October 24, 2016

Legal Corner: UAE Competition Law – Now Effective

Legal Corner UAE Competition Law – Now Effective

Since the UAE Competition Law (Law) came into force in February 2013 it has not had much impact on day-to-day business dealings. This is because there were a number of gaps in the law which made it difficult to identify what business activities amounted to “anti-competitive behaviour” and which would therefore be restricted under law. However, Cabinet Resolutions have been issued to fill in some of those gaps and we may now see more attention being paid to the Law and its potential impact on business in the UAE. The stated aim of the Law is to “protect and enhance competition in the UAE and combat monopoly practices by providing a stimulating environment for establishments and keeping a competitive market governed by market mechanisms in accordance with the principle of economic freedom”. It aims to achieve this by “banning restrictive agreements, banning business and actions that lead to the abuse of a dominant position, controlling the operations of economic concentration and avoiding all that may prejudice, limit or prevent competition in the UAE”. The Law does not apply to specified regulated sectors with their own competition rules (including telecoms, financial, energy and transport), small and medium establishments (not currently defined) or Federal or Emirate level governments and establishments at least 50% owned by such governments. It does, though, apply to actions carried on outside the UAE that may affect competition within the UAE. Businesses need to ensure they do not enter into the following:

 

1. Restrictive Agreements

Restrictive agreements that prejudice, limit or prevent competition, especially those that involve:

  • Price fixing;
  • Mandating contract terms for sale or purchase or supply of services;
  • Collusion in tenders or offers;
  • Colluding to refuse to buy from, or sell to, certain establishments to impede their business;
  • Market manipulation by limiting the free flow of goods and services;
  • Dividing markets or client allocation amongst competitors;
  • Excluding new market entrants.

The Law will not apply to agreements between parties together representing less than 10% of the relevant market. However, this exception does not apply to price fixing or market division agreements which should not be entered into regardless of market share.

 

2. Abuse of a Dominant Position

Any establishment occupying a ‘dominant position’ in the relevant market must not carry out any actions to abuse such position and prejudice, limit or prevent competition. In particular:

  • Directly or indirectly imposing prices or selling conditions (resale price maintenance);
  • Selling goods or services below cost price to exclude other market entrants or cause losses to other market participants;
  • Unjustified discrimination between clients on price or terms in identical contracts;
  • Restricting a client from dealing with a competitor;
  • Refusing to deal in accordance with usual commercial conditions;
  • Making contracts conditional on accepting obligations in relation to unrelated goods or services;
  • Intentionally publishing false price information; or
  • Market manipulation by increasing or decreasing availability of goods.

An establishment occupies a dominant position where its share is over 40% of the overall transactions in the ‘relevant market’.

 

3. Economic Concentrations

Any acquisitions or mergers which result in a total market share of more than 40%, or which will enhance or create a dominant position, must be pre-approved by the Ministry of Economy (Ministry) in accordance with the procedures and timeline set out in the Law and regulations. Such activity will only be approved if the Ministry is satisfied that they will not negatively affect competition, or if it will have a positive economic impact that outweighs any potential negative effects.

 

Consequences of Breach

Businesses caught by the law and which enter into unauthorised restrictive agreements or which abuse a dominant position face fines of between AED 500,000 and AED 5million. Where a business believes a restrictive agreement or practice related to a dominant position would lead to certain benefits, including for the consumer or economic development, it is possible to apply for an exemption from the Ministry. If required pre-merger clearance is not sought, parties face fines of between 2% and 5% of the annual sales or revenues subject to the violation as realised in the UAE in the preceding financial year. If this cannot be determined, the fine will be between AED 500,000 and AED 5million. Convicted businesses may also face closure for 3-6 months and there is the potential for criminal charges and claims for compensation from any injured parties. If a business is unsure about whether or not it occupies a ‘dominant position’, whether a proposed merger might create or enhance a ‘dominant position’ or if a relevant agreement is a ‘weak agreement’, it can request confirmation from the Ministry in advance to ensure it does not fall into restricted territory. However, it remains unclear how the Ministry will calculate ‘relevant market’ for this purpose, and so there remains some uncertainty as to what will and will not be caught. With the recent additional clarity and the Ministry ready to accept applications for approval, businesses should take a careful look at their contracting policies and procedures and update them to take account of the changes.

 

 

This article is written by the Authors: Harkee Wilson and John O’Connor, CMS Cameron McKenna LLP (DMCC Branch). They can be contacted on the following contact details:

Harkee Wilson

Legal Director, CMS Cameron McKenna LLP (DMCC Branch)

Harkee.Wilson@cms-cmck.com

John O’Connor

Partner, CMS Cameron McKenna LLP (DMCC Branch)

John.OConnor@cms-cmck.com

 

With the recent additional clarity and the Ministry ready to accept applications for approval, businesses should take a careful look at their contracting policies and procedures and update them to take account of the changes.

Topics: Legal Corner

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