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Cablegate: Raising Mexican Judicial Awareness On Competition

VZCZCXRO0765
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1840/01 1682202
ZNR UUUUU ZZH
P 162202Z JUN 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2250
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 001840

SENSITIVE
SIPDIS

STATE FOR WHA/MEX/WOLFSON, WHA/EPSC/SALAZAR, AND EEB/TPP/MTA
DOJ FOR CALDWELL HARROP
STATE PASS FTC FOR RUSSELL DAMTOFT
STATE PASS USTR FOR EISSENSTAT/MELLE/SHIGETOMI
COMMERCE FOR 4320/ITA/MAC/ONAFTA/WORD

E.O. 12958: N/A
TAGS: ECON ETRD PGOV MX
SUBJECT: RAISING MEXICAN JUDICIAL AWARENESS ON COMPETITION
ENFORCEMENT

REF: 07 MEXICO 6249

Summary
-------

1. (U) A U.S. District Court judge spent three days in Mexico
discussing criteria used in American courts to adjudicate
competition cases. His conversations with Mexican judges,
officials, and attorneys highlighted the similarity between
the substantive principles that underlie U.S. and Mexican
competition legislation, but also revealed major differences
in how the laws are applied in the two countries. The
following week, an expert from the Federal Trade Commission
spoke at an academic conference on how the U.S. government
enforces competition rules. Both events were part of an
ongoing collaboration between the USG and Mexico's
competition authority (the Federal Competition Commission, or
CFC) to raise awareness among key Mexican actors of the
importance of competition enforcement. Separately, a bill to
toughen penalties against anti-competitive behavior remains
mired down in the lower chamber of Mexico's Congress, and the
CFC plans to issue rules on compelling companies under
investigation to provide information. End summary.

2. (U) Vaughn Walker, Chief Judge of the U.S. District Court
of Southern California, visited Mexico City June 2-4 to
participate in a series of events organized jointly by the
Embassy (USAID and ECON) and Mexico's Federal Competition
Commission (CFC). These included a breakfast talk with the
Association of Corporate Lawyers, a small roundtable
discussion with Mexican federal judges and magistrates
(magistrates are roughly equivalent to U.S. Circuit Court
judges), a seminar for federal court law clerks, and a
roundtable discussion with lawyers and economists from the
CFC.

3. (U) In his presentations, Walker emphasized the importance
of effective enforcement of competition rules to economic
growth and noted the striking similarities of the substantive
legal frameworks on competition in the various countries he
has visited to discuss the topic. He also discussed the
sorts of criteria that he and other U.S. judges have applied
in various competition cases (he himself heard the DOJ case
against Oracle's acquisition of PeopleSoft). For mergers, he
underlined the importance and difficulty of identifying the
relevant market, and recommended paying close attention to
the more global nature of competition in many sectors, as
well as the impact of new technologies that can completely
alter the "relevant" market. He also stressed the additional
weight that should be given to hard price data and to the
perspective of consumers versus suppliers in any given
market. With regard to outright anti-competitive practices,
he again stressed the importance of pricing evidence, but
also the need for some kind of evidence, including
circumstantial, of intent to collude.

4. (U) Despite the similarity in the basic competition
principles underlying U.S. and Mexican laws, Judge Walker's
Mexican interlocutors pointed out numerous differences in the
way the Mexican legal system actually works, including: 1) In
Mexico, neither civil suits, criminal cases, or cases
initiated by state (vice federal) authorities are allowed --
all competition cases must be funneled through the CFC, which
has administrative (but not penal) enforcement authority. 2)
Mexican judges ruling on appeals of CFC decisions rely almost
exclusively on written submissions from the involved parties
and rarely, if ever, call on witnesses to testify in person.
3) Under Mexico's competition law, consumer benefit is not
considered a criterion, though market efficiency -- a very
similar concept -- is. 4) Relative to their U.S.
counterparts, Mexican judges place a higher premium on strict
adhesion to procedural form versus substantive arguments.

5. (U) The CFC and Anahuac University (a well-known Mexico
City school) have launched an ongoing education course on
competition law for interested professionals. Russell
Damtoft, Associate Director of the International Affairs
Office of the Federal Trade Commission, gave two days of
presentations on how the U.S. competition enforcement regime

MEXICO 00001840 002 OF 002


functions. During the first day, Damtoft detailed the
origins and development of U.S. competition law and
institutions, as well as some of the key cases to date that
have formed U.S. jurisprudence on this subject. He also gave
a detailed description of how the FTC and the Department of
Justice (DOJ) pursue competition cases, from the preliminary
investigative phase all the way through possible appeals to
the U.S. Supreme Court. Like Judge Walker, Damtoft cautioned
that accusations of illegal conduct from competitors on the
supply side are frequently based on nothing more than a
desire to harrass a business rival, and that the effect on
consumers should be the paramount consideration in guiding
government enforcement decisions. Damtoft also described the
considerable powers enjoyed by U.S. enforcement agencies in
compelling companies to provide all information relevant to a
case under investigation, up to having a judge throw
uncooperative witnesses in jail for contempt of court. While
Mexico's CFC does have authority to seek information from
relevant economic actors, it currently lacks teeth to
effectively deter those who choose to stonewall.

6. (U) On the second day, Damtoft discussed how firms
interested in avoiding the rigors of competition in the
marketplace frequently resort to legislators and/or
regulators to seek anti-competitive regulations that can
thwart effective competition, a practive at least as
pernicious as anti-competitive business conduct. He detailed
how the FTC and DOJ engage in a process of competition
advocacy to help educate lawmakers and regulators about the
true costs of such anti-competitive regulation. Finally, he
elaborated on the relationship between competition, which
focuses on the supply of goods and services, and consumer
protection, which addresses distortions to consumer demand,
and the importance of ensuring a sound relationship between
the two disciplines so that they mutually reinforce the
functioning of a market economy.

7. (U) With regard to CFC's ability to compel companies to
provide information relevant to its investigations (para 5),
Heidi Sada, CFC's Director for Capacity-Building, told
Damtoft and Econoffs that in fact the competition legislation
passed in 2006 provides some stronger tools for doing just
that. However, CFC has not yet completed the process of
writing the implementing rules. According to Sada, these
rules should be finalized and implemented by the end of this
year. Finally, CFC officials report that the bill introduced
in the lower chamber of the Mexican Congress at the end of
last year to increase significantly the penalties CFC can
impose for anti-competitive conduct (REFTEL) has become
watered down and tied to other proposals that do not enjoy
government support. This being the case, CFC is not
currently supporting passage of the bill.

Comment
-------

8. (SBU) Lack of competition in key domestic sectors
continues to be a major obstacle not only to Mexican and
foreign firms interested in entering those sectors, but to
achieving the higher economic growth rate that Mexico needs
to alleviate widespread poverty. The CFC remains a weak
competition watchdog relative to its counterparts in the
U.S., Europe, and other developed countries, but is cognizant
of its shortcomings and working hard to address them. This
means building its own technical capacity, engaging the
legislature and judiciary on why a stronger competition
enforcement regime is important to Mexico's future, and
raising consciousness among relevant segments of the Mexican
economy. The Embassy will continue to support CFC's efforts
in all these areas. End comment.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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