Decision
In May 2015 the Federal Economic Competition Commission (FECC) concluded a merger notification procedure regarding the purchase of 100% of the share capital of Corporación Scribe, SAPI de CV (Scribe) by Grupo Bio Pappel (BP Group). The merger was approved on the condition that BP Group abstain from requesting anti-dumping proceedings and provide no assistance or information within the framework of an anti-dumping investigation in the market of cut bond paper for a term of 10 years.
BP Group and Scribe are two of the largest players in the writing and printing paper market in Mexico. The FECC stated that the transaction would have had a direct impact on the rolled bond paper and cut bond paper markets, notwithstanding that the conditions were imposed with regard to the latter market. In general terms, the FECC's imposition of conditions on BP Group was based on the following grounds:
- The geographical dimension of the cut bond paper market was identified as international.
- Scribe, BP Group and other economic agents have initiated anti-dumping procedures that resulted in the imposition of countervailing duties for cut bond paper imports from Brazil.
- The imposition of anti-dumping duties would deter imports and limit the supply of the relevant product in Mexico to that offered by national producers.
- Competition risks would arise if, after the completion of the concentration, BP Group were to promote and obtain anti-dumping duties against cut paper imports. This would lead to a decrease in imports as a percentage of domestic consumption and – when taken to the extreme – would ultimately eliminate imports.
- If cut bond paper imports were eliminated in this manner, a duopoly would exist in the relevant market with characteristics that would allow producers to increase prices.
- The implementation of anti-dumping duties would reduce the competitive pressure of imports, making these a non-viable option for consumers.
The FECC therefore required BP Group to abstain from participating in any way in anti-dumping investigations. It is worth examining whether such measures were justified and strictly necessary.
Concerns arising from anti-dumping procedures
Although the FECC's ruling did not address why an anti-dumping procedure in any case could unjustly modify conditions in the cut bond paper market, it is possible that the FECC considered that anti-dumping procedures could be used artificially and unduly to generate barriers to competition.
Considering that the FECC's objective is to safeguard market competition, the concerns arising from anti-dumping procedures may be valid.
Notwithstanding this, anti-dumping procedures are intended to protect domestic producers against the unfair practices of foreign enterprises and ensure a levelled playing field in the market. Through these procedures the government can correct an imbalance in a market characterised by unfair practices. However, the measures to be adopted in an anti-dumping procedure must not prohibit imports, but rather only correct distortions. Thus, even with countervailing duties, imports can continue to enter the country and increase in volume while still allowing the entry of new market players.
In this context, the imposition of conditions on BP Group limits its right to defend itself against a given unfair practice committed by foreign enterprises. However, it is unclear whether in all cases an anti-dumping procedure initiated by BP Group could lead to unnecessary and unjustified modifications to the market.
Additionally, as BP Group will be one of the largest players in the market following completion of the merger and must comply with the conditions imposed, the FECC's resolution of this case may even limit the rights of other market players to initiate anti-dumping procedures, since in order to file an anti-dumping investigation, representation criteria must first be met – that is, the filing parties must represent at least 25% of the national industry and should have obtained the approval of 50%.
Although the FECC established that the cut paper bond market was international, the fact remains that even if the market had been established at North American Free Trade Agreement (NAFTA) level, Mexican producers' participation would still be minimal – 2.9%, according to the FECC. In this context, even if imports from other NAFTA countries were stopped, the market would still not be completely closed. Therefore, the FECC could have limited the conditions to imports from certain countries or a particular region, rather than applying them globally.
The FECC's concerns do not necessarily derive from the concentration in question. Indeed, if the concentration were not concluded, the market would still have three major national competitors, which would imply a concentrated market if the volume of imports decreased.
Moreover, if the market is closed unjustifiably, the FECC is empowered to correct market conditions thought procedures which differ from its pre-merger procedure. Specifically, the FECC can conduct market condition investigations, market investigations or investigations of possible monopolistic practices, which is why it may intervene in a market lacking competition conditions.
It seems that the rationale behind the FECC's decision in this case is based on a desire not to reduce an international market to a mere domestic market, as this would ultimately result in price increases. Nevertheless, it must be understood that international trade legislation seeks to provide defence mechanisms for local producers against unfair practices; these two concerns do not necessarily conflict. Even so, it is not completely clear whether the imposition of these conditions was especially necessary, which makes the FECC's decision controversial and opens the door to further debate.
BP Group is contesting the FECC's conditions before the federal courts.
For further information on this topic please contact Lucia Ojeda Cardenas at SAI Consultores SC by telephone (+52 55 59 85 6618) or email ([email protected]). The SAI Consultores website can be accessed at www.sai.com.mx.
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