21 Apr 2022
“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity”
----quoted by, Nancy Pearcey, an American author.
Amidst healthy competition, people strive to come up with better and innovative ideas to stay afloat in the market; there is a scope of continuous progress among the competitors to keep pushing each other to come up with better products and economic strategies to remain in the same old dormant state of business. However, it is necessary that such competition is in line with healthy competition practices as opposed to anti-competition and unfair competition practices; lest the very essence of one’s right to have a fair opportunity to run their business be infringed. As much as competition is encouraged, it should also be duly regulated to create an atmosphere of unfair competition in the economic markets.
The United Arab Emirates (UAE), encompasses a wide range of commercial entities; the establishment of business entities only keeps growing because many foreign entrepreneurs and investors are attracted to the ever-growing favourable business atmosphere and the strategic location of UAE. The UAE government in an attempt to take keen steps to ensure the promotion and protection of healthy competition in its economic market, and accordingly, has introduced its first-ever legislation on competition law in the year 2012.
Federal Law Number 4 of 2012 on the Regulation of Competition (the Competition Law), is the key legislation governing all the aspects of competition in the UAE markets. The implementing executive regulations on the Competition Law, such as the Council of Ministers’ Resolution Number 37 of 2014 and the Cabinet Decree Number 13 of 2016 on Ratios and Regulatory Controls, shall be taken into consideration while enforcing the provisions of the Competition Law.
The two primary goals of the Competition Law are as follows:
1. To attain sustainable development by creating a favourable and encouraging atmosphere for the commercial organizations to function efficiently, and at the same time increase the competitiveness in the market while boosting the consumer's interests simultaneously;
2. The Competition Law aims to eliminate restrictive agreements, actions that lead to abuse of dominant positions, economic concentration (monopoly), or any other such action which has the potential to destroy a fair competitive market, so as to ensure that the principles of economic freedom are observed.
Scope of Application of the Competition Law:
The far-reaching Competition Law has its scope of application extended to the business activities of the entities operating in the UAE, which includes even the exploitation of intellectual property rights within and abroad in the UAE. It further covers the economic activities which are carried out outside the UAE but tends to have effects on the competition in the UAE market. Article 4 of the Competition Law provides the entities and sectors to which the provisions of this law are not applicable as:
- To the sectors, activities and services which are governed by the competition rules as sanctioned by another law or regulations of the sectoral organizational bodies and as excluded by the Council of Ministers. Telecommunication, financial, oil and gas, sectors; cultural activities (audio, visual and printed), all modes of transportation, mail and courier services, production and distribution of pharmaceutical products, activities involving electricity, water, sewage, garbage disposal, sanitation or any other such activities related to the environmental services are excluded from the radar of this law;
- Government controlled, owned, supervised, or authorized activities and services are excluded, and also as per Resolution Number 13 of 2016, the exemption is extended to the organizations that contain at least fifty (50) per cent of ownership by the Government;
- Small and medium-sized enterprises are regulated by the controls prescribed by the Council of Ministers.
Chapter four (IV) of the Competition Law covers the anti-competition practices like restrictive agreements, abuse of dominant position and economic concentration. In order to maintain an effectively competitive market and restrict any kind of monopolistic or abusive acts by the entities endangering the scope of having fair competition or no competition, the above-mentioned anti-competition practices are strictly prohibited unless approved by the competent authority.
Restrictive Agreements:
Article 5 of the Competition Law explicitly lays down what constitutes restrictive agreements. Any agreement which contains any kind of restrictive, preventive and abusive clauses with respect to competition is deemed as a restrictive agreement. Article 5 (1) sets forth the forms of clauses which shall amount to restrictive agreements as follows:
a. Agreements that intend to set the sale prices of goods or services, directly or indirectly, by either reducing, increasing or fixing prices, in a manner affecting the competition;
b. Deciding the terms and conditions of sale, purchase or the manner in which service shall be conducted;
c. Agreements entailing the clauses such as collusive bidding, supply offers and proposals in tenders;
d. Agreements that contain clauses as to imposing limited production, development, distribution or marketing or freezing of the same;
e. Agreements include conspiracy clauses like prohibiting purchases, limiting the sale or supply, or preventing the ability to carry out the business of certain organizations or entities;
f. Agreements curtailing the freedom of supply of goods and services to the significant markets, removing goods or services from relevant markets, unlawfully concealing or storing goods or services, prohibiting from participating in dealings concerning goods or services, or releasing a sudden oversupply which leads to large circulation of good and services at false prices.
Likewise, article 5 (2) of the Competition Law in line with the Federal Law Number 18 of 1981 on Regulating Commercial Agencies (the Commercial Agencies Law), lays down the restrictive agreements by organizations, in a manner obstructing the fair competitive market as follows:
a. Any agreement which specifies sharing of the market by allocating clients based upon factor-like geographical areas, distribution centres, customer quality, seasons, period of time or any other such factors causing unfavourable effects on the competition;
b. Any agreement which includes measures or steps in a manner blocking any organization from entering into the market or excluding any entity from the market or making accession to any existing agreements or joint ventures unavailable. However, provisions of Article 5 (1) (a) and (2) (a), are not applicable to low-impact agreements as long as the share of the organization parties to this agreement has not exceeded the percentage set by the Council of Ministers to the total transactions in the relevant market.
Abuse of a Dominant Position:
Any business entity which has dominion over a large section of the market and has the power to fix a price beyond the acceptable competitive level for products that are low in quality and thereby, obstructing or eliminating the scope of fair competition in the market is considered to have abused their dominant position. In simple terms, any organization which in a position to function in the market independent of the reaction and responses of its competitors or intermediate or final consumers is considered to be in a dominant position and misuse of such position to curb or prevent competition in the market shall be deemed as an abuse of their dominant position. Article 6 of the Competition Law strictly prohibits any entity in a dominant position to initiate actions such as:
I. Directly or indirectly, setting forth prices or conditions with regard to resale of goods or services;
II. Carrying out their business activities at below cost price so as to block or exclude the entry of its competitors, or jeopardize the competitor’s business with an intention to expose them to losses and to the extent where they are unable to carry their business;
III. Any action discriminating the customers with regards to the terms of prices of goods or services or conditions of the sale or purchase contracts;
IV. Coercing the customers to not have any kind of transactions with its competitors;
V. Partially or wholly rejecting the dealings under the regular commercial terms;
VI. Unjustified non-participation from selling or purchasing the goods or services, or any kind of reduction or obstruction with regard to sale or purchase of goods or services as so to enforce false price;
VII. Concluding the agreement of sale or purchase of the goods or services based on the acceptance of a condition imposing the obligation as to dealing with other goods or services which are unrelated to the subject matter of the original dealing;
VIII. Spreading untrue information or rumours about the products of their competitors;
IX. Causing forced deficit or oversupply of the goods and services by controlling the available quantities of the same.
Economic Concentration:
Economic concentration or market concentration can be defined as the extent to which a market is dominated by the producers or sellers within a given industry. Precisely, economic concentration is the amount of percentage of control or upper hand that an organization holds in the market. Economic concentration can be achieved by mergers or acquisitions.
Therefore, the provisions of the Competition Law regulate economic concentration in the following manner:
Any organization that intends to complete the economic concentration operations, in cases where the total share of the organization entailed in the operation proceeds is beyond the percentage determined by the Council of Ministers to the total transactions in that relevant market; and which has the ability to affect the competition level of such relevant market and is in a manner which enables them to attain the dominant position. Such organizations shall apply to the Ministry of Economy at least thirty (30) days prior to the completion of these operations along with all the required documents. Thereafter, the Council of Ministers, on taking into consideration of the Minister’s proposal, shall take actions like either reducing or increasing the economic concentration percentage to be in line with the economic concentration requirements. The controls with respect to the economic concentration are set out in the executive regulation of this law.
The Ministry is required to verify and decide upon the application of economic concentration operation within a period of ninety (90) days, which can be extended to another forty-five (45) days from the date of receiving the completed application which has successfully met all the requisites. During this process of evaluation by the Ministry, the organization whose application is being verified shall not indulge in any actions or procedures to complete the economic concentration operations.
In case, where no decision has been made by the Ministry within the stipulated time limit by this law, then it shall amount to have been approved implicitly. The Minister’s decisions will be based on the effects caused by such economic concentration on the competition in the market. The Minister also has a right to nullify the approval of economic concentration granted to any organization, if such organization is found to be involved in enforcing any kind of restrictive agreements or using their dominant position in an abusive manner affecting the competition.
Article 7 sets forth the occasions when the restrictive agreements or practices by a dominant position can be excluded from the provisions of articles 5 and 6 of this law as follows:
The relevant organization is required to bring to the notice or vigilance of the Ministry of these restrictive agreements or practices by the dominant positions, in advance and in the manner as prescribed by the executive regulation of this law. Thereafter, the relevant organization is required to establish that the objectives of such agreement or practices observed by the dominant position would only result in economic development, promote the performance of the organizations or enhance their competitive ability, or cause better production or distribution systems or is beneficial to the customers. The Minister is then required to come up with a decision within a period of ninety (90) days, which can be extended for a period of forty-five (45) days from the date when such agreements or practices have been brought to the notice. The absence of any decision by the Minister within the stipulated time period by law shall be considered as an implied approval of such agreements or practices. However, this approval shall be subject to strict scrutiny by the relevant authorities so as to ensure that the organizations whose application has been approved adhere to the provisions of the Competition Law. This approval can be cancelled in cases where such relevant organizations fail to meet the conditions or requirements on which the approval was granted, or the approval was sought on false and misleading information or where the circumstances under which such approval was granted cease to exist.
However, the Minister may approve the enforcement of the restrictive agreements or the practices relevant to a dominant position for a temporary period of not more than thirty (30) days, during the period of determination of the final decision with regards to the same. The provisions of the Competition Law also facilitate the formation of a Competition Regulation Committee (The Committee), which shall be headed by the Undersecretary of the Ministry of Economy. The Council of Ministers shall decide upon the matters like the formation, term, working system, members and their remuneration of The Committee.
The Committee shall perform the following functions:
1. Formulating and proposing policies for the protection of the competition in UAE;
2. Deal with the issues with regard to the implementation of the provisions of this law;
3. Proposing procedures or introduction of new provisions with respect to the protection of the competition to the Minister;
4. Examine the applications approved by the Minister which are submitted to The Committee by the Minister for reconsideration within a period of ten (10) days from the date of being notified of such decision;
5. Giving suggestions to the Minister as to the exclusion of the restrictive agreements or practices relevant to a dominant position;
6. Submit an annual report of The Committee to the Minister; do the needful on any other such matters concerning the protection of competition.
Similarly, article 14 of the Competition Law incorporates the functions which ought to be carried out by the Ministry. The Ministry shall regulate and carry out all the functions with regard to all matters concerning the competition and implementation of competition policies. The Ministry shall also prescribe forms and applications concerning the duties, conduct investigation of the violative practices, accept complaints or receive the applications for reconsideration of decisions made or appeals submitted and also conduct studies and research on the competition in the market and share such information to the public. Article 15 of this law further provides the diligence which needs to be carried out by the Ministry with regards to maintaining the confidentiality of any such information to which they have access and the information which can cause significant damages to the commercial interests of such business enterprises.
Penalties:
Articles 16 to 24 of the Competition Law lays down the penalties which shall be imposed in the following cases:
In violation of restrictive agreements and abuse of dominant position:
Any organization found to be in violation of the provisions of articles 5 and 6 of this law, shall be imposed with a fine of not less than UAE Dirhams five hundred thousand (AED 500,000) but not exceeding UAE Dirhams five million (AED 5,000,000)
Violation of the provisions governing economic concentration:
Any organization that violates the provisions of article 9 (economic concentration) or where such violation has been recognized by the violating entity in the previous financial year, shall be made liable to pay a fine of not less than two (2) per cent and not more than five (5) per cent of the annual sales volumes of goods or services revenues, and where determining the total sales or revenues volume or the subject of violation is not possible then, shall be imposed with a fine of not less than UAE Dirhams five hundred thousand (AED 500,000) but not exceeding UAE Dirhams five million (AED 5,000,000)
Violation of the provisions of this law or the executive regulation of this law:
Any organization which is found to be in violation of any other provisions of this law and its executive regulation shall be punished by a fine of not below UAE Dirhams ten thousand (AED 10,000) and not beyond UAE Dirhams one hundred thousand (AED 100,000).
Carrying out actions with regards to completing the economic concentration operations while the application of the same is under observation by the Ministry, shall be liable to be punished with a fine of not less than UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams five hundred thousand (AED 500,000). Any organization involved in any activity that violates article 15 (non-disclosure of confidential information to which the Ministry has access) of this law, shall be imposed with a fine of no less than UAE Dirhams fifty thousand (AED 50,000) but not more than UAE Dirhams two hundred thousand (AED 200,000).
The following penalties shall be severe in cases of recurrence of the same violations. It further provides the option for the aggrieved party to claim compensation for the damages suffered due to the violation of the provisions of this law. Article 26 further stipulates that a criminal suit can be initiated for the offences committed as per this law, only upon a written request by the Minister or his authorized deputy. However, before referring the matter to the criminal court, the Ministry may conduct a reconciliation process assuring the parties an amount of compensation to be paid to be nothing less than double the minimum penalty imposed by the provisions of this law.
For the purpose of knowing the details of the procedures to enforce the provisions of the Competition Law, the executive regulation incorporated by the Council of Ministers and the Ministry with regards to the implementing regulations of the Competition Law shall be referred to. The introduction of the Competition Law by the UAE government was a significant step in the progress of the competition law. The Competition Law strives to protect and encourage competition in the economic markets. It is necessary that every entity governed by this law strictly adhere to the provisions of this law in order to avoid penalties and disrupt the effective competition of the market.