CPI TV Ten Minutes With COFECE President Alejandra Palacios

Below, we have provided the full transcript of the interview with Alejandra Palacios Preito, chairwoman of the Mexican Federal Economic Competition Commission (COFECE), recorded on June 30, 2021.

This is part of a series of videos that CPI is producing where we will interview the heads of various NCAs all around the world.

Thank you, Chairwoman Palacios, for sharing your time for this interview with CPI.

A video of the complete interview is available HERE.

Sam SADDEN:

Hello everyone and thank you for tuning in today to this exclusive CPI Talk. Today, we have the pleasure to speak with Alejandro Palacios, Chairwoman of the Mexican Federal Economic Competition Commission, better known as COFECE. Good morning, Chairwoman Palacios and thank you for being with us today.

Alejandra PALACIOS:

Thank you for the invitation. It’s great to have a conversation with CPI.

SADDEN:

I’d like to start off by asking how COFECE dealt with the pandemic and are there any lessons learned that you can share with us from this period?

PALACIOS:

Yes, of course. It did have an impact because we had to overcome the challenges regarding social distances to keep our staff safe. So we had a 90 day calendar day suspension for certain procedures, specifically investigations, because we had to put in place an electronic filing office and all the platform so we could eventually carry out through electronic means, hearings, testimonials, and all kinds of proceedings regarding investigations or file procedures. So, that was an issue. What I think was really interesting is that we never, not even for one day, closed our merger review process and that’s because we already had put in place since January of last year, a filing system. It’s a mandatory system. So this contributed to maintain full continuity in our merger control. And we learned that we can work now in a mix way, remote and having presence in the office.

So for example, for right now, we have almost all our staff in full home office, although there’s at least, I don’t know, between 20% and 40% of our staff at our premises. So what we’re going to do going forward in terms of lessons learned, is that we’re going to move into a flexible working chain. We have put in place our guidelines for remote working. They were published at the beginning of this year, 2021. So when the pandemic is over, we’re not going back exactly the same as we were working before. We will have this flexibility sheet and now that all our procedures can be filed electronically, we can work in this dual manner. So I mean, it’s a way of speeding up the way we work, modernizing our working habits, and I think that’s a great lesson.

SADDEN:

I think that’s really interesting that the merger control regime was not hampered at all. So that’s really the next question that sort of follows up with the next question. Beyond that, what are some of the authorities biggest recent achievements?

PALACIOS:

Well, last year, as I said, we closed for 90 working days while we put all our procedures in electronic manner. But even with that closure, we had recent relevant, I would say, enforcement achievements. One was that we fined several banks, seven banks, Deutsche Bank, Barclays, JP Morgan, Santander, Bank of America and certain traders because they entered in agreements to manipulate the prices of Mexican government bonds and that was relevant. And it also was relevant in the US because this Mexican click case created a class action suit in New York and two banks and specific, Barclays and JP Morgan, settled, paying fines for a total of 20.7 million US dollars. So it’s the first case in the Mexican enforcement history, where apart from having a competition enforcement case, we also have a class action suit.

And I think that that speaks of the relevant work we’re doing. And then also, we’ve been working really hard in the energy sector. There was a reform in 2013 that permitted the participation of private companies in the Mexican energy sector. Before that, we were one of the very, very few countries in the world that could only have electricity and gasoline and other petroleum products offered by state owned companies. And since 2013, that market was open to competition. And when markets open to competition, what is interesting is, that those went to the markets, don’t necessarily know how to compete. So we’ve had cases regarding cartels, collusion, price fixing. The privates enter the market and they see that prices are not fixed anymore and they’re accustomed of having a regime of fixed prices, so they start fixing prices between themselves. So we have several enforcement cases in that manner.

And then we also have other cases related to abuse of dominance. When you have certain companies, I cannot tell their names, but when you have certain companies that have been dominant in the market for so long, they also don’t necessarily know how to compete and their nature is to abuse of their dominance. So it’s a double playing, I would say it’s like a double game. On the one part, private companies, they don’t know how to compete between each other so they’re fixing prices and that’s where we go in. And then on the other part, you have these big companies that were accustomed to being the most relevant in the market, and they’re accustomed to abuse of their dominant position and then we also go into those markets. So I would say, those are the things we were really working hard last year and at the beginning of this 2021.

SADDEN:

Moving on to a topic that’s on the tips of tongues of enforcers internationally, the digital tech sector has been a big protagonist in this period, not only because it has actually helped us during COVID, but also because it has gained increased scrutiny by competition authorities from all over the world. What is your view on the current challenges posed by the digital sector? And do you think there is a need for reforms?

PALACIOS:

I would say that, at least in Mexico, there’s three current challenges that we need to work through. One of course has to do with what you already mentioned, Sam, regarding these new markets appearing and others growing increasingly rapid. And that of course requires quick action to identify and address if there are competition concerns. And there’s this discussion regarding if traditional enforcement measures or procedures will or are quick enough to intervene and protect these markets. So then that’s one challenge, of course. And then there’s this challenge to prepare and train the authority staff, to understand these markets. They’re new and I mean, they work upon new tools like artificial intelligence, and there’s a lot of data to analyze and to manage. And in order to tackle those markets correctly, staff needs to be prepared and trained. And then in Mexico, in particular, there’s an institutional setup that makes it very complicated, I would say, to tackle digital markets.

So regarding the appearance and acting quickly in these markets, I would say that discussion in Mexico is not different from elsewhere. I do believe myself that Mexico will need, eventually, or soon, a reform. I personally like what they’re doing in UK and Germany and the European union regarding tagging or naming or branding these companies that have substantial power, or gatekeepers, or whatever name you want to call them, and have a certain type of ex-ante regulation. I don’t think that all the members in my antitrust agency think the same as I, so there’s going to be a discussion in Mexico. But my personal position is that Mexico needs to move in that place. We’re also working on preparing and training our authority. That’s relevant. As they say, you need to put your money where your mouth is and so we’re investing our resources and training our staff.

And then in terms of our Mexican setup, Mexico is different from other countries in the sense that we have a telecom and broadcasting regulator who also has sole competition jurisdiction in those sectors. So COFECE is the antitrust agency for all sectors in the economy, but telecom and regulate and broadcasting and IFT. The telecom regulator has, as I was saying, sole jurisdiction in competition in those markets. So some markets, some digital markets, may blur with telecom markets and so there’s always a question of who will regulate those markets. And for a while though, Mexican telecom regulators said that because digital markets used internet, that they would be the regulator. And we’ve gone to court and the court has said that because they use that internet as an input, that does not make them the regulator. But I mean, there’s always this space that certain markets could be regulated by the telecom regulator and not by COFECE.

And so that brings an additional challenge. And I also believe that as digital markets have more presence in our daily lives, the setup like the FTC and other agencies that have competition privacy and consumer protection within the same agency, is a better institutional design. And we have many agencies in Mexico, so that’s an additional challenge as I was saying.

SADDEN:

Absolutely. Absolutely. You touched on this already to a certain extent, but aside from the digital sector and the digital economy, what other industries do you believe merits specific enforcement attention? You’d mentioned banking and energy, but are there any other industries or sectors that you can think of or that you think are important?

PALACIOS:

Yes. I would say that in terms of the resources we use, at least 40% of our resources right now are into the energy sector, all around the energy sector, electricity, petroleum, liquid gas. I mean all around because that market is opening up to competition on the one hand. And then on the other hand, we have a President, President Lopez Obrador, who wants to favor SOEs. And although the constitution says that those markets are open to competition, our executive branch wants to protect the Mexican SOEs so I would say that energy is a lot. And then also we’ve been working hard in public procurement. Mexico spends, and Mexico and all countries, spend a lot of public resources through public purchasing and public procurement. And there has been relevant cases regarding bid rigging. And so there’s also a lot of that. And I would also say that there’s a lot of enforcement action from our part in cartel activity, in the healthcare sector. So banking, energy, public procurement, and healthcare and medicines.

SADDEN:

Always healthcare. So I guess in a larger sort of umbrella picture, what in your view is the future direction of antitrust enforcement, both domestically and internationally, ideas of more convergence or divergence or something else? I mean, you’d mentioned in the banking sector, the work that coincided with New York State. So what are your thoughts on the global direction, future direction of antitrust enforcement?

PALACIOS:

I think we’re living a change of a paradigm in the anti-trust world and I find discussions really interesting. Three years ago, we had a meeting in Mexico City where the heads of the FTC, DOJ, and Canadian Competition Bureau members were in Mexico. We have a yearly NAFTA, a competition agency meeting and Makan (Delrahim) was there, At that time, he was a head of the DOJ and he was sitting next to me and he was saying at that moment, the criticism of big tech started, but I mean, it wasn’t in the agendas now. But he was saying, “Big is not bad. It’s how you use your bigness that is bad.” And when I see this, or when I speak about this new paradigm, what I’m seeing is that size does matter, even though if you don’t engage in an anti-competitive conduct, size begins to matter.

So that’s, I think, really relevant of what is happening in antitrust around the world. And then also what is interesting is how a competition policy is at the center of, I mean, the big world issues. No, I would say that there’s like big three world issues, which is climate change, inequality and how big companies will modify the way we live, consume, everything we do. And antitrust policy is right there in the middle. So it’s really interesting to be part of it. So my view is that antitrust is being a very relevant topic around the world.

SADDEN:

Indeed. These are very interesting times for anti-trust globally and it’s exciting to be involved in it.

PALACIOS:

Yes.

SADDEN:

This has been so informative, and we really appreciate it. Thank you again, Chairwoman Palacios for being with us and for sharing your insights with CPI. Thanks again.

PALACIOS:

Thank you, Sam. Thank you to CPI and good day to everybody.