UAE COMPETITION LAW: DON’T FORGET ABOUT THE PRICE TAG
Authored by: Victoria Woods
Originally published in May 2013 then reviewed and updated by Victoria Woods in June 2015.
- The UAE’s Competition Law came into force on 23 February 2013.
- The implementing regulations came into force on 27 October 2014.
- Historically, the Consumer Protection Law provided some protection for end consumers against unethical business practices - this is unaffected by the Competition Law.
- The Competition Law deems any arrangement to specify prices for goods or services to be a “restrictive agreement”, barred under the new law however there are several ways that restrictive agreements between agents and principals could, in practice, be allowed as discussed in this article.
As reported in our last Competition update, the UAE’s new Competition Law came into force on 23 February 2013. Under the new law, the safeguarding of interests of consumers looked set to move way beyond quality assurance and price rise control on essential commodities and into the active promotion of a freely competitive retail environment. The UAE’s Competition Law includes most of the internationally recognised best practices on regulating competition, however, in reality, does it go as far as its foreign equivalents? Questions remain over the application of some of the key provisions of the law, despite the implementing regulations coming into force in October 2014.
The development of agency relationships with foreign manufacturers has been a popular method of growth for UAE businesses. As their products vie with the competition for top spots in the marketplace, agreements may have been reached between principals and agents to set the shelf prices of products in stores; perhaps to keep a price relatively high to maintain its image or status amongst the rest, or to suddenly drop the price to generate increased consumer interest. These methods may make good business sense, or indeed could be forced on to agents by principals as part of contract terms, however, the Competition Law says that in some cases, this behaviour could expose both parties to potential fines of at least UAE Dirhams 500,000 a time, business closure for between three and six months and a public telling-off in the local press.
Historically, the Consumer Protection Law (Law No.24 of 2006 and its implementing Executive Regulation No.12 of 2007) provided some protection for end consumers against unethical business practices, and this is unaffected by the new law. Although the provisions of that law and the Competition Law (No. 4 of 2012) overlap to a certain extent, the focus of the two laws is quite different. The Consumer Protection Law’s first concern is to ensure that the quality of goods and services as delivered to the consumer are of a certain standard and to prevent unjustified price increases. In contrast, the Competition Law is all about the maintenance of free competition and the outlawing of practices likely to distort the market. This includes collusion to fix prices, influence supply or create barriers to entry to prevent new competition, as well as the use of a dominant position on one’s own to do the same.
For example, Article 5(1)(a) of the Competition Law deems any arrangement to specify prices for goods or services to be a “restrictive agreement”, barred under the new law. Further, Article 5(2) bans arrangements which divide markets or hinder entry into markets by new enterprises. On its face, any agreement between say, a manufacturer and its UAE distributor, to fix the shelf price of a product will potentially land both of them with sizable fines, at least. The Ministry of Economy’s new Competition Regulation Committee is required to investigate all potential competition law breaches. Therefore, disgruntled staff, other members of the public or competitors can interfere with what may have previously been considered a private commercial affair. In addition, some may be able to claim damages through the courts for losses suffered arising from violations of the new law.
But there are several ways that restrictive agreements between agents and principals could, in practice, be allowed.
The first is where small and medium sized enterprises are concerned. The new law as a whole will simply not apply to them. Benchmarks to define these are yet be set but Cabinet considerations as to what constitutes these enterprises could extend beyond the size of businesses alone and into their market share, meaning that even what might usually be considered a ‘larger’ business could be considered small or medium in this context if it has a low percentage share of the relevant market.
The second, so far as restrictive agreements caught by Article 5(2) of the new Competition Law are concerned, is by virtue of the Commercial Agency Law (No. 18 of 1981), as this law allows exclusive arrangements and the prevention of parallel importing so the competition protections of Article 5(2) of the Competition Law won’t apply to prevent those.
The third comes via permission from the Ministry of Economy itself in respect of Article 6 restrictions on using one’s own dominant position to restrict competition. The Competition Law defines a dominant position as one which enables an effect on the relevant market. Where there is a dominant position in a market or significant part of it, price setting is listed as an express example of abuse of that position, and is accordingly barred. However, circumstances for exclusion (as approved by the Ministry) include the “improvement of the performance and competitive ability of enterprises”, the “development of production or distribution systems” and the “achievement of certain benefits for the consumer”. The scope of how these exceptions will be applied in practice is as yet unknown, however, the implementing regulations do detail how the exception process will be effected.
Fourthly, the appendix to the Competition Law provides a list sectors, activities and services to which it just doesn’t apply. The list is subject to additions or deletions by the Cabinet, but currently includes the telecommunications, financial and oil and gas sectors, the production and distribution of pharmaceuticals and the land, sea and air transport sectors, amongst others.
The Competition Law certainly looks as though it means business when it comes to the promotion of competition in the UAE, but it remains to be seen, through the law’s application whether it really has teeth. Nevertheless, given the potentially onerous fines and other penalties that could be applied, now is the time for those with distribution or supply arrangements to revisit those arrangements and indentify those issues that are most likely to be an issue, such as exclusive agreements outside of the Commercial Agency Law, price fixing arrangements and/or resale price maintenance clauses.
This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.