In an effort to create a more business-friendly environment in the UAE, the Government has drawn up a new competition law that will take effect from 23 August this year.
On 23 August, a new competition law will come into force in the UAE. It heralds the UAE’s first introduction of merger control, prohibitions on anti-competitive agreements and abuse of a dominant market position. Practices such as price-fixing and bid-rigging are specifically targeted.
Businesses impacted (there are significant exemptions) by the new legislation have six months from 23 February to ensure they have made the necessary changes to ensure compliance to the new measures.
“The aim of this new legislation is to protect businesses and consumers from anti-competitive behaviour, to stimulate healthy competition, and deliver open, dynamic markets and enhanced productivity, which will in turn deliver greater value to customers,” says Elias Stephen, Managing Partner of Law House.
“Enterprises planning international or domestic mergers must now start considering whether a filing is required in the UAE. Establishments operating in the UAE must now make sure that they are fully compliant with the legislation when the transition period expires on 23 August 2013.”
According to a report by international law firm Freshfield Bruckhaus Deringer,1 the law is one of many reforms the UAE is introducing to ensure the country remains attractive to foreign investors.
“Other measures include new laws on arbitration and protecting intellectual property rights (IPRs),” stated the report.
Active enforcement will start after 23 August 2013, “though it will inevitably take time for the authorities to streamline working practices and gain the experience they need to enforce the law effectively and consistently,” the report stated.
Who the law applies to
The new law reflects elements of EU law and international norms. However the UAE has also incorporated a broad range of market sectors that are exempt from the new rules, which will considerably limit its impact.
The law applies to all entities in the UAE for their commercial activities and IPRs, except those in an exempted market sector. It also applies to entities outside the UAE whose activities affect competition in the UAE. The exemptions are:
- Federal and local governments, and government-owned or controlled entities;
- Entities operating in one of the following market sectors: telecoms, financial services, pharmaceutical production, cultural activities, oil and gas, postal services including express delivery, electricity and water production and distribution, sewage and waste disposal, and transportation and railways;
- Small and medium-sized enterprises.
“In particular, the restrictions on price-fixing and bid-rigging could be relevant in the construction sector where international experience has shown that competition authorities pay close attention to such practices,” states a report by Latham and Watkins.2
“Bid-rigging occurs when businesses, that would otherwise be expected to compete, agree to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process.”
Fines and penalties
How tough are the penalties for non-compliance?
As an example, entering into restrictive agreements or abusing market dominance will get you a fine of between AED 500,000 and AED 5 million. While failing to notify a notifiable transaction can incur fines of between 2 and 5 per cent of the infringing company’s annual revenue.
Implementation of a notifiable transaction before clearance can bring a fine of between AED 50,000 and AED 500,000.
Repeating offenders can expect to see these figures doubled. The law also allows the court to close down the infringing company’s facilities for three to six months and to have this decision published in daily newspapers.
The law also entitles victims harmed by an infringement to claim damages.
WHAT DO YOU NEED TO DO?
Law House Managing Partner Elias Stephen outlines the main points to ensure your business complies with the new competition law…
Businesses need to be fully committed to compliance with the competition law. There are three key things to keep an eye on in your own and your competitors’ businesses…
1. Abuse of a dominant position. A business has a dominant position if it can restrain or reduce competition in a market. This might include price fixing, undercutting prices, forcing customers not to deal with competitors, or discriminating between customers.
2. Merger and acquisition control. This is about the unfair concentration of economic power in the hands of fewer than before.
3. Restrictive agreements. A restrictive agreement can be harmful to competition if it effects the fixing or setting of prices; dividing the market by territory, by volume of sales or purchases, by type of goods sold by customers or sellers or by other means. It also covers agreements that reduce or prevent competition in a market.