1. Recent legislation

Mexico has a recent effective legislation on antitrust matters.During 1993 the Federal Law of Economic Competition (FLEC) became effective, and the Regulations of the FLEC were published in March 1998. Both were inspired in the antitrust laws and principles of the U.S. legal system. The government agency in charge of enforcing the Mexican antitrust laws is the Federal Competition Commission (FCC), which is part of the Ministry of the Economy.

2. Purpose of the FLEC

The main purposes of the FLEC are to protect the competition process and the free access to the market as well as to promote economic efficiencies through the prohibition, suspension and elimination of certain practices.

In general terms, there are three concepts which constitute the primary concerns of the FLEC: (i) absolute monopolistic practices, (ii) relative monopolistic practices, and (iii) concentrations. Instead of defining the concepts of absolute monopolistic practices and relative monopolistic practices, as it did in the case of concentrations, the FLEC chose to set out a list of activities corresponding to each one such practices.

1. Absolute monopolistic practices

The agreements among competitors to fix prices and/or quantities of goods and/or services, as well as the division of the market, are examples of absolute monopolistic practices.

2. Relative monopolistic practices

Some of the relative monopolistic practices described in Article 10 of the FLEC are: (i) the imposition of fixed prices to distributors, (ii) tying arrangements, (iii) exclusive dealings, (iv) unilateral refusal to deal, and (vi) boycotts against suppliers or clients.

3. Concentrations

Pursuant to Article 16 of the FLEC, a concentration is defined as any merger, acquisition of control, or any other action by means of which companies, associations, shares, equity quotas, trusts, or assets in general, are accumulated. The FCC seeks to protect that competition and free access to the market are not diminished, damaged or restricted through a concentration.

4. The "Per se rule", and the "rule of reason"

While absolute monopolistic practices are analyzed under the 'Per se rule", the scrutiny for relative monopolistic practices and concentrations is under the "rule of reason". Pursuant to the "per se rule", if certain practice falls within the description of an activity constituting an absolute monopolistic practice, the FCC will regard said practice as intrinsically illegal (and therefore will be prohibited and fined) without taking into account any other circumstances such as the conditions of the market or its possible economic efficiencies. On the order hand, the "rule of reason" requires the FCC to carefully analyze and evaluate a number of circumstances in order to determine whether in reality certain practice has significant negative effects on the process of competition so as to regard it as illegal.

5. Applicability

An important issue in connection with the application of Mexican antitrust laws is the definition of "economic agent", as Article 3 of the FLEC contemplates that all economic agents participating in any areas of the economic activity shall be bound by the provisions of the FLEC. "Economic agent" under the FLEC is defined as any entity or individual, association, trust, government agency or department, or any other form of participation in the economic activity. Now, since there is no other provision under the FLEC nor under its Regulations regarding what is to be understood as an "economic agent", we must conclude that virtually anyone and anything (either Mexican or foreign) participating in any economic activity (either in Mexico or abroad) will be required to comply with Mexican antitrust laws.

Pursuant to Article I of the FLEC, the Mexican antitrust laws are of general observance throughout the Mexican Republic. However, the FCC has interpreted that any transaction carried out abroad shall be subject to the Mexican antitrust laws as long as there is any legal or material effect which takes place in Mexico as a result of said transaction. For instance, say a Japanese company which has a Mexican subsidiary, wishes to merge into a U.S. company, which also has a subsidiary in Mexico. Such a transaction will absolutely fall under the scope of application of the Mexican antitrust laws, because by virtue of said merger the two Mexican subsidiaries will be controlled by one single company.

6. Concentrations Reportability

In view of the positive or negative effects that a concentration may cause, and motivated by a preventive spirit, the FLEC provides that a possible concentration must be notified to the FCC before the concentration takes place. If the possible concentration will derive from actions carried out abroad, the notice must be filed prior to any legal or material effect occurring in Mexico. Since a number of documents and information must be submitted to the FCC along with the notice, the parties to the transaction should be aware not only that the preparation of the notice will take some time to be ready for filing, but also that the FCC will have a term of 45 days as of the date the notice is filed, to resolve if the concentration is permitted or not.

7. . Thresholds

Not all of the concentrations need to be reported. As a general rule, a concentration must be notified if any of the following thresholds are met:

1. If the value of the transaction exceeds 12 million times the minimum daily salary (approximately US$5 1,000,000 dollars 5 ); or
2. If (i) 35 percent or more of the shares or assets of an economic agent are acquired, and (ii) the assets or sales of said agent exceed 12 million times the minimum daily salary for the Federal District (approximately US$51,000,000 dollars);
3. or If (i) any of the parties to the transaction, individually or together, have assets or annual sales that exceed 48 million times the minimum daily salary for the Federal District (approximately US$204,000,000 dollars), and (ii) the transaction results in an additional accumulation of assets or capital of more than 4.8 million times the minimum daily salary for the Federal District (approximately US$20,400,000 dollars).

In case of international concentrations, it is important to make the following distinctions as to the interpretation of the thresholds, based on the criteria currently held by the FCC:

• The threshold referred to in section "a" above, should not be interpreted as the value of whole transaction, but rather as the value allocated to the Mexican portion of said transaction, and
• Section "c" above has two geographical limitations. In order to assess the value of the assets or sales referred to in the first fragment of the threshold ("if the parties to the transaction, individually or together, have assets or annual sales that exceed 48 million times the minimum daily salaryfor the Federal District..."), one needs to consider the value of the "worldwide" assets or sales of the respective parties, while the second fragment of the threshold ("...and the transaction results in an additional accumulation of assets or capital of more than 4.8 million times the minimum daily salaryfor the Federal Districe,) focuses exclusively on the accumulation of assets or capital effected in "Mexico". In other words, for purposes of defining the accumulation of assets or capital derived from the transaction, the FCC will not pay any attention to the worldwide accumulation derived from the transaction .

8. . Fines and penalties