VALDES ABASCAL Y BRITO ANDERSON, S.C. CODE OF REGULATIONS FEDERAL LAW ON ECONOMIC COMPETITION (DOF 12.10.07) Comments Barra Mexicana-Colegio de Abogados Alvaro R. Sánchez-González November 7, 2007

CODE OF REGULATIONS OF THE FEDERAL LAW ON ECONOMIC COMPETITION “RESTRICTIONS TO MARKETS’ EFFICIENT PERFORMANCE”. 2. RELATED MARKETS. 3. EFFECTIVE COMPETITION. 4. CORPORATE RESTRUCTURES. 5. CONSULTATIONS. 6. FINAL COMMENTS.

1. “RESTRICTIONS TO MARKETS’ EFFICIENT PERFORMANCE” FLEC: “Article 2. The object of this Law is to protect the competition process and free access to markets, through the prevention and elimination of monopolies, monopolistic practices and other restrictions to the efficient performance of markets of goods and services.” FLEC. “Article 10…To determine if the practices referred to herein[vertical restraints] should be sanctioned in terms of this Law, the Commission will analyze efficiency gains from the conduct as credited by the economic agents and if those conducts have a favorable influence on the competition process …The efficiency gains that could be included are: the introduction of new products…; as well as others showing that net contributions to consumer’s welfare derived from such practices outweigh their anticompetitive effects.”

1. Continue… FLEC: “Article 18. To conclude if a concentration should be challenged or sanctioned in terms of this Law, the Commission should consider the following elements:… V. Elements provided by the economic agents that show greater market efficiency achieved by the concentration and their favorable influence on the competition process and free access to markets…”

1. Continue… CODE OF REGULATIONS “Article 16. Pursuant to section 5 of article 18 of the Law, it will be considered that a concentration will achieve greater market efficiency and a favorable influence on the competition process and free access to markets when economic agents credit that contributions to consumers’ welfare from that concentration will exceed permanently its anticompetitive effects. To show the above mentioned, economic agents can prove, amongst others, the following efficiency gains: [scale, scope, network]”

1. Continue… COMMENTS: THERE IS NO IDENTIFICATION OF “THE OTHER RESTRICTIONS for markets’ efficient performance ”. THE COMISSION DOES NOT PROVIDE WITH INDICATORS AS TO WHEN A MARKET WORKS IN AN EFFICIENT WAY. THE LAW IDENTIFIES THE “EFFICIENCY GAINS” AIMED TO CONSUMERS WELFARE [IN THE STUDY OF VERTICAL RESTRAINTS]

1. Continúa… CODE OF REGULATIONS IDENTIFIES “EFFICIENCY GAINS” AIMED TO CONSUMERS WELFARE [IN THE STUDY OF CONCENTRATIONS] FLEC: ARTICLE 18, V: “Other criteria and analytical instruments that the code of regulations of this Law instructs”. THERE IS NO REGULATION FOR THIS SECTION. vi. POSSIBLE EFFECT: DISCRETIONALITY.

2. RELATED MARKETS FLEC: “Article 18. To conclude if a concentration should be challenged or sanctioned in terms of this Law, the Commission should consider the following elements:… Concentration effects in the relevant market regarding competitors and buyers of the good or service; as well as in other related markets and agents;

2. Continue… The participation of the involved agents in the concentration in other economic agents and the participation of other economic agents in the agents involved in the concentration, as long as those agents participate directly or indirectly in the relevant market or in related markets. When this participation can not be identified, this circumstance should be completely justified… Other criteria and analytical instruments that the code of regulations of this Law instructs. THERE IS NO REGULATION FOR THIS SECTION

2. Continue… CODE OF REGULATIONS (Applicable to article 21 bis of the Law). “Article 24.- The Commission could consider that is notorious that a concentration does not have as a purpose or effect to decrease, harm or hinder the competition and free access to markets when:… The transaction implies the acquirer’s participation in the relevant market for the first time. For this effects, the relevant market structure should not change and the transaction will only imply the substitution of economic agents. The involved agents in the concentration must not participate in related markets and they should not be potential competitors in the relevant market or in related markets…”

2. Continue… Resolution on concentration indexes: Federation’s Official Gazette 24.07.98 “FIFTH. The Commission will consider that a concentration could decrease, harm or hinder the competition and free access to markets, when the indexes estimations fall under some of the thresholds referred to in the immediate previous point, when the economic agents involved in the concentration fall in any of the following cases:… 5.3. Has or could obtain substantial power in relevant related markets...”

2. Continue… COMMENTS AND WHAT ARE RELATED MARKETS? THE CODE OF REGULATIONS DOES NOT PROVIDE WITH ELEMENTS. POSSIBLE EFFECT: DISCRETIONALITY SUGGESTION: FCC ISSUES A PLENUM CRITERION. Recent reference: Televisa-TVI and Televisa-Cablemás

3. EFFECTIVE COMPETITION FLEC: “Article 7. To impose, pursuant to article 28 of the Constitution, prices to products and services essential to the national economy or popular consumption, it should be considered the following: It is an exclusive right of the Federal Executive power to determine through an executive order goods and services that could be abide to prices [MAXIMUM], when there are not conditions for effective competition in the relevant market. The Commission will determine through a declaration if there are not conditions for effective competition”.

3. Continue… FLEC: “Article 33 bis. When the laws and rulings expressively prevent that should be resolved about effective competitions issues, market power existence and other similar terms in the relevant market, the Commission will issue ex-officio, by authority’s request or by request of an affected party the corresponding resolution. Pursuant to article 7 of this Law, the Commission will only issue a resolution by the request of the Federal Executive power. In all cases the following procedure applies: In the case of request by affected party or by corresponding authority, the petitioner must provide with information that enables to define the relevant market and substantial power according to articles 12 and 13 of this Law, as well as reasonable motives about the need of issuing a resolution. The code of regulations of this Law will establish the requirements for filing a request.”

3. Continue… CODE OF REGULATIONS “Article 55.- Pursuant to article 33 bis of the Law, the following applies: I. A request by the correspondence authority or by an affected party, according to section I, should include, amongst others, the following information:… e) Elements allowing to define, pursuant to articles 12 and 13 of the Law the relevant market and substantial market power or competition conditions. These elements should be provided according to the questionnaire that the Commission will issue and publish in its Web site and in the Federation’s Official Gazette”. CHECK OUT THE QUESTIONNAIRE.

3. Continue… Reference. Law, “Article 12. For the definition of the relevant market, the following criteria should be considered :…[NO Regulated] Reference. Law, “Article 13. To determine IF any economic agent has substantial market power, should be considered:… I. Its participation in that market…[Code of Regulations, Art. 11: sales…]… II. The existence of entry barriers…[Code of Regulations, Art. 12: financial costs…]… III. The existence and power of it competitors [NO Regulated] IV. The possibilities to access… to input sources [NO Regulated] V. Its recent performance [NO Regulation] VI. Other criteria established in the Code of regulations of this Law [Code of regulations, Art. 13: I Market Share in the relevant market; II. Lack of access to imported goods; III. Costs differentials to turn to other suppliers].

3. Continue… COMMENTS AND, WHAT IS EFFECTIVE COMPETITION? THE CODE OF REGULATIONS DOES NOT PROVIDE WITH ELEMENTS regarding what is meant for effective competition POSSIBLE EFFECTS: DISCRETIONALITY / REGULATION WITHOUT SUPPORT SUGGESTION: FCC ISSUES A PLENUM CRITERION Recent Reference: Declaration about LP Gas Markets

4. COPORATE RESCTRUCTURES CODE OF REGULATIONS “Article 26.- It is not necessary to file, pursuant to articles 20 and 21, when the transaction falls under any one of the following assumptions:… If the proposed transaction does not fall within the assumptions of this article, or the corporate restructure is not filed on time and if the involved agents did not file a previous concentration or a corporate restructure notice, the benefit provided by this article will be lost and the Commission should close the file; then the economic agents must notify the concentration according to articles 20 and 21 of the Law, without prejudice of sanctions pursuant to the Law”.

4. Continue… COMMENT IS ALSO LOST THE POSSIBILITY OF NOTIFYING ACCORDING TO ARTICLE 21 BIS OF THE FLEC. (?) IT REMAINS SIMPLER THE TREATMENT OF CORPORATE RESTRUCTURE ABROAD THAN OF THOSE ROOTED IN MEXICO.

5. CONSULTATIONS FLEC: “Article 33 Bis 4. Any individual or moral person, as well as the agencies and entities of the public administration, at the federal, state or municipal level, could lodge to the Commission any consultation on competition issues or free access to markets, the following applies: I. A written submission II. Information requirement (10 days); response (15 days). III. FCC more data requirement (15 days), response (10 days). IV. FCC will resolve (30 days after the reception of the information). If this period ends and there is no resolution, it will be implied that the Commission does not have any objection to the consultation. V. FCC CAN EXTEND “THE PERIOD REFERRED TO EACH OF THE PREVIOUS SECTIONS UP TO SIXTY ADDITIONAL DAYS [WORKING]”.

5. Continue… COMMENTS CIP 7 Consultations resolutions (20.08.98): “For the Commission to be able to resolve consultations, these should be raised on real and specific cases, providing with the relevant information for the analysis”. STILL IN FORCE? EFFECTIVE PERIODS CAN BE TOO LONG, THEN THE RESPONSE TO SUCH CONSULTATION MAY CEASE TO BE PRACTICAL. THE CODE OF REGULATIONS DOES NOT TACKLE THE POINTED ISSUES. SUGGESTION: FILE A CONSULTATION WRITTEN IN SUCH A WAY THAT A TACIT APPROVAL MAY BE APPLIED.

POSSIBLE EFFECT : DISCRETIONALITY 6. FINAL COMMENTS THERE IS NO CLARIFICATION OF THE FUNDAMENTAL CONCEPTS FOR ECONOMIC ANALYSIS POSSIBLE EFFECT : DISCRETIONALITY SUGGESTIONS: PUBLICATION OF PLENUM CRITERIA ON: TYPES OF RESTRICTIONS TO THE MARKETS’ EFFICIENT PERFORMANCE PARAMETERS FOR MEASUREMENT OF THE EFFICIENCY OF MARKETS ELEMENTS TO DEFINE RELATED MARKETS DETERMINANTS OF EFFECTIVE COMPETITION FAST-TRACK RESOLUTION TO THE CORPORATE RESTRUCTURE FILINGS SHORTEN TIME FOR ANSWERING CONSULTATIONS