Competiton Law 2023 - key changes and legal implications
COMPETITION LAW 2023 – KEY CHANGES AND LEGAL IMPLICATIONS
Familiarity with competition law is valuable for businesses falling within the scope of its application for at least two key reasons. Firstly, to ensure that the businesses do not violate the competition law which may lead to fines and penalties. Secondly, it acts as a tool for safeguarding businesses from unfair maneuvers from their competitors that could undermine the market position and interests of these businesses.
The United Arab Emirates (“UAE”) stands at the forefront of economic dynamism which is marked by its recent efforts to revamp the legal and regulatory framework dealing with the protection of competition in UAE’s markets. In a recent development, the UAE has replaced Federal Law No. 4/2012 on the Regulation of Competition (“Old Law”) with Federal Decree-Law No. 36/2023 on the Regulation of Competition (“New Law”). The New Law was promulgated in September 2023 and came into force on 29 December 2023.
This article aims to provide a brief insight into the key changes made in UAE’s competition law through the New Law. Summarily and amongst others, the following changes are noteworthy:
- Introduction of anti-competitive practices that are not dependent on the existence of a dominant position in the relevant market;
- Clarification on the scope of the New Law – which extends to digital marketplaces and physical branch offices of an establishment;
- Provision for the issuance of block exemptions and eliminating the exemption for weak prohibited agreements and small-medium enterprises;
- Procedural and substantive changes to the exemptions granted to separately regulated sectors and government-owned establishments;
- Introduction of a new criteria to meet the merger control and dominant position thresholds; and
- Rationalisation of penalties and enforcement process.
These along with other key changes are discussed below.
KEY CHANGES MADE IN THE NEW LAW
- (a) Recognising that protection of consumer interest is one of the core objectives of competition regulation, the New Law explicitly incorporates “consumer interest” within the definition of “Competition”. Thus, the definition of “Competition” now reads as “Practicing economic activities according to market mechanisms without any influence or restriction on such mechanisms in a manner that may adversely affect the trade, development and the consumer’s interest.”
- (b) The definition of ‘Relevant Market’ has been updated to expressly include digital marketplaces. This amendment ensures that e-commerce operations that take place digitally with no ‘brick-and-mortar’ also fall under the ambit of the Competition Law.
- (c) Similarly, the New Law expands the definition of “Establishment” to include branches of the representative offices alongside the main office of entities.
- (d) The definition of the term “Economic Activity” is introduced in the New Law, which encompasses activities of production, distribution, and provision of goods and services. The definition is broad enough to encompass a range of trade and commercial activities concerning goods and services at various levels and hierarchies of the supply chain operations in the United Arab Emirates.
- Prohibited Anti-Competitive Practices
New Anti-Competitive Practices
Two new anti-competitive practices have been introduced. Notably, for neither of these, having a ‘dominant position’ in the market is expressly specified as a precondition. As a consequence, small or medium-sized players in the market who may not have the requisite market share of 40% or the ability to influence the market may also be penalized for engaging in these new anti-competitive practices. Thus, all establishments, regardless of their share in the relevant market, should act prudently and be cautious regarding these new anti-competitive practices:
- Abuse of position of economic dependency: A new anti-competitive practice has been introduced. Establishments are prohibited from engaging, without valid justifications, in certain specific practices that exploit the economic dependency of a customer. Such provisions are not novel and have been implemented in several other jurisdictions including in Japan, Taiwan, Germany, and France in the past. Under the New Law, economic dependency exists in the case of a customer who lacks alternative sources for marketing or supply. In the international competition law arena, economic dependency generally exists where an establishment enjoys a superior bargaining position over the customer. The New Law also lists down instances of abuse of economic dependency which bear semblance with the instances of abuse of dominant position.
- Prohibition of offering at extremely low prices: Offering prices that significantly undercut the costs of production, processing, or marketing where the intent or consequence is to exclude an establishment or its products from the relevant market or prevent entry thereof is prohibited. The awaited Implementing Regulations under the New Law are expected to offer further clarity on the applicability, controls and execution of this prohibition.
Existing Anti-Competitive Practice
With respect to the abuse of dominant position, four key changes have been made:
- The “dominant position” was established under the Old Law read with the Implementing Regulations issued thereunder when an Establishment exceeded 40% of total transactions in the market. The changes in the New Law envisage the possibility of “dominant position” being established regardless of any numerical threshold being met. This would be in the cases where there is an ability to influence that would negatively affect the relevant market. Further clarity on this alternative threshold of establishing a dominant position is to be provided in the Implementing Regulations to be issued under the New Law;
- Abuse of Dominant Position will now capture an abuse by an Establishment, either independently or in collaboration with other Establishments that hold a Dominant Position in the Relevant Market or a significant part thereof;
- “Intention to prejudice, constrain, restrict, or obstruct competition” has been included in the description of the abuse of dominant position. It is not entirely clear as to what would be the impact of this insertion in practice; and whether under the New Law, it would be necessary to establish an Establishment’s intention to establish the abuse of dominant position; and
- Abusive practices now also include controlling or limiting production, markets, or technological development, as well as unjustifiably preventing or obstructing other establishments from accessing networks, facilities, or any physical or digital infrastructure which an establishment owns or exploits if this is the only basic and economically feasible solution for practicing economic activity or entering the relevant market.
The New Law has brought changes to what is exempted or what may be exempted from the scope of competition laws:
- Exempted Sectors: Under the Old Law, sectors, activities, and businesses described in the Annex attached to the Old Law were exempted from its application. The Annex non-exhaustively specified certain exempted sectors including, amongst others, telecommunications, the financial sector, media activities, oil, and gas, etc., The New Law does not contain an annex enumerating specific sectors. However, exemption from the applicability of the New Law is still available to any agreement, practice, or action related to specific goods or services in a sector whose sectoral regulatory bodies have the power to regulate competition and related activities under their respective regulations. These sectoral regulatory bodies can request the Ministry of Economy (“Ministry”) in writing to take over the regulation of competition, in whole or in part. If the Ministry agrees to such a request, the New Law will apply to a sector otherwise exempted.
- State-owned establishments: Under the Old Law, a blanket exemption was available to acts initiated by the Federal Government or any Emirates’ governments (including any enterprise owned by either), and acts initiated under their authorization, or their supervision. The exemption has been narrowed in the New Law. It is now available to Establishments owned by the Federal Government or any of the Emirates’ Governments which are determined to be entitled to the exemption by a Cabinet decision in the case of the Federal Government, or a Local Government’s decision in the case of any of the Emirates’ Governments.
- Small-Medium Enterprises (SMEs): One of the striking changes is the exclusion of SMEs from the list of exemptions. SMEs are no longer exempted from the competition law and have to comply with the same unless they seek any exemptions under the general exemption procedures or fall within the scope of any block exemption.
- Weak Agreements: The Old Law exempted “weak agreements” from being subject to the Restrictive Agreements’ provisions. In the context of the Old Law, a weak agreement was a Restrictive Agreement that affected less than ten percent (10%) of transactions in the Relevant Market. In contrast, there is no mention of “weak agreements” in the New Law, implying that Restrictive Agreements, irrespective of the degree of their impact on the Relevant Market, are prohibited under the New Law.
- Individual Exemption Applications: As was the case with the Old Law, Establishments can seek an exemption from the applicability of prohibited agreements and other anti-competitive activities if it can be established that such agreements or practices are necessary to: (a) promote economic development; (b) improve the performance and competitiveness of an establishment; (c) develop production or distribution systems; or (d) achieving certain benefits for the consumer. Such exemption applications are determined by the Ministry on a case-to-case basis.However, the following key changes to the individual exemption application criteria are note-worthy:
- The Ministry may deny the exemption if the restriction proposed is disproportionate to the goals being achieved or leads to the complete elimination of competition from the market;
- Previously, failure by the Ministry to decide on an exemption application within the prescribed timeline meant that the exemption application was deemed to be accepted. Now, failure to decide within the prescribed timeline means deemed rejection instead of deemed acceptance.
- Block Exemptions: The New Law introduces a framework for block exemptions, common in competition laws of many jurisdictions globally. These exemptions apply to specific categories of contracts and practices where the benefits arising out of such contracts and practices outweigh any harmful effects on the competition. Unlike case-by-case assessments, once granted, block exemptions cover practices within their scope automatically. Block exemptions are generally issued by the competition authorities on their own initiative without the need for an application.
- Merger Control Process
Businesses engaging in mergers, acquisitions, or undergoing changes in control and ownership may be subject to provisions related to economic concentration. In that case, such businesses must seek appropriate approvals before consummating such transactions. Important changes have also been made to the provisions dealing with operations of economic concentration:
- Threshold Requirements: Under the Old Law, “economic concentration” was achieved if the collective market shares of the entities involved were more than forty percent (40). Now, regardless of the total share of an establishments in the total transactions in the market, the requirement of economic concentration may be met where the total annual sales values of the establishments in the Relevant Market during the last fiscal year exceeds the amount determined by the Council of Ministers based on the Minister’s proposal. This alternative route seems to have little nexus with the actual market share of the establishments and focuses exclusively on the number of the annual sales value.
- Economic Concentration Application: Previously, the application for economic concentration had to be filed at least thirty (30) days before the completion of the transaction. Under the New Law, this application needs to be filed at least ninety (90) days before the completion of the transaction. This should be borne in consideration while finalizing the timelines for the completion of the relevant corporate transactions.
- Deemed Rejection: Failure to decide an application concerning economic concentration within the stipulated timelines used to be considered as deemed acceptance under the Old Law. Now, it is considered as rejection of the application. However, these time limits are suspended if the Ministry requests additional information or technical opinion or if any objection by an interested party is filed.
- Interested Parties: The Interested Parties have now been given a right to submit any data or documents to the Ministry on the Economic Concentration application and file an objection to the approval of the Economic Concentration operation. Interested Parties may include, for example, competitors aggrieved by a merger between two of its competitors in the market.
- Administration and Enforcement
The processes concerning administration and enforcement have also been streamlined with certain important changes discussed below:
- Implementing Regulations: As was the case with the Old Law, the New Law also leaves certain significant details to be filled in by the Implementing Regulations which are to be issued within six months from the date of the New Law coming into force. Until then, the regulations, decisions, and laws issued under the Old Law will continue to be effective.
- Administration at the Emirate and Sectoral Level: Where the concerned establishments are only located in the same Emirate and the impact of any practices does not exceed the borders of the Emirate, a competent local authority of such Emirate (instead of the Ministry) shall consider anti-competitive practices, related exemption applications, and applications for approval of Economic Concentration operations that would affect the competitive situation and the general balance of the relevant market. The Ministry has the right to be informed and may also participate with the concerned authority in the regulatory process.Similarly, the Ministry may delegate the regulatory powers to a sectoral regulatory body that does not have the power to regulate competition under special law or its regulations, subject to an application made by such body to the Ministry and the Ministry’s approval.
- Time Limitation for Complaints: The New Law has introduced a time limitation of five (5) years to file a complaint against anti-competitive practices from the date of the commission of the anti-competitive act. However, this limitation period does not apply in cases where an anti-competitive practice persists and continues to harm competition even after the lapse of five (5) years.
- Grievance before Appeal: The New Law provides an additional remedy against any decision of first instance made under it. Previously, a direct appeal to the competent court was envisaged. Now, an interested party must submit a grievance against such a decision in the first place. Appeal before the court may not be admissible unless a grievance has been filed and decided or 30 days have elapsed since the date of its filing.
- Changes in Fines and Penalties: Penalties for certain anti-competitive practices have been modified. These include:
- Under the Old Law, abuse of dominant position and/or entering into a prohibited agreement were punishable with a fine of at least AED 500,000 but not exceeding AED 5,000,000.Now, the penalty for abuse of dominant position and/or entering into a prohibited agreement starts with a fine of 100,000 and can be no more than 10% of the annual total sales achieved by the violating establishment within the State during last fiscal year – however, if the annual total sales cannot be determined, then the penalty is fine of at least AED 500,000 but not exceeding AED 5,000,000.
- Under the Old Law, proceeding with an economic concentration operation without obtaining approval, where required, was punishable with a fine of at least 2% but not exceeding 5% of annual gross sales or revenue. If the annual gross sales or revenue was not determinable, the fine was at least AED 500,000 but not exceeding AED 5,000,000.Now, the fine may range from 2% to 10% of the annual total sales. Where annual gross sales are not determinable, the fine is still at least AED 500,000 but not exceeding AED 5,000,000. New punishments have also been created. These include:
- As discussed above, offering at extremely low prices and abuse of economic dependency have been introduced as new prohibited anti-competitive practices. The punishment for these is the same as the abuse of a dominant position and/or entering into a prohibited agreement.
- Preventing an employee concerned with the implementation of the New Law from performing the assigned duties, withholding information that would benefit the investigation or providing misleading information/data or destroying the same is now punishable. The punishment is a fine of not less than AED 50,000 and no more than AED 500,000.
Perspective From the EU Competiton Law
It is pertinent to highlight that despite the commendable legislative efforts, one of the challenges in fully understanding the UAE’s competition law is that presently, there is limited guidance on its on-ground enforcement. Globally, the principles of competition law tend to share common objectives: promoting fair competition, preventing monopolistic practices, and protecting consumer interests. Therefore, examples from jurisdictions where competition law is well-developed may be persuasively helpful in understanding what competition laws expect from businesses.
In this context, the European Union’s (EU) competition law is a notable example of a well-developed and comprehensive framework in this field. It is grounded in principles aimed at ensuring fair competition and preventing anti-competitive practices across the EU’s single market. Two fundamental provisions of EU competition law are Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
Article 101 TFEU corresponds to Article 5 of the New Law, and both bear a degree of semblance with each other. Article 101 TFEU prohibits agreements between companies that prevent, restrict, or distort competition within the EU’s internal market. Both Article 101 TFEU and Article 5 of the New Law aim to prohibit anti-competitive agreements, decisions, and concerted practices that may affect trade and distort competition. The enforcement of Article 101 is notable for its rigorous approach to cartels and its flexible treatment of cooperative agreements that can benefit consumers. This includes practices like price-fixing, market-sharing, and limiting or controlling production, markets, or technical development.
Article 102 TFEU corresponds to Article 6 of the New Law, and both bear a degree of semblance with each other. Article 102 TFEU focuses on preventing establishments or undertakings that hold a dominant position in a market from abusing that position. Both Article 102 TFEU and Article 6 of the New Law aim to prohibit the abuse of a dominant position by engaging in unfair activities such as fixing prices and trading conditions, discriminatory practices, limiting productions, tying and bundling, etc. The EU competition law has a well-established framework for defining and identifying market dominance and examples of abuses, backed by a rich body of case law and enforcement history.
In essence, the EU’s experience, including its enforcement of Articles 101 and 102 TFEU, provides valuable insights into the functioning of competition law. Yet, it is crucial to consider these insights in light of the UAE’s distinct landscape, ensuring the creation of a fair, dynamic, and competitive market environment that is informed by global best practices but is tailored to local conditions.
The New Law has an expanded scope of applicability and can pave the way for the enhanced enforcement of the competition laws in the UAE. With the increased focus of the legislature on competition law, as is manifested through the introduction of the New Law, there may be an increased potential for its enforcement and implementation by the competent regulatory authorities in the near future. Therefore, businesses must assess the competition law from a compliance perspective and mitigate any competition law risks.
The author of this Galadari Insight is Faizan Daoud. Faizan is an Associate on the Corporate Commercial team at Galadari. He has +7 years of experience in the legal practice, in which he worked on numerous high-value transactions. For more information about Galadari’s Corporate Commercial practices, please contact Faizan directly.
Faizan would like to thank Ishwarya for Co-authoring this insight.
|Faizan Daud Associate E: Faizan.email@example.com
| Article 1 of the New Law.  Article 7 of the New Law.  Article 8 of the New Law.  Article 6 of the New Law.  Article 4 of the New Law.  Ibid.  Article 9(1) of the New Law.  Article 10(1) of the New Law.  Article 11 of the New Law.  Article 12(1)(a) of the New Law.  Article 12(1) of the New Law.
| Article 13(2) of the New Law.  Article 13(5) and 13(6) of the New Law.  Article 38 of the New Law.  Article 39 of the New Law.  Article 21 of the New Law.  Article 22 of the New Law.  Article 37 of the New Law.  Article 34 of the New Law.  Article 24 of the New Law.  Ibid.  Article 27 of the New Law.