Uber’s Battle in Mexico
Technological development is necessary for progress. If well directed, it can enrich the cultural heritage of humanity and, in turn, stimulate our capacity to innovate. However, for better or for worse, such development often generates a certain amount of friction, too, because despite demanding technological solutions, our society is not always capable of assimilating them.
Technological development has never been as fast evolving as it is now. Every major scientific advance has brought on disputes and controversy, and the frictions that currently afflict us are a result of new, disruptive technologies that constantly create loopholes, which governments try to keep up with and close.
In this article, we will focus on understanding the impact of one of these technologies, Uber, by addressing the social and legal barriers it faced in Mexico.
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THE CONTROVERSY: UBER VS. TAXIS
Technological evolution reflects the increased demand for more efficient goods and services, and the need to reduce production costs. The new forms of organizing work, for instance, generate benefits — their main objective — but they also clash with the old ways.
The conflict Uber created, for instance, came from it clashing with a public transport provider — taxis. Both services operate in a similar way: they offer door-to-door transportation services and participate in the market with differentiated or non-existent legislation that makes competition unbalanced.
Given their much more complex services, taxis operate according to special set rules. In Mexico, they are regulated by the legislation that relates to the transit, transportation, or mobility regulations of each federal entity. In general terms, this legislation establishes where they should pick up and leave passengers. For example, only taxis authorized by airports can pick up passengers at airports, and that, only if they have a valid concession and use appropriate license plates, road tax payment cards, and stickers.
For tax purposes, taxi drivers who are officially authorized to operate within their zone belong to the tax incorporation regime (RIF) as individuals who provide services, as long as their annual income does not exceed 2 million Mexican Pesos. The reality, however, is that the vast majority of taxi drivers who work in Mexican cities are not officially authorized to do so: They do not fulfill all the requirements for their services to be considered public transportation, are actually referred to as “pirate taxis,” and do not pay taxes.
Uber, on the other hand, was classified by the Federal Economic Competition Commission (COFECE) as a Transportation Network Company (TNC) based on mobile applications. This means that it is a company dedicated to mediating the agreement between users and transport service providers through applications on mobile phones (Plenary Session of the Federal Economic Competition Commission, 2015). It therefore operates with incipient legislation in some states and non-existent legislation in others, which in turn generates uncertainty for all market participants.
Uber initiated its Mexican operations in Mexico City, before the Federal District Transportation and Highway Law had even been repealed. It was argued at the time that Uber drivers — users of services offered by a TNC — operated as providers of private transportation services.
Article 2.– Private Transportation Service: This is the activity by virtue of which, through the authorization granted by the Ministry, individuals, or legal entities, the provider satisfies the needs for the transportation of passengers or cargo directly related either to the fulfillment of their corporate purpose or to the performance of commercial activities, be these of a temporary or permanent nature, and which service is not offered to the general public, Federal District Transportation, and Highway Law.
With the idea that, since Uber drivers did neither operate through any concessionaire or comply with the requirements of uniformity, regularity, or uninterrupted permanence, but offered transitory or permanent passenger transportation services, their regulation was assumed to be a Civil matter, under the modality of carriers with the obligations established in Articles 2647 to 2665 of the Civil Code for the (Mexico City) Federal District.
Of Carriers and Renters, Civil Code for the Federal District, Article 2646. The contract by which someone is obliged to transport, under his/her immediate direction or that of his/her dependents, by land, by water, or by air, people, animals, merchandise, or any other objects, if it does not constitute a commercial contract (…)
Another modality under which their operation was considered was that of private transportation vehicles, as defined in Article 44, Section II, of the State of Jalisco Road, Traffic, and Transportation Services Law:
Those (vehicles) destined for the transportation of people or things, when this activity constitutes a service that the State administers or operates, except for rental vehicles or taxis, by virtue of concessions or permits.
Uber has also been considered under the modality of mixed service providers, authorized to transport passengers, light cargo, or objects, with its transportation activities considered as Civil matters, as in Articles 2304 to 2320, which cover matters related to a transportation contract:
Article 2304. A transportation contract is defined as the agreement between a person, denominated a carrier, who undertakes to transport, under his/her immediate direction or that of his/her dependents, by land, by water, or by air, people, animals, merchandise, or any other goods, and between another person, denominated a passenger or shipper, who uses the transport for himself or to move goods, in exchange for the payment of a certain amount of money, if it does not constitute a commercial contract (…)
The above are just some alleged precursors of the problems between Uber and the taxi drivers’ collective. Given the nature of Uber’s business and its notorious similarities with taxi services, this type of interpretation did not satisfy taxi drivers, nor did it satisfy tax, labor, or mobility issues. To correct these gaps, the best option for the State to solve the problems was, and continues to be, to adapt the legislation to new technologies and consumer needs.
The arrival of Uber gave a fairly significant blow to the economy of traditional transportation services and, although the government has taken a stand, issued legislation, and even launched proposals, such as the creation of applications that enable the regulation of elements like rates and security, exclusively for taxi drivers (Ruiz, 2015), there are still pending issues. In fact, rather than solving the transportation problem in Mexico, the legislation issued for the Uber platform served to create a clear image of the level of corruption in the city where it operates. The mere fact that a special tax was invented in order to “regulate” Uber supports this very argument.
THE POPULARITY OF UBER IN MEXICO
FIGURE 1 The launch of Uber in Mexican cities, by year
Querétaro, Puebla, Ensenada, León, Monterrey, Toluca
Source: Prepared using the information on Uber launches announced on https://newsroom.uber.com/
Uber’s motto is to solve mobility problems by innovating the way in which people are transported; to give drivers more control over their income and time; and to reduce the intensive use of private cars. According to global statistics published by the said company, in December 2015, 19% of its drivers were women and 11% students, while 48% supported dependents under the age of 18. 67% of Uber drivers had not previously earned an income from doing this type of activity, and 69% had a part-time or full-time job in addition to the activities carried out through the Uber platform (Benendon Strategy Group, 2015).
Moreover, Uber claims that 83% of its users, who own a private car, choose to leave their own vehicle at home; that 50% of the requests on the Uber platform come from areas where night-time public transport does not operate; and that 33% of Uber users use their services to return home after drinking alcoholic beverages (Uber, 2015).
In fact, in Mexico, Uber was so well received by some sectors of the population that it was able to offer promotions by creating partnerships with companies like Facebook, MasterCard, Corona Music, Google Play Music, Johnnie Walker, Reacción por la Vida, A.C., UNETE, Warner MX, and Cinépolis. What is more, Uber also uses Change.org (Change, 2015) where users can freely express their opinion on the service Uber provides. It’s therefore easy to see why public transport users prefer the Uber application over traditional means of transportation, the most important reason being that Uber offers an efficient, clean, and safe service, with vehicles that are in good condition and drivers who respect road regulations. In short, Uber was able to penetrated the consumer’s mind because consumers do not like or trust current taxi-type transportation services.
From an economic perspective — and this, without addressing tax, labor, or other related issues — several sectors consider that Uber services have positive effects on the mobility of cities. They argue that it increases the time available for inhabitants to carry out productive activities and reduces the costs — monetary and non-monetary — associated with traffic.
COFECE (the Federal Economic Competition Commission) has determined that the traditional individual passenger taxi services have two problems that limit their quality, namely information asymmetries and coordination problems, both of which could be easily remedied by the use of mobile applications (Plenary Session of the Commission Federal Economic Competition, 2015).
- Information asymmetries: Consumers are unable to get information about safety aspects related to the driver and the vehicle, or about routes and prices.
- Coordination problems: Potential consumers and drivers lack hard data about the behavior of supply and demand in certain areas, which can lead to oversupply or undersupply.
Because of these two issues related to taxis, Uber was able to reach 700,000 users in Mexico in July 2015 alone — with approximately 60% of its users in the country’s capital (Silva, 2015) — and to offer individual and group services at lowered fares (with limitations), through services like uberX, uberXL, uberBLACK, and uberSUV.
Note that the service Uber provides is not significantly different from that of other companies dedicated to transporting people privately. There are a large number of companies that rent vehicles with a driver, without being subject to all the stigmatization that Uber has suffered. These companies employ private drivers, regardless of the way — by phone or through an app — in which their services are contracted.
TAXI SERVICES IN MEXICO
Public transportation is synonymous with collective passenger transport. Unlike private transportation, public transportation operates on schedules and, depending on the type, on established routes. In Mexico, as a general rule, taxis are a means of public transportation for one to no more than four passengers, and distinguished from other public transportation by their offer of door-to-door service, mainly in urban areas, with rates depending on the base established by area, time, jurisdiction, and the distance or time of the journey.
A taxi (service) is one that is provided in a car, in a specific locality and determined municipality, exclusively to a single economic legal interest and with a single destination — Article 118, Ignacio de la Llave State of Veracruz Traffic and Transportation Law.
The Mexican taxi service has been a constant debacle, largely because, in most cases, a taxi driver’s income is considered to be low. The reasons for this include the fact that the number of taxi drivers has grown in a way that has outstripped demand, and the fact that the rate imposed by the government does not represent the reality of the market.
What is more, many taxi drivers in Mexico do not own the cars they use but rather rent them. This reduces profit margins and makes competition more aggressive. There are also barriers to offering a quality service, like the cost of car maintenance — which, as a side note, most taxis lack, both mechanically and aesthetically — and the payment of such items as license plate fees, road taxes, verification, a special driver’s license, third party liability insurance and/or a taximeter (Medina, 2014). All of the above often force taxi drivers to use measures such as refusing to service certain areas of the city considered unprofitable or, in the event of servicing these areas, charging fares above the official tabulator reference.
A number of taxi drivers recognize the existence of these problems and some attend training courses, join government programs, or enter their data into radio taxi services or special applications for taxi drivers that allow them to control the supply and quality of their service. And although taxi drivers’ organizations also recognize these deficiencies, they claim that the major mobility problems in cities are not caused by inhabitants preferring to use private means to free themselves from public transport, but rather by poor road planning.
According to the Technical Taxi Studies Business Group (Grupo Emprendedor de Estudios Técnicos del Taxi), and in association with Elite, a Spanish group which many Mexican taxi drivers have joined, taxi drivers admit that the current era is characterized by new ways of production and social organization, both of which from the evolution of telecommunications and economic globalization. They claim, however, that applications of this very type tend to promote unfair competition and intrusion.
The latter may be due to the fact that such applications — like Uber — operate in a nonexistent legal framework that allows them to reduce costs and yet makes it impossible for them to have clear rules for users. Taxi drivers also point out that transportat legislations aim to guarantee quality service, professionalism, and customer service through an agreement with the transportation system. Technological innovations therefore should be offered to transportation companies as an additional tool to improve their development, and not to create disruptions in the service provision system (Grupo Emprendedor de Estudios Técnicos del Taxi, 2014).
STATES REGULATING UBER
According to COFECE, Transportation Network Companies (TNCs) can be either complementary platforms that connect consumers of point-to-point transportation services with taxi drivers registered in the public service modality; or independent platforms that connect private drivers with consumers. Uber fits into the second category.
Despite the concept of TNCs being managed by various actors, transport regulations in Mexico did not evolve enough to create further laws that give legal certainty in all of the Mexican states that use this type of technological innovation. Those states where the application did penetrated the market, however, have already issued in this regard positions and, in some cases, legislation.
Such is the case of Mexico City and its Federal District Mobility Law, which classifies the services offered by Uber drivers as a private transportation service, “passenger transportation in all its modalities,” and makes them subject to rate standardization, schedules, exchanges, frequencies, infrastructure, and other conditions.
Article 60.-The transportation service in all its modalities will be adjusted to the (Mexico City) Federal District Comprehensive Mobility Program. In order to meet the needs of the population and the demand of users of the public transportation service with optimal operations, the Public Administration will drive and promote the standardization of rates, schedules, exchanges, frequencies, and other infrastructure and conditions in which the services are provided, seeking the connection of urban and metropolitan routes, with special attention to those areas that lack (other) means of transportation, that are difficult to access, or that are poorly connected. — Federal District Mobility Law.
The (Mexico City) Federal District Mobility Law and its Regulations establish a non-rigid and detailed concept, with the aim of preventing over regulation that could slow down innovation, since the legislative process is much slower than technological evolution.
Another state at the forefront of legislation is Puebla, with its Puebla State Transportation Law, amended on August 28, 2015,1 which, in its second section, establishes that vehicles are classified according to the service for which they are intended, dividing them into Public Transportation Service vehicles and Mercantile Transportation Service vehicles. The second of the two major classifications includes Uber drivers, i.e. individuals who provide service to other individuals, thereby providing a service that constitutes a commercial activity in the form of a rented car.
Article 23.- A Rental Car Service is one that is provided in vehicles with a capacity of no more than five seats, and which is not subject to itineraries, routes, frequencies of passage, or fixed schedules, but which does use rates determined by the Ministry. Vehicles that provide this type of service may belong to a taxi rank, but in no case may they provide a collective service. — State of Puebla Transportation Law.
Although Uber’s path in Mexico has been bumpy, it must be noted that this type of technological innovation was not only adopted quickly by the population, but will continue to operate across Mexico, and will even continue spreading, especially because all the actors in the dispute have point of views that make it impossible to see the issue as black and white. Furthermore, as long as there are no uniform modifications to the legal framework, the dispute will have to be resolved in accordance with the constitution. Judges will have to weigh in the legal right to free competition and the respect for freedom of work in an environment where best commercial practices reign.
The actors involved in this dispute must reach an agreement that meet the needs of all and, although it is impossible to stop technological advance; legal certainty must also be given to all market participants, especially when it is expected that the social, economic, and political movement that the introduction of Uber generated across cities and states will be replicated when it expands its operations.
It is important to recognize the ability of this new transportation platform to generate income and jobs. For the benefit of transport users (both collective and private), the Uber methodology must be accepted. This is especially true because it provides additional benefits for users who are adversely affected by taxis and their unions, which generally provide poor service at a high cost, when other public transportation alternatives are not available to a large part of the population.
A number of studies have shown that the Uber model can be used to measure the level of corruption in a country or city where the service is being established.
From an objective point of view, it is important to enable the existence of other transportation options for all users, neither for the benefit of taxis nor for the benefit of Uber drivers, but for the benefit of users who deserve better, cheaper, safer, and more educated opportunities.
Benendon Strategy Group. (2015). UBER. Retrieved December 21, 2015, from UBER: https://2q72xc49mze8bkcog2f01nlh-wpengine.netdna-ssl.com/wp-content/uploads/2015/12/BSG_Uber-Driver-Roadmap-2.0_12.7.15_FIN2.pdf
Centro Mario Molina (Mario Molina Center). (April 17, 2013). Centro Mario Molina. Retrieved January 4, 2016, from Reforma Urbana: 7 propuestas para las Ciudades de México (Seven proposals for Mexican Cities): http://centromariomolina.org/7-propuestas/
Change. (August 2015). Change. Retrieved December 21, 2015, from Change: https://www.change.org/p/respeto-a-nuestro-derecho-a-elegir-c%C3%B3mo-movernos-en-gdl-ubersequeda-aristotelessd-movilidadjal
Grupo Emprendedor de Estudios Técnicos del Taxi (Technical Taxi Studies Business Group). (April 30, 2014,). Issuu. Retrieved January 4, 2016, from Alegato contra las plataformas disruptivas (Argument against disruptive platforms): http://issuu.com/geetaximadrid/docs/alegato_en_publisher
Medina, S. (November 4, 2014). Lo que Uber nos dice del servicio de taxis en el Distrito Federal (What Uber tells us about the taxi service in Mexico City). Retrieved December 21, 2015, from Nexos. La brújula. El Blog de la metropoli.: http://labrujula.nexos.com.mx/?p=128
Pleno de la Comisión Federal de Competencia Económica (Plenary Session of the Federal Economic Competition Commission). (June 4, 2015). COFECE. Retrieved December 17, 2015, from COFECE: http://www.cofece.mx:8080/cfcresoluciones/docs/Mercados%20Regulados/V6/16/2042252.pdf
Ruiz, J. (November 23, 2015). Le crea GDF su “Uber” a taxistas (Mexico City Government gives taxi drivers their “Uber”). Retrieved December 21, 2015, from El Universal: http://www.eluniversal.com.mx/articulo/metropoli/df/2015/11/23/le-crea-gdf-su-uber-taxistas
Silva, A. (July 9, 2015). El Economista. Retrieved January 4, 2016, from Uber alcanza ya 700,000 clientes en todo el país (Uber now has 700,000 customers across the country): http://eleconomista.com.mx/estados/2015/07/09/uber-alcanza-ya-700000-clientes-todo-pais
UBER. (August 14, 2015). UBER. Retrieved December 21, 2015, from UBER: https://newsroom.uber.com/tijuana/es/tj1data/
Mexico City Federal District Transportation and Highway Law. Published in the Official Gazette of the Mexico City Federal District on December 26, 2002. Last reform published in the Official Gazette of the Mexico City Federal District on July 11, 2013.
Civil Code for the Mexico City Federal District. Published in the Official Gazette of the Federation on May 26, 1928. Last reform published in the Official Gazette of the Mexico City Federal District on February 5, 2015.
Jalisco State Law for Road, Traffic and Transportation Services. Published in the Official Journal of the State of Jalisco, February 7, 1998. Last reform on December 9, 2010.
Jalisco State Civil Code. Published in the Official Journal of the State of Jalisco, February 25, 1995. Last reform on November 13, 2007.
Mexico City Federal District Mobility Law. Published in the Official Gazette of the Mexico City Federal District on July 14, 2014.
Political Constitution of the United Mexican States. Published in the Official Gazette of the Federation on February 5, 1917. Last reform published on July 10, 2015.
Ignacio de la Llave State of Veracruz Traffic and Transportation Law. Published in the Official Gazette on Monday, November 6, 2006. Last reform published on September 26, 2008.
1.Articles 1, 2, 3, subsection c) of section II, and section III of 4, section III of 5, the separate paragraph and sections II, V, IX, X, XI, and XII of 6, sections II and III of 7, 8, and 9, the separate paragraph and section IX of 10, 11, the naming of the Second Title, 12, 13, 16, section V of 17, 23, 34 Ter, 34 Quater, 35, subsection b) of 36, 39, sections II, V and VII of 44, 45 Bis, 53, 55, the first paragraph of 60, section VI of 75, 76 and 79, the name of Chapter IV of Title Four, 83, the name of Chapter V of Title Four, the first paragraph of 85 Bis, the first paragraph of 87, 88 Bis, 141, 143, 144, 146, and 148 were REFORMED; Articles 6 Bis, 42 and 142 were REPEALED; and subsections d) to g) of section II were ADDED to article 4, and sections XIII to XVI to 6, 12 Bis, 16 Bis, 36 Bis, 45 Ter, 55 Ter, 92 Quater and 112 Bis, all as part of the State of Puebla Transportation Law.↩