- President López Obrador has been a strong critic of independent regulators, including the anti-trust (COFECE) and telecommunications (IFT) regulators.
- COFECE is at an inflection point with a leadership transition this month while it continues to be under pressure from the López Obrador administration.
- Eliminating or reducing the autonomy of these bodies will undermine free market principles in Mexico, thus making it more challenging for companies to do business in the country.
Mexico's independent anti-trust regulator, the Federal Economic Competition Commission (COFECE), is at an inflection point with a leadership transition this month while it continues to be under pressure from the López Obrador administration. COFECE is an autonomous, constitutional body responsible for overseeing, promoting and ensuring competition and free market access. The Board of Commissioners is COFECE's seven-member governing body in charge of accepting cases and resolving matters through a simple a majority vote.
Since the 2013 constitutional reform, when it became an autonomous body, COFECE has been instrumental in protecting free market access in many sectors of the Mexican economy. In the past few years, COFECE has been on the front lines in challenging President López Obrador's policies in important matters such as energy reform, food labeling, and pensions. For example, earlier this year, COFECE filed a constitutional challenge with the Supreme Court against the law passed by the governing party, MORENA, regarding the electricity sector. COFECE argued the law threatened competition in the sector. Specifically, COFECE argued that the policy eliminated competition in the generation and supply of electricity as set forth in Mexican law, which requires the dispatch to take place based on price.
Similarly, on the trade of oil products, hydrocarbons and petrochemicals, COFECE issued recommendations to stop proposed changes to the regulation claiming they would reduce incentives for companies to invest in transport and storage infrastructure of hydrocarbons and petrochemicals, give the Ministry of Energy broad discretion on import and export volumes, and deny permits without justification or explanation.
COFECE's board also made recommendations regarding the amendment to the "Mexican Official Standard for the labeling of foods and beverages NOM-051-SCFI/SSA1-2010," which established certain nutritional specifications for the frontal labeling on foods and beverages. On this matter, COFECE recommended that the labeling regulation provide complete nutritional information for consumers, but without eliminating opportunities for competition through differentiation in labeling and marketing strategies.1
On the Retirement Savings System, COFECE's Board issued an opinion recommending Congress not pass a draft bill to reform the retirement system, as it imposed an inflexible cap on the commissions charged by Retirement Fund Administrators. Consequently, the Commission recommended the adoption of a system for regulating commissions based on technical, transparent and pro-competitive criteria through the pension funds regulatory agency.2
WHAT IS AT STAKE
- President López Obrador has been a strong critic of independent regulators. Moreover, earlier this year, the President signaled he would promote a bill to transfer COFECE's responsibilities to the Ministry of Economy, and those of another independent regulator, the Federal Institute for Telecommunications (IFT), to the Communications and Transportation Ministry. This move is widely believed to be an attempt to consolidate control of independent regulators.
- Critics of the President's plans argue that eliminating or reducing the autonomy of these independent bodies will undermine free market principles in Mexico. They also argue that the independence of many of Mexico's regulators is enshrined in Mexico's free trade agreements, including USMCA, and any moves to undermine their status would contravene Mexican trade commitments.
WHAT TO WATCH
- COFECE's Commissioner President, Alejandra Palacios, stepped down from her role on September 9, 2021.. Currently, Brenda Gisela Hernández, the commissioner with the longest tenure, is serving as acting President.
The Board is composed of seven Commissioners, including the Chairperson.3 In order to operate, it needs at least four Commissioners to have quorum; matters will be decided by a majority of votes of those who can resolve on the corresponding case, as long as at least three Commissioners vote. As of today, the Commission stands precisely at the limit because President López Obrador has not designed substitutions since November 2020.
- As of today, COFECE has no quorum (five) for resolutions related to the procedures to determine barriers to competition, for the issuance of regulatory provisions, and to appoint the Head of the Investigating Authority (recently appointed) responsible for initiating and conducting the Commission's investigations to determine the existence of monopolistic or anti-competitive practices.
- The law does not indicate any time limit for the President to name Commissioners. Therefore, the President could indirectly debilitate COFECE by choosing to do nothing. This is a possible scenario since the President's Party does not have enough votes to make constitutional changes.
Footnotes
1. https://www.cofece.mx/wp-content/uploads/2020/02/COFECE-002-2020.pdf
2. https://www.cofece.mx/wp-content/uploads/2020/11/COFECE-041-2020_ENG.pdf
3. Each Commissioner is selected and appointed by an Evaluation Committee, which is comprised of government officials from the Bank of Mexico, the National Institute for the Evaluation of Education and the National Institute for Statistics and Geography. The Committee examines and evaluates applicant's technical capacities. Results are submitted to the head of the executive branch for his or her selection and subsequently submitted to the Senate for ratification.
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