The Development of Competition Law in the United Arab Emirates

Competition Law Regime in the UAE?

Competition Law in the United Arab Emirates (UAE) is primarily governed by the Federal Law No. 4 of 2012 [“The Law”]. The law must be considered read with the Executive Regulations (Council of Ministers’ Resolution No. 37 of 2014) [“The Regulations”]. Additionally, the Cabinet Decree No. 13 of 2016 on Ratios and Regulatory Controls [“The Resolution No. 13”] relating to the UAE  Federal Law No. 4 of 2012 for the Regulation of Competition and the Cabinet Resolution No. 22 of 2016 relating to Small and Medium Enterprise provide further guidance under the competition law regime.

Aim:

The primary goal of enacting Competition Laws in the UAE is:

1. Protecting and enhancing competition
2. Combating monopolistic practices”

To ensure these goals are achieved the law focuses on the maintenance of a “competitive market” which is governed by market instruments as per the economic freedom principle. This is only possible when anti-competitive activities are banned by regulating ‘restrictive agreements’, ‘abuse of dominant position’ and the ‘operation of economic concentration’.

Scope:

The Law shall be applicable to all economic activities undertaken by organizations within the UAE, and against the exploitation of Intellectual Property Rights both within UAE and internationally. Therefore, the law extends to all economic activities that may impact competition in the UAE.

Certain sectors/activities/works are specifically excluded by the Council of Ministers such as:

• Acts undertaken by the Government or under the supervision of the government (including State enterprises),

(b) Small and Medium sized Organisations.

(c) Resolution No. 13 0f 2016 extends the exemption to establishments which have at least 50% of ownership by the Federal or the Emirate government.

What are ‘Restrictive Agreements’?

Restrictive Agreements (Article 5) of the Law relate to:

1. The fixing of sale prices with a view to adversely affect competition (“AAEC”),
2. Determination of the terms and conditions of similar transactions

• Collusion in bidding, tenders and similar practices.

1. Artificially limiting production, development, marketing or other investment aspects.
2. Conspiring against certain organisations and obstructing the ability of such organisations from carrying on business.
3. Restricting the freedom of supply of goods and services from the concerned relevant market.

All such activities of similar nature that restrict competition shall be prevented since such agreements affect market share or create barriers to entry in a particular market.

Resolution No. 13 provides that a restrictive agreement will be deemed to have a “weak impact” if the total share of the parties does not exceed 10% of the total transactions in the relevant market. However, it is to be noted that, this law shall not apply to ‘low impact agreements’ as determined by the Council of Ministers.‘Low impact agreements’ refer to agreements wherein the total share of the organisations which are party to the agreement, does not exceed the percentage set by the Council of Ministers.

What is a ‘Relevant Market’?

The term, Relevant Market refers to a product or a service, or a combination of both, which is based on characteristics, price, and methods of use, may be replaced by other goods and services to meet a particular requirement of the consumer. May include various alternatives to meeting the same requirement. Hence, the approach to be taken by the decisions of the Council of Ministers and the Courts whether they are broad interpretation or narrow plays a crucial role in shaping the future for the competition law regime in this jurisdiction.

What constitutes a Dominant Position for the purposes of the Law?

A dominant position enables any organization to control, individually or collude with other organizations to engage in activities which affect the Relevant Market. This condition may also be reached when the share of any organisation exceeds the percentage (of the total transactions of the relevant market) as prescribed by the Council of Ministers.

The law encompasses not merely situations where the dominant position may be easily seen as a percentage share, but also situations where the entity may be able to exert power and control by virtue of forces other than having a greater percentage of the Relevant Market. Resolution No. 13 specifies that a “dominant position” accrues if the market share of the establishment exceeds 40% of the total transactions in that relevant market. Therefore, an organisation can assume a dominant position in multiple manners.

What constitutes an ‘Abuse of Dominant Position’?

The law defines abuse of dominant position (Article 6), in relation to the Relevant Market or a substantial or influential part thereof, refers to a situation where the organisation in such a dominant position may act in such a way so as to prejudice or prevent competition. Such actions may include (i) imposing conditions or prices for resale of goods and services, (ii) selling goods at low prices with an aim to restrict entry of competitive organisations into that market, (iii) unjustified price discrimination, (iv) forcing customers to not deal with competitive organisations, (v) rejection of dealing under usual commercial terms, (vi) artificially raising prices by unjustifiably restricting supply, (vii) making sales and purchases conditional on the acceptance of obligations unrelated to the original agreement  (viii) disseminating, knowingly, false information about the product or prices.

Exceptional situations regarding practices relevant to dominant position:

The Minister of Economy, on the recommendations from the Competition Regulation Committee, excludes certain Restrictive Agreements and practices relating to dominant position. These activities are such that enhance economic development, develop production or distribution systems, increase competitive abilities and prove beneficial to consumers. It is necessary that this must be seen in light of the provisions of the Law.

Under the excluded category as per Article 7 of the Law for grant of Ministerial Approval the application process involves that, if no decision is issued by the Minister with the 45 days since notice, it is to be considered an implicit acceptance of practice relevant to dominant position or Restrictive Agreements. The Minister is further empowered to accept such agreements in the interim till the final decision is taken, but such interim acceptance may not exceed 30 day period. These acceptances may also be issued for a specific period, or subject to review, as per the discretion of the Minister. The Minister can cancel any approval made under Article 7 if the conditions for the initial grant are no longer in existence, if the relevant entity fails to satisfy the conditions or requirements on the basis of which approval was granted.

What is Economic Concentration?

Chapter V of the Law concerns Economic Concentration, as a certain operation in which the total share of the entity involved in these operations exceeds the percentage prescribed by the Council of Ministers, as per the Relevant Market. It primarily deals with situations of merger or acquisition, whether direct or indirect.

Merger Control Filing:

 The Organizations involved in any merger/acquisition must submit an application to the Ministry at least 30 days before the completion of such operations with all required documents attached therewith. The Minister shall make his decision within 90 days, which may be extended for another 45 days, at the completion of which, if no decision is reached, the Economic Concentration Operation shall be deemed to have been accepted.

Approval of such operations is subject to the conclusion that the operation will either not have an adverse impact on competition, or that it shall have positive effects which shall outweigh the negative effects of the competition. Such approval may be conditional on the implementation of certain conditions and obligations prescribed by the Minister.

Lastly, under Resolution No. 13, an application must be made where the market share of the parties exceeds 40% of the total transactions undertaken in the relevant market.

Appeal Mechanism:

Within fourteen (14) days of the Minister’s decision, the Competition Regulation Committee is to review the petition and submit their report along with recommendations within 10 days since referral. The Minister is to take note of the recommendations of the Committee and within thirty (30) days give final decision. If no decision is given, the appeal is deemed to have been rejected.

Mandate of the Ministry of Economy:

The central role of the Ministry of Economy (“The Ministry”) includes:

1. The implementation of Competition Policy in the UAE and coordination with competent authorities to prevent legal violation.
2. Prescribe forms and applications related to its duties.
3. Investigate violative practices.
4. Receive applications for reconsideration of decisions made/ appeals.
5. Conduct studies and disseminate information to the public.

The Ministry is supplemented by the Competition Regulation Committee which has been recently established in 2018.

Penalties:

The following penalties are prescribed by Chapter eight under the Law:

1. Violations of restrictive agreements and abuse of dominant position (Articles 5 and 6) – fine ranging from AED 500,000 to AED 5,000,000.
2. Violations of (Economic Concentration) (Article 9) – 2% to 5% of annual sales volume of goods or service revenues realised by the violating organisation in the preceding year, and if such information is not available, a fine ranging from AED 500,000 to AED 5,000,000.
3. Other violations – fines ranging from AED 10,000 to AED 500,000 depending on the law violated and the seriousness of it.
4. Penalties may be aggravated for recurrence.
5. Further, in case of a conviction, the organisation may be subject to closure for a period between 3 months and 6 months.

Penalties provided herewith shall not prejudice further aggravated penalties provided under any other law, or the right of the harmed party to have any recourse before the court from compensation or remedies.