Mexican State-Owned Enterprises and Designated Monopolies under the United States-Mexico-Canada Agreement (USMCA). An Antitrust Perspective

Publicado el 22 de noviembre de 2021

Álvaro R. Sánchez González
Doctorado, socio director de Alrusago Antitrust Consulting

Stephan Harald Tribukait Vasconcelos
Maestría, socio fundador de Tribukait Vasconcelos, S.C.

I. Abstract

Monopolies in Mexico are proscribed both under the Constitution and the Federal Competition Law (Law) I. Nonetheless, the enforcement has been limited to specific conducts set forth in the Law, absent a general prohibition of behaviors by an undertaking in a dominant position that may affect trade subject to certain requisites, i.e., the abuse of dominance. II

This absence has become particularly relevant in the context of monopolization remedies. III In the case of Policies on the National Electric System (Policies) IV recently issued by the Secretariat of Energy, these were deemed to have an anticompetitive effect in the power industry. Yet, the Policies had to be challenged on constitutional grounds instead of legal violations. The Supreme Court ruled that the Policies were partially null and void, as they contravened the objectives laid down by the constitutional reform of 2013 around the open access and efficient operation of the power sector. V

Upon such ruling of the Court and constitutional proceedings brought against other policies, administrative resolutions and even an amendment to the Power Industry Law caused by the Federal Administration, the Executive Branch drew its attention to the Constitution itself and submitted to Congress an amendment initiative (Initiative) to: “…reestablish a power system committed to the people that ensures the reliable supply of power at the lowest prices”. VI But, at least one of the underlying reasonings of the Court focused on the risk of anticompetitive practices derived from the abilities granted by the Policies upon of Federal Power Commission (CFE) to issue reliability guidelines and criteria for the planning and operation of the National Electric System. VII

Beyond any given constitutional design of the power sector and its regulators in Mexico that may seem to be a domestic issue, the country shall ensure that its monopolies do not use its monopoly position to engage in anticompetitive practices under the United States-Mexico-Canada Agreement (Treaty).VIII Consequently, any constitutional reform of the Mexican power sector shall be consistent with this obligation under the Treaty, regardless of the reform's specific contents.

1. Anticompetitive Practices by Monopolies

In addition to a whole Chapter on Competition Policy, the Treaty imposes on the parties the above-mentioned obligation to ensure that their monopolies refrain from conducting anticompetitive practices. IX

Specifically, each party must ensure that each of its designated monopolies does not use its monopoly position to engage, either directly or indirectly, in anticompetitive practices in a non-monopolized market in its territory that negatively affect trade or investment between the parties.

The key elements of this obligation are analyzed below, considering the Initiative only as an example of inconsistency with the Treaty’s provisions on designated monopolies.

2. Designated Monopolies

Monopolies are defined in the Treaty as an entity that, in a relevant market in the territory of a party to the Treaty, is designated as the sole provider or purchaser of a good or service. This definition includes a consortium or government agency, should there be any doubt in the case of CFE and its legal nature to be determined through a constitutional reform. Moreover, a government monopoly is either owned, or controlled through ownership interests, by a party to the Treaty or by another government monopoly. X

The test of the relevant market under the monopolies' definition may also be passed by a given constitutional reform of the power sector, as neither its geographic scope nor the relevant activities of the power industry, such as power generation, must meet certain threshold under the Treaty.

Finally, the designation of CFE and/or any other entity as the sole provider in certain activities of the power industry, including power supply or generation, may be the subject matter of the constitutional reform. For instance, the Initiative targets power supply as a public service to be provided solely by CFE and 54% of all power required by Mexico, which generation shall be guaranteed by CFE. XI

3. Monopoly Position

Unlike certain antitrust statutes, the Treaty refers to the ‘monopoly position’ of designated monopolies, instead of their monopoly power or market power. This distinction between monopoly power and market power has been drawn by courts and antitrust commentators, including the Supreme Court of the U.S. XII However, the Supreme Court of the U.S. XIII referred to the monopoly power as a legal requisite, that is, a requirement under §2of the Sherman Act, while other U.S. courts have used both terms interchangeably or failed to precise same. XIV

In the case at hand, the Treaty does not define the term monopoly position and even avoids the concept of market power at all in both Chapters mentioned herein. In the end, a panel established in a dispute settlement under the Treaty shall interpret same in accordance with customary rules of interpretation of public international law, as reflected in the Vienna Convention on the Law of Treaties. XV This Convention puts aside legal technicalities and establishes an interpretation in good faith pursuant to the ordinary meaning given to the terms of the Treaty in their context and in the light of its object and purpose. XVI

In context, the term monopoly position is contained among provisions applicable to the activities of state-owned enterprises, state enterprises, or designated monopolies of a party to the Treaty that affect or could affect trade or investment between parties. As to object and purpose, the parties to the Treaty resolved to replace the North American Free Trade Agreement with a new agreement to support mutually beneficial trade leading to freer, fairer markets, and robust economic growth in the region. XVII

Hence, the burden of proof of a monopoly position held by CFE and/or other entity arising from a constitutional reform may hardly be substantive. By way of example, the Initiative submits a new electrical system, in which the State recovers its conduction through CFE in charge of its planning and control. XVIII

4. Engagement in Anticompetitive Practices

The anticompetitive practices from which designated monopolies shall refrain are not specified in any of the Treaty's Chapters mentioned herein. But, Chapter 21 on Competition Policy does impose the obligation on each party to the Treaty to maintain national competition laws that proscribe anticompetitive business conduct to promote competition to increase economic efficiency and consumer welfare. XIX

Chapter 21 also clarifies that each party shall endeavor to apply its national competition laws to all commercial activities in its territory. XX The question whether anticompetitive practices conducted by CFE and/or other entity derived from a constitutional reform would fall under the category of commercial activities is answered in Chapter 22. Only those activities of CFE and/or other entity operating on a not-for-profit basis or on a cost-recovery basis would not be defined as commercial, i.e., with an orientation toward profit-making. XXI

Although each party to the Treaty may provide for certain exemptions from the application of its national competition laws, if these exemptions are transparent, established in its law, and based on public interest or public policy grounds, Chapter 21 clarifies that neither party is prevented from applying its own national competition laws to commercial activities outside its borders that have an appropriate nexus to its jurisdiction.

5. Conclusions

The obligation of the parties to the Treaty to ensure that their monopolies refrain from conducting anticompetitive practices will survive a constitutional reform of the Mexican power sector. Formally, the Court abandoned the criterion on the same force of international treaties and federal legislation, in favor of the superiority of treaties since 1999, and the supremacy of the Constitution remains. XXII

From a pragmatic perspective, however, the dispute settlement provisions of the Treaty precisely apply when a party considers that an actual or proposed measure of another party is or would be inconsistent with an obligation under the Treaty or that another party has otherwise failed to carry out such an obligation. XXIII

Even the combination of a constitutional reform and an exemption from the application of the Law to CFE and/or other entity would not hinder the other parties to apply their competition laws outside their borders having the appropriate nexus pursuant to the Treaty.

I See the Federal Constitution (Constitución Política de los Estados Unidos Mexicanos), art. 28., and the Federal Competition Law (Ley Federal de Competencia Económica), art. 2., respectively.
II Distinct from the abuse of dominance under art. 102 (ex art. 86 TEC) of the Treaty on the Functioning of the European Union, see the horizontal and vertical practices known as prácticas monopólicas absolutas and prácticas monopólicas relativas, respectively, as well as mergers (concentraciones) and entry barriers (barreras a la competencia y libre concurrencia) under the Law, among others. The first Federal Competition Law as of 1992, abrogated in 2014, replicated the abuse of dominance in Section VII of art. 10. This Section referred to any action that unduly damages or hinders the process of competition and market access (libre concurrencia) in the production, processing, distribution, and commercialization of goods or services. However, the Supreme Court ruled that such section was unconstitutional in 2004 and its contents were not properly reinstated in the Law in force as of this date. See the resolution (tesis) under digital record 181772 granted by the Supreme Court of Justice, published in the Gazette of the Federation’s Judicial Weekly, Ninth Epoch, Volume XIX, April 2004, page 256.
III See, e.g., the conclusions on the relationship between competition law and economic regulation as mechanisms for market supervision and control by Niamh Dunne, Competition Law and Economic Regulation, Making and Managing Markets, Cambridge University Press, March 2015, page 316.
IV See Política de Confiabilidad, Seguridad, Continuidad y Calidad en el Sistema Eléctrico Nacional published by the Secretariat of Energy (Secretaría de Energía) in the Federal Daily of the Federation (Diario Oficial de la Federación) on May 15, 2020.
V See the Constitutional Challenge (Controversia Constitucional) under file number 89/2020.
VI See the Parliament Gazette (Gaceta Parlamentaria), year XXIV, Legislative Palace of San Lázaro, October 1, 2021, number 5877-I, Annex I, page 1 et seq.
VII See the judgement in the Constitutional Challenge under file number 89/2020, paragraph 604.
VIII USMCA art. 22.4.2(d).
IX USMCA, Chapter 21 on Competition Policy and Chapter 22 on State-Owned Enterprises and Designated Monopolies.
X See the definitions of these terms in USMCA, art. 22.1.
XI See page 28 of the Initiative.
XII See ABA Section of Antitrust Law, Market Power Handbook: Competition Law and Economic Foundations, Second Edition (2012), page 15.
XIII See, e.g., Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), page 481.
XIV See ABA Section of Antitrust Law, Market Power Handbook: Competition Law and Economic Foundations, Second Edition (2012), page 15.
XV USMCA, art. 31.13, ¶ 4.
XVI Vienna Convention on the Law of Treaties, art. 31, ¶ 1, May 23, 1969, 1155 U.N.T.S. 331.
XVII USMCA, Preamble.
XVIII Initiative, page 20.
XIX See Álvaro R. Sánchez & Stephan Tribukait, The Effects of the United States-Mexico-Canada Agreement(USMCA) on Antitrust in Mexico, International Committee, ABA Antitrust Law Section, March 2021, 2021 Vol. I.
XX USMCA, art. 21.1, ¶ 1 and 2.
XXI USMCA, art. 22.1, including footnote 1 in the definition of commercial activities.
XXII See resolution (tesis) under digital record 192867 granted by the Supreme Court of Justice, published in the Gazette of the Federation’s Judicial Weekly, Ninth Epoch, Volume X, November 1999, page 46.
XXIII USMCA, art. 31.2, ¶ (b).

Formación electrónica: Yuri López Bustillos, BJV
Incorporación a la plataforma OJS, Revistas del IIJ: Ignacio Trujillo Guerrero

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