Federal Government introduces new Competition Law

Federal Government introduces new Competition Law in the UAE

On 23 February 2012 the UAE passed Federal Law No.4 of 2012 (the UAE Competition Law) which significantly expands and updates existing competition legislation. The Competition Law is aimed at making the UAE more attractive for investors by increasing competition and curbing monopolistic practices.

Overview of the law

The Competition Law provides a comprehensive regime which covers three broad areas: merger controls, prohibitions on restrictive agreements, and prohibitions on abuse of a dominant market position

Application of the law

The Competition Law applies to all entities operating in the UAE including foreign-owned entities and any foreign entities that operate outside of the UAE but which may affect competition within the UAE. The only exceptions to this are for State-owned or controlled entities, small and medium enterprises and companies operating in a number of sectors that are subject to sector-specific regulations. What constitutes an SME and the degree of government control or ownership required to fall within the exception for State-controlled entities is yet to be established.

The Ministry of Economy and the newly-created Committee of Competition Regulation are responsible for implementing, monitoring and enforcing the Competition Law which comes into full effect on 23 August 2013. The regulations implementing the Competition Law expected to be published in the next few months will provide clarity on the application of the provisions.

Merger controls

The Competition Law requires entities that satisfy certain thresholds to notify the Ministry of Economy requesting clearance if they intend to enter into a merger agreement. The jurisdictional threshold detailing what entities this will apply to have yet to be announced although the Law states that they are to be determined based on the market share of the parties concerned.

Once a notification has been submitted, entities are required to suspend the transaction pending approval.

The Ministry may approve the application if the merger or acquisition does not adversely affect competition, or if it creates economic benefits that exceed any adverse competitive effects. This approval may be given unconditionally or may be subject to conditions.

The Ministry of Economy has 90 days to issue a decision as to whether the application is approved, but can extend this for an additional 45 days. If the Ministry does not issue a decision within the proscribed timeframe, the application will be deemed as accepted.

Restrictive agreements

The Competition Law also prohibits restrictive agreements which reduce or prevent competition. Some examples of the specific activities that are prohibited include: price fixing, bid rigging, market division, customer allocation, precluding or impeding entry into a business or business activity, refusing purchases from, or supplies to, another firm, limiting the free flow of goods or services in a relevant market, limiting the terms of sale or purchase, and prohibiting or limiting production, development, distribution, marketing or other investments.

There is an exception for certain restrictive agreements where the impact is minimal, the scope of which will be clarified when the regulations implementing the Competition Law are published in the next few months.

Abuse of market dominance

The Competition Law prohibits companies from abusing a dominant position within their market by reducing or preventing competition. The term “dominant position” is defined as a position whereby an entity can, by itself or in collaboration with other entities, control or affect the relevant market. Cabinet may specify a threshold market share, by reference to the percentage of transactions that an entity is engaged in within the relevant market that will constitute a “dominant position”.

Actions that can constitute an abuse of dominance include: imposing resale price terms, predatory pricing, discriminatory pricing, refusing to deal, compelling others not to deal, restricting supply, conditioning the sale of a good or service on the purchase of another good or service, disseminating false information about products or prices as well as artificially increasing or decreasing quantities in a market.

Penalties and exemptions

The potential penalties for an entity found to have violated the Competition Law includes fines of between AED500,000 and AED5,000,000 and closure of their business for a period of between three and six months.

The law also provides a procedure for obtaining exemptions in respect of certain restrictive agreements and potential abuses of a dominant market position. In order to be granted such an exception, the Ministry of Economy must be satisfied that the agreement or practice in question would enhance economic development, increase efficiency, develop production or distribution systems, or achieve specific consumer benefits. This procedure is expected to be set out in more detail in the implementing regulations.

Protecting your business

There are a number of simple steps that you can take to ensure that your business is not caught out when the law comes into full effect on 23 August 2013.

• All entities should consider developing compliance policies to ensure that they do not inadvertently enter into restrictive agreements.

• Entities considering mergers or acquisitions which may affect competition in the UAE need to consider whether they are required to notify the Ministry of Economy and if so allow sufficient time to obtain the required clearance.

• Entities which are, or may be, a major player in any market should review whether they may be deemed to be in a ‘dominant position’ under the Competition Law. If so they should develop compliance policies to ensure that they do not abuse such position of dominance.

• Entities that may have been affected by anti-competitive practices may be able to bring these practices to the attention of the Ministry of Economy.

If you would like to discuss how the new Competition Law may affect your business please contact Nathan Banks or Andrew Morris at Banks Legal Consultancy.

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