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Cablegate: Tough Year's End for Pro-Competition Forces In

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PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #6249/01 3542222
ZNR UUUUU ZZH
P 202222Z DEC 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9987
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 006249

SIPDIS

SENSITIVE
SIPDIS
SIPRNET

STATE FOR WHA/MEX/WOLFSON AND EEB/TPP/MTA/VOLTMER
STATE PASS FTC FOR RUSS DAMTOFT
DOJ FOR CALDWELL HARROP

E.O. 12958: N/A
TAGS: ECON PGOV MX
SUBJECT: TOUGH YEAR'S END FOR PRO-COMPETITION FORCES IN
MEXICO

REF: MEXICO 6248

1. (U) See action request para 7.

Summary
-------

2. (U) The year closed on a somewhat disappointing note for
advocates of greater competition in Mexico. A bill to beef
up the penalties the Federal Competition Commission (COFECO)
can impose for anti-competitive conduct was allowed to
languish, and a federal appeals judge ruled in favor of
Mexico's telephone monopoly Telmex in knocking down the
national telecommunications regulator's plan to eliminate
long distance charges on calls to neighboring areas.
Nonetheless, we believe pro-competition forces are gaining
strength in Mexico, and Post is cooperating with COFECO to
help build its enforcement capacity and raise awareness of
the economic benefits of free and fair competition among the
judiciary and civil society. End summary.

3. (U) A proposed amendment to the Federal Competition Law
that would have increased maximum fines for anti-competitive
conduct from approximately USD 7 million to up to 15 perecent
of a company's assets or total annual income had appeared
headed for passage in the Chamber of Deputies (the lower
house of Mexico's Congress) before bogging down in
inter-party politics last week. The chair of the Chamber's
Economic Committee, Adriana Rodriguez of the center-right
ruling party (PAN), announced that the bill in its current
form could not win consensus of the major parties and thus
would have to be opened up to negotiation again when Congress
re-convenes in February 2008. Some PAN deputies originally
supported the bill, but legislators from the PRI (the
center-left opposition party) and other PAN deputies were
pushing for lower ceilings of 4-8 percent. The bill's
author, far-left opposition party (PRD) deputy Alejandro
Sanchez, publicly accused both the PAN and the PRI of being
beholden to the special interests of Mexico's oligopolists,
who would continue to laugh at the minimalist fines COFECO
can impose under current law, which are among the lowest of
all OECD countries. He also called out flagship Mexican
industrial giants such as Telmex (telecoms), Modelo (beer),
Femsa (soft drinks), Televisa (television), and Bimbo (bread)
for trying to block his bill. COFECO Commissioner Eduardo
Perez Motta had lobbied on behalf of the stronger penalties,
arguing that they would help improve Mexico's investment
climate by inhibiting anti-competitive practices, and
expressed disappointment that the bill did not pass.

4. (SBU) A COFECO official who spoke with econoff about the
bill being shelved until next year said that the PRI (which
had been the uncontested ruling party of Mexico up until
2000) had very close ties to the mega-companies that would
likely be on the receiving of stronger penalties, and
consequently PRI deputies in the lower chamber were staunchly
opposed to the 15 percent maximum penalty level. The PAN,
which does not control a majority of the seats in either the
lower chamber or the Senate, has depended on PRI support to
move a number of President Calderon's 2007 legislative
initiatives, and will likley continue to do so next year.
For that reason, the PAN decided that it would be wiser to
continue discussing the bill next year and reach a level of
sanctions that everyone could live with than to ram this down
the PRI's throat now. Our COFECO contact predicted that the
bill would pass early next year after some watering down --
not the ideal result, but better than nothing.

5. (U) Reftel provides more details on the recent court
ruling granting an injunction to fixed-line telephony
monopoly Telmex against implementation of a government plan
to force it stop charging long-distance rates on calls made
between neighboring areas. The Federal Telecommunications
Commission will appeal the judge's decision.

6. (U) Despite these reverses, public sentiment has become
much more averse to Mexico's oligopolists in the past year.
President Calderon, members of his economic cabinet, and --
most outspokenly of all -- COFECO chief Perez Motta have used
their bully pulpits to explain why more competition within
Mexico is so important to Mexico's global competitiveness,
and though they have yet to engage in all-out assaults on the

MEXICO 00006249 002 OF 002


companies that dominate many of the country's key economic
sectors, they have begun to take small bites aimed at
reducing their concentrated market power. Likewise, leading
economists and opinion leaders from both left and right have
been blistering in their critiques of the huge wealth that is
channeled to such a small slice of the Mexican population not
because of technological or managerial innovation or
excellence, but because they do not have to face competition.
The designation of Telmex owner Carlos Slim as the world's
richest man this year helped to stoke anti-cartel sentiment.
Rather than a source of pride, most Mexicans viewed the news
of a compatriot passing Bill Gates with disgust. While
Mexico's largest industrialists argue (disingenuously) that
the country has no private monopolies because they are not
permitted by the Constitution, many in the business community
now recognize that the high costs for everything from
telecommunications services to electricity are a huge
impediment to economic growth, a message that is amplified by
the strong newspaper coverage devoted to OECD and World Bank
reports that continue to give Mexico low ranks relative to
other countries in terms of its doing business environment.
Without concrete measures and stronger enforcement, however,
it is unlikely that the situation will improve dramatically.

7. (U) COFECO has approached the USG seeking help in three
specific areas: (1) inviting U.S. judges and competition
experts from FTC and DOJ to engage with Mexican judges and
COFECO officials on the legal and economic issues involved in
competition enforcement cases (Mexican judges frequently
uphold appeals from big companies that COFECO has targeted
for anti-competitive conduct); (2) arranging capacity
building trips to the U.S. for COFECO officials responsible
for specific sectors that require significant technical
knowledge; and (3) supplying U.S. speakers (including USG)
for a post-graduate program on competition studies being
established at Anahuac University in Mexico City. Post's
ECON and USAID sections convened a December 10 digital video
conference (DVC) with officials from DOJ, FTC, and COFECO to
explore how best to meet COFECO's needs in these areas. As
per that DVC, Post has requested Washington's assistance in
identifying federal judges and competition experts from both
the public and private sectors willing to engage with their
Mexican COFECO and judicial counterparts and participate as
speakers in the Anahuac University program.


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 /
BASSETT

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