"This does not matter in Mexico": Mexico-U.S. competition law - conflicts and resolutions.

• Author: Truskett, Harve A.

1. INTRODUCTION II. MEXICO'S COMPETITION LAW: BEHIND THE LANGUAGE A. Single Agency Enforcement B. Substantive Provisions C. Similar Language, Different Results D. Differences in Legal Systems and Traditions: Civil Law's Certainty Versus Common Law's Flexibility III. RECENT DISPUTES: THE WTO TAKES ACTION TO SETTLE COMPETITION LAW CONFLICTS A. An Unpleasant Surprise: The Telmex Decision B. The Panel Remains Active: The Canadian Wheat Board Decision IV. HOW DISPUTES ARE RESOLVED A. The Historic Standard: Unilateral Enforcement B. Multilateral Agreements: A Multinational Competition Code? C. The Bilateral Agreement and Positive Comity D. Current U.S.-Mexico Framework: The Quintessential "Soft" Bilateral Agreement V. MEANINGFUL CONVERGENCE: A WAY FORWARD? VI. CONCLUSION I. INTRODUCTION

   In 1993, as Mexico was preparing to enter into the North American Free Trade Agreement (NAFTA), (2) it enacted the Ley Federal de Competencia Economica (L.F.C.E.), or the Federal Law Governing Economic Competition. (3) Prior to enacting the law, even though Mexico had a general ban on anticompetitive behavior, the heavy involvement of the federal government in all facets of the economy made the administration of the law ineffective. (4) While Mexico's new competition law is similar in language and structure to that of the United States, the two statutory schemes have significant differences in their application and enforcement. (5) The differences become particularly meaningful when the enormous volume of trade between the two countries is considered. (6)

   This Comment will highlight the manifestation of those differences and will suggest that Mexico and the United States should strengthen bilateral cooperation and coordination to resolve the impact those conflicts have on trade between the two countries instead of the current trend of relying upon the dispute panels of multilateral trade organizations, such as the World Trade Organization (WTO), to resolve those conflicts. Part II of the Comment will explore key provisions of Mexican competition law. It will then highlight and analyze the differences in competition law between Mexico and the United States in regards to both countries' enforcement methodology, substantive law, economic culture, and their legal systems and traditions.

   Part III will illustrate how those conflicts have manifested themselves in trade relations between the two countries and how multilateral organizations are becoming more active in adjudicating competition law conflicts. It will do so by analyzing two WTO decisions involving competition law conflicts. One involves a significant conflict in the telecommunication industry between Mexico and the United States. The second involves an agricultural dispute between Canada and the United States that may impact Mexico-U.S. relations and further shows how active the WTO has become in not only settling conflicts in competition law but, in doing so, announcing legal principles and standards that will govern these conflicts.

   Part IV of the Comment will analyze the different dispute resolution mechanisms available to resolve competition law conflicts. It will analyze the strengths and weaknesses of unilateral, bilateral, and multilateral dispute mechanisms. Part V will suggest that Mexico and the United States should converge their competition laws through cooperation and coordination instead of relying upon multilateral organizations, like the WTO, to harmonize the conflicts.

2. MEXICO'S COMPETITION LAW: BEHIND THE LANGUAGE

   While Mexico's 1917 Constitution had prohibited "monopolies, monopolistic practices, state monopolies, and tax exemptions under the terms established by the laws," (7) the prohibitions were difficult to enforce due to the complexity and politicization of competition law. (8) This changed on June 23, 1993, when Mexico's new antitrust law, the L.F.C.E., became effective. (9) The law's substantive provisions are centered on Chapter II, Monopolies or Monopolistic Practices, (10) and Chapter III, Concentrations. (11)

   While Mexico competition law primarily exists in the L.F.C.E., the United States' federal competition law scheme exists in multiple statutes, including the Sherman Antitrust Act (Sherman Act), (12) the Clayton Act, (13) and the Federal Trade Commission Act. (14) Section 1 of the Sherman Act proscribes collaborative agreements between entities that restrain trade. (15) Section 2 of the Sherman Act broadens in scope and focuses on illegal monopolization, concentration of economic power, and the structure of industries. (16) Section 7 of the Clayton Act focuses on the illegal concentration of power as a result of business combinations, such as mergers and stock acquisitions. (17) Finally, the Federal Trade Commission Act, which created the Federal Trade Commission, gives the agency independent regulatory authority to stop anticompetitive practices. (18)

   1. Single Agency Enforcement

      Mexico's L.F.C.E. authorized the creation of an administrative agency to enforce competition law, the Comision Federal de Competencia (CFC), or the Federal Competition Commission. (19) The CFC exists within the Mexican Secretariat of Commerce and Industrial Development, and it is headed by five appointed commissioners. (20) The organization has authority to: (1) conduct investigations of anticompetitive activity, (2) establish coordination procedures to enforce the L.F.C.E., (3) issue rulings and assess fines, (4) issue advisory opinions, and (5) participate in the negotiation of competition agreements with other countries. (21)

      A major difference between the competition law enforcement in Mexico and the United States is the structure of the enforcement agencies. (22) Mexico's CFC has sole responsibility for L.F.C.E. enforcement, (23) while the United States enforces its antitrust laws through both the FTC and the Department of Justice's Antitrust Division. (24)

      Either approach has both strengths and weaknesses. On one hand, dual enforcement may help eliminate enforcement "group think," protect any one special interest from controlling the enforcement process, create a sense of urgency by fostering competition, and mitigate the risk of the enforcement structure failing entirely. (25) However, redundant agencies may also suffer from problems that single agency enforcement does not, such as disincentives to initiate activity so often represented in collective activity, redundant fixed costs in supporting two agencies, increased group polarization that results from interagency competition, and lost efficiency. (26)

      In addition to the difference in the number of agencies enforcing competition law, there are structural enforcement differences between Mexico's CFC and the FTC and Department of Justice. (27) Unlike in the United States, where the enforcement agencies and the defendant stand as equals in front of the adjudicating body, the CFC plays the role of both the prosecutor and adjudicator. (28) Because a strong incentive exists for the CFC to obtain prosecution of a violator (unlike the incentive for an independent adjudicatory body to set a workable legal standard), the incentive structure not only suggests bias, but it also does not seem to facilitate the creation of consistent legal principles that are easily applied to future cases. (29)

   2. Substantive Provisions

      1. Collaborative Agreements that Restrain Trade

         The L.F.C.E. prohibits any "contracts, agreements, arrangements, or combinations among competitive economic agents, whose aim or effect" is to fix prices, restrict or set output, allocate market share, or rig bids. (30) This provision is analogous to section 1 of the Sherman Act, which prohibits agreements that restrain trade. (31)

         While article 9 of the L.F.C.E. bans certain types of agreements as a matter of law, (32) article 10 lists "relative monopolistic practices" as illegal only when the "aim or effect" of the agreements "displace[s] other agents from the market, substantially hinder[s]" those agents' access to the relevant market, or "establish[es] exclusive advantage" of one entity over others in a market. (33) In addition to the conditions in article 10, article 11 mandates that those relative monopolistic practices are only illegal when it is proven that the parties have "substantial power in the relevant market" and that the agreements involve goods and services in that market. (34)

         Unlike Mexico, where the L.F.C.E. separates agreements that restrain trade into those agreements that are per se violations and those that require further analysis, (35) it is the U.S. judiciary, not the legislature, which divides restraints of trade into per se violations and agreements requiring further analysis under the "rule of reason" doctrine. (36) This categorization is not a static one, and types of agreements that may be considered per se illegal in one context are subject to the "rule of reason" analysis in another. (37) In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. the Court determined whether Broadcast Music, Inc., and ASCAP (organizations of publishing companies, authors, and performers) could combine to offer a blanket license, which gave a licensee the right to perform the organization's copyrighted works for a stated price. (38) On its face, the practice was a contract to fix the price of a license, a practice that is generally a per se violation of section 1 of the Sherman Act. (39) In this case, however, the Court held that the blanket license was subject to the more burdensome "rule of reason" analysis instead of being per se illegal and, thus, reiterated the principle that the Court must have experience with the particular practice in a factual context before holding a practice per se illegal. (40) Unlike Mexico's static approach, the United States allows for pro-competitive benefits of an agreement restraining trade in a new industry to be considered before the agreement is considered per se illegal. (41)

      2. Monopolie...