On February 5th, 2024, the day marking the anniversary of the Mexican Constitution, then President Andrés Manuel López Obrador (AMLO) introduced a package of bills to overhaul the Mexican administrative state at a constitutional level. Among them was a proposed amendment to article 28 of the Mexican Constitution, aimed to eliminate what the President regarded as expensive and ineffective independent agencies, including the antitrust commission and the telecommunications commission (Cofece and IFT, for their respective acronyms in Spanish).[1]

In his view, these agencies –along with those in charge of access to information and energy regulation, among others—stripped the Executive branch from key policy tools, and created a parallel technocratic elitist state that did not solve the problems they were created to address, at great cost. Markedly, Cofece’s active litigation and advocacy to foster competition in power generation, even at CFE’s expense, evidenced the potential misalignment between the technocratic view of promoting efficiency in the market by giving preference to lower-cost generators, and the more political and nationalistic stance for strong State-owned utility companies, sponsored by the President. 

To cure this alleged democratic deficit, reduce public expenditure and retake the Executive’s conduction of the economy on a case-by-case basis, the President proposed reverting regulatory and policy powers to the central administration, whose head emanated from democratic elections. It is also true that there are whole swaths of the Mexican economy far from having competitive conditions. Despite regulators’ efforts, banking, telecom, agricultural products, digital markets, pharma, infrastructure and government procurement, to name but a few, are greatly concentrated and inefficient, thus weakening opposition’s arguments to defend technocratic agencies. 

Specifically, the bill introduced by AMLO proposed transferring Cofece and IFT’s powers to the department of trade (Secretaría de Economía) and of infrastructure, transportation and communications (SICT), as well as to a new digital agency.

There were many warnings from voices of Mexico’s trade partners and other experts, that this move would violate provisions within the USMCA, which provides that the parties thereto shall have a competition agency and an independent telecom regulator. More substantively, the current institutional design intends to guarantee independence of the agencies not only from the Federal government and its potential political interests in prosecuting or protecting certain economic interests or companies, but from regulated parties themselves.

The bill passed the legislative process in the lower house of Congress between August and November 21, 2024, when it was approved[2] with a number of modifications with respect to the original text, including the creation of a new agency with technical autonomy, that would have jurisdiction in competition matters in all sectors, specifically adding those related to ex ante and asymmetrical regulation of telecom and broadcasting largest companies, known as “medidas de preponderancia”. This would, at least preliminarily, comply with USMCA. 

Discussions in the Senate will follow, and once passed, the Congress of more than 50% of Mexico’s 32 states must approve the bill for it to become a constitutional amendment. 

Unfortunately, the bill is scant in details as to the institutional design of the new agency. Once the constitutional amendment has passed, secondary legislation will define how will existing or amended competition powers be exercised. Concerningly, Congress expects over US $700 million in savings from this reform, which can only mean massive budgetary cuts, mostly in reduced headcount and lower salaries. 

Today, antitrust regulators have very powerful tools to enforce competition policy, including pre-merger control proceedings, hefty fines for antitrust violations (cartel behavior, abuse of dominance or illicit concentration), criminal prosecution of cartel behavior, divestiture orders, powers to regulate prices and access to essential inputs and facilities. They were also granted great technical deference, and their decisions are subject to very limited judicial review. 

In sum, in unchecked hands, these powers could be used to favor certain companies over others and result in market interventions that could create vast inefficiencies and foster cronyism. Considering a generalized weakening of the checks and balances system, with the official party controlling both houses of Congress, and now with great influence in the Federal Judiciary, these are not minor risks.

Desirable elements for an effective antitrust agency include (i) a collegiate board of commissioners, and not a unipersonal head, who could be more easily pressured or captured; (ii) strict selection and confirmation procedures, as well as vetting for conflicts of interest and potential corruption; (iii) separation between the prosecution and decision-making areas; (iv) sufficient funding to retain and train a professional staff; (v) internal incentives to observe the rule of law, regardless of judicial review.

We will be closely following the Senate’s analysis and approval process, as well as the drafting process of secondary legislation, which will provide a clearer view of the near future for economic agents and the competitive landscape. 

[1] Under the current framework, passed per a 2013 constitutional reform, these agencies are entirely independent, i.e. they have technical, budgetary and procedural autonomy. Cofece has a mandate to enforce competition policy, and to investigate, prosecute and sanction antitrust violations in all sectors of the economy except for telecom and broadcasting. IFT has a mandate to regulate such sectors, as well as that of investigating, prosecuting and sanctioning antitrust violations in them. 

[2] Passed by 332 votes for, 119 against and no abstentions.