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Can Cofece unilaterally regulate services? Cofece challenges Mexican government’s executive branch

On November 22nd, 2017 the Mexican Federal Commission of Economic Competition (“Cofece”) challenged before the Mexican Supreme Court of Justice the “Decree of Amendments to the Regulation of the Airports Law” (“Decree”) and the “General Guidelines for the Assignment of Landing and Take-Off Slots in Saturated Airports” (“General Guidelines”) reforming the current rules for airport management and slot allocation passed by Mexican president Enrique Peña Nieto on September 29th, 2017. Cofece grounds for challenging the new rules revolve around the fact that they breach its authority to regulate essential services (regulated by Cofece for the first time in the context of this airport investigation), as they are against Cofece’s recommendations issued earlier this year.

 

Cofece first raised concerns in the sector in February 2015, starting an investigation on the issue (case file IEBC-001-2015). In February 2016, Cofece’s Investigative Authority issued a Preliminary Investigative Opinion on essential facilities, barriers to entry and allocation of slots at Mexico City’s International Airport (“AICM”), concluding that the airport was saturated, and such saturation led to a reduced number of market participants and inefficiencies in slot allocation, causing an inefficient functioning of the airport and constituting a barrier to entry.

 

While the Investigative Authority was carrying out the investigation, in May 2016, Cofece cleared Aeromexico’s joint venture with Delta Airlines subject to conditions including giving up eight pairs of slots in the AICM.

 

In May 2017, the Investigative Authority of the Federal Economic Competition Commission already warned that the preliminary drafts of both the Decree and the General Guidelines prepared by the Ministry of Communications and Transport (“SCT” for its acronym in Spanish), had the potential to negatively impact competition in the Mexican aviation industry and recommended the SCT to present a High Impact Regulatory Impact Analysis for each of the drafts. The proposed amendments at the time included proposals seeking to establish general criteria for airport authorities to allocate slots to airlines in a fair, transparent and non-discriminatory manner, in addition to monitoring, evaluating and qualifying the use of slots. However, the Investigative Authority identified inconsistencies leading to uncertainty and little transparency that would allow certain degree of discretion in favour of the airport authorities.

 

In July 2017, Cofece issued its final resolution, determining that the access to airport slots and use and control of platform services at AICM were essential facilities and establishing that the enforceable rules for the airport management and slot allocation led to systemic distortions in the airport functioning, confirming the Investigative Authority’s Preliminary Investigative Opinion of February 2016. On the basis of the findings in the investigation under case file IEBC-001-2015, Cofece issued corrective measures to be adopted by AICM with the objective of reverting the identified anticompetitive effects.

 

Such measures included i) enabling public verification of the implementation of regulation, allocation and use of slots; ii) defining clear rules in the criteria for the allocation, return, withdrawal, cancelation and auction of available slots; iii) preventing airlines from accumulating more slots than those of historic precedence; iv) prohibiting airlines from landing or taking-off without obtaining a cleared slot; and v) mandating that the assigned schedule is used according the international calendar of coordination activities. In addition to these measures, Cofece issued the following recommendations to the Mexican Congress, the Executive branch of the Mexican Government and the SCT, respectively: i) to reform article 63 of the Law on Airports with the objective of creating an autonomous body for the allocation of slots; ii) to incorporate the criteria on the misuse of slots to the Regulation of Airport Law and to issue a regulation that prohibits official and general aviation operations at the airport; and iii) to apply the relevant sanctions to the airlines that operate flights without having a cleared slot, and to update the study on AICM’s saturation.

 

Cofece claims that the Decree and the General Guidelines do not follow its recommendations, as issued in July 2017, and has filed a challenge (“controversia constitucional”) before the Mexican Supreme Court of Justice to clarify the scope of Cofece’s regulatory powers. This is the first time Mexico’s Supreme Court of Justice decides on constitutional dispute involving Cofece and it will have to tackle the issue of whether Cofece can unilaterally regulate essential services.

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Headshot_ M Loubet

*Marta is a Mexico City-based lawyer who specializes in Competition and Regulatory Law, with a focus on TMT. Since graduating from her LLM, Marta has practiced in Paris and Brussels in the Competition and International Trade teams of international law firms, working mainly on Merger Control, Antitrust, State Aid and Regulatory issues. Marta is also an ambassador of Thousand Network and a member of the Association des Juristes Européens, ANADE and Abogadas MX.

https://twitter.com/MartaLoubet

https://www.linkedin.com/in/martaloubet

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