OECD Reviews of Regulatory Reform Regulatory Reform in Mexico

FOREWORD
Acknowledgements
Table of contents
PartI
OECD REVIEW OF REGULATORY REFORM IN MEXICO
	EXECUTIVE SUMMARY
		Regulatory reform in Mexico
		Potential impacts of regulatory reform in Mexico
	Chapter1
	REGULATORY REFORM IN MEXICO
		Introduction
			Box 1.1. What is regulation and regulatory reform?
		THE MACROECONOMIC CONTEXT FOR SECTORAL REGULATORY REFORM
			The Mexican debt crisis in 1982 was a result of deep-seated structural problems in the economy, e...
			The 1980s debt crisis was followed by five years of economic stagnation.
			The authorities negotiated an incomes policy and began aprocess of comprehensive structural refo...
			The result was strong economic performance, for a time.
			Devaluation was delayed until the end of 1994, with devastating consequences.
				Box 1.2. Financial reform and the Mexican banking crisis
				Box 1.2. Financial reform and the Mexican banking crisis (cont.)
			The economy recovered quickly, partly due to structural reforms that speeded up the supply respon...
		SECTORAL IMPACTS OF REGULATION AND REGULATORY REFORM
			Improving trade performance was needed to launch a sustainable recovery.
			Privatisation was rapid and far reaching, resulting in one ofthehighest private-sector shares o...
			Privatisation was an unqualified success in most sectors, but speed and revenue maximisation were...
			Privatisation also suffered from failures to install adequate corporate governance and inappropri...
			In most non-infrastructure sectors, complete deregulation of entry and pricing has been achieved.
			The effects of reform have been positive in sectors where full competition has been introduced.
			Output has increased in almost all deregulated sectors, but price movements have depended on the ...
			Effects on wages and employment are mixed.
		THE MACROECONOMIC EFFECTS OF REGULATORY REFORM
			Future reforms in key sectors such as energy and waste will bring large benefits.
			Complementary reforms are necessary in factor markets and the overall legal and regulatory climate.
			Regulatory reform has improved competitiveness and overall efficiency.
	Chapter2
	GOVERNMENT CAPACITY TO ASSURE HIGH QUALITY REGULATION
		Mexico’s legal framework has undergone enormous reform affecting 90% of existing federal laws.
			Box 2.1. Managing regulatory quality in Mexico
		Mexico has a coherent policy of regulatory management andreform, to review and improve existing ...
		To give regulatory reform a solid institutional basis, two new kinds of government bodies were ne...
		Have new policies and institutions actually improved the capacity to produce better regulations?
		Use of regulatory impact analysis has grown.
		Traditional command and control regulations are still the norm, but there are promising new regul...
		Formalities have been reduced, but the pace has slowed.
		Continuing conflicts between reform programmes and traditional methods present transition challen...
	Chapter3
	The Role of Competition Policy in Regulatory Reform
		Competition policy capped the reform legislation…
		…representing a clear break from traditional methods that had failed.
		Competition policy cements reform and sets a standard…
		…reversing price controls by banning price fixing…
		…and preventing market power by controlling mergers and restructurings.
		But the law does not attack monopoly directly.
		Typical regulated network monopolies are subject to sectoral regulation.
		In principle, competition policy applies virtually universally…
		… but some major sectors remain state-protected monopolies.
		In principle, competition policy articulates well with regulatory authority…
		…but in practice, regulators may resist or promote other agendas.
		The new enforcement agency is independent and increasingly vigorous…
		…but its actions are often delayed by legal challenges.
		The law and policy are modern and sophisticated; now, it is important to ensure that they are wid...
	Chapter4
	Enhancing Market Openness through Regulatory Reform
		Market openness launched reform and still anchors it.
		Principles of “efficient regulation” sustain market openness.
		Transparency: Mexico leads in use of Internet-based methods...
		… and made substantial reforms concerning standards...
		…procurement...
		… and customs processing.
			Box 4.1. Customs procedures in Mexico
		But consultation is left to agency discretion and is uneven.
		Non-discrimination: few problems are reported, but the issue is omitted from formal review criteria…
		… and preferential agreements and some services items may call for attention.
		Unnecessary trade restrictiveness: this should be made a formal criterion in the review process.
		International harmonisation: Official standards are moving toward compliance with international s...
		… but the situation is less clear for voluntary standards.
		Recognition of equivalence: Mexico is now moving in the right direction…
		… but the effort should be expanded beyond the NAFTA context.
		Competition principles: The competition agency has acted to keep markets open…
		… but it cannot always persuade other regulators.
		Sectors where market openness concerns have concentrated include telecommunications services…
		…telecommunications equipment…
		…and automobiles and parts.
		Mexico generally follows the principles of efficient regulation, even where they are not codified...
	Chapter5
	Regulatory Reform in the Telecommunications Industry
		Mexico has pursued sound policy objectives and has made progress toward regulatory reform.
		The Federal Telecommunications Law is a potentially solid policy foundation.
			Box 5.1. Key features of the 1995 Federal Telecommunications Law
		The role for competition is well designed…
		… and so is the spectrum allocation regime.
		But there remains room for increasing the independence oftheregulator…
		… increasing the quality and transparency of the regulator’s decision-making processes…
		… and improving the coverage of the government’s regulatory quality review processes.
		The concession system requires careful handling…
		… as do requirements to register and publish prices.
		Interconnection prices have come down rapidly…
		… but interconnection issues remain highly controversial.
		The system of price-controls set out in the Telmex concession was far-sighted…
		… but may need to be modified to prevent anti-competitive behaviour.
		The problem of the incumbent’s substantial market power has been diagnosed…
		… but the regulatory response has been delayed.
		The arrangements for the international exchange of traffic restrict competition.
		Despite the problems, the regulatory regime has attracted sources of new competition…
		…and recent decisions about local competition are promising.
		Indicators of performance present a mixed picture.
		Further progress on regulatory reform could lead to further and more significant benefits to user...
	Chapter6
	Conclusions and Policy Options for Regulatory Reform
		Liberalising trade and privatising assets, followed inevitably bystronger competition policy and...
		Mexico’s experience shows the value of a comprehensive approach, and the challenge of transformin...
		POLICY OPTIONS FOR REGULATORY REFORM
		MANAGING REGULATORY REFORM
	Notes
	Annex 1
Figures
	Figure1.1. Mexico exports, imports and trade balance
	Figure1.3. Mexico external inflows and outflows
	Figure1.5a. Mexico growth performance in manufacturing vs OECD countries
	Figure1.5b. Mexico growth performance in levels in manufacturing vs OECD countries (OECD = 100)
	Figure1.6a. Mexico growth performance in electric power vs OECD countries
	Figure1.6b. Mexico growth performance in levels in electric power vs OECD countries
	Figure1.7a. Mexico growth performance in telecommunications vs OECD countries
	Figure1.7b. Mexico growth performance in levels in telecommunications vs OECD countries
	Figure1.8a. Mexico growth performance in air passenger transport vs OECD countries
	Figure1.8b. Mexico growth performance in levels in air passenger transport vs OECD countries
	Annex 2
Regulatory Reform in Road Transportation
	Trucking, a vital service in Mexico, was regulated as a cartel.
	Trucking was an early object of the reform programme.
	The new law indeed represents a fundamental departure from the old system.
	In response to the new freedoms, the industry grew, but it remains segmented.
	Competition enforcement supported reform.
	The economic benefits of reform have been great.
	What remains to be done.
	Obstacles remain in the way of further successful reform.
	Mexico’s trucking deregulation experience offers some lessons for others.
	BIBLIOGRAPHY
	Part II
Background Reports
	Background Report on Government Capacity to Assure High Quality Regulation
	Table of contents
		Executive Summary
		Background Report on Government Capacity to Assure High Quality Regulation
		Executive Summary
		Background Report on Government Capacity to Assure High Quality Regulation (cont.)
		1. The institutional framework for regulatory reform in Mexico
			1.1. The administrative and legal environment in Mexico
				Box1. Good practices for improving the capacities of national administrations to assure high-...
			1.2. Recent reform initiatives to improve public administration capacities
				Box2. List of major sectoral regulatory reforms since 1990
				Box3. Milestones in managing regulatory reform in Mexico
		2. Drivers of regulatory reform: National policies and institutions
			2.1. Regulatory reform policies and core principles
			2.2. Mechanisms to promote regulatory reform within the public administration
			2.3. Co-ordination between levels of government
				Table 1. Division of main regulatory powers
				Table 2. States' efforts to improve the quality of the regulations
		3. Administrative capacities for making new regulation of high quality
			3.1. Administrative transparency and predictability
				Box4. Transparency of regulatory systems in selected OECD countries
				Table 3. Regulatory proposals received by the UDE, 1996-1998
				Box5. Critical approach in selected OECD countries
				Box6. Use of public consultation in selected OECD countries
				Box7. On-line search of business formalities
					1. The applicant defines the economic activity from the ISIC catalogue. If the person does not kn...
					2. The search is further narrowed when the system asks two additional attributes: a)the type of ...
					3. A list of formalities is then presented, specifying the agency or Ministry in charge of admini...
			3.2. Choice of policy instruments: regulation and alternatives
			3.3. Understanding regulatory effects: the use of Regulatory Impact Analysis (RIA)
				Table 4. Threshold criteria in preparing a RIA
				Box8. RIA grading mechanism
					1. Definition and evidence of the existence of the problem to be resolved.
					2. Legal basis for the proposed regulation.
					3. Description of existing regulations relating to the same issue.
					4. Quality of regulatory alternatives presented.
					5. Description of the proposed regulation.
					6. Table relating problems identified to regulatory (or non-regulatory) solutions proposed.
					7. Description of implementation and enforcement schemes.
					8. Quality of implementation and enforcement schemes.
					9. Quality of public consultation undertaken.
					10. Description of different opinions presented during public consultation.
					11. Quality of the description of potential costs and benefits.
					12. Quality of the quantification of potential costs and benefits.
					13. Degree to which distributional consequences are explicitly stated.
					14. Degree to which formalities are identified and described.
				Box9. Use of regulatory impact analysis in selected OECD countries
			3.4. Building regulatory agencies
		4. Dynamic change: Keeping regulations up-to-date
			Box10. Reviewing a formality in Mexico
				1. A ministry's inventory of formalities and related documentation is handed to a special advisor...
				2. In parallel, a UDE desk officer and team examines each formality in detail and prepares propos...
				3. A document presenting the final proposals for each formality is presented to the regulatory ag...
				4. The regulatory agency, with the help of the UDE, implements the approved proposals. This stage...
				5. After publication of a detailed description of reviewed formalities in the Federal Official Ga...
				6. The Comptroller General verifies the administrative implementation of the reforms through a se...
			Table 5. Progress in the review for existing formalities (June 1999)
			Figure1. Progress made in improving business formalities
		5. Conclusions and policy options
			5.1. General assessment of current strengths and weaknesses
			5.2. Policy options for consideration
	Background Report on the role of competition policy in regulatory reform
	Table of contents
		Executive Summary
		Background Report on the Role of Competition Policy in Regulatory Reform
		1. The concepts of competition policy in Mexico: foundations and context
			Box1. Competition policy’s roles in regulatory reform
		2. The substantive toolkit: content of the competition law
			Box2. The competition policy toolkit
			2.1. Horizontal agreements: rules to prevent anti-competition co-ordination, including that foste...
			2.2. Vertical agreements: rules to prevent anti-competitive arrangements in supply and distributi...
			2.3. Abuse of dominance: rules to prevent or remedy market power, especially arising from reform-...
			2.4. Mergers: rules to prevent competition problems arising from corporate restructuring, includi...
			2.5. Competitor protection: relationship to rules of “unfair competition”
			2.6. Consumer protection: consistency with competition law and policy
		3. Institutional tools: enforcement in support of regulatory reform
			3.1. Competition policy institutions
			3.2. Competition law enforcement
				Box3. Enforcement powers
			3.3. Other enforcement methods
			3.4. International trade issues in competition policy and enforcement
				Box4. International co-operation agreements
			3.5. Agency resources, actions, and implied priorities
				Table 1. CFC enforcement activity
		4. The limits of competition policy for regulatory reform
			4.1. Economy-wide exemptions or special treatments
				Box5. Scope of competition policy
			4.2. Sector-specific exclusions, rules and exemptions
		5. Competition advocacy for regulatory reform
		6. Conclusions and policy options for reform
			6.1. General assessment of current strengths and weaknesses
			6.2. The dynamic view: the pace and direction of change
			6.3. Potential benefits and costs of further regulatory reform
			6.4. Policy options for consideration
			6.5. Managing regulatory reform
	Background Report on enhancing market openness through regulatory reform
	Table of contents
		Executive Summary
		Background Report on Enhancing Market Openness through Regulatory Reform
		1. Market openness and regulation: The policy environment in Mexico
			Table 1. Flows of foreign direct investment into Mexico
			Table 2. Mexican imports by regions
			Table 3. Mexican composition of trade
		2. The policy framework for market openness: The six “efficient regulation” principles
			2.1. Transparency, openness of decision making and appeal procedures
				Box1. Regulatory Impact Assessment
				Box2. National Standardisation Programme
				Box3. National consultative committees
				Box4. COMPRANET: transparency in procurement
				Box5. Customs procedures in Mexico
			2.2. Measures to ensure non-discrimination
			2.3. Measures to avoid unnecessary trade restrictiveness
			2.4. Measures to encourage use of internationally-harmonised measures
			2.5. Recognition of equivalence of other countries’ regulatory measures
			2.6. Application of competition principles from an international perspective
		3. Assessing results in selected sectors
			3.1. Telecommunications services
			3.2. Telecommunications equipment
			3.3. Automobiles and components
				Box6. Mexican automotive decree
				Table 4. Production, export and registration of motor vehicles in Mexico
				Box7. Global technical regulations for wheeled vehicles
		4. Conclusions and policy options for reform
			4.1. General assessment of current strengths and weaknesses
				Mexico’s trade friendly index by principle
			4.2. The dynamic view: the pace and direction of change
			4.3. Potential benefits and costs of further regulatory reform
				Table 5. Selected recipient countries of foreign direct investment
				Table 6. Number of exporting firms in Mexico by sectors
			4.4. Policy options for consideration
			4.5. Managing regulatory reform
	Background Report on regulatory reform in the Telecommunications industry
	Table of contents
		1. The telecommunications sector in Mexico
			1.1. The national context for telecommunications policies
			1.2. General features of the regulatory regime, telecommunications market and market participants
				Box1. Important events in the regulatory reform of the telecommunications sector
				Table 1. Growth in trunking and paging services
				Table 2. A synopsis of telecommunications regulation in Mexico
		2. Regulatory structures and their reform27
			2.1. Regulatory institutions and processes
			2.2. Regulations and related policy instruments in the telecommunications sector
			2.3. Regulation of interconnection
				Figure1. International comparison of interconnection charges
				Box2. Access deficits and the theory of access charges
			2.4. Regulation of prices
			2.5. Quality of service
				Table 3. Quality of service indicators under the concession
			2.6. Resource issues
				Box3. Changes to Mexico's telephone numbering regime
			2.7. Universal service obligations
				Figure2. Lines added to the Telmex network
			2.8. International aspects
			2.9. Consumer protection
			2.10. Streamlining regulation and application of competition principles
			2.11. The dynamic view: convergence in communications markets
		3. Market performance
			3.1. Price and quantity indicators
				Figure3. Trends in Mexican business and residential local service charges
				Table 4. Trends in volumes of lines and calls 1990-1998
				Figure4. International comparison of business and residential charges (August1998)
			3.2. Penetration rates
				Figure5. International comparison of progress toward network penetration
				Figure6. GDP per capita vs penetration rate (selected countries)
			3.3. Quality of service
				Table 5. Telmex's quality of service1990 compared with1998
				Figure7. Quality of service faults per 100lines per annum
			3.4. Network investment and modernisation
				Table 6. Increases in the rate of digitalisation over time
			3.5. Employment
				Table 7. Number of employees in telecommunications service supply
				Figure8. Public telecommunications investments as a percentage of revenue
		4. Conclusions and recommendations
			4.1. General assessment of current strengths and weaknesses
				Box4. Strengths
				Box5. Weaknesses
			4.2. Potential benefits and costs of further regulatory reform
			4.3. Policy options for consideration
Appendix: Summary of the regulatory provisions of The 1990Telmex concession and the 1995federal...
	Objectives
	Regulation of entry and exit
	Interconnection
	Price Regulation
	Universal service and network expansion obligations:
	Quality of service obligations:
	Controls on anti-competitive behaviour:
	Other Regulations