Clarifying competition rules: A new law restricts anti-competitive behaviour in the private sector but exempts the government, SMEs and large sections of industry

To provide an encouraging environment for companies to flourish, in 2012 the UAE enacted a new competition law, Federal Law No 4 (the Competition Law). It came into effect on February 23, 2013. WHOM DOES IT AFFECT? Ostensibly, the Competition Law applies to all entities operating in the UAE, and to those operating abroad whose activities affect competition in the UAE. The following sectors, however, are specifically excluded: finance, oil and gas, pharmaceuticals, postal services, electricity and water, sewage treatment, telecommunications and transport. The Competition Law will also not apply to small and medium-sized enterprises (SMEs). Definitions of SMEs are not in the Competition Law but are expected in the executive regulations (Executive Regulations), which were still awaited at the time of writing this article. Further exclusions are those actions initiated by the government or the entities governed or controlled by it.

Abuse Of a Dominent Market Position

 Dominant companies in a defined market are prohibited from abusing that position by undertaking activities that reduce or stifle competition. Typical practices of this kind may include price fixing, undercutting prices, forcing customers not to deal with competitors or unreasonably discriminating between customers of similar contracts, resale price maintenance, predatory or discriminatory pricing, refusal to deal, market management and publishing false information. Dominance thresholds are yet to be defined by the UAE cabinet.

Merger Control

 The Competition Law requires any mergers exceeding a specified market share (not yet specified) to obtain prior approval from the Ministry of Economy. If approval is not sought, the enterprise will be subject to a fine of 2-5% of the relevant turnover, or up to Dh5m ($1.36m). Until the Executive Regulations have been issued clarifying the specific market share trigger, it remains unclear how companies can obtain this approval in practice.

Restrective Agreements

 The Competition Law prohibits restrictive agreements, which may include those that fix prices, or that share customers or markets. This prohibition could cover commercial agreements such as distribution agreements or joint ventures if they have the potential to reduce or prevent competition in a given market. Notably, however, this aspect of the Competition Law is subject to the provisions of Federal Law No 18 of 1981, a commercial agencies law. Agreements that fall under the latter law will be protected even if considered anti-competitive under the former. Further, the Competition Law will not apply to “weak-impact” agreements, those where the parties do not exceed certain market share thresholds ( expected to be specified in the Executive Regulations). Companies may also apply to the Ministry of Economy for a specific exemption from these prohibitions. WHO IS THE REGULATOR? To administer the Competition Law, a new advisory body, the Competition Regulation Committee, will be established. Its remit will be to oversee general policy and, where necessary, to propose additional legislation to combat anti-competitive practices. At the date of this article, the Competition Regulation Committee had not yet been established.

Penalties

: Breaches with regard to restrictive agreements and abuse of a dominant market position carry a fine of Dh500,000-5m ($136,000-1.36m). Breaches with regard to a merger warrants a fine of 2-5% of the total sales of products or services of the violating enterprise in a given financial year. If this figure cannot be ascertained, a fine of Dh500,000-5m ($136,000-1.36m) can be imposed. Incidents of recidivism are punishable by doubling the initial fine, and possible suspension of the firm’s activities for up to six months.

IMPACT: By prohibiting anti-competitive practices in an internationally recognised fashion, the Competition Law is a big step in promoting competition. The exemption of government-owned entities, SMEs and large sections of industry will, however, limit its application.