefore resolved neither to object to the operation nor to impose conditions on it.
Kimberly Clark de México, S.A. de C.V. / Compañía Industrial de San Cristóbal, S.A.
In 1995, Kimberly Clark Corporation (KCC) announced its intention to carry out a merger with Scott Paper Company. Both companies, incorporated under U.S. law, have major investments in that country and in the rest of the world. As a result, they control a significant share of the markets for tissue paper byproducts in the United States and in those countries in which they have subsidiaries.
The merger of these two U.S. companies threatened to cause high levels of concentration in certain Mexican markets, because of their stakes in Kimberly Clark de México (KCM) and Compañía Industrial de San Cristóbal (Crisoba). On account of the major market power that would have arisen from the operation, the Commission decided to place conditions upon it, involving the divestiture of productive capacity, brands, and products. This served to protect the benefits of the merger while eliminating its threats to competition.
Under the merger in the United States, KCC would acquire 100% of Scott's capital stock. Thus, the 49% stockholding in Crisoba belonging to Scott Worldwide Inc. (a Scott subsidiary), as well as its option over 3.1% of the Mexican company's capital stock, could end up in KCC's hands. As a result, the merging U.S. company could obtain control over Crisoba and the other companies in its group.
As indicated in the notification, the operation would involve a merger between Crisoba and KCM. After the operation, the corporate structure would be as follows: 55% of KCM's stock would be in Mexican hands and the remaining 45% would be under the control of KCC (31% directly and 14% through Scott Worldwide Inc.). In turn, KCM's corporate responsibilities would expand after incorporating Crisoba and its subsidiaries into its group.
KCM and Crisoba have a major share in the production and marketing of feminine hygiene products, tissue paper byproducts, writing and printer paper, and disposable baby wipes. On account of the different market shares of the two companies, the impact of the merger on conditions of competition would vary in each affected market.
Feminine hygiene products. The sanitary towel market is characterized by expanding demand, but demand that is relatively inelastic because there are only distant substitutes made with cotton or cloth. Sanitary towels, tampons, and panty-liners have different levels of substitutability. However, panty-liners and sanitary towels are generally complementary. Marketing takes place throughout the country through different channels. The relevant market is that of the three products at the national level.
The two merging companies were estimated to have a 63% share of this market. The remainder was mostly covered by Procter & Gamble (22%) and by other manufacturers and imports (15%).
Technological and promotional expenses raise market entrance costs for new companies, protecting the shares of the three main domestic producers. Competition from foreign articles can be largely discounted because domestic production is more advantageous as a result of import costs. As a result, this merger would grant substantial power over the relevant market and would facilitate monopolistic practices.
Tissue paper byproducts. The derivatives of tissue paper include toilet tissue, facial tissues, table napkins, and absorbent kitchen towels. Although each is intended for a specific purpose, the possibility of substituting one for another does exist. Since these products are sold nationwide, their relevant markets cover the entire nation.
KCM and Crisoba supply more than two-thirds of domestic sales of tissue paper products: a combined total of 331,000 tons a year. This volume, while important for Mexico, is not significant globally: in volume terms, the operation would rank KCM/Crisoba 110th among the world's largest paper companies. This fact and the relationship between scale and efficiency were taken into account during deliberations on the operation's favorable effects on competition. However, consideration was also given to the high domestic market share of the two companies (67.4%), which did threaten competition.
The following facts are relevant to this matter: (a) KCM alone has a 70% market share in facial tissues and kitchen towels; (b) in the facial tissue market, Kleenex and Scotties (belonging to KCM and Crisoba, respectively) account for 98% of domestic demand; (c) in napkins, KCM's Regio brand covers 12% of demand; (d) the brands of absorbent paper towels with the largest market shares are KCM's Kleenex and Vogue and Crisoba's Pétalo; and (e) most of the two companies' business comes from toilet tissue, where they handle the two major brands sold domestically (Pétalo and Regio), each of which accounts for slightly over 20% of total market volume.
KCM/Crisoba's substantial share of the tissue paper market must also be seen in conjunction with their highly integrated productive processes, the extensive coverage of their distribution networks, and the high market penetration of their brands. This situation would be a major discouragement to the consolidation of existing competitors and the entry of new companies, on account of the investments that would be necessary to set up a nationwide industry and of the high outlay, in terms of both time and resources, required to establish new brands. All these factors would grant the two companies substantial market power, threatening competition and free market access.
Writing and printer paper. This includes a wide range of paper types and products made from paper, the characteristics of which depend on their intended use. Substitutability between them is subject to certain restrictions. Similarly, paper products manufactured for other purposes are not a reasonable alternative. For this reason and on account of its national distribution, the relevant market covers the entire country. Of this market, KCM/Crisoba have a 36% share, with imports supplying another 50%. To meet foreign competition, the Mexican industry must raise its quality standards and levels of efficiency. The merger could increase KCM/Crisoba's efficiency without threatening competition among most of the products that make up this market. However, competition in the notebook segment would be threatened, where KCM and Crisoba respectively cover 80% and 6.5% of domestic demand. Given these conditions, the merger would raise, but not drastically modify, the structure of the relevant market. Nevertheless, the market power arising from such stakes in the total volume would hinder competition.
Other products. In the disposable baby wipes market, the following facts were noted:
KCM and Crisoba supply 38% of the market through imports.
70% of domestic demand is covered by imports from the United States.
The two companies are major producers in that country.
Considering this, the Commission decided that the merger would restrict competition in the affected market.
To summarize, the merger between KCM and Crisoba posed threats to or imposed restrictions on competition and free market access in the above markets. As a result, its completion in the way described in the notification would have facilitated the displacement of competitors and the unilateral imposition of prices, to the detriment of consumers. To prevent this, the Commission took steps to reduce the merger's market power and facilitate immediate participation by new competitors. With this in mind, and after hearing the opinions of the main competitors, the Commission decided to impose the following conditions on the operation.
Feminine hygiene products. Divestiture of Sancela and Comercializadora Sancela, which also meant the divestiture from Grupo Crisoba of the brands produced and marketed by Sancela (Saba, Confort, Evax). With this, KCM's share of the relevant market was kept at 38%. The 25% previously controlled by Crisoba was opened up to competition.
Tissue paper derivatives. In this sector, the Commission ordered (a) the sale of all rights over Regio brand toilet tissue and napkins; (b) 25-year transfer under license, extendible indefinitely in 25-year increments, of all rights over Scotties brand disposable tissues; and (c) cessation of Suavel brand napkins. These steps were supplemented by the divestiture of sufficient assets to produce at least 67,000 tons of tissue paper, and of the converters necessary to manufacture toilet tissue, facial tissues, and paper napkins in proportions equal to the market shares of Regio and Scotties. In addition, the purchasers of those assets would be offered the option of entering into a supply contract for 13,000 tons of tissue paper a year. In this way, competitors would be able to enter the market with a supply of 80,000 tons of tissue paper derivatives, already supported by known market brands.
As a result of these measures, KCM/Crisoba's share of the tissue paper derivatives market could be limited to 50%. In terms of specific products, this meant that a good proportion of KCM's supplies of toilet tissue and table napkins would be transferred to the competition. It also meant that the merger would have no effect on facial tissues, since other economic agents were to acquire Crisoba's share of that sector.
Writing and printer paper. Sale of all Mexican rights over Shock, Crisoba's main brand of notebooks. This measure would reduce the entry costs to be met by new competitors in the corresponding market.
Other products. 25-year transfer under license, extendible indefinitely in 25-year increments, of all rights in Mexico over Baby Fresh brand baby wipes.
Similar measures were introduced in other countries. The Mexican response was perhaps of greater scope, since it obeyed the need to prevent the negative effects from operations much larger than those occurring in other countries. The ruling, while appearing harsh, was consistent with the need to effectively eliminate threats to competition in domestic markets.
To insure that the implementation of these conditions would favor competition and free market access within as short a space of time as possible, the Commission granted the merging companies a period in which to submit a transparent, non-discriminatory scheme that would allow the participation of other economic agents with a real capacity to compete in the affected markets.
The Walt Disney Company / Expansión, S. de R.L. de C.V.
On December 11, 1995, the Commission was notified of an operation involving The Walt Disney Company and Expansión, S. de R.L. de C.V. This operation was the result of an international merger between Disney and Capital Cities/ABC, Inc. in the United States. Following this merger, control over Expansión, held by Capital through its subsidiaries (Business Publishing, Inc. and Mexican Publishing Company, Inc.) was to be transferred to Disney.
Disney and Expansión are active in different markets. For its entertainment business, the former has three subsidiaries in Mexico. Of these, only Disney Consumer Products, S.A. de C.V. is currently operating; its business involves granting licenses for manufacturing and marketing merchandise that exploits the image of Disney characters. In turn, the corporate purpose of Expansión is the production of financial and economic magazines and publications. It controls a 18.9% share of this market. Considering these points, the Commission determined that the operation as notified would have no effect on the markets referred to, and consequently resolved neither to object to the operation nor to impose conditions on it.
Robert Bosch, GmbH / Allied Signal Automotive de México, S.A. de C.V.
In February 1996, Robert Bosch, GmbH and Allied Signal Automotive de México, S.A. de C.V. gave notice of their intention to carry out a transaction involving the sale of 48.2% of Allied's assets to Bosch. With this operation, Bosch would acquire Allied's production facility located in San Luis Potosí, which specializes in hydraulic brakes.
The Mexican transaction of which notice was given was part of an international operation carried out by the parent companies of the merging firms. Its aim was to specialize in the production and sale of hydraulic brakes, in order to take advantage of economies of scale and raise the efficiency of this business line to international standards.
The market affected by the operation was that of hydraulic brake production and marketing within Mexico. The structure and market power of the companies involved would not be modified by the operation. By completing the transaction, Bosch would be a new participant and Allied would withdraw from the market. Consequently, the Commission resolved neither to object to the operation nor to impose conditions on it.
2. International Mergers in the chemical/pharmaceutical industry
During 1995 several major mergers took place in the international chemical/pharmaceutical industry, most notably the operations involving Upjohn and Pharmacia, Roussel Uclaf and Latin American Pharmaceutical, Glaxo and Wellcome, and Hoechst and Marion Merrell Dow. International experience indicates that the recent mergers between companies in this industry were basically intended to diversify their products in order to raise competitiveness when negotiating with wholesalers, hospitals, etc. An additional aim was to rationalize operating costs.
In Mexico, the two operations first listed above led to mergers between Roussel and LePetit and between Upjohn and Pharmacia de México. Both cases are described below.
Roussel Uclaf, S.A. / Latin American Pharmaceuticals, Inc.
On June 23, 1995, Roussel Uclaf, S.A. and Latin American Pharmaceuticals, Inc. gave notice of their intention to carry out an international transaction that would have effects in Brazil, Argentina, and Mexico. In this country, Roussel would acquire 100% of the capital stock of LePetit de México, S.A. de C.V., a subsidiary of Latin American Pharmaceutical, Inc. One of the conditions in the purchase contract was a no-competition clause, under which the selling party would not be able to compete against products manufactured by Roussel for a period of five years.
The investigation revealed three relevant markets, identified by therapeutic classifications: anti-obesity preparations (except diet products), gonadotrophin, and throat preparations, all with nationwide coverage. In the first of these, Roussel had a share of 52.6%. Following the transaction, this amount would increase only marginally, on account of LePetit's small 2.3% contribution to the market. In the last two markets, the three competitors of the companies involved in the transaction controlled a total of 70% of all sales.
Since the operation as notified would increase the efficiency and competitiveness of Roussel, thus leading to a deconcentration of those markets and, consequently, of the process of competition, the Commission resolved neither to object to it nor impose conditions on it.
Upjohn, S.A. de C.V. / Pharmacia de México, S.A. de C.V.
On March 18, 1996 the Commission was notified of a planned merger between Upjohn, S.A. de C.V. and Pharmacia de México, S.A. de C.V. in which Upjohn, S.A. de C.V. was to be the merging company. The operation was part of a global strategy adopted by the parent companies.
The market affected by the transaction was that of non-steroid anti-inflammatories produced and distributed across the nation. Within this market, the three main competitors of the merging companies had a joint share in excess of 47%, while Upjohn and Pharmacia's share totaled 5.1%. Given these conditions, the operation posed no threats to competition and free market access; the Commission therefore decided neither to object to it nor to impose conditions on it.
3. Strategic Alliances
The opening up of the Mexican economy and the signing of agreements to allow domestic products greater access to the markets of our main trading partners have provided opportunities and set challenges for Mexico's established businesses. As a result, many strategic alliances with foreign companies have been established or modified. The aims of these include strengthening the local company in the face of the arrival of new, international-level competitors and expanding domestic industry's sales into other countries.
The cases described below all involve such strategic alliances. The operation involving General Electric Co., Axa, S.A. de C.V., and Prolec, S.A. de C.V. was aimed at exports in the North American Free Trade Agreement (NAFTA) region. In contrast, the operations involving Alpek, S.A. de C.V. were with the purpose of adapting to intensified competition in the regional and internal markets.
General Electric Co. / Axa, S.A. de C.V. / Prolec, S.A. de C.V.
On June 1, 1995 notice was received regarding a planned operation between Axa, S.A. de C.V., and General Electric Co. The transaction was to involve a joint investment agreement between the two companies, aimed at creating a new company with the name Prolec-GE Power Transformers, S.R.L. de C.V. Its entire capital stock was to be subscribed to, in equal parts, by General Electric Co. and Axa, S.A. de C.V.
The new company would be created from the power division of Prolec, S.A. de C.V., a subsidiary of Axa. To this end, GE would transfer its transformer production line to Mexico. Additionally, the two companies would attempt to share their competitive advantages. Axa would contribute its distribution network and the infrastructure, technology, quality systems, and design of Prolec, S.A. de C.V.; in turn, GE would contribute its prestige, technology, product lines, and distribution networks in the U.S. and Canadian markets.
This operation was a strategic response to the lifting of barriers to trade and the intensification of competition under NAFTA. The aim of the companies involved was to consolidate their position in Mexico and to export 75% of the output of Prolec-GE Power Transformers to the United States and Canada. Despite Prolec's major market share in Mexico (46%), the operation did not pose any threat to competition in the relevant market, that of electric power transformers produced and sold within Mexico. This conclusion was further supported by the presence of domestic and foreign firms with sufficient installed capacity and technology to compete against the new company.
The Commission therefore resolved neither to object to the operation nor to impose conditions on it.
Alpek, S.A. de C.V. / Grupo Centek, S.A. de C.V. / Inversora de Valores del Norte, S.A. de C.V. / Grupo Celanese, S.A. de C.V. / Univex, S.A.
On August 8, 1995, Alpek, S.A. de C.V. and its subsidiary Grupo Centek, S.A. de C.V. gave notice of their intention to carry out an operation involving, initially, the purchase of stock and assets belonging to Grupo Celanese, S.A. de C.V. The operation as notified involved the following transactions and participants:
First stage:
Centek to purchase from Celanese 51% of the capital stock of Univex, S.A. Univex is the sole domestic producer of caprolactam, and one of only four producers in the North American Free Trade Agreement area.
Inversora de Valores del Norte, S.A. de C.V., a Centek subsidiary, to purchase all assets corresponding to Celanese's Ocotlán plant, which produces polymers for nylon and nylon textiles.
Second stage:
Following conclusion of the above transactions, Alpek to transfer to E.I. Dupont de Nemours & Co. shares representing up to 50% of the capital stock of Centek.
There were three markets affected by this operation: the nationwide production and marketing of (a) caprolactam, (b) nylon textile polymers, and (c) nylon polymers. The latter two are synthetic fibers. Caprolactam is a component used in the production of both.
In light of the vertical relationship between the market for caprolactam and the markets for nylon polymers, the operation would have the following effects:
It would intensify the scale of the vertical relationships and integration that characterize this industry. Alpek would have plants producing the components and nylon fibers, and Celanese would have the assurance of committed supply from Alpek. This would allow the production of a component that is widely sold for nylon production, a product marketed worldwide. In addition, Celanese would not have to divert resources into a non-competitive activity and would instead be able to channel them into sectors in which it is more efficient.
On the supply side, Alpek would have control over 100% of domestic production of caprolactam and of nylon polymers, and over 64% of nylon textile polymer production. Celanese, in contrast, would maintain a significant influence over domestic demand for those products. Given those circumstances, none of the companies involved in the transaction would acquire substantial power in the affected markets. The supply commitment included in the transaction reflects that fact.
The high level of concentration did not necessarily mean that there would be no competition in the affected markets. Neither would it help eliminate competitive pressures on them, since import duty levels allowed caprolactam and nylon synthetic fibers to enter the country at competitive prices. On the other hand, there would be an increase in efficiency. At the same time, these products are widely marketed across the world.
For all these reasons, the Commission made no objection to the operation. However, to prevent possible increases in Alpek's market power, it decided to set a condition under which prior notification would have to be given of any complaint about unfair international trading practices.
4. Purchases of Mexican Businesses by Foreign Companies
Most notable among the operations of this kind of which the Commission received notification during 1995-96 was the one between Paccar, Inc. and Vilpac, S.A. With this operation, Paccar would increase its stockholding in Vilpac from 55% to 100%. The reasons for it had to do with the ongoing liberalization of the Mexican economy, particularly in the automobile industry.
The operation's relevant market was that of heavy goods and passenger vehicles produced in Mexico belonging to classes 6, 7, and 8 (weights from 8,846 to 14,969 kg). These were all taken as being the same relevant market, given the high level of substitutability between them. Only one exception was made: vehicles with a fifth wheel and class 8 mixer trucks.
Analysis revealed that the level of concentration was moderate, albeit slightly higher in classes 6 and 8 and lower in class 7. This situation allowed competition between existing industries. In addition, in spite of the high entry costs in this industry due to the funds required to install a heavy vehicle plant and the cutting-edge technology needed to efficiently compete in this market, recent years have seen an intensification of competition with the entry of Volvo, Oshkosh, General Motors, and Chrysler.
In this regard, the proposed operation would allow a higher level of competition between Mexican producers of heavy vehicles; the reason for this was Vilpac's capacity to make investments, acquire up-to-date technology, and participate in the domestic and overseas markets.
The Commission concluded that the planned operation did not grant substantial market power and, consequently, did not threaten competition. It therefore resolved neither to object to the operation nor to impose conditions on it.
B. Deregulation and Privatization
1. Deregulation
The new opportunities available following the deregulation of natural gas distribution, electricity generation, and telecommunications have led to the creation of several kinds of strategic alliances. This is the logical outcome of these sectors' high entry costs, particularly with regard to investment, experience, technology, and understanding of the market, together with the need to combine several advantages in each of those areas.
As a result, the success of deregulation efforts and, consequently, the efficient provision of those services largely depends on mergers and acquisitions. However, the size of the companies involved, a characteristic of deregulated sectors, can hinder the promotion of competition and allow monopolistic practices, giving the concentrated companies exclusive profits to the detriment of the benefits that deregulation should bring consumers and society in general. In situations such as this, market dynamics have to be replaced with intervention by regulatory authorities.
Nevertheless, it must be pointed out that as the deregulated sectors stand today, concentrations generally favor competition or its development on account of their being associated with the incorporation and entry of new companies. Thus, in the telephone sector, the entry of new participants will allow the development of competitive pressure in this industry, which has traditionally been dominated by one company. Private participation in electricity co-generation schemes will also have positive effects in that market, by encouraging the development of greater efficiency in the Federal Electricity Commission (CFE). Finally, the involvement of the private sector in gas distribution services requires a careful assessment of future participants, on account of the impact on the market for industrial fuel.
Careful analysis of these operations allows their disadvantageous effects to be prevented, thereby using deregulation to benefit of society. To this end, the sectoral legislation generally requires the Commission's prior permission before public concessions and permits can be granted.
Liberalization of the telecommunications sector
The opening up of telephone services to competition was consolidated with the enactment of the Federal Telecommunications Law (LFT) in 1995. Prior to this event, several economic agents had expressed their interest in participating in the sector. The formalization of their initiatives, however, depended on the creation of a regulatory framework that would allow them to obtain concessions in a transparent fashion, would guarantee ownership rights and broad, non-discriminatory access to telecommunications networks and, finally, would insure interconnections between all service providers. In order to help establish those conditions, so necessary for the development of competition in the sector, the Commission worked in close collaboration with the Secretariat of Communications and Transport (SCT) in drawing up the draft version of the LFT.
The LFT's slant in favor of competition,and the Commission's resolution in the application of competition legislation and in complying with its duties under the law, have provided a strong impulse for the materialization of initiatives by companies interested in participating in this sector. The change in conditions intensified the potential competition against Telmex, to the immediate benefit of consumers. The signs of this favorable evolution can be seen in improved customer service, in the new services being offered, and in the expansion and modernization of the telephone network.
The establishment and effective development of conditions of competition placed new challenges and responsibilities on the Commission. First of all, it had to insure that the procedures and guidelines for granting concessions did not include artificial restrictions to entry by new telephone service providers. In this regard, the Commission has adopted a systematic stance against limitations on competitors. Working with this principle, the SCT granted concessions to Avantel, Unicom, Alestra, Iusatel, Cableados y Sistemas, Marcatel, Miditel, and Investcom.
Following the conclusion of that phase, the Commission enforced the law to prevent mergers and acquisitions that could reduce or hinder competition or free market access. It studied the notifications received regarding operations between Banco Nacional de México, S.A. de C.V. and MCI Communication Corporation, and between Valores Industriales, S.A., Bancomer, S.A., and GTE International Telecommunication Incorporated, the purposes of which were to create Avantel and Unicom, respectively. Similarly, it investigated the operation involving Grupo Alfa and American Telephone and Telegraph Corporation to create Alestra. In these three cases, the Commission's rulings were favorable. However, a condition was placed on Alestra, requiring it to give notice upon reaching the limits beyond which notification of operations is required under the law.
The Commission does not object to mergers and acquisitions intended to create efficient companies that are capable of competing in the new markets in accordance with the law. The three cases approved during 1995-96 adequately reflect the application of this policy. In fact, by undertaking such operations, the banks can make better use of their internal networks and access to financial markets, bringing a favorable outcome for competition in a sector previously characterized by its low number of participants. This phenomenon has also been observed in other countries.
At the same time, defending competition and free market access forces the Commission to carefully analyze the impact on domestic long-distance services caused by horizontal mergers and acquisitions in this sector. The same attention would be required by any future alliances with foreign telecommunications companies that operate as monopolies in their own countries.
The strengthening of competition in domestic markets and its development in the telephone industry go some way toward explaining the corporate restructuring of Grupo Carso, S.A. de C.V. Its split into two new companies - Carso Global Telecom, S.A. de C.V. and Invercorporación, S.A. de C.V. - is intended to improve management of its different business areas. In this way it will ensure better performance by the group in the increasingly competitive telecommunications sector. The operations to create the new companies were approved by the Commission, on account of their being administrative restructurings that did not threaten competition in the markets in which Carso participates.
To conclude, mention should be made once again of the challenge facing the Commission and the regulatory authorities in establishing and developing efficient telecommunications markets. In the short term, the structure of this market will be highly dynamic. New suppliers will surely emerge, along with mergers and acquisitions involving the recently created telecommunications companies and more sophisticated strategies to capture and control markets. With that in mind, the Commission has made preparations to insure customer satisfaction and corporate access to this essential service under the best possible conditions available on the market.
Motorola Inc. / Mocel Inc. / Celcom Inc.
On June 20, 1995, Motorola Inc. gave notice of a planned operation involving the purchase of 100% of the stock of Mocel Inc. and the option to purchase the same proportion of shares in Celcom Inc.
The companies participating in this merger were either directly or indirectly involved in Celular de Telefonía, S.A. de C.V. (Cedetel). Motorola was the owner of 40% of Cedetel's stock. In turn, Mocel and Celcom were stockholders in Grupo Corporativo del Norte, S.A. de C.V., which also held stock in Cedetel. Following this operation, Motorola would acquire control over Cedetel.
The relevant market of this operation was that of cellular telephone services provided in Region IV (Monterrey, Saltillo, Nuevo Laredo, Reynosa, and Matamoros), which had been granted under concession to Radiomóvil Dipsa, S.A. (Telcel) and Cedetel.
It should be pointed out that for technical reasons there are only two bands available for cellular telephones. Band A is distributed regionally among different companies, while Band B has been granted under concession to Telcel across the nation. This situation limits the participants in the relevant market to the two companies mentioned above. Thus, the Motorola operation would not cause changes in market distribution, which was divided 60-40 between Telcel and Cedetel respectively.
However, the mechanics of the cellular concessions does not lead to balanced competition between the participants, on account of the advantages granted thereunder to the national operator. In such a situation, Motorola's capacity and experience would help strengthen competition in the relevant market and in the telecommunications sector. For that reason, the Commission resolved neither to object to the operation nor to impose conditions upon it.
Enserch de Monterrey, S.A. de C.V. / Compañía Mexicana de Gas, S.A. de C.V. / Operadora de Gas Cerralvo, S.A. de C.V. / Gas Natural de Apodaca, S.A. de C.V. / Gas Natural de Santa Catarina, S.A. de C.V. / Gas Automotores, S.A. de C.V.
On October 27, 1995, Enserch de México, S.A. de C.V. (Enserch) gave notice of its plans to acquire 49% stockholdings in Compañía Mexicana de Gas, S.A. de C.V., Operadora de Gas Cerralvo, S.A. de C.V., Gas Natural de Apodaca, S.A. de C.V., Gas Natural de Santa Catarina, S.A. de C.V., and Gas Automotores, S.A. de C.V. (collectively, "the companies").5 Following the Commission's resolution, Enserch reported that the shares in question would be acquired by its subsidiary Enserch de Monterrey, S.A. de C.V. (E. Monterrey). Since this modification did not alter the substantive content of the original notification, the Plenary ratified its resolution.
Both Enserch Corporation (EC) and Enserch Development Corporation (EDC) are U.S. companies whose business includes the acquisition, transportation, distribution, and sale of natural gas, butane, and propane in that country. They are both owners of Enserch. In turn, EDC and Enserch respectively hold 0.01% and 99.99% of the capital stock of E. Monterrey. The Mexican subsidiaries were created in 1995 to do business in the domestic natural gas market, following the opening of that sector to competition.6 Nevertheless, as of the day the notification was served, Enserch and E. Monterrey were not active on that market.Two Mexican shareholders controlled 75% of the stock of Compañía Mexicana de Gas, S.A. de C.V., Operadora de Gas Cerralvo, S.A. de C.V., and Gas Natural de Santa Catarina, S.A. de C.V. In turn, the first of these companies controlled 99% of the stock of Gas Natural de Apodaca, S.A. de C.V. and Gas Automotores, S.A. de C.V. These companies' majority shareholders would continue to be involved in them after the operation.
The interested companies had authorization to distribute natural gas in the Greater Monterrey Area (GMA), even before the enactment of the Natural Gas Regulations (RGN) in 1995. For this, they had a network of 223 kilometers of gas mains. In order to continue their operations under the new regulations, the companies obtained the provisional permits provided for in the RGN.7 The final permits (renewable indefinitely for periods of 15 years) were due to be issued by the Energy Regulating Commission (CRE) within the following months.The aim of the operation was to combine capital, experience, and technology, to expand the gas main network in the GMA, to raise the quality of the supply service, and to improve the financial situation of the companies involved. To define the corresponding relevant market, the Commission considered the possibility of replacing natural gas with fuel oil for industrial use or with liquid petroleum gas (LP) for domestic and business use. As for the geographical area of the relevant market, it was defined as being areas specified in the permits. Except for the possibility of modifications being contained in the final permits, the area of influence of the companies making the notification was defined as being the GMA.
Based on this, the Commission ruled that the operation's relevant market was that of natural gas, LP gas, and fuel oil distributed in the GMA. In this context, in the long term, a major increase in the share controlled by natural gas was predicted, as a result of its greater effectiveness in observing ecological standards, the high efficiency within its distribution, and the forthcoming removal of government subsidies from LP gas consumption.
On account of the nature of natural gas distribution, the incipient level of development within this service, and the applicable regulatory framework, determining the economic agents' power in the relevant market required an analysis of three temporal dimensions:
Short term. As of the date of the notification, the merging companies were competing against the Federal Electricity Commission (CFE), private companies,8 and Pemex in the distribution of natural gas, LP gas, and fuel oil. With specific reference to natural gas, the sales of Compañía Mexicana de Gas, S.A. de C.V. and Gas Natural de Apodaca, S.A. de C.V. accounted for less than 30% of the market volume; the remainder was supplied was CFE and Pemex (households and direct sales to industry, respectively). This situation had to be seen together with the fact that the remaining companies were not active in the market and that a major proportion of the gas consumed by industry was supplied by Gas Industrial de Monterrey, S.A. de C.V. This company is made up of business groups in the area, which are its exclusive customers. Given these conditions, the operation as notified did not grant substantial market power in the short term.
Medium term. The companies involved were looking at a period of exclusivity for a period of five or twelve years over the construction of the natural gas distribution, reception, transportation, and delivery system, depending on the procedure chosen to obtain the final permits. However, the RGN were already allowing marketing companies to enter the market, together with the construction of mains for gas self-supply. These developments, together with the presence of the fuel oil and LP gas distributors, could partially reduce the market power granted by the exclusivity. Thus, the competitive effects of marketing and self-supply would depend on viable access to sources of supply outside the area covered by the permits, perhaps even outside the country. After considering these factors, the investigation concluded that the granting of the final permit and, consequently, the corresponding period of exclusivity would give the merging companies significant power over the market.
Long term. After the end of the period of exclusivity, the companies could face competition from other distributors. Their entry into the market would depend on their experience and technical ability to provide an efficient and safe service in accordance with the guidelines established by the competent authority, and on their access to resources needed for infrastructure investments. Despite these restrictions, it is hoped that the market power of the merging companies will fall over the long term.
Based on this thorough analysis, the Commission decided not to object to the operation. It did warn, however, that the possibility of monopolistic practices in the medium and short terms would depend on the evolution of the significant market power of the merging companies over the market during the period of exclusivity. Similarly, it took into consideration the fact that, in accordance with article 81 of the RGN, rates could be regulated by the CRE, following the CFC's ruling on the prevailing conditions of competition.
The Plenary resolved not to object to the operation, but it informed the companies involved that since it was possible for them to obtain exclusive distribution rights over the relevant market for a specific period and, consequently, significant market power, they were required to inform the Commission of any request for exclusive distribution permits and of any change in the area of influence not provided for in the operation.
Cogeneración Mexicana, S.A. de C.V. / Cogentrix México, Inc. / Mecánica La Peña, S.A. de C.V. / Celanese, S.A. de C.V. / Messer Griesheim de México, S.A. de C.V. / Univex, S.A. de C.V.
On April 28, 1996 the Commission was notified of the plans of Cogentrix México, Inc., Mecánica La Peña, S.A. de C.V., Celanese, S.A. de C.V., Messer Griesheim de México, S.A. de C.V., and Univex, S.A. de C.V. to incorporate a company called Cogeneración Mexicana, S.A. de C.V. The main activities of the new company were to be the generation of electricity and steam, and to exclusively supply those products to the economic agents involved in the operation. In other words, it would provide co-generation services as provided for in the Public Electricity Service Regulations.
The operation was intended to combine the experience, resources, and needs of the participants. Their complementary abilities and interests would allow the new company to develop healthily to the benefit of all its owners. Thus, Cogentrix and La Peña would contribute most of the capital, together with their experience in the electricity and capital goods sectors. It should be pointed out that Cogentrix is a subsidiary of Cogentrix Energy Inc., a leader in the U.S. electricity industry, while Celanese, Messer, and Univex are major users of electricity and steam.
Cogeneración Mexicana would service the installations of Celanese, Univex, and Messer located in Querétaro, Celaya, Salamanca, and Toluca. In that area, as in the rest of the country, the Federal Electricity Commission holds the dominant position. Consequently, although Cogeneración Mexicana would be unable to service other companies, its creation did favor the development of efficiency, competition against the CFE, and the liberalization of this important market.
In consideration of its effects in favor of competition in the electricity market and the benefits this would bring to its client companies, the Commission resolved neither to object to the operation nor to impose conditions on it.
2. Privatizations
The privatization of nationalized industries with a major share of their respective markets has led to the adoption of measures to prevent excessive concentration. For that reason, the calls for bids and rules of public company auctions require bidders to obtain the Commission's prior approval. Thus, mergers and acquisitions related to the privatization process require notification to be given to the Commission.
In this way, the Commission helps society obtain the benefits expected under the policy of selling off nationalized companies. During 1995-96, the Commission assessed many cases, including the companies participating in the auctions of port terminals and authorities and of ANDSA's Pantaco Unit.
Privatization of Mexico's seaport system
The main elements of the divestiture strategy applied to the ports system include the establishment of competition in the provision of services. These conditions are necessary for avoiding the erection of artificial barriers to entry, the undue displacement of competitors, and the establishment of monopolistic prices. Only without such restrictions can a competitive ports system be developed, one capable of supporting national growth, establishing effective links between land and sea transport, and integrating the domestic economy into international markets. With this aim, the Commission participated in designing the calls for bids and auction guidelines for the ports sector.
Over 1995-96, auctions were held for the partial transfer of rights to exploit several port terminals and installations specializing in cargo, along with three cruise-ship terminals and the port administrations of Acapulco and Puerto Vallarta.
Within the competition criteria used in the calls for bids and auction guidelines, the determination of the following relevant markets was of particular importance:
Cargo terminals and port installations: the provision of loading, unloading, lightening, storage, handling, and haulage services along the coastline of, on the one hand, the Gulf of Mexico, and, on the other, the Pacific Ocean.
Cruise-ship terminals: services for moving passengers and for the entry and exit of vessels in the geographical region of Cozumel Island.
Acapulco and Puerto Vallarta port administrations: mainly services for local vessels providing entertainment and for cruise tourism in the Pacific Ocean coastal region. At Acapulco, loading, unloading, lightening, storage, handling, and haulage services are also important.
In addition, the restrictions imposed on the successful bidders prohibit horizontal concentrations.
In compliance with the terms of the competition law and the stipulations contained in the auction documents, the Commission assessed all parties that submitted bids. In this way, it verified that there were no illicit horizontal concentrations and it investigated the potential threats to competition from vertical concentrations. Based on the corresponding studies, it neither objected to nor placed conditions on the auctions for the cruise terminals and port administrations. In the cargo installations and terminals, conditions were placed on some participants and an objection was made to the participation of one group of economic agents. On account of their relevance and in order to illustrate the process, the resolutions on the bids are described below.
Between June 8 and July 6, 1995, the Commission received notifications from 15 companies and seven groups9 with registered tenders in the first and second calls to bid issued by several port administrations10 for the use and exploitation11 of the following port terminals and installations: Three container terminals at the ports of Lázaro Cárdenas, Michoacán; Manzanillo, Colima; and Veracruz, Veracruz (TC-LC, TC-Man, and TC-Ver, respectively). Two multi-purpose terminals at the port of Altamira, Tamaulipas (TUM-Alt-I and TUM-Alt-II). Two multi-purpose terminals at the port of Lázaro Cárdenas, Michoacán (TUM-LC-I and TUM-LC-II). Two multi-purpose port installations at Manzanillo, Colima (IUM-Man-I and IUM-Man-II).
The evaluation of the effects on competition and free market access of awarding these terminals and installations was carried out in accordance with the conditions set forth in the calls to bid and auction rules. These conditions were set with the Commission's participation, which worked closely with the sectoral authority in designing an allocation method that would favor competition - in other words, transparent, non-discriminatory, and compliant with the filters included in the law for investigating mergers and acquisitions and, when applicable, preventing any anti-competitive aims or effects. Thus, the calls for bids and auction rules implicitly contained the following guidelines:
Relevant markets. (1) The provision of loading, unloading, lightening, storage, handling, and haulage services in the geographical area covered by the coast of the Gulf of Mexico and (2) the provision of those same services along the Pacific coast.
Substantial market power. In order to limit the power of the concessionaires located along in each coast over the corresponding markets, the following conditions were placed on the bidding process:
Only one terminal or installation per bidder on each coast (relevant market). In addition, it was ruled that individuals and corporations with either direct or indirect connections to the successful bidders (concessionaires) could not bid for another terminal or installation along the coast (relevant market) in which the related concessionaires were authorized to operate.
Restrictions on the participation of concessionaires in the capital stock of port administrations.
Restrictions on subcontracting by concessionaires.
These measures simplified the administrative procedures, provided the participants with greater certainty, allowed coordination between the sectoral and competition authorities, and helped enforce the law. In investigating the bidders, the Commission determined and explicitly described the relevant markets.
Regarding the market power of the registered economic agents, the Commission ruled that the restrictions provided in the calls for bids and auction rules were sufficient to prevent horizontal concentrations that would threaten competition. With these provisions and the restrictions imposed on potential concessionaires' involvement in the port administrations, the Commission's work was mainly channeled into analyzing vertical concentrations. This aspect is of great importance in connection with transport and foreign trade services, since the integration of different transport modes and services into a single company or group could grant it the power to set prices, restrict supply, and impose barriers to entry, to the detriment of other economic agents.
Taking all this into consideration, the Commission closely analyzed the proposals made by Transportación Marítima Mexicana, S.A. de C.V. and Operadora de la Cuenca del Pacífico, S.A. de C.V. The former was involved in sea, rail, and road transport, and in the operation of private terminals and the provision of port services. The latter's shareholders included a group of customs agents operating at Manzanillo, Colima.
Based on the approach described and the investigations carried out, the Commission ruled:
Not to object to the notifications made by the companies registered with the first call for bids (TC-LC, TC-Man, TC-Ver, TUM-Alt-I, and TUM-Alt-II).
Not to object to the notifications made by the companies registered with the second call for bids (TUM-LC-I, TUM-LC-II, IUM-Man-I, and IUM-Man-II), but to inform Operadora de la Cuenca del Pacífico, S.A. de C.V. that, if awarded any of the Manzanillo installations, it would have to refrain from linking its port services with its customs brokerage services through anticompetitive actions such as discrimination, placing conditions on sales, and crossed subsidies.
The bidding process closed without TUM-Alt-II, TC-LC, and IUM-Man-II being awarded. To assign the first terminal, the Altamira port authority issued a new call for bids, which was structured along the same lines as the two previous ones.
The notifications presented by the four groups12 registered with the TUM-Alt-II auction were analyzed in accordance with the criteria used for the previous auctions. The Plenary resolved to object to the notification presented by the group Ingenieros Civiles Asociados, S.A. de C.V. and International Container Terminal Services, Inc., on account of their relationship with Internacional de Contenedores Asociados de Veracruz, S.A. de C.V., which held the concession over the container terminal at the port of Veracruz.13 In this way, a horizontal concentration in the relevant market of the Gulf coast that would have threatened competition and affected service users was avoided.Divestiture of Warehouses at Almacenes Nacionales de Depósito, S.A.'s Pantaco UnitOn June 27, 1995 a call to bid and auction guidelines were published for the divestiture of the warehouses held in condominium located at the Pantaco Unit (Pantaco) of Almacenes Nacionales de Depósito, S.A. (ANDSA). The sale of these assets, which was subject to the condition of creating the Pantaco Internal Port and Logistics Activities Center (PICALP), had the aim of modernizing infrastructure, increasing efficiency in storage services, and encouraging private participation in the provision of those services. To achieve these goals, it was necessary to commit the participating companies to the investment, development, and provision of the services provided for in the PICALP and, at the same time, to guarantee the conditions of competition and free market access that would lead to a constant improvement in service provision.
Within the ANDSA system, Pantaco was responsible for distribution and supply in the Mexico City Metropolitan Area (MCMA). To service the demand of this major center for marketing and consumption, Pantaco has a surface area of approximately 55.8 hectares, of which 26.7 were covered by 112 warehouses, with the remainder taken up by common areas and infrastructure. Pantaco stands adjacent to the railroad terminal of the same name, and all its warehouses have access to rail transport. In addition, it was being equipped with a customs module. This complex is Mexico's largest storage center, accounting for 12% of ANDSA's capacity and 6% of the nation's entire capacity.
With the creation of the PICALP, Pantaco would cease to be a storage center for distributing and supplying grain to become a single unit providing logistics, transportation, and storage facilities, together with bonded warehouses, financial services, telecommunications, and other related activities. To achieve this, a scheme involving the following elements was implemented:
Sale of 185,796 m2, corresponding to 83 of the 112 condominium warehouses, along with the proportional part of the common spaces (yards, general construction, multi-purpose building, huts, weighbridges for trains and trucks, internal streets, railway infrastructure, etc.). The area up for auction accounted for 69.6% of Pantaco's total storage area. The rest would continue to belong to ANDSA and Ferrocarriles Nacionales de México, S.A.
Owners obliged to invest in infrastructure. The implementation of this program, together with the administration and coordination of the use of common areas, would be carried out by a trust established within Nacional Financiera, S.N.C.
Encouraging the efficient introduction of intermodal transport into the storage and distribution chain, thereby taking maximum advantage of Pantaco's location.
Integration of services and involvement of companies specializing in storage and related activities within a single area.
With creation of the PICALP, Pantaco would be able to adapt to the new needs of the country and of the MCMA. Similarly, better use would be made of its installations by allowing the creation of economies of scale and scope, together with major synergy. On the other hand, excessive concentration in the provision of those services could have anti-competitive effects that would reduce or even cancel out the projected increases in efficiency. To prevent this from occurring, the Commission worked in conjunction with the Secretariat of Commerce and Industrial Development and the Secretariat of the Treasury and Public Credit to design a divestiture scheme that placed limitations on participants and emphasized their legal obligations in connection with mergers and acquisitions. Thus, requiring bidders to obtain the Commission's approval, as stipulated in the auction documents, assisted the effective application of the law and ensured better protection for competition and free market access.
In order to obtain the aforementioned resolution, thirteen companies and two groups14 gave notice of their interest in acquiring the 83 warehouses and corresponding common areas up for auction. The analysis of the proposed transactions and of the auction process allowed the relevant market to be defined and permitted an assessment of the market power that would arise from awarding the assets in question.The Commission ruled that the services of the relevant market were those involving the handling and storage of non-perishable goods, including loading, unloading, breaking and consolidation, warehousing, custody, and preservation, all integrated into a logistic scheme. These services would be offered at both storage warehouses and general deposit warehouses.
In geographical terms, the relevant market covered the MCMA region, since the services described have a "locational" value for the user on account of the logistics of moving and marketing their merchandise into, within, and from the MCMA. Thus, the services to be provided by the PICALP and, more particularly, those provided by the warehouses up for auction, would only be substitutable by other units offering similar services in the same geographical area. Investigations revealed that the other warehouses located in the MCMA only provided a part of the services to be included in the PICALP.
Despite the lack of close substitutes for the PICALP's services and the major investments necessary for constructing and combining services of this kind, the market power of the project's participants would be strongly curtailed by the restrictions imposed on the awarding of the storage areas. Thus, under the auction guidelines, each qualifying company or group could only opt for 10% of the PICALP's total surface area. On account of these conditions, and since each owner of the condominium would operate independently, the divestiture scheme would prevent concentrations of danger to competition and market forces would encourage the economic agents to take advantage of the benefits of vertical integration provided for in the PICALP, thereby benefiting society in general and users in particular.
The Plenary resolved to make no objections to the transactions notified to the Commission. It did, however, impose the following conditions:
The total shares allotted to Almacenadora México, S.A. de C.V. and Almex Jalisco, S.A. de C.V. must not exceed 10% of the total surface areas of the warehouses being auctioned. This was because the former held a 51% stake in the latter's capital stock.
Servicargo, S.A. de C.V. and Agentes Aduanales para el Comercio Exterior, S.A. de C.V. must refrain from linking storage services with customs brokerage services through anticompetitive actions such as discrimination, placing conditions on sales, and crossed subsidies.
C. RESTRUCTURING OPERATIONS TO FACE THE ECONOMIC CRISIS
The recent economic contraction has put most of the nation's companies to the test. In general terms, businesses have suffered large reductions in their sales and increases in their costs, especially financial costs. At the same time, the banking system was affected by a rapid growth in past-due loans. Against this backdrop, corporate survival was further threatened by adverse changes in demand for their products and services. As a result, modifications have taken place in market structures following the exit of competitors and a series of mergers and acquisitions undertaken to overcome financial difficulties and other problems.
On account of the losses in social well-being and the risks to competition caused by withdrawals of competitors, the legislation of some countries provides for temporary exceptions in times of crisis. In Mexico, such an eventuality is not explicitly provided for in the competition law. However, the law does empower the Commission to implement measures to safeguard or strengthen competition, while not hindering mergers and acquisitions entered into to return companies to a sound financial footing.
1. Restructuring of the financial system
The Mexican banking system began to suffer from a shortfall in capital in 1993, the result of rapid growth in nonperforming debts. Since then, a group of financial institutions had been operating with serious problems, and in some cases had been acting outside the established regulations. To correct this situation, several institutions received credits from the Bank Savings Protection Fund (Fobaproa) and were subjected to intervention by the National Banking and Securities Commission (CNBV).
The banks where intervention took place between 1994 and 1995 were Banco Unión, Cremi, Banpaís, and Inverlat. Once they had been returned to a sound financial footing, the interventions were to conclude with a search for new investors. In accordance with this, in 1995 the Commission received notification of the intention to auction off Aseguradora Mexicana, S.A. de C.V. (Asemex), a member of the Asemex-Banpaís group. The Commission's resolution on this issue is presented below.
The weakness of the national banking system was heightened with the crisis that broke out in December 1994. The devaluation of the peso, increased nominal interest rates, economic contraction, and the excessive debt burden on companies and families led to a worsening of credit portfolios and a massive increase in nonperforming debts. This situation went a long way to reducing the capitalization of the banking system: in February 1995, the corresponding index stood at a level below 8%.
The risk of insolvency within the banking system was countered in time by several measures introduced by the financial authorities. Notable among these were the Temporary Capitalization Program (Procapte), and the Program to Strengthen Capital through Portfolio Purchases, together with legal amendments to the banks' capital structure intended to facilitate their capitalization.
Procapte has made a major contribution to tackling the financial problems of the most severely weakened banks. It has also allowed their survival, thus preventing the market from being concentrated into a reduced number of institutions. Nevertheless, faced with the possibility of the Procapte-supported banks being unable to meet their subordinated obligations, Fobaproa would have to offer the corresponding shares of stock to new investors. In this case, the Commission would have to prevent undue mergers and acquisitions in order to avoid monopolistic practices that would harm bank customers' interests.
The Program to Strengthen Capital through Portfolio Purchases and the legal amendments to the banks' capital structure have facilitated financial healing by stimulating fresh injections of resources from shareholders and other private economic agents, both domestic and foreign. Since the corresponding transactions, depending on the amounts involved, can constitute mergers or acquisitions as described in the competition law, they are subject to the Commission's approval. This was the case with the operations involving Grupo Financiero Probursa, S.A. de C.V. with BBV International Investment Corporation, and Grupo Financiero Bital, S.A. de C.V. with Banco Comercial Portugués, S.A. and Banco Central Hispanoamericano, S.A.
At the same time, the purchase of stock in Grupo Financiero Bancomer, S.A. by Bank of Montreal helped consolidate the group's finances and enabled the capitalization of Bancomer. Due notice of this operation was also given to the Commission.
The Commission's resolutions in the last two cases and in the Asemex transaction are described in detail below.
Grupo Financiero Probursa, S.A. de C.V. / BBV International Investment Corporation
Grupo Financiero Bital, S.A. de C.V. / Banco Comercial Portugués, S.A. / Banco Central Hispanoamericano, S.A.
BBV's investments in Probursa and those of Comercial Portugués and Central Hispanoamericano in Bital took place under the legal amendments to the capital structure of financial institutions. The first transaction involved the capitalization of Probursa through an increase of up to 70% in BBV's stake. In this way, Probursa became a subsidiary of the Spanish bank. The second operation was notified as an issue of subordinated obligations, convertible to series A and B stock, two-thirds of which were to be acquired in equal proportions by Comercial Portugués and Central Hispanoamericano. After this transaction, the holdings of each of the foreign banks in Bital were to rise to almost 20%.
The relevant market of these operations was that of financial services, bank and non-bank, offered within the country. The structure of that market does not present high levels of concentration, in spite of the fact that three institutions - albeit none of the companies giving notice in the present cases - have a joint market share of 50%.
In consideration of this, and of the fact that these foreign banks did not previously have a stake in the Mexican market, the operations as notified did not grant substantial power over the relevant market. On the contrary, thanks to the capital injections, Probursa and Bital would recover or even increase their competitive capacities. Thus, Probursa would expand into the retailing banking sector, and Bital would relaunch its aggressive branch opening program that had been suspended in 1994.
On account of the benefits to competition of these operations and the consequent benefits to savers and bank debtors, the Commission resolved neither to object to them nor to impose any conditions. In this way, in addition to helping strengthen the financial system, it encouraged the development of less concentrated, more competitive markets.
Sale of Aseguradora Mexicana, S.A. de C.V.
Offered by: Grupo Financiero Asemex-Banpaís, S.A. de C.V.
Bidders: Grupo Nacional Provincial, S.A. de C.V., Seguros Comercial América, S.A. de C.V., Valores Monterrey Aetna, S.A., and Liberty de México Seguros, S.A.
On February 21, 1996, Asemex-Banpaís (Banpaís) gave notice of its intent to sell 70% of the total capital stock of Aseguradora Mexicana, S.A. de C.V. (Asemex). The remaining 30% belongs to Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) - two state-owned corporations that are also major clients of the company's insurance services. The sale was to be carried out by means of a public auction, following a calendar submitted to the Commission.
The operation was the consequence of a series of financial problems suffered by Banpaís, in whose operations the National Banking and Securities Commission (CNBV) had intervened in March 1995. That same month, Banpaís obtained a loan from Fobaproa, secured with stock equal to 70% of Asemex's paid-in capital. Finally, putting Banpaís back on a sound footing led to the sale of these shares.
Within the time frame indicated in the auction guidelines, notification of participation was submitted by Grupo Nacional Provincial, S.A. de C.V., Seguros Comercial América, S.A. de C.V., Valores Monterrey Aetna, S.A., and Liberty de México Seguros, S.A.
The market affected by the proposed operation is that of life, accident, health, and damage insurance offered within Mexico. In that context, the importance of Asemex and the bidding companies can be illustrated with the following facts:
With the exception of Liberty de México, the bidders and Asemex are the country's four largest insurance firms, with a joint share of 64.1% in the relevant market.
The individual market shares of the three largest bidders ranged between 11.4% and 20.7%. After the operation, these figures would increase to 25.9% and 32.1%. In the case of Liberty de México, the transaction would not substantially alter the market structure.
Unlike the three largest bidders, Asemex has a minor participation in life assurance, and a moderate level of involvement in accident and sickness insurance. On the other hand, it is the largest participant in the damage insurance market, which accounts for 23.9% of its sales. This situation is the result of this insurance company's favorable access to the public sector market.
The shares of the damage market of the three largest bidders are also significant, ranging from 8.9% to 18.4%. Following the operation, the range would be from 27.7% to 42.3%, provided that the successful bidder managed to retain the public sector's patronage, which had previously been the exclusive domain of Asemex.
Competition in the relevant market has intensified over recent years as a result of modifications to the General Law on Insurance Mutualist Societies and Institutions and the adaptations made to it as a consequence of the North American Free Trade Agreement. These changes have facilitated the entrance of new companies, both Mexican and foreign, and they have eliminated regulations that hindered the functioning of the market. This pro-competitive pressure will be felt more strongly in the medium term, affecting the insurance companies' market power.
On account of the intensification of competition in the relevant market and of the fact that the operation itself did not threaten the process of competition, the Commission resolved to make no objection to the purchase of Asemex by any of the bidders. Nevertheless, it also gave notice that it would take the steps necessary to ensure that insurance purchases by the public sector be carried out equitably.
Grupo Financiero Bancomer, S.A. / Valores Monterrey Aetna, S.A. de C.V. / Bank of Montreal
On February 22, 1996, the Commission was notified of a planned operation by Grupo Financiero Bancomer, S.A. (GFB), Valores Monterrey Aetna, S.A. de C.V., and Bank of Montreal. This operation involved Bank of Montreal purchasing 20% of GFB's stock.
This transaction was part of Bancomer's capitalization commitments. With this aim in mind, Bank of Montreal and GFB agreed on a long-term strategic alliance, which would mean a major capitalization of GFB and Bancomer.
The principal aim of this alliance was to identify and seek out areas of business in which the association of the two companies would facilitate the implementation of complete solutions to suit their clients' needs. In addition, the alliance would allow GFB and Bank of Montreal to develop new products and services in the United States and Canada, thanks to the latter's position in those two countries. With this operation, the two financial institutions were attempting to adapt to the opportunities that arose under the aegis of the North American Free Trade Agreement.
The Commission took into consideration the fact that the aim of the operation was clearly financial strengthening, as a part of Bancomer's commitment to capitalization. It also determined that the strategic alliance would facilitate that institution's legitimate growth within the NAFTA area, without leading to modifications in the structure of the domestic financial services market nor in the conditions of competition prevailing therein. It therefore resolved neither to object to the operation nor to impose conditions upon it.
2. Reinstating corporate financial wellbeing
The following descriptions are of three operations carried out to overcome financial difficulties in three sectors: one involving a group of airlines, the second a retail chain, and the third a hotel group. In each of them, the Commission's resolutions provided clear benefits for society, in that they protected conditions of competition without harming the recovery of the affected companies or their emergence from their temporary problems.
Corporación Internacional de Aviación, S.A. de C.V. / Aerovías de México, S.A. de C.V. / Corporación Mexicana de Aviación, S.A. de C.V.
On May 25, 1995, Corporación Internacional de Aviación, S.A. de C.V. (Cintra),15 Aerovías de México, S.A. de C.V. (Aeroméxico), and Corporación Mexicana de Aviación, S.A. de C.V. (Mexicana) gave notice of their intent to carry out an operation. This would involve Cintra purchasing the stock of Aeroméxico and Mexicana, giving Cintra control over the two other companies and their subsidiaries. The operation was to take place in three stages. In the first two, Aeroméxico and Mexicana would exchange shares of stock with Cintra, and in the last stage they would explore the possibility of the two airlines' subsidiaries being included in the holding company's equity.
Before this operation was planned, Aeroméxico had acquired control over Mexicana, with the authorization of the Secretariat of Communications and Transport (SCT), before the Federal Economic Competition Law came into force. The worsening of the airlines' economic and financial situation led to their being taken over by creditor banks. Thus, when the notification was served, the banks held more than 60% of Aeroméxico's capital,16 which in turn, either directly or indirectly, controlled 54.6% of Mexicana's stock.Prior to the notification, Aeroméxico and Mexicana were both characterized by high levels of vertical and horizontal integration. The former's subsidiaries and associates included Aeromexpress, Aerolitoral and Aeroperú, while those of the latter included Aerocaribe, Aerocozumel, Aeromonterrey, and Aerolibertad. In addition, through SEAT, Aeroméxico and Mexicana both participated in providing certain complementary services at civil airports and, through Sertel and Sabre, in the supply of computerized systems for airline reservations. Similarly, both companies were active in other businesses related to air services and operations.
Cintra was incorporated at the initiative of the creditor banks in order to put Aeroméxico and Mexicana's finances back on a sound footing. Thus, following the acquisition, Cintra would strictly be a holding company, registered with the Mexican Stock Exchange. The corporate purpose of Cintra, in addition to solving the two airlines financial problems, involved acting as a common ground between both companies' shareholders and creditors and promoting the injection of fresh resources into the airlines. In other words, the operation would allow the corporate restructuring necessary to strengthen the two airlines and guarantee their survival. The operation implied no modifications to the vertical and horizontal integration of Aeroméxico and Mexicana.
In the broadest sense, this operation was related to the supply of transportation services. Nevertheless, the relevant market was restricted to that of regular cargo and passenger air transportation services, given the scant substitutability between air travel and other modes of transport. Since Aeroméxico and Mexicana have such a small participation in the international market, the relevant market was restricted to the territory of Mexico.
In analyzing the companies' power over the relevant market, the Commission took into consideration the effects observed within it during the years the two airlines have been associated. Thus, the following facts are worthy of special note:
The two airlines have a joint market share of 65.3% in terms of passengers transported. The company ranking third (TAESA) controls 13.5%, which is lower than Aeroméxico's 37.3% and Mexicana's 28%. The two airlines' strong presence has not, however, prevented their competitors from securing significant places in the relevant market over recent years. To preserve the level of competition currently prevailing, they must be kept separate.
Following the revision of the applicable regulations, the number of market participants and the supply of air-travel services has increased notably. In fact, during 1993 the number of regional companies rose from 11 to 13, and the cities served by internal flights rose from 59 to 61. However, not all the trunk companies that developed under deregulation managed to remain competitive during the crisis. For that reason, their numbers fell from six to five over the same period.
The prevailing conditions of competition have allowed significant reductions in airfares on such routes as Mexico City to Guadalajara, Mexico City to Monterrey, Mexico City to Mérida, Monterrey to Cancún, and Guadalajara to Tijuana. However, the benefits of competition have not extended fully into less attractive routes which nevertheless must be maintained in spite of the low interest of the new participants. The strengthening and expansion of competition requires the number of suppliers and the services they offer to be maintained. The withdrawal of either Aeroméxico or Mexicana would have a negative effect on competition. The commercial integration of the two companies would have a similar result.
The entry of new domestic competitors and the expansion of existing companies is restricted by the size of the investments necessary and the problems encountered in financing them. In addition, the marketing practices normally used to ensure the loyalty of travel agents and customers, while generally legitimate, further raise the costs of entry into this market. This situation favors the position of all the companies currently doing business in the market.
The analysis of the relevant market and of the power of the economic agents involved led to the conclusion that competition would be affected by the weakening or disappearance of either Aeroméxico or Mexicana. The Commission therefore decided to allow their financial and administrative restructuring in order for them to attain adequate levels of efficiency and for capitalized debts to be recovered. Nevertheless, to avoid anticompetitive risks, steps to safeguard the independence of Aeroméxico and Mexicana's commercial activities were deemed necessary.
The Commission's Plenary did not object to the operation, but it did impose conditions on it, involving the observance of measures to prevent -- or, when appropriate, correct -- anti-competitive aspects or developments within the operation. These conditions included, inter alia, the following:
The administrative restructuring was subjected to the obligation of keeping separate accounts and independent managements for each of the two companies under the auspices of their respective Boards of Directors.
Anti-competitive actions were to be prevented by a consultant agent, appointed by the Commission, responsible for periodically analyzing observance of the conditions imposed and for preparing regular reports on conditions of competition.17 The timely correction of any anti-competitive practices that might arise, by means of:
The setting of rates by the Commission and the SCT, in cases in which the Commission rules competition to be non-existent.
The immediate suspension of any unlawful practices detected by the Commission.
The establishment of agreements between the Commission and the SCT for the implementation of steps to protect or reestablish conditions of competition.
The cooperation of the companies involved in preserving and improving the competitive environment.
If conditions deemed serious enough, the partial or total dissolution of the operation.
Grupo Situr, S.A. de C.V. / Host Marriott Corporation Airport Inc. / Aeropuerto Shareholder, Inc.
In December 1995 the Commission was informed of a planned operation between Grupo Situr, S.A. de C.V., Host Marriott Corporation Airport, Inc., Aeropuerto Shareholder, Inc., and Elcrisa, S.A. de C.V. This operation was to involve an association between Situr, Marriott, and Shareholder to incorporate Elcrisa, which would then purchase the Continental Plaza Aeropuerto and Polanco hotels belonging to Situr. This transaction would help improve Situr's financial situation and make possible the termination and inauguration of the Polanco hotel.
The relevant market of the operation was that of hotels and associated services in Mexico City. The Commission determined that Elcrisa's share in hotel supply was of minor importance. In addition, the investigation revealed that neither Marriott nor Shareholder were involved in the relevant market. Given these conditions, the operation would help solve Situr's financial problems and allow full utilization of the listed assets, without endangering competition or free market access. Consequently, the Commission resolved neither to object to the operation nor to impose conditions on it.
Grupo Gigante, S.A. de C.V. / Banco Nacional de México, S.A. / Seguros Inbursa, S.A. de C.V. / Banco Inbursa, S.A.
Between April 30 and May 2, 1996, the Commission received three notifications regarding plans to purchase stock in Grupo Gigante S.A. de C.V. by Banco Nacional de México, S.A., Seguros Inbursa, S.A. de C.V., and Banco Inbursa, S.A. The aim of these transactions was the capitalization of Gigante.
The amount involved in the operations would not have led to the three financial institutions gaining control over Gigante. In addition, on account of the diverse lines of business of the companies involved, the transactions would affect neither the structure of their markets nor the conditions of competition prevailing therein. Consequently, the Commission resolved neither to object to the operations nor to impose conditions on them.
III. MONOPOLISTIC PRACTICES AND OTHER RESTRICTIONS TO COMPETITION
The aim of protecting the process of competition and free market access by eliminating monopolistic practices and other restrictions to market functioning is to insure the broad, equitable, and non-discriminatory participation of all economic agents. The Commission's actions in this regard facilitate the functioning of efficient companies, suppress obstacles to job creation, promote the economic integration of the country, and help raise consumers' living standards. The achievements made during 1995-96 reflect major advances over the two previous periods:
The total number of complaints and ex officio investigations concluded during 1995-96 increased 56.3% over the previous year.
46% of the complaints concluded over the period covered by this report were brought to a close with a resolution by the Plenary.18 The remaining 54% were thrown out19 or proceedings were desisted. These results represent major progress over 1993-1994 and 1994-1995, during which the complaints resolved by the Plenary accounted for only 4.8% and 16.7% of the total and the cases thrown out or desisted accounted for more than 80%. In 58% of the complaints resolved during 1995-96, the Commission ordered the suspension of monopolistic practices and, when appropriate, applied the sanctions provided for in the Competition Law.
The number of ex officio investigations processed over 1995-96 increased 20% compared with the previous period. Of the total concluded during 1995-96, 92% involved resolutions that corrected and, when appropriate, punished anti-competitive measures and practices.
Fighting absolute monopolistic practices has a high priority. This policy, grounded on the per se prohibition of such practices contained in the law, takes into account the proven inefficiency and social harm caused by price and supply fixing among competitors. Indeed, national and international experience shows that collusion between sellers leads to higher prices and lower supply than under competition. By eliminating such practices, the Commission helps make better use of the nation's resources and furthers consumer well-being.
Most of the absolute monopolistic practices sanctioned over 1995-96 arose from price fixing between competing suppliers. Particularly noteworthy were the agreements reached by a group of egg distributors in the Federal District, by the Mexican Association of Cargo Agents (Asociación Mexicana de Agentes de Carga, A.C.), and the Cancún Association of Customs Agents (Agentes Aduanales de Cancún, A.C.). Ordering the suspension of such practices protected consumers against the establishment of monopolistic prices over basic consumer goods and benefits users of those services with lower fees. In addition, the Commission imposed sanctions on a case of collusion in public auctions carried out by a group of industrialists against Pemex Exploración y Producción. In all these cases, the fines established in the law were imposed.
Relative monopolistic practices were also effectively fought. During the period covered by this report, sanctions were imposed on several actions and agreements intended to unduly displace other economic agents from the market or to substantially hinder their access to markets. These involved refusals to trade, boycotts, and other illicit practices that are explicitly forbidden by the law. The resolutions adopted by the Plenary over 1995-96 are of particular interest, in that they establish precedents regarding anticompetitive behavior by labor organizations and the determination of generic monopolistic practices under section VII, article 10 of the Federal Law of Economic Competition.
With the lifting of the boycotts and refusals to trade carried out by the newspaper sellers of the Unión de Voceadores y Expendedores del Puerto de Veracruz and the Unión de Voceadores y Expendedores de la Prensa Miguel Hidalgo in Durango, Durango, barriers to the entry of new participants were removed. Similarly, the suspension of practices carried out by Distribuidora Cónsul S.A. de C.V. and Mabesa, S.A. de C.V. to unduly displace Singer Mexicana, S.A. de C.V. and Manufacturera Electrónica Sim, S.A. benefited consumers by preserving options in the consumer appliance market.
The Commission's resolution on the predatory pricing complaint made by Chicles Canel's against Chicle Adams, S.A. de C.V. illustrates the criteria used by the Commission in ruling on practices of this kind as provided for in section VII of article 10 of the law. It also establishes reliable accounting guidelines for dealing with similar cases in the future, thereby providing economic agents with greater certainty.
Articles 14 and 15 of the law empower the Commission to oversee compliance with section V of article 117 of the Constitution, which states that "In no instance may the States... prohibit or encumber, either directly or indirectly, the entrance into their territory or exit therefrom of any domestic or foreign merchandise." Under article 15 of the law, the Commission may, when appropriate, indicate the existence of such restrictions with a declaration published in the Official Gazette of the Federation. On this basis, during 1995-96, a declaration was made regarding the existence of barriers to the entry of flowers from other states into the state of Sinaloa.
Actions by public authorities that diminish the process of competition and free market access contravene the purpose of the law. By eliminating or correcting them, the participation of economic agents on a broad, equitable, and non-discriminatory basis is promoted and administrative barriers to efficient market functioning are removed. During 1995-96 the Commission ruled on the existence of certain restrictions to competition in the states of Oaxaca and México. In order to correct them, it served the appropriate recommendations on the local authorities.
A. Monopolistic Practices
Singer Mexicana, S.A. de C.V., Manufacturera Electrónica Sim, S.A. de C.V., and Grupo Bler de México, S.A. de C.V. vs. Vitro, S.A., Distribuidora Cónsul, S.A. de C.V., and Mabesa, S.A. de C.V.
Singer Mexicana, S.A. de C.V., Manufacturera Electrónica Sim, S.A. de C.V., and Grupo Bler de México, S.A. de C.V. filed a complaint20 against Vitro, S.A., Distribuidora Cónsul, S.A. de C.V., and Mabesa, S.A. de C.V., accusing them of anti-competitive practices, to wit:21a. Implementation by Mabe of a policy restricting the timely supply of Singer and Mabe brand refrigerators, to the detriment of Singer.
b. Unjustified and unilateral termination of commercial relations by Mabe, to the detriment of Singer.
c. Expulsion of Singer from the National Association of Domestic Appliance Manufacturers (ANFAD).
d. Complaints about unfair international trading practices against Korean refrigerators, in order to displace Singer and Sim from the market.
e. Establishment of commercial agreements and strategic alliances between the defendant companies and U.S. domestic appliance manufacturers.
f. Mabe and Vitro's shareholdings in subsidiary companies that only appear to belong to other economic agents.
g. Contracts entered into by Cónsul and Vitromatic with retailers (Salinas y Rocha, S.A. and Errsa), granting the retailers a 2% discount provided they refrained from selling appliances produced outside the North American Free Trade Agreement (NAFTA) area.
Both Singer and Sim are in the business of selling refrigerators and stoves. To this end, they import Korean refrigerators and act as intermediaries for domestic brands. In addition, Singer has its own brands (Singer and Premier by Singer) which up until a few years ago were manufactured at plants belonging to Mabe. At the same time, Mabesa and Vitro are the holding companies for the member companies of Organización Mabe and Grupo Vitro, respectively. These include Cónsul and Vitromatic. They both import and distribute refrigerators and stoves from the United States, and they also sell units manufactured by companies associated with their groups.
Except for Cónsul and Vitromatic's contracts with retailers, the actions indicated in the complaint took place and were brought to a conclusion before the Federal Law of Economic Competition came into force in June 1993. Nevertheless, the investigation covered the years leading up to that date in order to avoid omitting possible systematic and intentional anti-competitive practices related to illicit dealings still carried out after the enactment of the law. Thus, the Commission ruled that:
Although the expulsion of Singer from ANFAD (January 1991) indicated a conflict among that association's members, probably due to their commercial rivalries, that fact did not in itself affect the market. To prove the contrary, it would have to be demonstrated that ANFAD has or had anti-competitive aims or that it carried out illegal practices.
There were no grounds to support the allegations described in points (a),(b) and (e) as being aimed at unduly displacing other economic agents, imposing barriers to access, or establishing collusion between competitors. Furthermore, Organización Mabe did not have significant power within the refrigerator and stove markets and it was therefore improbable that it alone could affect competition in those markets by means of the actions indicated in the first two points.
The unfair trading practices complaint (April 1993) made against the importers of Korean refrigerators (Singer, Sim, Bler, and others) could have been based on legitimate defense against prohibited international trading practices as well as on the desire to unduly displace the plaintiff companies, given their dependence on imports. Regardless of the actual cause, no countervailing measures were imposed.
The facts described in point (f) cannot be considered anti-competitive unless it is proven that they implied concentrations undertaken six months before submission of the complaint22 with the aim or effect of unduly displacing other economic agents, restricting market access, or facilitating collusion between competitors. The plaintiff companies provided no such evidence.
The defendant companies entered into the contracts referred to in point (g) in July and August 1992, to remain in force for six months. They were renewed for further six-month periods in January and July 1993 and, finally, they were extended for another year in January 1994. In this regard, it should be pointed out that Salinas y Rocha, S.A. falsely claimed not to have signed them for that last period.
The Plenary detected possible background of anti-competitive intent in the situation described in the above paragraphs. In addition, it ruled that the contracts entered into were clearly anti-competitive for the following reasons:
The similarity between the terms and discounts offered by Cónsul and Vitromatic to manipulate the market implied an agreement between the two companies. This -an agreement between competing economic agents in order to manipulate the sales prices of their products- constitutes an absolute monopolistic practice. Thus, the companies had incurred in the situation described in section I of article 9 of the law23 and therefore were in breach thereof under its article 8.24 The 2% discounts, granted by Cónsul and Vitromatic to retailers who promised not to sell appliances produced outside the NAFTA area, could not be justified as an attempt to build customer loyalty. In fact, Cónsul offered its discounts even if the retailers sold articles produced within the NAFTA area by Vitro or other competitor companies. With the exception of the provisions for distances, the same was true of the discounts offered by Vitromatic. It was therefore obvious that the aim of the contracts was, or could have been, to reduce or unduly displace the participation of Singer and Sim within the relevant markets. However, a relative monopolistic practice only occurs when the conditions described in article 10 of the law are met.25This article and its section VII26 state that contracts that lead to undue displacement --that is, that are harmful to competition-- constitute a relative monopolistic practice, provided that it is proven that those accused thereof enjoy substantial power in the relevant markets where such a practice is carried out. This is true of Organización Mabe and Grupo Vitro in the domestic markets for refrigerators and gas stoves, since their collusive activities were supported by joint market shares of 86.1% and 83.3%, respectively. Given these conditions, the reaction of their competitors was insufficient to counteract the effects of the monopolistic practices.
Under the provisions of the first paragraph of article 14 of the Constitution, no law can be applied retroactively. Thus, the execution of the contracts, together with their renewals and effects prior to June 22, 1993, fall outside the purview of the law. Regarding the contracts in force after that date, the Plenary decided to proceed to correct those clauses that were in breach of the law.27 Thus, and also taking into consideration the behavior of the companies during the proceedings, the Plenary resolved:
To order Mabesa, Cónsul, Vitro, and Vitromatic to remove from their contracts those clauses constituting the monopolistic practice described above, and to further warn them that failure to do so would lead to the imposition of the fines provided for in the law.
To fine Cónsul for its failure, during the proceedings, to submit to the Commission a certified copy of its distribution contracts, agreements, and commercial terms in force as of the date the request was made.
To fine Salinas y Rocha, S.A. for having made false statements during the proceedings.
Chicles Canel's, S.A. de C.V. vs. Chicle Adams, S.A. de C.V.
On June 22, 1994, Chicles Canels, S.A. de C.V. filed a complaint against Chicle Adams, S.A. de C.V. for alleged relative monopolistic practices involving a "pricing policy" that was intended to unduly displace the plaintiff from the market.
The activities of both companies include the manufacture, distribution, and sale of chewing gum. The former owns the brand Canel's while the latter owns several brands, including Chiclets and Clarks. Specifically, Canel's complained against the allegedly anti-competitive pricing policy used by Adams in its sales of coated chewing gum of different flavors under the brand Clarks, which was aimed at driving from the market a similar article sold under the name Canel's-4.
From the information provided by the companies involved, the following facts stand out:
a. Since 1938, Adams has been one of the main participants in the Mexican market for chewing gum, selling the brand Chiclets. In 1984, Adams intensified its participation by launching Clarks, a product that, in the company's opinion, is "similar in appearance" to Chiclets-4.28b. According to Canel's, Chiclets-4 and Clarks are similar articles, produced in similar facilities and with comparable production costs. Moreover, both are distributed in the same markets through similar mechanisms and channels. Canel's also stated that the two products were marketed with a price differentiation policy that allocated Chiclets the higher value.
c. In 1985, Canel's presented a complaint against Adams to the Secretariat of Commerce and Industrial Development, accusing it of having imitated, to the point of confusion, the design of Canels-4.29 Those proceedings were concluded on July 26 of that year, with Adams accepting to modify the design and lettering of Clarks.30d. According to Canel's, between August 1990 and April 1994 the relative price of Clarks fell in comparison with that of Chiclets-4.
e. Between 1991 and 1993, Adams considered purchasing Canel's and analyzed the viability of such an operation within its expansion plans.31 In this regard, Canel's stated that it had received a purchase offer from the Warner Lambert Company, which controls Adams.f. According to estimates made by Canel's, up to December 31, 1993 the average cost of a display of coated chewing gum of several flavors, cellophane-wrapped, four pieces, was well in excess of the price of Clarks.
Canel's based its complaint on the last five points. First of all, it claimed the price of Clarks was not viable in the light of its evolution over the period 1990-1994 and that it was insufficient to cover estimated costs (point f). Secondly, it linked the difference in the prices of Chiclets-4 and Clarks and the alleged similarity of their costs with conditions that allow price discrimination or that help prove the existence thereof (points b and d). Finally, it deduced clear intention of predatory practice from the evolution of the prices of Clarks and Chiclets-4, from cost-price ratio of the first brand, from the alleged invasion of industrial property rights related to the presentation of Canel's-4, and the offer for the company submitted by the Warner Lambert Company (points b to f). From the overview indicated by this evidence, Canel's concluded that Adams was harming the process of competition and free market access by following predatory pricing practices, in order to unduly displace it from the market.
The evidence provided by Canel's adequately supported its complaint and, consequently, the start of an investigation. It did not, however, clearly indicate the existence of relative monopolistic practices or, in particular, predatory pricing against Canel's by Adams. Experience and theory both indicate that, in addition to that possibility, neither the potential existence of intense competition nor the probability of a defensive pricing policy by the defendant company must be discounted. A correct analysis of all these elements determines the effective protection of the process of competition and free market access. In fact, the investigation must distinguish between competition prices that conserve or increase market shares and predatory pricing. Unlike the former, the latter cannot be sustained in the long run and they imply the undue displacement of competitors, leading to the establishment of high prices to the detriment of consumers.
According to economic analysis, predatory pricing occurs when the following set of conditions are met:
a) The establishment of prices at levels lower than those required to maximize profits under the current conditions of competition. In other words, predatory prices are consistent both with the partial sacrifice of profits as well as with a conscious decision to incur losses for commercial reasons other than defense; that is, they are intended to harm the process of competition and free market access.
b) Reduction of profits or induction of losses among competitors through pressures that reduce their prices or restrict increases in them, in order to displace those companies from the market. In this way, the market power of the predator rises and, consequently, his future ability to undertake other anti-competitive actions.
c) Fixing of prices at levels unsustainable in the long run, either because the success of the predatory action (undue displacement of competitors) strengthens the predator's ability to increase his prices unilaterally, or because the failure of that action leads him to abandon the predatory prices, in order to guarantee the survival of his company.
d) Substantial power of the predator over the relevant market during the time in which he attempts to displace his competitors. In connection with that power, his share of the market and the presence of barriers to entry are of importance.
e) Resilience of the predator to absorb losses or reduce profits in the affected market, together with the ability to inflict losses on his competitors with minimal sacrifices on his own part.
f) The presence of different factors that hinder or increase the cost of the entrance and exit of current and potential competitors, including sunken costs.
Predatory pricing generally occurs together with other actions that serve to strengthen it, such as invasions of industrial property rights, purchases of competitors, the erection of barriers to access to components, etc. Although these elements are not part of predatory behavior, they can be closely connected with it. For that reason, they are reliable indicators to be taken into consideration both in investigating the practice and in determining the intent to carry it out.
The characteristics described in points (a) through (e) are enough to conclude that the reduction of prices below cost levels is intended to unduly displace current competitors and prevent access by new competitors. Furthermore, in this context, undue displacement correlates to damaging or hindering of the process of competition and free market access and, consequently, to practices that affect efficient market functioning. Clearly, the practice known as predatory pricing is covered by the terms of article 10, section VII, of the Federal Law of Economic Competition.32 In addition, the factors mentioned in point (f) help explain the circumstances in which predatory prices can be successful, given their contribution to the strengthening of the predator's market power.Experience shows us, however, that the first two characteristics --(a) and (b)-- can only be proven in extreme cases: that is, only when the predator and his victim suffer losses during the displacement of competitors. Consequently, the economic agent accused of predatory behavior can only be punished when these extreme conditions exist, together with those indicated in points (c) through (e) and, when applicable, in point (f). That does not mean that, in an economic (not legal) sense, predatory prices --and the consequent real damage to competition-- cannot exist in circumstances other than those described. They also occur when the effect is restricted to limiting the profits of the economic agents involved. In such cases, although the indications found do not constitute incontrovertible proof, they are sufficiently revealing to warrant alertness on the part of the competition authorities and the service of a warning on the suspected predator.
In the case of Canel's against Adams, the Commission ruled that an analysis of events during the years prior to the enactment of the competition law (June 22, 1993) was in order. This background is necessary for analyzing events after that date since, first of all, it provides a viewpoint that avoids any confusion between predatory acts and situations corresponding to normal economic events, and secondly, it provides information to help clarify the behavior and performance of the economic agents involved. With that in mind, the investigation carried out yielded the following results:33 The relevant market is that of chewing gum at the national level. The expert economist ruled it to be so, and the Commission also reached the same conclusion based on the following information:
Substitutability between different brands and presentations of chewing gum is relatively high, since they all satisfy the same need. The possibility of including soft drinks and candy in the same market was rejected, since these were not found capable of significantly displacing chewing gum.
Restricting the market to the 4-piece, cellophane-wrapped presentation would have excluded similar products made by Adams. In addition, as indicated by the expert testimony on chemistry and production, Clarks and Chiclets-4 have a very similar composition, they are produced with practically the same technology, and they use the same distribution channels.
The analysis of the expert accounting testimony allows the assumption that from 1991 to April 1994, Clarks was sold at a loss that cannot be explained as a promotional effort. It also shows that Canel's-4 made a profit over the 1991-93 period, even after discounting the losses recorded in 1993 from the profits in 1991, 1992, and the first four months of 1994.34 Adams had substantial power in the relevant market. In this regard: Adams' market share was 53%, which, together with its diversification and distribution capacity, allowed it to exert a detectable influence over the chewing gum market. There can be no doubt that an increase in its share would have strengthened its market power even further. Adams had substantially raised the prices of Chiclets-4 and other brands belonging to it compared with the prices of Clarks and Canels-4. Moreover, the Chiclets-4 price increases were introduced in spite of relative reductions in production costs and demand for that brand. These facts indicate that Adams had the ability to fix prices unilaterally.
Wrigley's, the world's largest producer, has been unable to secure a share of more than 3% of the relevant market. In addition, with the sole exception of Canel's, no significant new competitors have entered the market. This is in spite of the substantial profit margins Adams enjoys on all its products except Clarks. Consequently, the existence of barriers to the entry of new competitors, including the world's top brands, can be inferred.
Adams' market share and profit levels indicated that it had greater market power than its competitors.
There was no evidence to fully prove that Adams had attempted to purchase Canel's. However, the existence of an arrangement between the two companies to resolve the industrial property complaint made by Canel's against Adams cannot be ignored.
Based on these results, the Plenary concluded that the potential losses on Clarks between 1991 and April 1994, together with the positive results of Canel's-4 over that same period, did not disallow the hypothesis that the losses on Clarks were due to factors other than the alleged predatory pricing. It also ruled that the dangerous possibility of Adams displacing Canel's from the market could not be inferred from the performance of Canel's. These conclusions notwithstanding, the Commission found that the possible losses on Clarks, together with the other evidence revealed by the investigation, constituted major indicators of a relative monopolistic practice known as predatory pricing; were this to be proven, the situation provided for in section VII of article 10 of the law would come into effect.
For all these reasons and in order to protect the process of competition and free market access, the Plenary resolved that:35 No sanction would be imposed on Adams, since the existence of relative monopolistic practices was not proven.36 On account of the indications of possible predatory behavior by Adams, the Plenary resolved to warn it to refrain from any action that could unduly harm or hinder the process of competition and free market access in the chewing gum market. In future proceedings before the Commission, to determine the excess of costs over sales price by establishing accounting criteria that take the following into consideration:
Past costs and not the standards used internally by the company under investigation.
Preferably, the structure of the cost of sales as a reference point in the pro-rated assignation of indirect costs.
The exclusion of cost concepts only when so done in the expert studies ordered by the Commission, or in the independent studies provided by the company under investigation provided that they are deemed reliable by the Commission.37Unión de Voceadores, Expendedores y Repartidores de Periódicos, Revistas y Similares del Puerto de Veracruz, Unión de Voceadores de Veracruz, and José Espíndola Gómez
On August 26, 1994, the Commission began an ex officio investigation into alleged relative monopolistic practices by the Unión de Voceadores, Expendedores y Repartidores de Periódicos, Revistas y Similares del Puerto de Veracruz (UVER), the Unión de Voceadores de Veracruz (UVV), and José Espíndola Gómez, the exclusive distributor of Intermex, S.A. de C.V. in the city of Veracruz. The investigation began after consideration of the facts reported to the Commission by the General Secretary of the Unión única de Voceadores de Periódicos, Libros y Revistas de Veracruz y la Región, A.C. (UUVP).
Pursuant to article 3, both the unions and the distributor are subject to the terms of the law. Unions are a form of participation in economic activities, in that they govern the commercial activities of their members. Such associations therefore have the status of economic agents. The same is true of the distributor, whose activities are commercial in nature.38The following elements from the evidence provided by the UUVP's leader are particularly noteworthy: An agreement entered into by the distributor with the UVER and the UVV, "in which he accepts, under his responsibility, to be the exclusive and absolute distributor of those associations and refuses to accept any other Union or Association, for which reason he may not sell his merchandise to any person not a member of the aforesaid unions."
A letter sent by the UVV, instructing the distributor to "suspend dealings" with the former members named therein, and expressing its opposition and that of the UVER to "the emergence of another association that would do us harm".
A letter sent by the UVER, informing the distributor of the expulsion of several persons and ordering him to suspend sales and returns of all kinds of magazines and similar products. In addition, the letter warns him that should he fail to observe the terms contained therein, actions would be taken against his agency.
In spite of the distributor's refusal to sell to non-members of the UVER and the UVV and, in particular, to former members expelled therefrom, they were able to secure partial supplies from the Intermex agency in Jalapa, Veracruz. In spite of the greater costs, this option allowed them to survive on the market.
Through its investigation, the Commission detected the following relative monopolistic practices:
Pressure brought to bear on the distributor by the UVER and the UVV, with the aim of ensuring that the distributor refrained from selling his products to non-members of the two unions.
The distributor's refusal to trade with magazine and newspaper sellers not belonging to the two associations.
Pursuant to articles 839 and 1040, sections V41 and VI42, of the Federal Economic Competition Law, both practices constitute infractions.The Commission determined the relevant market of these practices to be that of the sale, distribution, and marketing of intermediate wholesale magazines in the city of Veracruz. The restriction of the geographical area was based on the fact that the contract between the distributor and Intermex gave him exclusive rights in that locality and that obtaining regular supplies from Jalapa was not viable because of the costs and risks inherent therein.
Furthermore, the Commission ruled that the UVER and the UVV enjoyed substantial power in that market, since most magazines were sold through their channels and the two unions were able to influence the distributor's activities. Similarly, the distributor had substantial power over the market as a result of his exclusive rights and of the costs and risks inherent for his customers in the alternative of obtaining supplies from Jalapa.
In order to eliminate the relative monopolistic practices described, the Commission's Plenary resolved:
To order the UVER and the UVV:
To immediately cease all kinds of behavior with the actual or potential aim or effect of exerting pressure against distributors in order to dissuade them from freely offering their merchandise to all sellers and other interested economic agents.
To refrain from initiating or carrying out the practices described.
To inform their members regarding the resolution and the sanctions imposed, so that henceforth they would refrain from participating in activities prohibited by law.
To order the distributor:
To immediately cease all kinds of behavior with the actual or potential aim or effect of withholding the distribution and sale of magazines to persons not associated with the UVER and the UVV.
To freely offer his products to all sellers and economic agents interested in distributing and selling Intermex's magazines, and not solely to the members of the UVER and the UVV.
To refrain in the future from carrying out actions prohibited by law.
To impose on the UVER, the UVV, and the distributor the corresponding fines.43In order to apprise the Veracruz authorities of these practices and the corrective measures adopted, the Commission sent a copy of its resolution to the state government.
Asociación Mexicana de Agentes de Carga, A.C.
On October 6, 1994 an ex officio investigation was begun into possible absolute monopolistic practices in the provision of maritime cargo deconsolidation services. During this investigation, the Commission also detected indications of anti-competitive behavior in the deconsolidation of air cargo at the Mexico City international airport. As a result, a second investigation was begun on May 30, 1995. In both proceedings, the Asociación Mexicana de Agentes de Carga, A.C. (AMAC) was named as the defendant.
In the air cargo case, the AMAC had issued a circular in November 1991, informing its members of the rates to be charged for their services in the future. Again, in July 1994, it issued a circular recommending its members to charge $50 per ton or cubic meter of maritime cargo deconsolidated. The following elements are of particular relevance in connection with these facts:
The price fixing agreement announced in the 1991 circular was prior to the enactment of the competition law.
The rate collusion for air cargo deconsolidation proposed in the circular remained in force after the law came into force on July 11, 1993.
The recommendation regarding the rate for deconsolidating maritime cargo, contained in the 1994 circular, was in breach of the law.
The investigations revealed that in both instances the AMAC served as the vehicle through which the members of the association agreed on prices for air and maritime cargo deconsolidation services. On account of this, and the fact that the association's members compete among themselves, the Plenary of the Commission ruled that:
The collusion to fix prices for air cargo deconsolidation services, contained in the 1991 circular, was not punishable because it had been reached prior to the enactment of the law.
Maintaining this collusion after the enactment of the law was an absolute monopolistic practice, forbidden under article 844 and covered by section I of article 9 of the law.45 The collusion on fees for deconsolidating maritime cargo was also in breach of the law, pursuant to the articles quoted in the previous paragraph.The Plenary of the Commission therefore resolved: To impose on the AMAC the applicable fines for the infractions committed in connection with maritime and air cargo deconsolidation services. To order the AMAC to refrain from those absolute monopolistic practices, to revoke the corresponding agreements and circulars, and to inform its members of the risks inherent in a repeat offense.
Baramin, S.A. de C.V., Baricosta, S.A. de C.V., Minerales y Arcillas, S.A. de C.V., Barita de Sonora, S.A. de C.V., and Barita de Santa Rosa, S.A. de C.V.
On December 10, 1994 the Commission began an ex officio investigation into possible absolute monopolistic practices by Baramin, S.A. de C.V., Baricosta, S.A. de C.V., Minerales y Arcillas, S.A. de C.V., Barita de Sonora, S.A. de C.V., and Barita de Santa Rosa, S.A. de C.V. The facts under investigation arose from an agreement reached by the companies to jointly offer their products to Pemex Exploración y Producción (Pemex) under terms previously agreed upon by them in concert.
The arrangement was reached in preparation for national public call to bid PEP-94-SMC-NA-004, made by Pemex Exploración y Producción to purchase barium oxide meeting Pemex Standard IMP-1/92. The companies, all long-standing suppliers of Pemex, obtained the auction guidelines and participated at meetings held both to clarify them and to explain the modifications made thereto by Pemex.
In this context, the companies reached an agreement among themselves and presented Pemex with the following proposals:
The tonnage of barium oxide to be supplied by each producer.
A single price for all producers at the delivery site, to be equal to the average price paid by Pemex to its different domestic suppliers of barium oxide plus an increase similar to the inflation rate over the period during which those prices had remained in force.
The proposal assumed that Pemex would not complete the bidding process. The companies argued that this measure was necessary on account of:
The difficult situation prevailing in the domestic barium oxide industry, caused by falling demand for its product, increased imports of the product through intermediaries and contractors, and adverse impacts of a financial and operational nature.
The high probability that the bidding process would leave two or three of the domestic producers without orders, which would inevitably lead to the cessation of their mining activities and cause job losses.
In spite of these efforts, Pemex continued with the bidding process.
The investigation carried out confirmed that (1) the companies were competitors among themselves and that (2) they reached agreements among themselves to agree on and fix the price of a specific good (barium oxide). These elements constitute the absolute monopolistic practice described in article 10, section I of the Federal Law of Economic Competition and prohibited by its article 8.
Experience has shown that practices of this kind do not lead to improvements in efficiency and that their aim is clearly to restrict competition. This case supports that observation. Indeed, the fixing of prices among the competitors involved in this operation could have led to monopolistic profits, without the existence of the possibility of greater activity in the barium oxide industry. The Commission also discovered that some of the participants imported barium oxide, despite having put themselves forward as producers in the bidding process.
On account of these companies' proven breach of the law, the Commission's plenary resolved to impose a fine on each of them. In so doing, it took into consideration their levels of intent and economic capacities, and the fact that the practice had not yet yielded concrete results.
Unión de Voceadores y Expendedores de la Prensa Miguel Hidalgo, A.C. and Ernesto Lozano Cabrera
On April 20, 1995, the Commission began an ex officio investigation into alleged relative monopolistic practices by the Unión de Voceadores y Expendedores de la Prensa Miguel Hidalgo, A.C. and Ernesto Lozano Cabrera, the distributor of Intermex, S.A. de C.V. in Durango. Pursuant to its article 3, the terms of the Federal Law of Economic Competition apply to them both. Unions are a form of participation in economic activities, in that they govern the commercial activities of their members. As for the distributor, Ernesto Lozano Cabrera, the commercial nature of his activities is self-evident.46Intermex, S.A. de C.V. distributes different magazines across the nation through regional agents, with whom it enters into contracts granting exclusive rights. Ernesto Lozano carried out his activities without any apparent discrimination among his customers in the area assigned to him.At its assembly held on September 7, 1994, the Union agreed to carry out a "strike" against the distributor for an indefinite length of time in order to provoke the cancellation of his contract with Intermex. The reason for this action was the distributor's refusal to cease trading with former Union members and other independent magazine and newspaper distributors. During the strike, the Union blockaded the distributor, which prevented him from conducting his normal business and, consequently, from distributing printed matter in the region assigned to him. This measure was strengthened with another that ruled that Union members acquiring magazines from Ernesto Lozano would be expelled. As a result of this, two members were indeed thrown out of the Union.
In spite of the blockade, the expelled members and non-Union sellers partially covered their needs by using Intermex's agents in Zacatecas and Aguascalientes. Despite the higher costs of this operation, they did gain in opportunity, since the magazines were received earlier in those cities. Thus, in some way at least, they weakened the Union's position.
The blockade ended on October 5, 1994 in the presence of the General Secretary of Government of Durango State and several representatives of organizations and businesses. An agreement was signed between the Union's leader, two sellers' representatives, and Ernesto Lozano. This agreement stipulated that the distributor:
Could continue to supply closed premises, self-service stores, and department stores.
Would encourage the "dissident" sellers to reach some sort of understanding with the Union.
Could not supply the "dissidents" until such time as they had resolved their situation with the Union.
It also established a period of 15 days for the "dissidents" to reach an agreement allowing their return to the Union. Otherwise, the leaders "understood" that there could be problems over the "contraband" magazines obtained by the "dissidents" in other states beyond the responsibility of the distributor.
With this background, the Commission conducted an investigation into alleged monopolistic practices involving, firstly, the boycott of the distributor that the Union agreed upon and carried out and, secondly, the distributor's refusal to trade with magazine and newspaper sellers not belonging to the Union. Both actions were in breach of the law, pursuant to articles 847 and 1048. Boycotts are covered by section VI49 of article 10 and refusals to trade by section V50.The Commission deemed the relevant market to be that of the sale, distribution, and marketing of intermediate wholesale magazines in the city of Durango, Durango. The restriction of the geographical area was based on the fact that the contract between the distributor and Intermex limited his rights to that locality and that the non-members of the Union were at a disadvantage in having to obtain their supplies from Intermex's agents in Zacatecas and Aguascalientes.
The Commission also ruled the Union to have substantial power over the relevant market, in that it controlled 95% of sales and had the ability to restrict the distributor's access to his customers.
The distributor also had substantial market power, on account of his exclusive rights and the costs and risks for his customers inherent in regularly obtaining magazines in Zacatecas and Aguascalientes.
In order to eliminate these relative monopolistic practices, the Commission's Plenary resolved:
To fine the Union.
To order the Union:
To immediately cease all kinds of behavior with the actual or potential aim or effect of exerting pressure against distributors in order to dissuade them from freely offering their merchandise to all sellers and other interested economic agents.
To refrain from initiating or carrying out the practices described.
To inform their members regarding the resolution and the sanctions imposed, so that henceforth they would refrain from participating in activities prohibited by law.
To order the Intermex distributor:
To immediately cease all kinds of behavior with the actual or potential aim or effect of withholding the distribution and sale of magazines to persons not associated with the Unión de Voceadores.
To freely offer his products to all sellers and economic agents interested in distributing and selling Intermex's magazines, and not solely to the members of the Union.
To refrain in the future from carrying out actions prohibited by law, noting that should he fail to observe the Commission's resolution, he would be fined as a recidivist.51 To order the Union and the distributor to cancel the agreement they had signed, on the grounds that some of the provisions it contained were in breach of the law, and to show to the Commission documentary evidence of its cancellation.
To give notice of the Commission's resolution to the government of the state of Durango.
Asociación de Agentes Aduanales de Cancún, A.C.
On August 21, 1995, the Commission began an ex officio investigation into alleged absolute monopolistic practices by the members of the Asociación de Agentes Aduanales de Cancún, A.C. (AAAC). Prior to this, the Commission had been informed that the association's members were fixing prices for the services they provide.
In recent years, the legal framework applicable to customs brokerage services has undergone major deregulation, most notably through increased openness towards competition.
To this end, clear and non-discriminatory rules were established for the granting of customs licenses. Furthermore, in July 1993 the official rates set by the Secretariat of Finance and Public Credit were abolished. Thus, customs agents were free to directly negotiate their fees with users.
In these new circumstances, improved efficiency and better price-quality ratios in the services provided depend basically on the preservation of conditions of competition and free market access - in other words, on preventing and eliminating anticompetitive practices. Despite this, inertia leading to the application of uniform rates, based on the criteria in use in the past,52 partly explains the collusion agreed upon by the AAAC at its meeting on February 16, 1995. This meeting agreed to establish:53 A minimum charge of 1% on the total of foreign trade taxes, other levies, and the costs incurred by the customs agency.
A $300 fee for complementary services.
The agreement also stipulated sanctions for members who failed to observe its terms. Apparently, these were never applied, despite certain customs agents failing to respect the agreement.
The Commission's investigations verified these facts and, consequently, the existence of an absolute monopolistic practice involving collusion between competing economic agents with the aim of fixing the sales price of the services offered by the AAAC's members. This behavior, described in section I of article 954 of the competition law, is forbidden by its article 8.55The damage caused to competition and society by practices of this kind cannot be justified on the grounds of efficiency. The aim is clear: to neutralize users' bargaining power. In this case, since the use of customs agents' services was obligatory, the adverse effects of the agreement could not be avoided by exporters and importers, and thus the country's foreign trade was compromised.
Based on the evidence obtained and the comments appearing above, the Plenary resolved to:
Fine the AAAC.
Order the AAAC to refrain from the practice, revoke the fee agreement, and inform all its members about this resolution and the risks inherent in a repeat offense.
Give notice of its resolution to the Confederación de Asociaciones de Agentes Aduanales de la República Mexicana (CAAAREM), the national umbrella organization for local customs agents' associations.
B. Restrictions on the flow of goods between the nation's states
Sinaloa State Government
On January 6, 1995, the Commission began an ex officio investigation into the possible imposition of restrictions on the introduction of flowers from other states of the nation into the state of Sinaloa. Prior to this, the Commission had detected the Sinaloa state government's establishment of licenses, permits, and fitosanitary inspections for the introduction of flowers into its territory. The announcement was published on October 28, 1994 in a local newspaper.
According to the information provided by the regional office of the Secretariat of Commerce and Industrial Development, the purpose of the measure was to minimize the external supply of flowers just before All Souls' Day (Nov. 2), when demand increases considerably. Sinaloa's Secretariat of Agricultural and Fisheries Development based the state regulations on the need to comply with official Mexican standard NOM-EM-009Fito-1994, issued by the Secretariat of Agriculture, Livestock, and Rural Development (SAGAR).
The Commission's investigations revealed that:
Official Mexican standard NOM-EM-009Fito-1994 did not apply in this case; it deals only with fitosanitary requirements for imports of cut flowers and fresh flora from Germany, Colombia, the Netherlands, France, the United States, and Costa Rica.
There was no agreement with the SAGAR to support the inspections and fitosanitary certificates required by the state government.
Consequently, the Commission's Plenary ruled that the fitosanitary control measures imposed by the Sinaloa state government were in breach of article 117, section V, of the Constitution.56 The measures hindered the entrance of merchandise into the state's territory -specifically, flowers from other states- without there being an applicable federal standard or the required agreement with the SAGAR under which the Secretariat would confer responsibility for fitosanitary inspection and the issuing of the corresponding certificates. Article 14 of the law57 stipulates that such restrictions, prohibited by the Constitution of Mexico, shall have no legal effect. Furthermore, on account of the adverse effects of such barriers to competition and free market access, article 15 of the law58 empowers the Commission to make a public declaration when they are found to exist. In fulfillment of this provision, the Commission published the corresponding declaration in the Official Gazette of the Federation. It also issued a resolution stating that the Sinaloa measures, and any other similar provisions enacted in the future, were void of legal effect.
C. Other Restrictions to Competition
Oaxaca State Government
On March 8, 1995, a group of people from Oaxaca state informed the Commission about the existence of regulatory and administrative barriers that unduly restricted their access to the market for the local public taxi service. They stated that, in spite of having met the requirements for obtaining concessions as service providers, the state's traffic authorities had only given them temporary permits. They also stated that their problems in obtaining concessions were on account of their having left the Unión de Organizaciones de Taxistas de Oaxaca, A.C. and the consequent lack of support from the Union in their efforts. Subsequently, the temporary permits notwithstanding, the same authorities prevented them from going about their business.
The investigation of these facts revealed that the state's Governor and General Secretary of Government had initially agreed to grant the concessions as requested. Thus, on May 9, 1994, they instructed the Director of Traffic to process that resolution and to publish it in the official state gazette. Then the temporary permits referred to by the affected parties were issued.
After these facts had been presented to the Commission by the affected parties (April 15, 1995), the state government issued a decree suspending the issue of new concessions for a period of two years. Excluded from this provision were requests dated prior to that date, which were to be resolved within one year. Shortly afterwards (May 9, 1995), a resolution revoking the temporary permits was issued. The reasons given for this measure included, notably, the following: the permit bearers' lack of a corresponding concession document, and the fact that the permits had been issued by an authority without competence in that matter.
The Commission's investigation also revealed that one of the Union's functions is to coordinate the issuing of concessions between its members and the local authorities. This power is supported by the state authorities' requirements for granting concessions, one of which is a letter of consent or support from the Union's taxi bases.
The Commission's Plenary ruled that the procedures established by the Oaxaca state government for the granting of concessions affected competition and free market access by hindering the entry of new suppliers and facilitating agreements between competing economic agents intended to restrict the supply of taxi services in the state. To bring about the lifting of these barriers to efficient market functioning and equal, non-discriminatory market access, the Plenary resolved to issue an opinion on the aspects affecting competition and free market access contained in those procedures, under the power granted to it by section VI of article 24 of the law.59 Thus, pursuant to section VIII of article 24 of the Commission's Internal Regulations,60 its President sent a recommendation to the Governor of Oaxaca, emphasizing greater freedom in access to concessions, their granting to holders of temporary permits, and the removal of Union recommendation from the concession requirements.
México State Government
The National Chamber of the Mexican Publishing Industry (Cámara Nacional de la Industria Editorial Mexicana - CANIEM) appeared before the Commission on August 10, 1995 to make a formal complaint against the government of México state for alleged monopolistic practices involving the restrictive publishing, printing, and distribution in public secondary schools of the textbooks used therein, excluding the participation of other companies.
The following facts are of particular note within the information submitted by the CANIEM:
The educational authorities of México state commissioned the company Corporación Editorial Mac, S.A. de C.V. to print the textbooks used in the state to support secondary education.
The México state Secretariat of Education, Culture, and Social Well-being (SECBS) stipulated, in its circular 15/95,61 that the use of official textbooks was a priority and that no state or private school could request other books for support without the authorization of the Secretariat's General Directorate of Education. The circular was addressed to coordinators of educational services, school supervisors, and the principals of both state-run and government-recognized secondary schools. The state government decided to distribute the textbooks exclusively through the organizational structure of the SECBS. In order to implement this plan, the coordinators issued several circulars informing school principals that they had to acquire the textbooks directly from them.
At the start of its investigation into this case, the Commission decided that the evidence submitted by the CANIEM contained indications of possible restrictions to the efficient functioning of the textbook market.62It also determined that, pursuant to article 3 of the law,63 the terms of the law apply to offices and agencies of the state administrations. The investigation revealed that:
The awarding of the contract for printing the textbooks, as with all operations of this kind, is governed by the State of México Law on Acquisitions, Leases, Maintenance, and Warehouses. Overseeing the correct enforcement of this law is the responsibility of the state Comptroller's Office. That notwithstanding, the Commission is empowered to combat any monopolistic practices carried out in order to obtain the contract. In spite of having those legal remedies available, the CANIEM did not make use of them nor did it express its objections during the bidding process.
The authorization of secondary school textbooks and the establishment of guidelines for the use of educational materials at that level is the sole responsibility of the federal education authorities - to wit, the Secretariat of Public Education (SEP).64 This provision, contained in the General Education Law, is intended to guarantee and preserve quality in education. With that in mind, interventions by state educational authorities, in addition to breaking that law, could also restrict the market.
Within this regulatory framework, educational institutions may select any of the books approved by the SEP for the corresponding school year. Thus, while not compromising educational quality, those options allow the establishment of conditions of competition. This would not be possible if only one text were approved for each year.
The Plenary of the Commission ruled that the distribution and sale of textbooks exclusively through state educational authorities, together with the limitations contained in the circular, led to the exclusive use of the books published by the México state government and, consequently, to the displacement of authors, publishers, and bookshops with texts approved by the SEP. Given these restrictions to competition and since, under section VI of article 24 of the law,65 the Commission is empowered to issue an opinion on competition matters contained in administrative actions, the civil servant at the head of the SECBS was recommended to adopt measures that would give equal access to publishers and distributors dealing in SEP-authorized texts.
IV. OPINIONS
The opinions the Commission issues are intended to call government authorities' attention to the reforms, modifications, and measures necessary to preserve, create or develop an environment in which economic agents respond to forces and incentives within markets governed by competition and freedom of access. In this way, the Commission helps to:
Facilitate open, broad participation by the population in sectors affected by administrative and legal barriers to entry.
Guarantee equitable, non-discriminatory access to the government permits and concessions necessary to pursue certain lines of business and to participate in the divestiture of public assets and companies.
Lift restrictions to the process of competition and free market access in the public sector's goods and services transactions.
Provide all competitors with equitable, non-discriminatory access to networks and infrastructure intended for the distribution of public services.
Prevent privatization processes from leading to the creation of anti-competitive concentrations.
Eliminate exclusive advantages and treatments that harm consumers and other economic agents and impede the efficient use of the nation's resources.
Eliminate or prevent the use of protective and defensive commercial measures and ecological and sanitary standards to unduly displace economic agents.
During 1995-96, the Commission actively participated in government efforts aimed at encouraging private involvement in the provision of public services and the exploitation of state-owned goods; it was also involved in the measures adopted to restructure the economic functions of the public sector. The following tasks are worthy of particular note: the revision of the regulatory frameworks for airports and natural gas distribution, the concessions policy for radio-frequency allocations, and the design of strategies for privatizing state-owned companies in different sectors. The Commission's opinions were aimed at establishing conditions that would facilitate the development of efficient markets in the newly deregulated sectors, the prevention of anti-competitive practices, and the introduction of mechanisms for coordination with the regulatory authorities to strengthen protection against monopolistic behavior. The recommendations made in these areas encourage the involvement of competitive investors and benefit the business community as a whole.
The Commission's opinions were communicated to the agencies in charge of specific sectors and expressed at the Inter-Ministerial Commissions on Expenditure and Finance and on Privatization. The Commission is permanently represented on both these Commissions, which allows it to present its recommendations on a timely basis.
Also worthy of note was its involvement with the Foreign Trade Commission and the National Standardization Commission. The Commission's work on those bodies has facilitated greater coordination on competition policy matters connected to industrial development, trade, consumer protection, and environmental policy. Thus, competition has been protected from the possible side-effects of protective and defensive commercial measures and standards. In so doing, the Commission has helped raise the social benefits of such provisions without compromising their effectiveness.
This description offers a brief overview of the Commission's contribution towards creating an environment favorable to efficient market functioning. For purposes of illustration, the most noteworthy cases are described below.
A. Revised regulatory framework
1. Natural gas regulations
The amendments to the Regulatory Law on Article 27 of the Constitution as it relates to oil, issued in May 1995, redefined the scope of the oil industry and allowed private participation in the transportation, storage, and distribution of natural gas. Using this as a basis, 1995 saw the start of efforts to draw up regulations that would encourage the creation of an efficient industrial structure, promote the development of competition and free market access, and regulate the actions of economic agents in the absence of conditions of competition.
Compared with its main trading partners, Mexico has serious shortcomings in the distribution and marketing of industrial fuels. While in other countries the use of fuel oil is generally decreasing in favor of gas, the opposite is occurring in Mexico, despite the economic advantages that the latter energy source offers industry. The reason for this situation is the inadequate network of gas mains and the administrative handling of both products. Overcoming this requires, among other things, major investments in transport, storage, and distribution infrastructure by a large number of suppliers, flexible and diversified sales mechanisms, further development of secondary markets, and systems to provide information on market conditions.
In order to help bring about maximum benefits in the deregulation of the gas industry, the Commission analyzed the situation prevailing in the sector, studied other experiences in other countries, and consulted a great number of different experts. During the preparation of the draft version of the Natural Gas Regulations, the Commission contributed several opinions. The regulations as issued by the federal executive in November 1995 include the following elements intended to promote competition:
Removing restrictions from imports of natural gas in order to encourage the functioning of market forces in first-hand sales.
Setting maximum prices on first-hand sales, based on a consideration of international prices and, particularly, imported gas prices.
Vertical disintegration of the industry's transportation, storage, distribution, and marketing activities. These services must now be provided independently, without sales of one depending on the purchase of another.
Prohibiting vertical integration of transport and distribution within a single region, except when greater efficiency would result.
Promoting the establishment of broad infrastructure, to be used as the platform for the development of the market and competition within this sector. On account of the backwardness in this area and the high level of investment necessary to overcome it, a period of exclusivity for the first distribution concession in each specific region was established. However, the market power conferred by these exclusive rights is limited by the free access to the concession area to be enjoyed by sellers and by the granting of self-supply permits. The exclusive rights are limited to the construction of distribution networks and the transportation of gas in the area covered by the concessions.
Public auctions for exclusive distribution permits, to be awarded to the bidder offering the best service and price conditions. This encourages efficiency by using competition for the market to replace competition within the market.
Subjecting participation in public auctions for exclusive distribution permits to the prior approval of the Federal Competition Commission, in order to prevent anticompetitive concentrations.
Open, transparent, and non-discriminatory access to transportation, storage, and distribution services, in order to encourage the efficient development of those systems and limit the market power of permit holders.
Preventing cross subsidies and, consequently, predatory pricing.
Suppressing regulated prices and fees when, in the Commission's opinion, conditions of competition exist.
Establishing conditions for the development of a large secondary market for transportation services, with the aim of overcoming indivisible holdings that could affect the efficient functioning of the market.
2. The Airports Law
The Airports and Civil Aviation Laws constitute the new legal framework for air transportation services. The aim of these laws is to boost the modernization of the sector through greater private participation, regulated by the efficient functioning of the market. On account of the close relationship between the two activities, these laws overlap in several areas; for example, their provisions dealing with promoting and establishing conditions of competition. Starting in 1985, the Commission played an active part in the discussion and preparation of the drafts for both laws, in conjunction with the Secretariat of Communications and Transport (SCT). The Commission's opinions on civil aviation matters were presented in its second annual report (1994-1995). It now falls to the present report to describe the aspects of the law related to the functioning and structure of the airport services market. The main such provisions include the following:
The granting of concessions and permits for managing, operating, and building airports and civil airdromes in accordance with transparent criteria.
The allocation of concessions for airports through the following mechanisms:
Public auctions open to all economic agents who meet the technical requirements necessary to provide the service. In this way, competition between participants leads to a more favorable supply for airport service users.
Direct allocation of civil airdrome permits to economic agents who, in addition to meeting other requirements, have demonstrated their abilities over five years of continued operations; also, to concessionaires who require an additional airport, when that request is justified on the grounds of efficiency.
Restrictions on mergers and acquisitions that could endanger the efficient functioning of markets. The pertinent restrictions contained in the Airports Law include the following:
SCT approval required for all transactions implying acquisition of control over a company that holds a civil airdrome concession or permit.
SCT to be served notice of modifications to corporate by-laws that lead to mergers, transformations, or splits of concessionaires and permit holders.
Prior SCT authorization required to transfer concessions and permits.
Prohibition of control over an airport concessionaire being acquired by a group of air transport concessionaires or permit-holders, and vice-versa, prohibited.
Maximum stockholding of 5% may be held by an air transport concessionaires or permit-holder in a corporation or holding company with an airport concession, and vice-versa.
The obligation of providing all users with airport and auxiliary services, without discrimination or preference. This provision, together with the SCT's power to establish general rules and guidelines for setting landing and take-off schedules and aircraft ordering priorities, is intended to prevent the erection of barriers to entry and the undue displacement of competitors.
Companies awarded concessions are required to equip their airports with competitive options for auxiliary services, except when restricted by technical or safety considerations. Concessionaires are required to subcontract such services to bidders offering users the best levels of efficiency, quality, and price. These measures are aimed at encouraging free market access to make better use of infrastructure and to provide consumers with maximum benefits.
The establishment of guidelines for regulating fees and prices by the SCT when conditions of competition do not exist. The Commission is responsible for ruling on the presence or absence of those conditions.
These provisions help establish conditions of competition and free market access in air transport services and, in particular, at airports. Their enforcement, together with observance of the Federal Law of Economic Competition, will help achieve that goal and preserve competition throughout the air transport services sector. The Commission will work in close collaboration with the SCT, exercising its right to express opinions on matters relating to concessions and permits.
B. Radio Frequency Concessions
The allocation of radio frequencies for specific purposes is of key importance in establishing conditions of competition in telecommunications markets and in the development of this sector. To this end, the Federal Telecommunications Law provides for: (a) the periodical publication of a program specifying the frequency bands up for concession for particular purposes, together with their geographical coverage and intended use, (b) the granting of concessions through public auctions, and (c) the prerequisite of the Commission's approval prior to participation in those auctions. In order to comply with these provisions, the Secretariat of Communications and Transport (SCT) presented its first diagnostic and planning effort for the 3-39,500 MHz bands and submitted several auction methods for consultation. It also published the rules for awarding concessions in the 12.7-13.2 GHz bands, which are intended for point-to-point and point-to-multipoint microwave links. During this process, the Commission made an active contribution on issues of competition and market freedom.
These first phases in the radio frequency allocations program deal with those services that, in the short term, offer the best potential for promoting competition. With regard to concession allocation through public auctions, the Commission has made efforts to ensure their design includes measures to remove barriers to entry and prevent anti-competitive practices. Thus, it has supported the imposition of limits on the frequencies that can be awarded to one bidder, promoted the participation of smaller sized companies, backed the inclusion of clauses to discourage collusion between competitors, and upheld the "use it or lose it" principle in order to dissuade speculation.
The auction, in the first phase, of bands intended for point-to-point and point-to-multipoint microwave links, favored a large number of economic agents: telephone companies and subscription television services, along with different businesses whose activities require private networks. In this instance, the technical possibilities available for making use of the links and frequencies allocated by the SCT allow the radiofrequency spectrum to be considered an unlimited resource. Consequently, a high level of demand for concessions is expected.
Frequency allocations for these services present no problems of competition. However, the high number of bidders leads to administrative complications and high costs which, in addition to affecting the budgets of the SCT and the Commission, could hamper the efficient issuing of concessions. To help overcome this situation, the Commission resolved to facilitate the processing of bidders' requests in the following ways:
Commission to be notified by means of a copy of the request submitted to the Secretariat of Communications and Transport.
Favorable opinion of the Commission implicit in receipt of the copy referred to above.
Withdrawal of this favorable opinion when the Commission deems that the granting of the concession could endanger the process of competition and free market access. In such an instance, the Commission would have to obtain the information necessary for issuing the corresponding opinion.
The Commission believes that in the long term, the administrative costs and value of the frequencies assigned for these purposes could acquire new dimensions, following a proliferation of users, congestion, and improved utilization through the introduction of new technologies. It therefore recommends establishing market mechanisms to efficiently resolve the allocation problem and to allow society to benefit from the real value of this resource. To this end it suggests exploring the possibility of using the bidding process to allocate the 12.7-13.2 GHz band to a specific number of radiofrequency administration companies, who will then in turn market it to users under conditions of competition.
The next auction will cover concessions in the bands intended for mobile paging services (929-930 and 931-932 MHz) and, subsequently, frequencies for local wireless access services, cellular telephones, and personal communications services (PCS). These measures will expand supply and encourage the entry of new participants into the mobile paging service. The auction of frequencies for wireless access services will allow progress to be made in deconcentrating local telephone markets, on account of the major prospects for development and competitiveness in wireless telephony. In summary, the strengthening or development of conditions of competition in those markets will substantially benefit consumers with lower prices, improved quality, and greater options. To this end, the Commission has stated:
Its support for allocations following the system of simultaneous rising auctions; this is with the aim of insuring the greatest efficiency in allocations, reducing information problems faced by bidders in making their decisions, eliminating inequitable imbalances in the payments made for concessions, and allowing the fees paid for concessions to correspond to real prices.
Its interest in the application of formulas that, without interfering in market functioning, encourage the broad participation of all economic agents with the ability to efficiently provide the relevant services. In this regard, the Commission has come out in favor of mechanisms that support participation by companies of smaller size.
The prevention and elimination of technological and contractual barriers to market entry and exit.
C. Privatizations of State Companies
1. Almacenes Nacionales de Depósito, S.A.
The divestiture of Almacenes Nacionales de Depósito, S.A. (ANDSA) is a part of the reform process being implemented to strengthen the role of market forces and incentives. This measure is consistent with the actions taken to incorporate the domestic economy into international markets, modernize domestic trade and supply, reform agricultural structures, and rationalize farm supports.
On account of its major effects on agricultural development and the markets for farm produce, the privatization of ANDSA was analyzed in depth by the Inter-Ministerial Commissions on Spending and Finance and on Privatizations (CIGF and CID, respectively). During this process, consultations with the main economic agents involved took place, the chief problems facing the country in the distribution and marketing of farm produce were identified, and the distribution and storage experiences of the United States, Canada, and the European Union were analyzed. Working on this basis, progress was made towards a divestiture strategy that would fully address efficiency and competition issues.
With regard to efficiency issues, the divestiture had to facilitate the incorporation of producers into modern marketing systems, promote the creation of companies capable of providing logistics, financial support, and value-added services, and preserve the fundamental elements of the distribution and storage network in accordance with its development in terms of the needs of producers, sellers, and consumers. As for competition, the divestiture had to prevent anticompetitive concentrations, the emergence of exclusive privileges, the emergence of barriers to service access, and the undue displacement of economic agents. The Commission actively participated in addressing these issues and exercised its right to express opinions within the CID and before ANDSA. As a result of this analysis and consultation process, the CID approved the following scheme:
Separation of storage functions from gathering, distribution, and supply activities.
Allocation of storage infrastructure to local producers' organizations through public auctions, with the aim of strengthening their negotiating power in the marketplace and facilitating optimal crop handling.
Creation of the Pantaco Internal Port and Logistics Activities Center (PICALP), the divestiture of which would take place through public auction. Participants would require the Commission's approval and would be subject to restrictions to prevent them from controlling the PICALP. Chapter II contains a detailed description of this aspect of the divestiture process.
Consolidation of the gathering, distribution, and supply units into three regional companies with sufficient capacity for providing marketing, storage, financial, value-added, logistics, and distribution services, to operate in the North, West and Center, and South of the country. The new companies would be unable to obtain substantial power over their relevant markets on account of the presence of the producers at the storage centers and of the different companies involved in the PICALP, and because of the existence of other storage companies.
Granting, under concession, of the Andrés Figueroa, Granelera Veracruz, and Silos Miguel Alemán units to the regional companies referred to above, using a special regime preserving state ownership and protecting competition. The corresponding concession documents stipulate the obligation of providing open and non-discriminatory access, on account of these installations' strategic importance within market functioning and supply activities.
2. Railroads
The Railroad Service Regulatory Law, enacted by Congress in April 1995, sets the foundations that govern the establishment of private participation and its activities in this sector. Of particular note in this legislation is the State's explicit obligation "...to promote the development of the railroad service under conditions that will guarantee free competition between different modes of transport." The following aspects are also of interest:66 The service is to be broken up into functional areas: (a) construction, operation, exploitation, upkeep, and maintenance of railroads (concessions), (b) public rail transport services (concessions), and (c) auxiliary services (permits). In this way, participants can vertically integrate or engage in one or more of the activities covered by permits and concessions. This flexibility is intended to promote the involvement of investors committed to the sector's modernization and to encourage competition.
Rights of way (loaded and unloaded) were established as an obligation in the auction guidelines and in the concession documents or are to be agreed upon between concessionaires. This measure allows operators to compete without hindering the functioning of the railroad service. It also allows competition along the corridors and stretches granted under concession and facilitates the efficient use of infrastructure.
The restructuring and divestiture of the nation's railroad system involves the rational implementation of these measures. The aim of this is to achieve a series of goals including its modernization as the axis of a national transport system and the promotion of competition in the provision of railroad services. To this end, a thorough study of the nation's railroads was carried out, the country's transport needs were analyzed, and the experiences of other countries were taken into account.
The Commission participated in studying the different options available for restructuring and privatizing the railroads within the Inter-Ministerial Commission on Privatizations; it also submitted several recommendations aimed at favoring the development of conditions of competition within the sector.
The General Guidelines for Opening Up the National Railroad System to Investment, published in the Official Journal of the Federation on November 13, 1995, reflect the general terms of these proposals. Thus, the divestiture scheme involves, among others, the following mechanisms and conditions:
The incorporation of a railroad company for each of the three trunk lines --Pacific-North, Northeast, and Southeast (regional companies)-- together with the creation of a company for the Mexico City terminus.
The incorporation, when appropriate, of companies for the shorter routes, and the granting of the corresponding concessions to firms other than the regional companies.
The granting of limited-period concessions for operating, exploiting and, when applicable, building railroads, in order to provide public rail transport and auxiliary services in the regions and along the routes specified.
The establishment of obligatory rights of way and haulage rights for given sections of track, in accordance with the needs detected in each case.
The Commission's approval for all bidders in concession auctions.
This strategy fully recognizes that, in Mexico, the main demand for rail services comes from cargo carriers. Thus, in restructuring passenger rail services, the State is committed to its preservation only when justified on social or geographical grounds. In such cases, the service could be provided by a state-owned company or by the private business requiring the lowest subsidy.67 To this end, the concession documents guarantee the necessary rights of way.The privatization plan involves the following elements aimed at promoting competition: firstly, it promotes competition with road transport by eliminating the possibility of cross subsidies between railroad regions and by stimulating the efficiency of the network; secondly, it promotes competition within the network, by allowing regional comparisons of costs and prices; finally, the balanced access of the regional companies to major markets, as well as to border cities and seaports, will encourage competition. The following circumstances are of relevance in that regard: (a) competition between the Pacific-North and Northeastern companies in region comprising Aguascalientes, Guanajuato, and Querétaro (b) competition between the Northern and Southeastern railroads in services between Mexico City and Veracruz, and (c) access by the Pacific-North railroad to the area of influence of the Northeastern company (Piedras Negras, Monterrey, Tampico), and vice-versa (the West and Pacific coast).
In order to strengthen the plan's promotion of competition, the Commission made the following recommendations:
Regional railroad concessions should be granted to different companies.
The possibility of including additional rights of way after the end of the period necessary for the companies to develop their markets and consolidate their positions. To this end, the Inter-Ministerial Commission on Privatizations adopted the following policy:
Establishment of additional rights of way after the first twenty years, at the request of any user or of the SCT, when conditions of competition do not exist along any specific route or routes.68 Such a move would first require an opinion from the Commission. Revision of the concessions after a period of thirty years and, if appropriate, the establishment of additional rights of way.The privatization of rail services sets new challenges for the Commission's many different activities. The start of the bidding processes meant studying the proposals' effects on relevant markets sterial Commission on Privatizations adopted the following en different modes of transport and the scope of bidders' activities both within the country and abroad. Once this stage is finished, the Commission will have to dedicate part of its resources to assessing conditions of competition, particularly in those goods transportation markets where adequate substitutes for railroads do not exist. Finally, it should be pointed out that within the periods stipulated in the concession documents, the Commission will work towards the establishment of maximum competition, using the function-based service concessions set forth in the Railroad Service Regulatory Law.
V. CONSULTATIONS AND RECONSIDERATION APPEALS
The attention given to private economic agents is a response to the need for transparency and clarity in the interpretation of competition law. Thus, the business community benefits from precise guidance that helps the pursuit of their activities within the framework of competition and free market access that the law protects. Through consultations, companies affected by monopolistic actions or government restrictions on competition are provided a way to organize the defense of their interests or to begin proceedings to facilitate their equitable access to markets.
Through consultations, companies can obtain clear, exact information on the guidelines used by the Commission in the cases it resolves. The answers the Commission provides are based on the information provided by the petitioners and on the circumstances of each case. Thus, they reflect an interpretation of the law solely in the light of those considerations.
In order to better and more effectively serve the guidance needs of economic agents, the Commission has established a policy that facilitates the submission of inquiries and insures prompt replies. With this aim, it is open to receiving both oral and written consultations, and to analyzing its proposals with interested parties. In the context of this policy, since June 1996 economic agents have been able to submit inquiries using faxes, electronic mail, and the Internet, and they have similarly been able to receive timely answers through the same channels.
Effective processing of consultations and, consequently, effective guidance for economic agents, requires streamlined, simple procedures, independent of the mechanisms provided for dealing with complaints and notifications of mergers and acquisitions in the law. This facility does not, however, replace the legal procedures provided for processing such operations. It should be made clear that the answers provided by the Executive Secretary have no binding, legal effects, and they have no bearing on the Plenary's subsequent rulings on complaints and mergers and acquisitions or on the ex officio investigations carried out by the Commission.
During the period covered by this report, the Commission received written consultations regarding 44 cases. This figure represents a 25.7% increase over the previous year and, once again, reflects economic agents' interest in the guidance provided in this way. In addition, it should be pointed out that, as this report went to print, only five consultations --submitted quite recently-- were still awaiting a reply.
A. Consultations
1. Mergers and Acquisitions
Transfer of the right to operate and exploit a public telecommunications network
The Federal Telecommunications Law (LFT) includes provisions that help strengthen the Commission's protection of competition and free market access in the telecommunications area. These measures include the requirement of obtaining the Commission's approval in transfers of rights to operate and exploit public telecommunications networks.
Such transfers are classified as mergers and acquisitions under article 16 of the Federal Law of Economic Competition (LFCE), in that they are actions between economic agents that serve to concentrate assets (in this case, rights granted under concession). In order to prevent any possible anti-competitive effects caused by operations of this kind, competition law stipulates that the Commission must be notified before they can be carried out. Favorable resolutions or, when appropriate, challenges are issued by this institution in accordance with the terms and timeframes set down in the LFCE.
The involvement of the two laws in this issue has given rise to consultations on the obligation of serving notice and on the procedures to be followed in order to obtain the Commission's approval. In this regard, the Commission has made the following statements:
Under the second paragraph of article 35 of the LFT, the SCT's authorization of transfers of the right to operate and exploit a public telecommunications network requires the Commission to issue a favorable opinion when:
The receivers hold concessions for providing services similar to those being transferred.
The concessions involved cover the same geographical area.
This preventive measure applies even to operations for which notification is not required under article 20 of the LFCE.
To obtain the Commission's resolution, the companies involved must follow the procedure for submitting notice regarding mergers and acquisitions as contained in article 21 of the LFCE.
Notification and probe of mergers and acquisitions
The Commission has dealt with several consultations regarding the obligation of serving notice in certain mergers and acquisitions and regarding whether or not certain operations are permissible. Economic agents generally strive to ensure those operations are in full accordance with the law and therefore want guidance on the procedures to be followed in carrying them out. In some instances, however, consultations are submitted with the aim of avoiding those procedures.
The Commission's answers to consultations help orient economic agents in observing the law; they do not, however, grant the petitioners any rights since they are without legal effect. Their effectiveness lies in the shorter processing and investigating time they need in comparison with the other procedures set forth in the law. Thus, the Commission's answers take into account only the information provided voluntarily by the petitioner.
For the above reason, the consultation mechanism was not designed to analyze mergers and acquisitions with the same detail as the investigation and resolution procedures contained in the law. Consequently, when economic agents require full certainty on the permissibility of an operation for which notification is not obligatory, the Commission recommends following the procedures set down in the law for obtaining resolutions. Operations that receive a favorable resolution in this way, based on reliable information, cannot be challenged.
Thus, with the aim of satisfying economic agents' need for legal certainty, the Commission processes all notifications of operations submitted to it, in accordance with the procedure described in article 21 of the LFCE.
2. Practices
Price Competition
The Confederación Nacional de Transportistas Mexicanos, A.C. (Conatram), together with some individual haulage contractors, consulted the Commission regarding the difficult situation prevailing in their sector because of cost-price ratios and the presence of "unfair competitors". According to the information they provided, the economic problems faced by road haulage were mainly due to large cost increases, the absence of standardization and technical specifications, and the underestimation of costs by service providers. In addition, one of the petitioners stated that "unfair competitors" were charging prices lower than the costs estimated by the National Road Transport Chamber (Canacar).
The Commission ruled that the price situation within the sector reflected the existence of conditions of competition in a market characterized by excess capacity and falling economic activity in 1995. Therefore, and also in response to prior consultations by the Canacar, the Commission considered the advantages of a methodology that would help encourage efficiency within the sector by providing greater awareness of costs. Widespread use of the methodology proposed by Canacar could assist investments in more efficient vehicles and proper maintenance of existing fleets, thereby benefiting both the sector and its customers.
The above notwithstanding, the Commission warned that cost estimates, included for purposes of illustration in such a methodology, should not be used to fix the prices paid by users; in other words, each haulage contractor had to determine his costs individually, in terms of the use made of his equipment. Failure to do so could mean a price-fixing agreement between competing haulage contractors -- an absolute monopolistic practice and a violation of the law.
In accordance with this position, prices set independently by each contractor, even at levels below the informative costs indicated in the methodology, do not in and of themselves represent an indication of a relative monopolistic practice.
Price standardization
The Mixed Commission for Export Promotion (Compex) consulted the Commission on whether the standardization of prices by an integrating company (EI) could be considered an illegal practice.
Integrating companies have been set up under a decree issued by the Secretariat of Commerce and Industrial Development (Secofi) in May 1993. They are an attempt to improve the management and efficiency of their integrated companies by such methods as taking advantage of greater economies of scale in the production and purchase of components and consolidating supplies. This is in order to increase and diversify the share of those supplies in the internal and domestic markets.
The Commission ruled that the incorporation of EIs, pursuant to the terms and goals of the Secofi decree, does not break the law, since they do not impede the process of competition and free market access.
Regarding price standardization, the Commission stated that when it involves the imposition of prices or conditions that an EI must observe when selling goods or services, it does not constitute a relative monopolistic practice as long as it leads to greater levels of economic efficiency to the benefit of society. This observation notwithstanding, the Commission asked the petitioners for more information on the case, in order to be able to issue a specific opinion.
Marking of returnable bottles
The Asociación Nacional de Productores y Distribuidores de Agua Purificada (ANPDAP) consulted the Commission about the effects on competition of applying permanent markings to returnable 19-liter bottles. With the introduction of this practice, some purified-water companies have abandoned the traditional method of differentiating their products solely with removable labels or lids indicating their brands.
In the ANPDAP's opinion, permanent market restricts the reuse of bottles, forces the consumer to remain loyal to one brand, and displaces from the market those companies without the resources necessary to be constantly introducing new bottles.
Regarding the competition issues, the Commission ruled that: (a) the permanent marking of products is a generalized industrial practice which in no instance leads to the undue displacement of competitors; (b) in the specific case of water bottles, this practice is not associated with the need for continuous investment in new containers by companies that work with generic returnable bottles; and (c) the cost of the bottle is not an obstacle that would prevent consumers from choosing another brand better suited to their needs. Rather, such choices are more dependent on other factors, such as the timeliness of supplies and the price and quality of the bottled water. Consequently, the Commission ruled that the case did not mean the undue displacement of competitors nor the imposition of barriers to access to the purified water market. It does not, therefore, harm or impede the process of competition and free market access.
Promotions
A marketing services company submitted one of its promotional instruments for the Commission's consideration. This involved offering discount coupons for the purchase of a promoted article to purchasers of a similar, competing article. The petitioning company carried out these activities solely in supermarkets and freely offered its services to all interested parties. To this end, it entered into contracts with clients and supermarkets.
The Commission ruled that the coupons were intended to publicize the promoted merchandise within their corresponding relevant markets, and that linking them to competing products had no adverse implications for the efficient functioning of those markets.
Distribution contracts
The distributors of several brands of a specific product consulted the Commission regarding the competition issues contained in the distribution contracts established by the manufacturers of that product. The distributors compete with each other, both on the same brand and between different brands; similarly, the manufacturers compete with each other with the brands they each produce.
The product in question is a durable consumer item with a relatively high cost. It requires special spare parts and regular, specialized maintenance. The performance and prestige of the brand largely depend on such careful ownership. Thus, distribution and after-sales services are closely related. The provision of both services involves high levels of investment.
The distribution contracts include several "vertical" practices, since they cover commercial relations from production down to the distribution and sale of the product. After considering these points, the Commission offered the following comments on the clauses submitted by the distributors:
Exclusive distribution of a single brand. This condition is generally intended to guarantee the manufacturer the benefits of investments made in technical assistance and infrastructure. Such clauses prevent distributors from using those resources to promote other brands. In terms of efficiency, this provision stimulates the allocation of resources by manufacturers to the sales and after-sales services relating to their respective brands.
Geographical exclusivity for brand distributors. The amount involved in distribution infrastructure investments and the scale of operations justify the allocation of exclusive territories. Measures of this kind should not avoid the pressure arising from (a) the presence of distributors of other brands in the same geographical area and (b) the potential competition that would arise from dividing the exclusive area between new distributors of a single brand.
Imposition of pricing and other conditions to be observed by the distributor in his dealings with customers. The pricing conditions measure is intended to guarantee competitive profitability and prevent abuses in of territorial exclusivity. The remaining conditions are generally related to protecting the brand and the quality of the product and associated services.
The Commission did, however, inform the petitioners that the distribution contracts contained some clauses that could imply monopolistic practices, such as:
Restrictions on sales of products other than the goods covered by the distribution contracts and on maintenance and repair services for brands other than the brand distributed.
Prohibiting purchases of brand products from third parties and imports of the same brand.
Prohibiting the distributors' shareholders from participating in other companies that could compete with the manufacturer.
The sale of specific units from manufacturers to distributors, linked to the purchase of other models and even to the use of financing plans provided by manufacturers' subsidiaries.
The obligation of using the computer systems and leasing, financial, and transport services provided by manufacturers or their subsidiaries.
Official prices
The Confederación Nacional de Transportistas Mexicanos, A.C. consulted the Commission about the possibility of reintroducing an official price for road haulage services. The Confederation said that the elimination of official prices in 1989 had harmed the transport industry and had led to major shortcomings in the prices charged for its services.
The Commission replied that road transport prices were a reflection of market conditions in that sector. It also pointed out that conditions of competition and free market access prevailed in that market. In addition, it informed the petitioners that article 7 of the competition law stipulates that the power to define the goods and services subject to maximum prices is reserved to the federal executive and must be exercised through a decree. This power does not apply to the setting of minimum prices, since the dispositions dealing with official prices are intended to protect mass consumption and the domestic economy.
B. Reconsideration appeals
The ability to appeal for reconsideration as provided for in the law is one of the legal mechanisms available to economic agents for defending their legitimate interests from harm that Commission resolutions might cause them. By invoking such an appeal, the affected party can bring about the revocation or modification of the challenged resolution in accordance with the procedure set forth in article 39 of the competition law.69 The Commission has demonstrated a high level of effectiveness in its resolution of appeals. As a result, over its three years of existence there has been a very low level of challenges made before judicial or fiscal authorities. Moreover, the appeals brought during the processing of complaints, ex officio investigations, and notifications of mergers and acquisitions have been resolved without major delays in concluding the corresponding cases. In this way, the Commission has helped safeguard the legitimate interests of all economic agents involved, without hampering the development of business with onerous, slow, or unjustified formalities.
The following cases during 1995-96 were of particular interest:
Mergers and Acquisitions. The eight appeals made were all against final resolutions. This figure is equal to 5% of all resolutions on mergers and acquisitions issued during the period. One of the challenged resolutions was upheld and two appeals were thrown out for being inadmissible. Regarding the other cases:
Only in one was the challenged resolution revoked. The Plenary's decision did not represent a major change in its original ruling, since the operation in question had not been objected to and had merely had conditions placed on it. The evidence provided by the appellant showed that competition would still be viable without the imposition of the original condition.
The challenged resolutions were modified in three cases. Of particular interest was the operation between Aerovías de México, S.A. de C.V., Corporación Mexicana de Aviación, S.A. de C.V., and Corporación Internacional de Aviación, S.A. de C.V. The modifications made to the resolution allowed some of the original conditions to be replaced by others that would allow the companies to return to a sound financial footing and allow more effective protection of competition.
Monopolistic Practices. Twenty-five appeals were received: 18 against in-process resolutions and 7 challenging final resolutions. The high proportion of appeals during processing can be explained by the contentious nature of such proceedings. The appeals made against final resolutions mostly challenged the fines imposed more than the ruling itself or the suspension of monopolistic practices ordered by the Commission. The following were of particular note among the appeals resolved:
Three of the challenged resolutions were upheld. In addition, one more was revoked and 16 appeals were thrown out on the grounds of inadmissibility. Of this latter group, most were brought during the Commission's investigations into the alleged illicit practices.
One challenged resolution was modified: the case of Chicles Canel's S.A. de C.V. vs. Chicles Adams, S.A. de C.V. The aim of the modification was to strengthen the criteria contained therein and to disassociate the complaint made by Chicles Canel's from any future investigations involving either of these economic agents.
VI. INTERNATIONAL AFFAIRS, PUBLICITY, AND ADMINISTRATION
In general terms, the period covered by this report was characterized by dynamism in all areas of the Commission's activities. This has already been seen in its dealings with competition policy, mergers and acquisitions, monopolistic practices, opinions, and consultations. This chapter will describe the achievements in the Commission's relations with national institutions, competition authorities from other countries, and international organizations, and in its strengthening of the competitive environment, awareness of competition law, and the development of culture of competition. The following pages also describe the substantial increases in productivity obtained through improvements in working procedures and efficient management of the Commission's resources.
A. International Affairs
1. Bilateral Negotiations
United States
In December 1995, Union Pacific (UP) and Southern Pacific (SP) informed the U.S. government's Interstate Commerce Commission of their plans to merge. These two companies provide rail cargo transport services in the midwestern and southwestern regions of the United States, and between them they cover most merchandise traffic carried by rail to and from the Mexican border. The merger of UP and SP would dominate rail cargo services along that side of the border, with possible anticompetitive repercussions on bilateral trade.
To prevent such effects, the Federal Competition Commission stated its concern to the U.S. Department of Justice and the Interstate Commerce Commission, and to Union Pacific and Southern Pacific. It also stated its interest in cooperating with the Department of Justice in investigating those anticompetitive effects, based on principles of courtesy and under the cooperation described in chapter 15 of the North American Free Trade Agreement. The Commission followed the case during the hearings held in the United States and interviewed both the companies involved in the merger and people who would be directly affected by it.
This institution's recommendations were considered in the resolution issued by the U.S. Surface Transportation Board.70 The Commission will pay the closest attention to the implementation of this resolution and its effects on bilateral trade. It will also remain ready to cooperate with U.S. authorities, when required, in eliminating anticompetitive practices that could harm the flow of goods between the two countries.
France
Within the framework of the France-Mexico Mixed Technical and Scientific Commission, the governments of Mexico and France signed a Technical Cooperation Agreement. This includes an appendix on competition, the result of negotiations by the Commission, with the support of Mexico's Secretariat of Foreign Affairs and, most particularly, the Embassy of France in Mexico. This is the first technical cooperation agreement to include economic competition issues.
Spain and the European Union
In early 1996, the Commission established contacts with Spain's Competition Defense Court and Competition Defense Service, and with the European Commission's General Directorate IV (Competition). The aim of these contacts was to establish cooperation agreements with each of these agencies. Exchanges of information were begun, and a timetable for upcoming meetings was set.
2. Regional Integration
North American Free Trade Agreement
During the period covered by this report, efforts continued with preparing the framework for facilitating the duties of the Working Group on Trade and Competition Matters provided for in article 1504 of the North American Free Trade Agreement. Thus, the Commission and the Secretariat of Commerce and Industrial Development, together with the authorities of our trading partners in the region, held the fourth and fifth meetings prior to the creation of the Group in Washington, DC, USA, and Ottawa, Canada, respectively. The Commission submitted studies comparing the three countries' legislation on export cartels and anticompetitive vertical practices. In addition, the meetings discussed the studies prepared by the United States and Canada into legislation covering horizontal practices and operations in the Treaty area. A scheme for the Group's future organization presented by the Canadian delegation is currently being analyzed.
Free Trade Agreement for the Americas
The first ministerial meeting for the establishment of a Free Trade Agreement for the Americas was held in 1995 in Denver, Colorado, USA. This meeting created seven working groups to study the main chapters to be included in the Agreement. The second ministerial meeting was held in March 1996 in Cartagena de Indias, Colombia, where the creation of a working group specializing in competition policy was proposed.
The Commission participated in the first meeting of the Working Group on Competition Policy, held in May 1996 in Lima, Peru. The Group's first efforts have been directed at analyzing and comparing the competition laws of the continent's nations.
Asia-Pacific Cooperation Mechanism
In 1994 the member nations of the Asia-Pacific Cooperation Mechanism proposed the creation of free-trade area to include, by the year 2010, the most developed nations and, by 2020, the other APEC members. In accordance with the established calendar, in November 1996 the member nations will present this commitments to liberalization and their timetables for implementing them. The Commission is involved in preparing the competition issues to be included in Mexico's submission.
3. International Organizations
Organization for Economic Cooperation and Development
Several meetings of the OECD's Competition Legislation and Policy Committee (CLPC) were held in November 1995. On that occasion, the Commission submitted its second annual report. The other items on the agenda covered the application of competition standards in telecommunications, the relations between competition policy and international trade, and the common ground between the competition laws of the OECD's member nations.
In February and March 1996, the Commission attended meetings of the CLPC's three working groups: Competition and International Trade, Competition and Regulation, and International Cooperation. The work analyzed dealt with matters of competition and dumping (unfair competition), abuses of dominant positions, member nations' competition laws, international cooperation, competition policy in high-tech markets, and other issues.
United Nations Conference on Trade and Development
The Commission is actively involved in the UNCTAD's competition work. In November 1995 it attended the Third United Nations Conference for Revising the Principles and Standards for Controlling Restrictive Commercial Practices, held in Geneva, Switzerland. At this meeting, the member nations agreed to continue exchanging their experiences with the application of competition legislation and policies. They also agreed to carry out a study into the benefits of those policies for economic development. In addition, they agreed to establish workshops, at which specialists from developed nations would share their competition experiences.
The Commission helped prepare the competition issues included in Mexico's position at the Ninth Session of the United Nations Conference on Trade and Development (IX UNCTAD), held in Midrand, South Africa, in April and May 1996. Particularly noteworthy among the issues dealt with at this meeting was the recognition given to the importance of competition policy as new area of special interest within economic policy.
B. Analysis and Dissemination of the Law
1. Hearings and Meetings with the Commerce Commission of the Chamber of Deputies
With the aim of clarifying issues related to the application and interpretation of competition law, the Commission held meetings with members of the Chamber of Deputies' Commerce Commission. In addition, the President of the Federal Competition Commission attended a public hearing organized by the Commerce Commission to address key matters contained in the case of Chicles Canel's vs. Chicle Adams.
2. Conferences and Seminars
The Commission made several presentations, both at home and abroad, on the contents of the Federal Economic Competition Law, the activities of the Federal Competition Commission, and the competition issues contained in the legislation regulating the provision of public services in the communications and transport sectors and the distribution of natural gas.
C. Administration
1. Administrative Deregulation
The deregulation of bureaucratic formalities for the establishment and operation of companies is a high priority for the Commission. To this end, at the very start of the current administration a program of administrative deregulation and simplification was launched with the aim of improving efficiency in the development of the procedures contained in the law for presenting complaints, notifications of mergers and acquisitions, and ex officio investigations.
The progress made in 1995 were incorporated into the deregulation work carried out under the coordination of the Secretariat of Commerce and Industrial Development. Pursuant to the terms contained in the Agreement for the Deregulation of Business Activities,71 the Commission proposed the registration of 16 procedures. This prevents discretionality in the requirements to be met by petitioners and helps eliminate excessive formalities that hinder their dealings with the Commission.2. 1995-2000 Public Administration Modernization Program
Within the framework of the 1995-2000 Public Administration Modernization Program (Promap), the Commission has pursued the following actions in order to serve the population's needs with greater efficiency and timeliness.
Electronic Communications. Since May 1996, economic agents have been able to contact the Commission using modems and the Internet. The following services are offered over the network: (a) access to the texts of the Federal Economic Competition Law and the Federal Competition Commission's Internal Regulations, (b) explanations of the Federal Economic Competition Law, (c) general information about the Commission and its officers, (d) submission of inquiries, (e) instructions for notifying mergers and acquisitions.
Total Quality. In January 1996 a total quality program was launched in order to bring about constant improvements in all administrative aspects of the Commission's proceedings. This program involves four phases: diagnosis, creation of a support structure, establishment of specific actions for continuous improvement, and standardization.
During the first six months of 1996 the general diagnosis of the organization was concluded; planning, implementation, and follow-up functions were structured; and training on quality and continuous improvement issues was given to 70% of the Commission's personnel.
Systems Development Program. In April 1996 the Internal Systems Committee, charged with developing this program was set up. Its responsibilities include detecting the institution's computer needs, analyzing the options available for satisfying them, and preparing concrete proposals for implementing the program. As a result of the Committee's work, the Commission now has an Integral Information System for obtaining timely information on the progress of every matter dealt with.
3. 1995-96 Budgets
The federal government's economic strategy for the 1995-2000 period proposes growth based on a spending program suited to the country's prospects, with exact goals for promoting domestic saving and achieving greater productivity and social benefits.
The actions implemented by the Commission within the framework of the Promap are a part of these plans, adjusted to an environment of austerity and disciplined use of public resources. The 1995 budget followed the rules for autonomous spending units issued by the Secretariat of the Treasury and Public Credit and the Secretariat of the Comptroller's Office and Administrative Development, together with the provisions contained in the Commission's internal regulations.
Pursuant to both the federal government's Action Program for Strengthening the Unity Agreement for Overcoming the Economic Emergency and the 1995 Austerity Agreement, the Commission took steps to rationalize its spending and impose budgetary discipline, to be observed by all staff. As a result of these measures, 35% of the budget initially authorized for 1995 was returned to the federal coffers.
The 1996 budget has been allocated according to the established calendar and the provisions of the federal spending budget. To comply with the rationality and austerity provisions, the Commission has refrained from filling vacancies and has launched a program to encourage savings in several areas of its current spending. Similarly, the Commission has complied with its obligation of providing timely information on budget allocations, through the federal public administration's Integral Information System. The Commission began using the automatic version of that system this year.
In the Human and Material Resources areas, payroll registration and control systems were introduced, new inventory control systems were implemented, and a new accounting structure was designed.
APPENDIX
Annual Economic Competition Report
1995-96
1. Statistics
Prevention and Elimination of Monopolistic PracticesCases Processed 1995/96 Concept Mergers and Monopolistic Consultation Total Acquisitions1 Practices2 1. Starting Total 29 30 8 67 2. Incoming 180 28 44 252 Notifications 167 Complaints 2 14
Ex Officio Investigations 11 14
3. Total (1 + 2) 209 58 52 319
4. Outgoings 166 25 47 238
Resolved by the Plenary 161 18
Thrown Out 2 4
Desistances 3 3
5. Pending (3 - 4) 43 33 5 81
1 Includes: operations notified under article 20 of the LFCE; complaints and ex officio investigations; concessions, permits, and transfers of rights to exploit state owned assets and provide public services; privatizations.
2 Includes investigations started on an ex officio basis or at the request of an interested party, together with other restrictions to competition.
Mergers and Acquisitions1Cases Concluded 1995/96 Concept Notified Ex Officio Total Investigations Resolved by the Plenary 149 12 161 No Objection 134 12 146 Conditions Imposed 14 14 Objected 1 1 Thrown Out2 2 2 Desistances 3 3 Total 154 12 1661 Includes: operations notified under article 20 of the LFCE; complaints and ex officio investigations; concessions, permits, and transfers of rights to exploit state owned assets and provide public services; privatizations.
2 Refers solely to the complaints about mergers and acquisitions that were thrown out.
Value of Mergers and Acquisitions Notified1Cases Concluded 1995/96 Million Times Total Value No. of Structure (%) the Minimum Wage (Million Pesos) Companies Total Value No. Comp. Less than 4.9 548.51 15 0.67 17.44 From 4.9 to 12.0 3,164.08 22 3.84 25.58 From 12.1 to 24.0 5,654.56 19 6.86 22.09 From 24.1 to 48.0 7,248.53 12 8.79 13.95 From 48.0 to 100.0 6,778.54 5 8.22 5.81
More than 100.0 59,038.09 13 71.62 15.12
Total 82,432.31 86 100 100
1 Under article 20 of the Federal Economic Competition Law
Monopolistic Practices and Other Restrictions to CompetitionCases Concluded 1995/96 Concept Complaints Ex Officio Total Invest. Resolved by the Plenary 6 12 18 Thrown Out 4 4 Desistances 3 3 Total 13 12 252. Cases ConcludedConcentrations Notified Under Article 20 of theFederal Law of Economic Competition, 1995-96
(concluded cases)
Case Starting Agents Involved Operation Resolution Resolution
Date Type* Date
1. 07-Mar-95 Consorcio Red Uno, S.A. de C.V. / Grupo Carso, S.A. de C.V. / Vertical 15-Jun-95 No objection
Teléfonos de México, S.A. de C.V.
2. 25-May-95 Univías, S.A ./ Aerovías de México, S.A. de C.V. / Corporación Horizontal. 10-Aug-95 Conditions
Mexicana de Aviación, S.A. de C.V. imposed
3. 02-Jun-95 Grupo Financiero Probursa, S.A. de C.V. / BBV International Horizontal 29-Jun-95 No objection
Investment Corporation
4. 06-Jun-95 Axa, S.A. de C.V. / General Electric Company Horizontal 13-Jul-95 No objection
5. 20-Jun-95 Motorola, Inc. / Mocel Inc. / Celcom, Inc. Horizontal 01-Aug-95 No objection
6. 23-Jun-95 Roussel Uclaf, S.A. / Latin American Pharmaceuticals, Inc. Horizontal 01-Aug-95 No objection
7. 28-Jun-95 Industria Embotelladora del Valle, S.A. de C.V. / Industria Horizontal** 06-Jul-95 No objection
Embotelladora Nacional, S.A. de C.V.
8. 10-Jul-95 Cía. Industrial de Parras, S.A. de C.V. / Cone Mills Vertical 07-Sep-95 Conditions
Corp. / Parras Cone de México, S.A. de C.V. imposed
9. 12-Jul-95 Nabisco, S.A. de C.V./ Lance, S.A. de C.V. / Mex Holdings II, Horizontal**17-Aug-95 No objection
S.A. de C.V.
10. 13-Jul-95 Comercializadora Sanfer, S.A. de C.V. / Exposanfer, S.A. Diversification** 17-Aug-95 No objection
de C.V. / Sanfer Internacional, S.A. de C.V. / Servicios
Corporativos Sanfer, S.A. de C.V. / Mercadex, S.A. de C.V. /
Dracma, S.A. de C.V. / Grupo Sanfer, S.A. de C.V. / Muebles
La Carreta, S.A. de C.V. / Mueblería La Montaña, S.A.
de C.V. / Mueblería Arcobaleno, S.A. de C.V. / Mueblería
del Morro, S.A. de C.V. / Illussiones, S.A. de C.V.
11. 24-Jul-95 Autobuses de Oriente Ado, S.A. de C.V. / Centauros del Norte, Horizontal** 24-Oct-95 No objection
S.A. de C.V. / Línea Estrella, S.A. de C.V. / Rápidos de
Sotavento, S.A. de C.V. / Tres Estrellas, S.A. de C.V. /
Tres Huastecas, S.A. de C.V.
12. 24-Jul-95 A.T. Kearny Inc. / A.T. Electronic Data Sistems Corp. Vertical 31-Aug-95 No objection
13. 25-Jul-95 Interbrew, S.A. / N.V. / John Labbat Limited Horizontal 19-Oct-95 No objection
14. 25-Jul-95 Form Rite de México, S. de R.L. de C.V. / TRX Acquisition Corp. Horizontal 31-Aug-95 No objection
15. 26-Jul-95 Grupo Continental de Publicaciones, S.A. de C.V. / Inversiones Horizontal** 17-Aug-95 No objection
Editoriales, S.A. de C.V. / Golerquin, S.A. de C.V
.
16. 28-Jul-95 Industrial Embotelladora de México, S.A. de C.V. / Gore, S.A. Horizontal** 17-Aug-95 No objection
de C.V.
17. 08-Aug-95 Alpek, S.A. de C.V. / Grupo Centek, S.A. de C.V. / Inversora Vertical 12-Oct-95 Conditions
de Valores del Norte, S.A. de C.V. / Univex, S.A. imposed
18. 08-Aug-95 Grupo Financiero Banamex Accival, S.A. de C.V. / Seguros Horizontal 28-Sep-95 No objection
Banamex, S.A. de C.V. / Aegon, N.V.
19. 15-Aug-95 Autobuses Alas de Oro, S.A. de C.V. / Autotransportes Horizontal** 24-Oct-95 No objection
Águila Roja, S.A. de C.V. / Alianza Camionera Veracruzana
Flecha Roja, S.A de C.V./ Línea México Puebla Veracruz
Oaxaca y Anexas Flecha Roja, S.A. de C.V. / Autotransportes
Interocéanicos, S.A. de C.V.
20. 30-Aug-95 Television Azteca, S.A. de C.V. / Impulsora de TV del Centro, Horizontal** 28-Nov-95 No objection
S.A. de C.V. / Controladora Mexicana de Comunicaciones,
S.A. de C.V.
21. 30-Aug-95 Distribuidora de Bebidas Valle de México, S.A. de C.V. / Horizontal** 19-Oct-95 No objection
Impulsora Eggsa, S.A. de C.V.
22. 30-Aug-95 Industria Refresquera del Valle, S.A. de C.V. / Distribuidora Vertical** 19-Oct-95 No objection
Trans Istmo, S.A. de C.V.
23. 31-Aug-95 Vilpac, S.A. / Paccar Incorporated Vertical 31-Oct-95 No objection
24. 15-Sep-95 Video América, S.A. de C.V. / Operación y Servicios de Vertical 11-Jan-96 No objection
Multivideo, S.A. de C.V. / Multivideo Mexicano, S.A. de C.V.
25. 18-Sep-95 ICA Construcción Urbana, S.A. de C.V. / Copy, S.A. de C.V. Horizontal** 12-Oct-95 No objection
26. 20-Sep-95 Industria del Hierro, S.A. de C.V. / Industrias del Hierro, S.A. Vertical** 12-Oct-95 No objection
de C.V. / Empresas Industria del Hierro, S.A. de C.V. /
Controladora de Empresas de Bienes de Capital, S.A. de C.V.
27. 27-Sep-95 Grupo Financiero Bital, S.A. de C.V. / Banco Comercial Horizontal 15-Feb-96 No objection
Portugués, S.A.
28. 27-Sep-95 Grupo Financiero Bital, S.A. de C.V. / Banco Central Horizontal 15-Feb-96 No objection
Hispanoamericano, S.A.
29. 28-Sep-95 BCP de México, S.A. de C.V. / Grupo Embotellador Mexicano, Horizontal 05-Oct-95 No objection
S.A. de C.V.
30. 04-Oct-95 Northumbrian Water México Ltd. / Northumbrian Water Horizontal 31-Oct-95 No objection
Group, Plc. / Grupo Empresarial Mexicano de Mejoramiento
Ambiental, S.A. de C.V. / Cydsa, S.A. de C.V.
31. 06-Oct-95 Promotora Banamex de Sistemas de Teleinformática , S.A. Diversification 31-Oct-95 No objection
de C.V. / Telecomunicaciones, S.A. de C.V. / Mci International
Corporation
32. 13-Oct-95 Grupo Acir, S.A. de C.V. / Radio Acir, S.A. de C.V. / 72 Horizontal** 07-Dec-95 No objection
radio companies
33. 18-Oct-95 Femsa Empaques, S.A. de C.V. / Sílices de Veracruz, S.A. Vertical 30-Nov-95 No obligation
to notify
34. 19-Oct-95 Bancomer, S.A. / Valores Industriales, S.A. / Diversification 23-Nov-95 No objection
Gte International Telecommunications, Inc.
35. 19-Oct-95 Bancomer, S.A. / Arrendadora Bancomer, S.A. de C.V. Vertical** 16-Nov-95 No objection
36. 27-Oct-95 Promotora las Campanas, S.A. de C.V. / Servicios Vertical** 23-Nov-95 No objection
Administrativos de América, S.A. de C.V.
37. 27-Oct-95 Enserch de México, S.A. de C.V. / Compañía Mexicana de Gas, Horizontal 23-Nov-95 Conditions
S.A. de C.V. / Operadora de Gas Cerralvo, S.A. de C.V. / Gas imposed
Natural de Apodaca, S.A. de C.V. / Gas Natural de Santa
Catarina, S.A. de C.V. / Gas Automotores, S.A. de C.V.
02-Apr-96 Enserch de Monterrey, S.A. de C.V. / Compañía Mexicana de Horizontal 15-Apr-96 Conditions
Gas, S.A. de C.V. / Operadora de Gas Cerralvo, S.A. de C.V. / imposed
Gas Natural de Apodaca, S.A. de C.V. / Gas Natural de Santa
Catarina, S.A. de C.V. / Gas Automotores, S.A. de C.V.
38. 30-Oct-95 Vacation Properties de México, S.A. de C.V. / Club Med, Inc. / Horizontal 07-Dec-95 No objection
Club Med Finance, B.V. / Desarrollo Turístico Mediterrannée
de San Carlos, S.A. de C.V.
39. 31-Oct-95 Beaver Acquisition, Corp. / Shop-vac corporation / Mcculloch, Diversification 07-Dec-95 No objection
S.A. de C.V.
40. 06-Nov-95 Pilgrim's Pride, S.A. de C.V. / Aviproductora, S.A. de C.V. / Vertical** 14-Dec-95No objection
Avindustria e Investigación, S.A. de C.V. / Avícola Pilgrim½s
Pride, S.A. de C.V. / Alimentos Balanceados Pilgrim½s Pride,
S.A. de C.V. / Avícola y Ganadera del Centro, S.A. de C.V. /
5 other companies
41. 08-Nov-95 Pazago, S.A. de C.V. / Taenza, S.A. de C.V. Horizontal** 07-Dec-95 No objection
42. 08-Nov-95 Banco Nacional de México, S.A. / Operadora de Sociedades de Horizontal** 07-Dec-95 No objection
Inversión Banacci, S.A. de C.V.
43. 10-Nov-95 Turística Cancún, S.A. de C.V. / Sheraton International / Horizontal 14-Dec-95 No objection
Icatur Promociones Turísticas, S.A. de C.V.
44. 13-Nov-95 Smithkline Beecham Consumer Healthcare, S.A. de C.V. / Vertical** 14-Dec-95 No objection Mesecon, S.A. de C.V. / Smithkline Beecham Farmacéutica,
S.A. de C.V. / Sterling Health de México, S.A. de C.V. /
Caflin, S.A. de C.V.
45. 14-Nov-95 Chrysler Corporation / Chrysler Financial Corporation / Vertical** 10-Apr-96 No objection Grupo Chrysler de México, S.A. de C.V. / Chrysler de México,
S.A. de C.V. / Chrysler Comercial, S.A. de C.V.
46. 14-Nov-95 Juan Alfonso Serrano González / Comunicación por Cable Lack of
del Bajío , S.A. de C.V. interest by petitioner
47. Nov-15-95 Chicle Adams, S.A. de C.V. / Warner Lambert, S.A. de C.V. / Horizontal** Dec-07-95 No objection Compañía Medicinal La Campana, S.A. de C.V.
48. 16-Nov-95 Grupo Acerero del Norte, S.A. de C.V. / Altos Hornos de Horizontal 15-Feb-96 No objection México, S.A. de C.V. / Aceros Nacionales, S.A. de C.V. /
Sidetla, S.A. de C.V.
49. 16-Nov-95 Ciframart, S.A. de C.V. / Nueva Sigla, S..A. de C.V. / Nueva Diversification** 13-Dec-95 No objection Bodega Aurrera, S.A. de C.V. / Nueva Operadora Sigla, S.A.
de C.V. / Bocasa Bienes Raíces, S.A. de C.V. / Nueva
Almacenes Aurrera, S.A. de C.V. / Nueva Suburbia, S.A. de
C.V. / Nueva Vips, S.A.
50. 16-Nov-95 Unión Minera Sur, S.A. de C.V. / Pennwalt, S.A. de C.V. / Vertical ** 13-Dec-95 No objection Importadora y Exportadora de Productos Químicos, S.A.
de C.V. /Others
51. 22-Nov-95 Arlington Services México, S.A. de C.V. / Caterair Horizontal 18-Jan-96 No objection
International, Corp. / Nueva Galicia, S.A. de C.V.
52. 24-Nov-95 Rockwell Mexicana Holdings, S.A. de C.V. / Rockwell . Vertical ** 08-Feb-96 No objection Fumagalli, S.A. de C.V. / Rockwell Mexicana, S.A. de C.V
53. 27-Nov-95 Kimberly Clark Corp. / Scott Paper Comp. Horizontal 01-Mar-96 Conditions
imposed
28-Nov-95 Kimberly Clark de México, S.A. de C.V. / Grupo Industrial Horizontal 01-Mar-96 Conditions imposed de San Cristóbal, S.A.
12-Jan-9 Cía. Industrial de San Cristóbal, S.A. / Kimberly Clark de Horizontal 01-Mar-96 Conditions imposed México, S.A. de C.V.
54. 29-Nov-95 Industria Embotelladora de México, S.A. de C.V. / Horizontal** 14-Dec-95 No objection
Embotelladora de Tlalnepantla, S.A. de C.V.
55. 01-Dec-95 Motores y Aparatos Eléctricos, S.A. de C.V. / Phillips Vertical** 11-Jan-96 No objection Mexicana, S.A. de C.V. / Servicios Administrativos
Especializados, S.A. de C.V. / Phillips Sistemas Médicos,
S.A. de C.V. / Telecomunicaciones y Sistemas Profesionales,
S.A. de C.V.
56. 04-Dec-95 Altos Hornos de México, S.A. de C.V. / Grupo Acerero del Vertical** 14-Dec-95 No objection Norte, S.A. de C.V. / Grupo Real del Monte, S.A. de C.V. /
Energía del Norte, S.A. de C.V. / Avíos de Acero, S.A. de C.V. /
Carbón y Minerales de Coahuila, S.A. de C.V.
57. 07-Dec-95 Grupo Fresenius México, S.A. de C.V. / Laboratorios Alpha, Vertical 18-Jan-96 No objection
S.A. de C.V.
58. 11-Dec-95 Motores y Aparatos Eléctricos, S.A. de C.V. / Phillips Vertical** 08-Feb-96 No objection Autopartes, S.A. de C.V. / EBT México, S.A. de C.V. /
Componentes Electrónicos de lámparas, S.A. de C.V. /
Prod. de Consumo Electrónico Phillips S.A. de C.V. /
Airpax de México, S.A. de C.V. / Fabricaciones Electrónicas,
S.A. de C.V. / Advance Transformer Co., S.A. de C.V.
59 12-Dec-95 The Walt Disney Company / Expansión S. de R.L. de C.V. Diversification 18-Jan-96 No objection
60. 13-Dec-95 Quetzal Pinturas, S.A. de C.V. / The Sherwin Williams Vertical 11-Jan-96 Conditions
Company / Productos Químicos y Pinturas S.A. de C.V. / imposed
Proquipsa, S.A. de C.V. / Pinturas Excelo, S.A. de C.V. /
Distribuidora Excelo, S.A. de C.V. / Macromol, S.A. de C.V.
61. 15-Dec-95 American International Group / Grupo Financiero Bital, Horizontal 15-Feb-96 No objection S.A. de C.V
62. 15-Dec-95 Grupo Situr, S.A. de C.V. / Promotora Hotelera de Aeropuertos, Horizontal 25-Jan-96 No objection S.A. de C.V. / Hotel Sierra México, S.A. de C.V. / Aeropuerto
Shareholder Inc. / Hmc Airport Inc. / Elcrisa, S.A. de C.V.
63. 02-Jan-96 Sociedad Industrial Hermes, S.A. de C.V. / Daimler-Benz Vertical 11-Jan-96 No objection
México, S.A. de C.V. / Mercedes Benz de México, S.A. de C.V.
64. 05-Jan-96 Palmilla San José Inmobiliaria, S.A. de C.V. / Palmilla Horizontal 15-Feb-96 No objection Development Partners / Sun Coast Invest. Inc.
65. 16-Jan-96 Afin Arrendadora, S.A. de C.V., Org. Aux. del Crédito / Horizontal** 08-Feb-96 No objection Arrendadora Banorte, S.A. de C.V., Org. Aux. del Crédito
66. 18-Jan-96 A&w Troy Grupo Industrial, S.A. de C.V. / Albright & Wilson, Vertical** 15-Feb-96 No objection Plc. / Albright & Wilson North America, Inc.
67. 23-Jan-96 Dal-tile International, Inc. / Recubrimientos Interceramic, Horizontal 28-Mar-96 No objection S.A. de C.V. / Armstrong Cork Finance, Corporation
68. 25-Jan-96 Femsa Cerveza, S.A. de C.V. / Cervecería Moctezuma, S.A. de Horizontal** 01-Mar-96 No objection C.V. / Cervecería Cuauhtémoc, S.A. de C.V.
69. 31-Jan-96 Impulsora de Mercados, S.A. de C.V. / Comercial Garrison, Vertical** 19-Mar-96 No objection S.A. de C.V. / Comercial Cártago, S.A. de C.V. / Organización
Femsa, S.A. de C.V. / Organización Inmobiliaria Sureste, S.A.
de C.V. / Bienes Raíces Maresa, S.A. de C.V. / Grafo
Inmuebles, S.A. de C.V. / Sicsa Inmuebles, S.A. de C.V. /
Desarrollo Inmobiliario Cuauhtémoc, S.A. de C.V.
70. 12-Feb-96 Hidrosina, S.A. de C.V. / Mobil Oil de México, S.A. de C.V. / Diversification 28-Mar-96 No objection Mobil de México, S.A. de C..V. / Compañía Operadora de
Estaciones de Servicio, S.A. de C.V. / Consorcio Gasolinero,
S.A. de C.V.
71. 15-Feb-96 Empresas del Carmen, S.A. de C.V. / Control de Industrias Diversification** 01-Mar-96 No objection Arma, S.A. de C.V. / Alfega, S.A. de C.V.
72. 15-Feb-96 Icatur Promociones Turísticas, S.A. de C.V. / Grupo ICA, S.A. Diversification 01-Mar-96 No objection de C.V. / Circa Capital, Corp.
73. 20-Feb-96 Seguros Comercial América, S.A. de C.V. (Bidding for HorizontaL 29-Mar-96 No objection Aseguradora Mexicana, S.A. de C.V.)
74. 21-Feb-96 Valores Monterrey Aetna, S.A. (Bidding for Aseguradora Horizontal 29-Mar-96 No objection Mexicana, S.A. de C.V.)
75. 22-Feb-96 Bancomer, S.A. de C.V. / Valores Monterrey Aetna, S.A. / Horizontal 07-Mar-96 No objection Banco Montreal
76. 23-Feb-96 Liberty de México Seguros, S.A. (Bidding for Aseguradora Horizontal 29-Mar-9 No objection Mexicana, S.A. de C.V.)
77. 28-Feb-96 Lamosa Revestimientos, S.A. de C.V. / Keramika, S.A. Horizontal 19-Mar-96 No objection de C.V. / Industrias Ceramicas de Xalisco, S.A.
78. 29-Feb-96 Allied Signal Automotive de México, S.A. de C.V. / Allied Horizontal 28-Mar-96 No objection Signal, Inc. / Allied Signal International Finance Corp. /
Allied Signal de México, S.A. de C.V. / Robert Bosch GmbH
79. 29-Feb-96 Grupo Nacional Provincial , S.A. de C.V. (Bidding for Horizontal 29-Mar-96 No objection Aseguradora Mexicana, S.A. de C.V.)
80. 01-Mar-96 Grupo Creática, S.A. de C.V. / American International Horizontal 28-Mar-96 No objection Reinsurance Co.
81. 08-Mar-96 Bank of Tokio Ltd / The Mitsubishi Bank Limited Horizontal 10-Apr-96 No objection
82. 15-Mar-96 Chemical Bank México, S.A., Institución de Banca Múltiple / Horizontal 25-Apr-96 No objection Chemical International Finance, Ltd. / Chase Manhattan
Bank México, S.A., Inst. de Banca Múltiple / Chase Manhattan Bank Overseas Banking Corporation
1. 18-Mar-96 Upjohn, S.A. de C.V. / Pharmacia de México, S.A de C.V. Horizontal 15-Apr-96 No objection
1. 22-Mar-96 Ponderosa Industrial, S.A. de C.V. / Empaques Ponderosa, S.A. Vertical** 28-Mar-96 No objection
85. 27-Mar-96 Alimentos y Productos Refrigerados, S.A. de C.V. / Grupo Horizontal** 25-Apr-96 Conditions Prolesa, S.A. de C.V. / Consorcio Productos de Leche, S.A. de imposed
C.V. / Others
86. 18-Apr-96 Cogeneracion Mexicana, S.A. de C.V. / Cogentrix México Inc. / Vertical 16-May-96 No objection Mecánica La Peña, S.A. de C.V. / Celanese, S.A. de C.V. /
Messer Griesheim de México, S.A. de C.V. / Univex, S.A. de C.V.
87. 19-Apr-96 Grupo Carso, S.A. de C.V./Carso Global Telecom, S.A. de C.V. Diversification** 16-May-96 No objection Grupo Carso, S.A. de C.V./ Invercorporación S.A. de C.V.
88. 23-Apr-96 Vinos Finos, S.A. de C.V. / Importaciones Anglo Europeas, Horizontal** 02-May-96 No objection S.A. de C.V. / Importadora y Distribuidora Inter, S.A. de C.V.
89. 29-Apr-96 General Motors Co. / Electronic Data Sistems de México, S.A. Diversification** 09-May-96 No objection de C.V.
90. 30-Apr-96 Grupo Gigante, S.A. de C.V. / Banco Nacional de México, S.A. Diversification 16-May-96 No objection de C.V., Grupo Financiero Banamex Accival / Inbursa, Soc.
de Inversión de Capitales, S.A. de C.V. / Seguros Inbursa, S.A.
de C.V. / Banco Inbursa, S.A. Institución de Banca Múltiple
91. 30-Apr-96 Crisoba para el Consumidor, S.A. de C.V. / Crisoba Productos, Vertical** 09-May-96 No objection S.A. de C.V.
92. 02-May-96 Bionova, S.A. de C.V. / Bionova, U.S., Incorporated / Agrícola Vertical** 23-May-96 No objection Bátiz, S.A. de C.V.
93. 02-May-96 Inbursa Sociedad de Inversión de Capitales, S.A. de C.V. / Diversification 16-May-96 No objection Grupo Gigante, S.A. de C.V.
94. 02-May-96 Seguros Inbursa, S.A., Institución. de Seguros, Grupo Diversification 16-May-96 No objection Financiero Inbursa / Grupo Gigante, S.A. de C.V.
95. 02-May-96 Banco Inbursa, S.A., Inst. de Banca Múltiple, Grupo Financiero Diversification 16-May-96 No objection Inbursa / Grupo Gigante, S.A. de C.V.
96. 14-May- 96 Grupo Real del Monte, S.A. de C.V. / Consolited Nevada Horizontal 30-May-96 No objection Goldfields, Corporation
97. 17-May-96 Tomkins Plc / The Gates Rubber Co. / Fomento de Vertical 30-May-96 No objection
Industrias, S.A. de C.V. / Gates Rubber de México, S.A. de
C.V. / Conexiones Hidráulicas, S.A. de C.V. / Enfriamiento de
Automóviles, S.A. de C.V.
98. 24-May-96 Grupo Acerero del Norte, S.A. de C.V. / Industrias Aurum & Horizontal** 30-May-96 No objection Argentum, S.A. de C.V.
* The operation type is defined by considering the modifications to the original structure of the company or companies that acquire assets or control following the operation, except in the case of administrative restructurings, where no alterations to the group's structure are deemed to have been made.
** Administrative restructuring.
Notifications Related to Permits, Transfers of Rights,
and Privatizations, 1995-96
(concluded cases)
Case Starting Agents Involved Operation Resolution Resolution
Date Type Date
Auction API-C-UM-01/95. Port Terminals and Installations.
1. 08-Jun-95 Transportación Marítima Mexicana, Partial transfer 06-Jul-95 No objection
S.A. de C.V. of rights
Sale of assets
2. 08-Jun-95 Ems de México, S.A. de C.V. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
3. 09-Jun-95 Corporación Integral de Comercio Partial transfer 06-Jul-95 No objection
Exterior, S.A. de C.V. & Promotora of rights
de Proyectos Grupo Cice, S.A. de C.V. Sale of assets
4. 09-Jun-95 Bufete Industrial Construcciones, Partial transfer 06-Jul-95 No objection
S.A. de C.V. of rights
Sale of assets
5. 09-Jun-95 Sudamericana de Agencias Aéreas Partial transfer 06-Jul-95 No objection
y Marítimas, S.A. de C.V. & Participación of rights
Activa en Empresas, S.A. de C.V. Sale of assets
6. 09-Jun-95 Gremio Unido de Alijadores, S.C. de R.L. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
7. 09-Jun-95 Stevedoring Services of America, Inc. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
8. 09-Jun-95 Rehabilitación de Maquinaria Partial transfer 06-Jul-95 No objection
Remaconst, SA. de C.V. of rights
Sale of assets
9. 09-Jun-95 P&O Australia, Ltd. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
10. 09-Jun-95 Grupo Fertinal, S.A. de C.V. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
11. 09-Jun-95 Grupo Mexicano de Desarrollo, Partial transfer 06-Jul-95 No objection
S.A. de C.V. & Cooper of rights
T. Smith Stevedoring Sale of assets
12. 09-Jun-95 Portia Management Services Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
13. 09-Jun-95 Dsc, S.A. de C.V. Partial transfer 06-Jul-95 No objection
of rights
Sale of assets
14. 09-Jun-95 Ingenieros Civiles Asociados, Partial transfer 06-Jul-95 No objection
S.A. de C.V. of rights
Sale of assets
15. 20-Jun-95 International Container Terminal Partial transfer 06-Jul-95 No objection
Services, Inc. of rights
Sale of assets
16. 20-Jun-95 Corporación Integral de Comercio Partial transfer 06-Jul-95 No objection
Exterior, S.A. de C.V.; Promotora de of rights
Proyectos Grupo Cice, S.A. de C.V.de Sale of assets
& P&O Australia, Ltd.
17. 20-Jun-95 Transportación Marítima Mexicana, Partial transfer 06-Jul-95 No objection
S.A. de C.V. & Stevedoring Services of rights
of America, Inc. Sale of assets
18. 20-Jun-95 Sudamericana de Agencias Aéreas Partial transfer 06-Jul-95 No objection
y Marítimas, S.A. de C.V.; Participación of rights
Activa en Empresas, S.A. de C.V. & Sale of assets
Grupo Fertinal, S.A. de C.V.
19. 20-Jun-95 Ingenieros Civiles Asociados, S.A. Partial transfer 06-Jul-95 No objection
de C.V. & International Container of rights
Terminal Services, Inc. Sale of assets
Auction API-C-UM-02/95. Port Terminals and Installations.
20. 08-Jun-95 Transportación Marítima Mexicana, Partial transfer 06-Jul-95 No objection
S.A. de C.V. of rights
Sale of assets
21. 06-Jul-95 Siderúrgica Lázaro Cárdenas Partial transfer 08-Aug-95 No objection
Las Truchas, S.A. de C.V . of rights
Sale of assets
22. 06-Jul-95 Ispat Mexicana, S.A. de C.V. Partial transfer 10-Aug-95 No objection
of rights
Sale of assets
23. 06-Jul-95 Operadora de la Cuenca del Pacífico, Partial transfer 16-Aug-95 Conditions
S.A. de C.V. of rights
Sale of assets
Auctions APIQROO-COZ-01/95, APIQROO-COZ-02/95, & APIQROO-COZ-03/95. Port Enclosures.
24. 13-Dec-95 Transportación Marítima Mexicana, Partial transfer 07-Mar-96 No objection
S.A. de C.V. & Terminal Marítima of rights
del Sureste, S.A. de C.V.
25. 13-Dec-95 Transportación Marítima Mexicana, Partial transfer 07-Mar-96 No objection
S.A. de C.V. & Terminal Marítima of rights
del Sureste, S.A. de C.V.
26. 13-Dec-95 Transportación Marítima Mexicana, Partial transfer 07-Mar-96 No objection
S.A. de C.V. & Terminal Marítima of rights
del Sureste, S.A. de C.V.
27. 15-Dec-95 Navegación Veracruzana, S.A. de C.V. Partial transfer 07-Mar-96 No objection
of rights
28. 15-Dec-95 Navegación Veracruzana, S.A. de C.V. Partial transfer 07-Mar-96 No objection
of rights
29. 10-Jan-96 Terminales Marítimas de Caribe, Partial transfer 07-Mar-96 Desistance
S.A. de C.V. of rights
30. 10-Jan-96 Terminales Marítimas de Caribe, Partial transfer 07-Mar-96 Desistance
S.A. de C.V. of rights
31. 19-Jan-96 Grupo Mexicano de Desarrollo, Partial transfer 07-Mar-96 No objection
S.A. de C.V . of rights
Auction API-ALT-TUM-03/95. Port terminal.
32. 09-Feb-96 Corporación Integral de Comercio Partial transfer 07-Mar-96 No objection
Exterior, S.A. de C.V. & Consorcio of rights
Integral de Comercio Exterior, Sale of assets
S.A. de C.V.
33. 09-Feb-96 Transportación Marítima Mexicana, Partial transfer 07-Mar-96 No objection
S.A. de C.V. & Operadora Portuaria of rights
TMM, S.A. de C.V. Sale of assets
34. 09-Feb-96 Triturados Basálticos y Derivados, Partial transfer 07-Mar-96 No objection
S.A. de C.V. of rights
Sale of assets
35. 09-Feb-96 Fairway Terminal Corporation Partial transfer 07-Mar-9 No objection
of rights
Sale of assets
36. 09-Feb-96 Ingenieros Civiles Asociados, S.A. Partial transfer 07-Mar-96 Objection
de C.V. & International Container of rights
Terminal Services, Inc. Sale of assets
Auctions of the Acapulco and Puerto Vallarta Port Administrations.
37. Apr-16-96 Estrella de Oro, S.A. de C.V., Sale of 100% 23 May 96 Conditions
México-Acapulco-Zihuatanejo, Agencia of capital stock imposed
de Viajes Acuario, S.A. de C.V.
38. 16-Apr-96 Constructoras ICA, S.A. de C.V. Sale of 100% 23 May 96 Conditions
& The Pasha Group. of capital stock
39. 16-Apr-96 Transportacion Marítima, S.A. de Sale of 100% 23 May 96 Conditions
C.V. & Subsidiarias of capital stock
Auction of ANDSA Warehouses Located at Pantaco for Creation/Development of PICALP.1
40. 02-Aug-95 Almacenadora Regional del Golfo, Sale of assets 31-Aug-95 No objection
S.A. de C.V.
41. 03-Aug-95 Almacenadora Gómez, S.A. de C.V. Sale of assets 05-Sep-95 No objection
42. 04-Aug-95 Almacenadora del Valle de México, Sale of assets 05-Sep-95 No objection
S.A. de C.V.
43. 04-Aug-95 DSC Comercial, S.A. de C.V. & Sale of assets 04-Sep-95 No objection
Ferropuertos, S.A. de C.V.2
44. 04-Aug-95 Almacenadora México, S.A. de C.V. Sale of assets 05-Sep-95 Conditions
45. 04-Aug-95 Almex Jalisco, S.A. de C.V. Sale of assets 07-Sep-95 Conditions
46. 04-Aug-95 Promotora Versicon, S.A. de C.V. Sale of assets 05-Sep-95 No objection
47. 04-Aug-95 Servicios Especializados para el Sale of assets 07-Sep-95 No objection Transporte de Equipo, S.A. de C.V.
48. 04-Aug-95 Grupo Almacenador Mexicano, Sale of assets 05-Sep-95 No objection
S.A. de C.V.
49. 04-Aug-95 Servicargo, S.A. de C.V. & Agentes Sale of assets 04-Sep-95 Conditions
Aduanales Asociados para el Comercio
Exterior, S.A. de C.V.3
50. 09-Aug-95 Almacenadora General, S.A. Sale of assets 22-Sep-95 No objection
51. 09-Aug-95 Grupo Metal Intra, S.A. de C.V. Sale of assets 06-Sep-95 No objection
52. 09-Aug-95 Almacenadora Probursa, S.A. de C.V. Sale of assets 31-Aug-95 No objection
53. 11-Aug-95 Almacenadora Tijuana, S.A. de C.V. Sale of assets 31-Aug-95 No objection
54. 11-Aug-95 Almacenes y Frigoríficos Ameriben, Sale of assets 31-Aug-95 No objection
S.A. de C.V.
Transportation of Natural Gas. Allocation Through Compliance With RGN Prerequisites.4
55. 13-Nov-95 Servicios Occidental de México, Permit 05-Mar-96 Closed
SOMEX, S.A. de C.V.
56. 07-Feb-96 Midcon Gas Natural de México, Permit 05-Mar-96 No objection
S.A. de C.V.
1 Pantaco Internal Port and Logistics Activities Center.
2 On 16 August 1995, Ferropuertos, S.A. de C.V. reported that it was associating with DSC Comercial, S.A. de C.V. to participate in the Pantaco ANDSA warehouse auction.
3 On 11 August 1995, Agentes Aduanales Asociados para el Comercio Exterior, S.A. de C.V. reported that it was associating with Servicargo, S.A. de C.V. to participate in the Pantaco ANDSA warehouse auction.
4 Natural Gas Regulations.
Ex Officio Investigations and
Complaints Filed Against Operations, 1995-96
(concluded cases)
Case Starting Agents Involved Operation Resolution Resolution
Date Type Date
Ex Officio Investigations
1. 27-Apr-94 Arrendadora Financiera Reforma, S.A. de C.V. / Luis Miguel Diversification 10-Apr-96 No objection Marcos Morán / Enrique Adolfo Posadas Domínguez sanction
2. 08-May-95 Clemente Jacques y Compañía / Unilever de México, Horizontal 17-Aug-95 No objection S.A. de C.V. sanction
3. 19-Apr-95 Nabisco, S.A. de C.V. / Lance, S.A. de C.V. / Mex Holdings II, Horizontal3 17-Aug-95 No objection S.A. de C.V.2
4. 13-Jul-95 Comercializadora Sanfer, S.A de C.V. / Exposanfer, S.A. de Diversification3 17-Aug-95 No objection C.V. / Sanfer Internacional, S.A. de C.V. / Servicios.
Corporativos Sanfer, S.A. de C.V. / Mercadex, S.A. de C.V. /
Dracma, S.A. de C.V. / Grupo Sanfer, S.A. de C.V. / Muebles
La Carreta, S.A. de C.V. / Mueblería La Montaña, S.A. de
C.V. / Mueblería Arcobaleno, S.A. de C.V. / Mueblería del
Morro, S.A. de C.V. / Illussiones, S.A. de C.V.4
5. 17-Aug-95 Grupo Financiero Inbursa, S.A. de C.V. / Grupo Industrial Diversification 30-May-96 No objection Alfa, S.A. de C.V.5
6. 5-Jan-96 At&t Company / Alfa, S.A. de C.V. Diversification 19-Apr-96 No objection
7. 14-Mar-96 Empaques de Cartón Titán, S.A. de C.V. / Comercializadora Vertical3 20-Jun-96 No objection Industrial Gusymex, S.A. de C.V. / Desarrollo Constructivo, sanction
S.A. de C.V.
8. 14-Mar-96 Lobaina, S.A. de C.V. / Smurfit de México, S.A. de Vertical3 20-Jun 96 No objection C.V./ Fábrica de Papel Monterrey, S.A. de C.V. sanction
9. 19- Mar-96 Grupo Hytt, S.A. de C.V. / Pitsa San Juan, S.A. de C.V. Vertical3 20-Jun-96 No objection sanction
10. 19-Mar-96 Nueva Editorial Interamericana, S.A. de C.V. / McGraw Hill Horizontal3 20-Jun-96 No objection Interamericana de México, S.A. de C.V. sanction
1. 01-Apr-96 Grupo Radiópolis, S.A. de C.V. / Editorial Omgsa, S.A. de C.V. Vertical3 20-Jun-96 No objection
Complaints
Starting Economic Agent Matter Resolution Resolution
Date Date
24-Jul-95 Procter & Gamble de México, S.A. de C.V. vs. Kimberly Clark Against Kcm/ 20-Jun-96 Thrown out de México, S.A. de C.V. & Grupo Industrial de San Cristóbal, Crisoba Merger
S.A.
12-Jan-96 Copamex Industriales vs. Kimberly Clark de México, S.A. de Against Kcm/ 20-Jun-96 Thrown out C.V. & Grupo Industrial de San Cristóbal, S.A. Crisoba Merger
1 The operation type is defined by considering the modifications to the original structure of the company or companies that acquire assets or control following the operation, except in the case of administrative restructurings, where no alterations to the group's structure are deemed to have been made.
2 Combined with file CNT-35-95.
3 Administrative restructuring.
4 Combined with file CNT-36-95.
5 Combined with file IO-17-94.
Monopolistic Practices and Other Restrictions to Competition,
1995-96
(concluded cases)
Case Starting Economic Agents Alleged Resolution Resolution
Date Practice or date
Restriction
Investigated
Complaints
1. 17-Dec-93 Singer Mexicana, S.A. de C.V.; Manufacturera Relative 08-Nov-95 Warning
Electrónica SIM, S.A. de C.V. & Grupo Bler sanction
de México, S.A. de C.V.1 vs. Vitro, S.A.; Distribuidora
Cónsul, S.A. de C.V. & Mabesa, S.A. de C.V.
2. 22-Jun-94 Chicles Canel's, S.A. de C.V. vs. Chicle Adams, S.A. Relative 15-Feb-96 Petition
de C.V. declined
3. 13-Mar-95 Fernando López Matías and others vs. Administrative 13-Sep-95 Recommendation
Oaxaca State Government restriction to State Government
4. 20-Mar-95 Unión de Usuarios de la Autopista Iguala-Alpuyeca, tramo 2 23-May-96 Thrown out
Iguala-Amacuzac vs. Ministry of Communications and
Transport, Caminos y Puentes Federales de Ingresos y
Servicios Conexos; Concesionario MC Cuernavaca &
Fideicomiso Nafin.
5. 30-May-95 Asociación Michoacana de Organismos Productores, Relative 14-Feb-96 Desistance
Empacadores y Exportadores de Frutas, A.C. vs.
Empacadora de Mangos de Exportación A.C.
6. 16-Jun-95 Concesionarios del Servicio de Radiolocalización Móvil Absolute 20-Jun-96 Thrown out de Personas, A.C. vs. MTEL S.A. de C.V. & and relative
Telecomunicaciones Telektra, S.A. de C.V.
7. 23-Jun-95 Oxígeno y Acetileno, S.A. de C.V. vs. Quimiobásicos, S.A. Relative 25-Jul-95 Desistance
de C.V.
8. 07-Aug-95 Ediciones y Sistemas Especiales, S.A. de C.V. vs. Administrative 15-May-96 Recommendation
Chiapas State Government & Ministry of Public restriction to State Government Education Chiapas State Office
9. 06-Oct-95 Nacional de Avalúos y Servicios, S.A. de C.V. vs. Absolute 22-May-96 Desistance
Asociación Mexicana de Valuadores de Empresas, A.C.
10. 16-Oct-95 Anuncios en Directorios, S.A. de C.V. vs. Directel, S.A. 3 16-Feb-96 Thrown out
de C.V.
11. 11-Mar-96 Ciba Corning Diagnostics de México, S.A. de C.V. vs. Administrative 20-Jun-96 Thrown out Instituto Mexicano del Seguro Social restriction Recommendation to SECOFI
12. 10-Aug-95 Cámara Nacional de la Industria Editorial Mexicana Administrative 28-May-96 Recommendation
vs. Mexico State Government restriction to State Government
Ex Officio Investigations
1. 16-Aug-94 Aerovías de México, S.A. de C.V.4 Relative 05-Oct-95 Ordered to lif
refusal to
trade
Ex Officio Investigations
2. 07-Oct-94 Asociación Mexicana de Agentes de Carga, A.C. Absolute 15-Feb-96 Sanction
(maritime cargo)
3. 10-Nov-94 Baramin, S.A. de C.V.; Baricosta, Absolute 07-Sep-95 Sanction
S.A. de C.V.; Minerales y Arcillas,
S.A. de C.V.; Barita de Sonora, S.A. de C.V. &
Barita de Santa Rosa, S.A. de C.V.
4. 06-Jan-95 Sinaloa State Government Restrictions on 18-Jan-96 Declaration in
inter-state trade Official Journal
of the Federation
5. 16-Jan-95 Egg distributors in the Federal District Absolute 29-Apr-96 Sanctions on those
found guilty
6. 18-Apr-95 Unión de voceadores, expendedores y repartidores de Relative 07-Mar-96 Sanction
periódicos, revistas y similares del puerto de Veracruz;
Unión de Voceadores de Veracruz,Veracruz, & José
Espíndola Gómez.
7. 20-Apr-95 Unión de Voceadores y Expendedores de la Prensa Miguel Relative 07-Mar-96 Union sanctioned
Hidalgo, A.C. & Ernesto Lozano Cabrera
8. 30-May-95 Asociación Mexicana de Agentes de Carga, A.C. Absolute 01-Mar-96 Sanction
(air cargo in Mexico City)
9. 21-Aug-95 Asociación de Agentes Aduanales de Cancún, A.C. Absolute 01-Feb-96 Sanction
10. 02-Aug-95 Unatrafer A.C. Relative 20-Jun-96 Closed
11. 01-Apr-96 Chiapas and Campeche State Governments Restriction 20-Jun-96 Recommendation
to Chiapas State
Government
Declaration in the
Official Journal of
the Federation for
the Campeche
Government
1 The complaint made by Grupo Bler, S.A. de C.V. was joined to the complaint submitted by Singer Mexicana, S.A. de C.V. and Manufacturera Electrónica Sim, S.A. de C.V.
2 The matter of the complaint is not covered by the Federal Economic Competition Law.
3 The matter of the complaint does not pose restrictions to the process of competition and free market access.
4 Includes the cases (2) of monopolistic practices by Aerovías de México, S.A. de C.V. abainst Baúl, S.A. de C.V. and several travel agencies.
Consultations 1995-96
(cases concluded)
Case Starting Economic Agents Date Inquiry
Date Concluded
1. 27-Feb-95 Operadores Mayoristas de Turismo 09-Jan-96 Monopolistic practice
Receptivo de la República Mexicana,
A.C. (Cancún badges)
2. 23-May-95 Salomón Kleiman (Sonido Zorba) 02-Aug-95 Trading practice
3. 14-Jun-95 Residents of Loma Bonita and Nueva 24-Jul-95 Coordination agreement
España de Lagos de Moreno, Jalisco between
Pemex-Refinación /
Federal Competition
Commission
4. 23-Jun-95 Residents of Melocotón, Lima & 25-Jul-95 Coordination agreement
Nanche streets Santillana La Huerta Pemex-Refinación /
District, Morelos, Michoacán FederalCompetition
Commission
5. 27-Jun-95 Telefonía Celular del Norte, S.A. de C.V. 07-Sep-95 Telecommunications fees
6. 30-Jun-95 Areca, S.A. de C.V. 22-Jul-95 Coordination agreement
between Pemex-
Refinación / Federal
Competition Commission
7. 14-Jul-95 Asociación Nacional de Distribuidores en 17-Aug-95 Trading practice
Combustibles y Lubricantes, A.C.
8. 26-Jul-95 Celular de Telefonía, S.A. de C.V. 31-Jul-95 Telecommunications fees
9. 26-Jul-95 Consorcio de Desarrollo Económico 23-Aug-95 Merger/acquistion
Mexicano, S.A. de C.V.
10. 14-Aug-95 The Gillette Company 02-Jan-96 Merger/acquistion
11. 22-Aug-95 Asociación Mexicana de Distribuidores de 21-Jun-96 Trading practice
Automóviles, A.C.
12. 25-Aug-95 Jiro y Asociados, Agentes de Seguros 23-Oct-95 Trading practice
y Fianzas, S.A. de C.V.
13. 06-Sep-95 Asociación Mexicana de Navieros, A.C. 16-Oct-95 Port terminal fees
14. 08-Sep-95 Inova, s.a. de c.v. 24-Oct-95 Trading practice
15. 15-Sep-95 Gustavo Juárez Jiménez 25-Dec-95 Coordination agreement
between Pemex-
Refinación / Federal
Competition Commission
16. 17-Oct-95 Goodrich, Riquelme y Asociados 15-Dec-95 Trading practice
(Alvaro González Ocampo)
17. 01-Nov-95 Compañía Mexicana de Terminales, 08-Dec-95 Merger/acquistion
S.A. de C.V.
18. 15-Nov-95 Pulsar Internacional, S.A. de C.V. 04-Mar-96 Telecommunications fees
19. 22-Nov-95 Construval, S.A. de C.V. 08-Feb-96 Coordination agreement
between Pemex-
Refinación / Federal
Competition Commission
20. 04-Dec-95 José Carlos M. de Uriarte 19-Mar-96 Merger/acquistion
21. 05-Dec-95 The Coleman Company, Inc. 15-Dec-95 Merger/acquistion
22. 14-Dec-95 Catalina Marketing de México, 26-Feb-96 Trading promotion
S.A. de C.V.
23. 02-Jan-96 Casa Marzam, S.A. de C.V. 13-Mar-96 Merger/acquistion
24. 03-Jan-96 Perfumería Ultra, S.A. de C.V. 26-Feb-96 Administrative practices
affecting competition
25. 11-Jan-96 Asociación Nacional de Productores y 07-May-96 Bottle marking
Distribuidores de Agua Purificada, A.C.
26. 11-Jan-96 Gremio Unido de Alijadores, S.A. de C.V. 09-Apr-96 Merger/acquistion
27. 31-Jan-96 International Aereo Engines, A.G. 22-Feb-96 Official Mexican Standard
28. 26-Feb-96 Alejandro Sarabia de la Fuente 21-Jun-96 Industrial property rights
29. 27-Feb-96 Infomin, S.A. de C.V. & Iusacell, 08-Apr-96 Merger/acquistion
S.A. de C.V.
30. 29-Feb-96 Antje Saldívar Muller, Diversy 20-Mar-96 Merger/acquistion
Int. Investments Corp.
31. 01-Mar-96 Humberto Canales Mena, Torres 09-Apr-96 Monopolistic practice
y Rampas Mexicanas, S.A. de C.V.
32. 04-Mar-96 Dentsplay de México, S.A. de C.V. 11-Jun-96 Monopolistic practice
33. 11-Mar-96 Corporación Serbo, S.A. de C.V. 09-Apr-96 Ruling on conditions
of competition
34. 14-Mar-96 Elías Jiménez, Fábricas de Monterrey, 22-Mar-96 Merger/acquistion
S.A. de C.V.
35. 18-Mar-96 Internacional de Contenedores Asociados 13-May-96 Conditions of
de Veracruz, S.A. de C.V. competition
36. 22-Mar-96 Aeroméxico, S.A. de C.V. & Univías, 26-Apr-96 Merger/acquistion
S.A. de C.V.
37. 26-Mar-96 Dirección General Mixta para la 30-May-96 Official prices
Promoción de las Exportaciones
38. 27-Mar-96 Hospimédica, S.A. de C.V. 02-May-96 Public auctions
39. 08-Apr-96 Asociación de Agentes Aduanales 30-May-96 Barriers to entry
de Ciudad Hidalgo, Chiapas, A.C.
40. 16-Apr-96 Comunicaciones Internacionales 26-Apr-96 Monopolistic practice
de México, S.A. de C.V
41. 18-Apr-96 Cogeneración Mexicana, S.A. de C.V. 21-May-96 Merger/acquistion
42. 18-Apr-96 Compañía Productora de Leche 24-May-96 Monopolistic practice
y sus Derivados, S.A. de C.V
43 18-Apr-96 Confederación Nacional de Transportistas 07-May-96 Official prices
Mexicanos, A.C.
44 19-Apr-96 Comisión Mixta para la Promoción de las 20-Jun-96 Integrating companies
Exportaciones (EIs)
45 19-Apr-96 Grupo Carso, S.A. de C.V. 17-May-96 Merger/acquistion
46 17-May-96 Malta Texo de México, S.A. de C.V. 21-Jun-96 Merger/acquistion
47 05-Jun-96 General Directorate of Networks 21-Jun-96 Substantial market power
and Radio Communications, S.C.T.
Directory
Federal Competition Commission
Fernando Sánchez Ugarte
President
Luis Prado Robles
Executive Secretary
Rafael Fernández Pérez
General Director, Administration
Álvaro R. Sánchez González
General Director, Mergers and Acquisitions
José Zozaya Délano
General Director, Investigations
Adriaan Ten Kate
General Director, Economic Studies
Ricardo Elizondo Castro
General Director, Legal
Manuel Sandoval Reyes
General Director, Communication
Salvador Apodaca Sarabia
Advisors Coordinator
Noemí Torres Álvarez
Internal Comptroller
Gamal Saraya Ley
Secretary to the President's Office
The Federal Competition Commission
can be consulted on legal and policy issues
related to competition and free market entry
through any of the following channels:
Monte Líbano 225
Col. Lomas de Chapultepec
11000 México, D.F.
Internet
http://cfc.gob.mx
Comments: correo@cfc.gob.mx
Telephone
(5) 283 6500
Fax
(5) 283 6680
The services provided through these communications channels are described in Chapter IV, Section C-2 of this Report.
1 Federal Executive, Foreign Trade and Industrial Policy Program, p. 159.2 1995-2000 National Development Plan. Official Journal of the Federation, May 31, 1995, p. 70.
3 The number of notifications is slightly higher than the total number of cases corresponding thereto, since more than one notification can be received in connection with a single case. In addition, it should be pointed out that total number of notifications received include the following: (1) notifications given by private citizens under the Federal Economic Competition Law; (2) those submitted voluntarily by involved parties; (3) those submitted to the Commission's consideration prior to obtaining concessions and permits to provide public services or make use of national property; (4) those presented as a part of proceedings to transfer companies and goods, as provided for in rules governing the public sector divestitures. During 1993-94 and 1994-95, no cases of type (3) were submitted.
4 The total includes the cases described in (1), (2), (3), and (4) of note 1, above.5 With the exception of Gas Automotores, S.A. de C.V., all the companies have provisional permits to distribute natural gas in the city of Monterrey and its adjacent areas
6 The liberalization of this sector began in the first half of 1995 with the amendments to the Regulatory Law on Article 27 of the Constitution as Relating to Oil. In addition, at the end of that year, the Natural Gas Regulations and the Energy Regulating Commission Law were promulgated. This law granted the Energy Regulating Commission the power to regulate the transportation, distribution, and storage of natural gas.
7 Economic agents finding themselves in the situation described in the first paragraph of temporary article 8 of the RGN had to begin formalities within six months of the enactment of the RGN. This applied to these companies. In fact, per that article, "Persons involved in the business of distributing natural gas at the time that the [RGN] come into force... may continue to carry out those activities. The [Energy Regulating] Commission shall grant them... a provisional permit for twelve months..."
8 Eight LP gas distributors and Gas Industrial de Monterrey, S.A. de C.V. (a distributor of natural gas to industrial consumers).9 For the purposes of this description, "group" is taken as meaning the joint participation of two or more economic agents.10 The list of companies and groups submitting notifications and registered with the first and second calls to bid appears in the appendix, pp. 113 and 114.11 Under contracts partially transferring rights of concession and purchase of assets related to services at the corresponding terminals and installations.
12 The relationship between these companies and groups appears in the appendix, p. 115.13 The Veracruz container terminal (TC-Ver) was awarded to Ingenieros Civiles Asociados, S.A. de C.V. and International Container Terminal Services, Inc. on July 12, 1995. Subsequently (25 July 1995), these companies incorporated Internacional de Contenedores Asociados de Veracruz, S.A. de C.V., to which they transferred the rights awarded to them as successful bidders for the aforesaid terminal.
14 The companies and groups submitting notifications also provided the relevant registration and assessment papers. A list of these companies and groups appears in the appendix, pp. 115 and 116.15 Originally notified under the name Univías, S.A. de C.V. The change of corporate name to Corporación Internacional de Aviación, S.A. de C.V. took place on 23 October 1995 and was reported to the Commission on the 27th of that month. That clarification having been made, the second name is used consistently throughout the description.
16 Consisting of stock owned by Bancomer and by the trusts Fideicomiso de Bancos (nine institutions) and Fideicomiso Banamex.17 The Commission, within the environment and dynamics of the industry, will consider all the information it deems necessary, in addition to the evaluations and analyses carried out by the consultant agent. It will furthermore take into consideration indicators based on different elements in order to identify levels of competition. These include the following: market share of the merging companies and their subsidiaries; evolution of fares and price-cost ratios; trading practices; code sharing programs; figures indicating quality, safety, and service reliability levels; figures on the evolution of other companies.
18 The Plenary resolves all cases submitted for processing after the conclusion of the corresponding investigation. The throwing out of blatantly inapplicable complaints is agreed upon by the Commission's President and Executive Secretary.
19 All these cases were complaints thrown out on account of their being blatantly inapplicable.20 The complaints filed by Singer Mexicana, S.A. de C.V. and Manufacturera Electrónica Sim, S.A. de C.V. were submitted on 17 December 1993. Grupo Bler de México, S.A. de C.V. filed its complaint on February 1, 1994.21 The complaints indicated in paragraphs a, b, and c were made by Singer, and those in paragraphs d, e, and f by Singer and by Sim. Bler's complaints referred to restrictions in supply by the defendant companies.
22 Under article 22, section II of the Federal Economic Competition Law, mergers and acquisitions for which notification is not required cannot be challenged more than one year after they have taken place. In this case, the period to be considered runs from the enactment of the law (22 June 1993) and the submission of the complaint (17 December 1993). Regarding the operations carried out prior to the earlier of these dates, it should be pointed out that the analysis of their effects on competition is only relevant in determining the antecedents and general situation of the complaint. This is because no law may be applied retroactively.
23 Absolute monopolistic practices are those contracts, arrangements, or combinations between competing economic agents with the aim or effect of any of the following: I. Fixing, raising, setting, or manipulating the selling or buying price of goods or services at which they are supplied or bought within the market, or exchanging information with the same aim or effect..." See Federal Economic Competition Law, article 9, section I.
24 "(Monopolistic) practices that, pursuant to this law, reduce, harm, or impede competition and free access in the production, processing, distribution, and marketing of goods and services... shall be prohibited." See Federal Economic Competition Law, article 8.25 "Provided that the conditions described in articles 11, 12, and 13 of this law are met, all actions, contracts, agreements, or combinations with the potential or actual aim or effect of unduly displacing other agents from the market, substantially impeding their access thereto, or establishing exclusive advantages to the benefit of one or several persons shall be considered relative monopolistic practices..." See Federal Economic Competition Law, article 10, first paragraph.
26 According to section VII of article 10 and the terms of the first paragraph of that same article, a relative monopolistic practice is any "..action that unduly harms or impedes competition and free market access in the production, processing, distribution, and marketing of goods and services." See Federal Economic Competition Law, article 10, section VII.
27 "Retroactive Application of the Law, for the Purposes of the Exclusion Clause... the problem with retroactive application is that of applying the law in temporal terms, and this in turn rests on the difference between the immediate and retroactive effects of a provision, with the former being the obligation of the law in the present, and the latter, in the past. The general principle is that the application of any law is immediate - that is, it applies to the present, but can never apply to the past. This distinction is clearly seen in legal situations that arise and expire under the aegis of a single law, but it requires some explanation when the duration of legal situation arising under the aegis of a law is prolonged beyond the date on which said law is abrogated or replaced by another. In such cases it is necessary to determine what the immediate effect of the law is, and what its retroactive effect would be; it could be said that is the new law attempts to apply to verified facts (facta praeterita), then it is retroactive, while if it attempts to apply to a current situation (facta pendente), it will be necessary to separate the parts prior to the date of the change of legislation, parts that may not be touched without the new law being retroactive, from the parts subsequent thereto, for which the new law, when it is applied, cannot have anything but an immediate effect." Taken from La Interpretación Constitucional de la Suprema Corte de Justicia (1917-1984), volume I, p. 631.
28 Information supplied by Adams in its reply to the complaint filed by Canel's.29 Information included in the complaint filed by Canel's.30 In its response to the complaint, Adams stated that it was Canel's that had imitated its products, offering them at prices lower than its products. Similarly, Adams stated that it had agreed to modify the Clarks brand design and lettering because the request made by Canel's caused Adams no harm whatsoever; this, according to Adams, gave rise to an agreement in which Adams did not accept having invaded the brand Canel's-4 with its brand Clarks.
31 In its reply, Adams clarified that it had only wondered about the possibility of purchasing Canel's and that, in addition, it had also considered the possibility of purchasing other companies.32 See notes 8 and 9, p. 55.33 During proceedings, the following expert evidence was used: expert testimony on sales and marketing; expert testimony on accounting; expert testimony on production; expert testimony on chemistry; expert testimony on economics.
34 The expert accounting witness calculated Adams' results using both the accounting method used normally by the company and the one set forth in the Regulations to the Foreign Trade Law (RLCE method). Under the former, Clarks made a profit from 1991 to 1993 and a loss in the first four months of 1994. According to the latter method, Clarks obtained negative results from 1991 up until April 1994. In addition, the accounting expert estimated Canel's had made a profit in 1991, 1992, and January-April 1994, and losses in 1993 (calculated with the RLCE method).
Adams objected to the RLCE method on account of its being intended for purposes (ie. dumping) other than those of the litigation. Canel's, on the other hand, requested that it be used, arguing that dumping is an example of predatory pricing. The Commission ruled that: (1) the difference between the two involves the pro-rata inclusion of other costs not related to the production of the goods; (2) the allocation of indirect costs cannot be left to the judgment of the defendant company, because there would be a natural inclination toward the method that would underestimate the costs of the product used in the alleged predatory practice; (3) neither can the RLCE method be used in its entirety, because in certain aspects and/or cases of "competition" its criteria do not necessarily apply.
In particular, the Commission ruled the following to be unsatisfactory for analyzing predatory prices: (1) the pro-rata inclusion of indirect costs using as its sole criterion either sales (the Adams procedure) or the cost of sales (RLCE method); (2) the use of standard costs as used internally by companies in place of past costs; (3) the exclusion of certain cost items such as advertising. To prevent such shortcomings in the future, the Plenary decided to use different accounting criteria, which are explained in detail in note 20.
35 The points listed consider the modifications made to the resolution in the reconsideration appeal brought by the defendant company.36 The practice was not proven because the extreme conditions necessary to provide legal certainty the incurring of losses by both the predator and his victim were not met. Nevertheless, this does not mean that in an economic (not legal) sense, the possibility of predatory pricing can be discarded.37 The resolution states that "...one criterion [of the Commission] is that determining the excess of costs over sales price shall be carried out in accordance with the following accounting criteria:
Past costs and not internal standards shall be used.
Also, independently of the accounting criteria used for internal purposes, the Commission shall prefer a pro-rata assignation of indirect costs using the products' share in the cost of sales, bearing in mind that pro-rata assignation through the products' share of total sales tends to hide any existing predatory practices. Thus, it is useful to carry out a parallel monitoring using this pro-rata criterion in addition to the normal accounting method. In assessing possible predatory prices, the Commission shall only exclude from the general rule those items in which there are special reasons for assuming that a different pro-rata method is appropriate for the specific kind of expenditure referred to thereby. The Commission may be consulted about those cases in which the weighting could be different from that obtained from the cost of sales.
Regarding the exclusion of certain items from accounting costs (such as advertising and the chemical composition of the product), the Commission shall carry out or order expert studies to determine whether or not such a step is applicable. The Commission may alternatively use independent studies provided by the company under investigation, provided that they are deemed reliable by the Commission."
38 "This law shall apply to all economic agents, be they persons or corporations, offices or agencies of federal, state, or municipal governments, associations, professional groups, trusts, or any other form of participation in economic activities." See Federal Economic Competition Law, article 3.
39 See note 7, p. 55.40 See note 8, p. 55.41 According to section V of article 10 of the law and under the terms of the first paragraph of the same article, "Unilateral actions involving the refusal to sell or provide to given persons available goods and services normally offered to third parties" constitutes a relative monopolistic practice. See Federal Economic Competition Law, article 10, section V.
42 According to section VI of article 10 of the law and under the terms of the first paragraph of the same article, "Collusion between several economic agents or their invitation to the same in order to bring pressure to bear on a client or supplier with the aim of dissuading said client or supplier from a given course of action, applying reprisals, or forcing him to behave in a given fashion" constitutes a relative monopolistic practice. See Federal Economic Competition Law, article 10, section VI.
43 In imposing these fines, the Commission took into consideration the fact that the distributor directly participated in the anticompetitive actions by refusing to trade with independent sellers. Although the Commission took note of the pressure brought to bear on him by the UVER and the UVV, it also noted that the distributor did not react in a timely fashion by reporting those practices.
44 See note 7, p. 55.45 See note 6, p. 55.46 See note 21, p. 62.47 See note 7, p. 55.48 See note 8, p. 55.49 See note 25, p. 63.50 See note 24, p. 63.51 On this occasion, the distributor was not fined because no harmful intent or bad faith on his part was proven. On the contrary, the investigation revealed that he had been subjected to constant pressure, including the boycott by the Union's members.52 The pricing system agreed on by the AAAC follows the traditional mechanism of setting fees as a percentage of the value of the merchandise and of the sundry duties, tariffs, and costs paid. Such a scheme is alien to the pressures of competition and efficiency. At the same time, it fails to take into account that the customs agency's costs depend on factors other than the ones quoted above, such as the product type, the port of entry, and even the client.
53 The new price scheme came into force on June 1, 1995.54 See note 6, p. 55.55 See note 7, p. 55.56 "In no instance may the States... V. Prohibit or encumber, either directly or indirectly, the entrance into their territory or exit therefrom of any domestic or foreign merchandise." See Political Constitution of the United Mexican States, article 117, section V.
57 "Under the terms of section V of article 117 of the Constitution of the United Mexican States, actions by state authorities with the indirect purpose of restricting the entrance into its territory or exit therefrom of any domestic or foreign merchandise or services shall be void of legal effect." See Federal Economic Competition Law, article 14.
58 "The Commission may conduct an investigation on an ex officio basis or at the request of an interested party into whether the actions referred to in article 14 exist and, if so, it may publicly declare their existence. This declaration shall be published in the Official Journal of the Federation and appeal against it may be made to the Supreme Court of Justice of the Nation by the state authority." See Federal Economic Competition Law, article 15.
59 "The Commission shall have the following powers: ...VI. When it deems necessary, to issue opinions on matters of competition and free market access in connection with laws, regulations, agreements, circulars, and administrative actions, said opinions being without binding legal effect and the Commission being under no obligation to issue the same." See Federal Economic Competition Law, article 24.60 "The President of the Commission shall be empowered to: ...VIII. When he deems necessary, issue opinions on matters of competition and free market access in connection with laws, regulations, agreements, circulars, and drafts thereof, and in connection with administrative actions..." See Regulations to the Federal Economic Competition Law, article 24, section VIII.
61 Issued by the Department of Secondary Education, under the General Directorate of Education at the México State Secretariat of Education, Culture, and Social Well-being.62 "The purpose of this law shall be to protect the process of competition and free market access, by preventing and eliminating monopolies, monopolistic practices, and other restrictions to the efficient functioning of the markets for goods and services." See Federal Economic Competition Law, article 2.
63 See note 21, p. 6264 See General Education Law, article 12, sections IV and V.65 See note 42, p. 71.66 The 1994-95 Annual Report of the Federal Competition Commission offers a full description of the competition issues contained in the Railroad Service Regulatory Law.
67 In connection with passenger services, the General Guidelines for Opening Up the Mexican Railroad System to Investment stipulate that: a) Notwithstanding the inclusion with concession documents of the provision of public passenger rail transport services, the [SCT] in said documents may reserve the right to grant a concession for providing such a service to a person or company other than the concessionaire. In such an eventuality, the original concession documents shall stipulate the terms and conditions under which the corresponding rights of way and haulage rights are to be granted.
"b) Concessionaires shall provide isolated communities lacking other means of transport with public rail services in accordance with the routes, sections of track, and conditions stipulated in their concession documents."
68 During the term of the concession, the SCT is empowered to set prices when, in the Commission's opinion, conditions of competition do not exist. The possibility of establishing additional rights of way does not affect the application of the above measure.
69 "The appeal shall be made in writing to the President of the Commission, stating the name and address of the appellant and the harm caused, together with the evidence deemed necessary and documents to prove the identity of the petitioner." See Federal Economic Competition Law, article 39, fourth paragraph.70 The Surface Transportation Board replaced the Interstate Commerce Commission in early 1996.71 Published in the Official Journal of the Federation on November 24, 1995.
Copyright National Law Center for Inter-American Free Trade 1997