04 Sep 2022

UAE Competition Regime

Authored by: Ahmed Hadeed

In Brief:

  1. UAE Competition Law aims to prevent anti-competitive practices and provide a stimulating environment for businesses to enhance efficiency and competitiveness in the interest of consumers.
  2. Ensuring that market practices and related agreements are compliant with Competition Law is of paramount importance in the UAE and accordingly to those operating in the UAE market.
  3. If a business is found to be engaging in anti-competition practices, in addition to the potential hefty fines, the resulting negative publicity can cause significant damage to its reputation, brand and goodwill.

Competition, or antitrust, laws set out the rules and procedures that aim to protect fair competition between businesses that produce similar products or services in a specific market and to secure fair deals for consumers.

Competition in the UAE is regulated by Federal Law No. 4 of 2012 Concerning the Regulation of Competition (Competition Law), Cabinet of Ministers Resolution No. 37 of 2014 Promulgating the Executive Regulations of the Competition Law (Executive Regulations) and Cabinet of Ministers Resolution No. 13 of 2016 Concerning the Thresholds and Rules in Relation to Implementing Competition Law.

The UAE Competition Law aims to promote and enable competition and to prevent its distortion through anti-competitive practices. The Law focuses on the following three key areas:

  1. Prohibiting agreements between parties that prevent or restrict competition;
  2. Prohibiting the abuse of a dominant market position;
  3. Controlling economic concentration that might prevent or restrict competition.

Restrictive Agreements

Article 5 of the Competition Law prohibits agreements between businesses which aim to prevent or hinder competition in the market, including agreements which provide for the following:

  • Anti-competitive sale terms;
  • Bid rigging;
  • Halting of production, distribution or investment;
  • Cartel-type collusion with the aim to prevent the purchase from or the sale to a specific business or businesses;
  • Artificially increasing or decreasing the available amount of products or services;
  • Anti-competitive market sharing and customer allocation (without prejudice to commercial agency agreements);
  • Predatory behaviour towards new entrants (without prejudice to commercial agency agreements).

It should be noted that, except for agreements providing for anti-competitive sale terms and agreements providing for anti-competitive market sharing and customer allocation, agreements of the nature listed above will not be captured (and prohibited) by the Competition Law if the relevant market share of the parties to such agreements does not exceed 10%.

Abuse of a Dominant Position

Article 6 of the Competition Law prohibits a business occupying a dominant market position (being a share of 40% or more of the relevant market) from carrying out any act which prevents or restricts competition, including:

  • Imposing resale prices or terms;
  • Predatory below cost pricing;
  • Discrimination between customers: charging different prices for similar products or entering into different terms;
  • Forcing a customer to cease transacting with a certain business;
  • Requiring the purchase of a product as a condition to purchase another unrelated product;
  • Publishing inaccurate information about products;
  • Decreasing or increasing the amount of products in the market in a manner which leads to artificial abundance or scarcity.

Restrictive Agreements and Dominant Position Exemptions

In accordance with Article 7 of the Competition Law, the Minister of Economy, upon the recommendation of the Competition Regulation Committee, can authorize specific restrictive agreements or dominant position practices upon application by the parties.

The said approval is subject to meeting the following conditions:

  • The parties notifying the Ministry of Economy before entering into the restrictive agreement or carrying out an act associated with a dominant position;
  • The parties proving to the Ministry of Economy that the restrictive agreement or dominant practice in question will support economic growth, improve production or distribution, promote technical or economic progress or achieve benefits to consumers.

Any amendment or modification to a restrictive agreement or a dominant practice approved by the Ministry of Economy must be notified to the Ministry.

Economic Concentration (Merger Control)

Article 9 of the Competition Law provides that mergers, acquisitions or joint ventures which lead to a business acquiring a dominant position, or enhancing an existing dominant position (of 40% or more of the market) need to be pre-approved by the Ministry of Economy. The procedures for approving relevant transactions and this market concentration are set out in Articles 7, 8 and 9 of the Executive Regulations to the Competition Law.

The Ministry of Economy will approve an economic concentration transaction if it does not have adverse effects on competition, or if it results in economic benefits which far outweigh the adverse effects on competition.

The elements taken into consideration in the course of reviewing an economic concentration transaction include:

  • Consumer interests;
  • Existing and future competition levels;
  • Potential hurdles that might be encountered by new market entrants;
  • Potential change in products’ prices;
  • Potential formation of dominant market positions; and
  • Effects on innovation, development and new investments.

Businesses and sectors falling outside the scope of the Competition Law

The following economic sectors, businesses and types of transactions are excluded from the purview of the Competition Law by virtue of Article 4:

Sectors

  1. Communication.
  1. Financial services.
  1. Oil and gas.
  1. Pharmaceuticals.
  1. Postal and courier services.
  1. Electricity and water.
  1. Sewage treatment and waste management services.
  1. Transportation. 

The exemption provided to the said sectors will cease to apply for a specific sector if the regulator of such sector delegates the competition regulation of such sector to the Ministry of Economy. It should also be noted that the Competition Law excludes these sectors from its scope as being those in respect of which another law or regulation grants the responsibility of organising the competition rules for that particular sector to a sectoral regulatory body. Therefore, the exclusion from the Competition Law itself should not be considered a permission for those operating in these sectors to engage in anti-competitive practices, but, rather, that such businesses and activities are regulated elsewhere in UAE law.

Businesses

  • Businesses wholly or 50% owned by the federal or a local government.
  • Small and medium-sized enterprises (as defined by the Executive Regulations to the Competition Law).

Transactions

Transactions carried out or authorized by the federal or a local government.

Sanctions for Infringing Competition Law

Restrictive Agreements and Dominant Practices

A fine ranging from AED 500,000 to AED 5 million can be imposed on businesses entering into a restrictive agreement or engaging in a dominant practice in contravention of Article 5 or Article 6, respectively, of the Competition Law.

Unauthorized Economic Concentration

An unapproved merger, acquisition or joint venture or similar arrangement that results in the creation of a dominant position can trigger a fine ranging from 2% to 5% of the annual turnover of the business for the last financial year.

Conclusion/Recommendation: Without an effective competition law regime in the market, big businesses can dominate, and overshadow and absorb small businesses, or at least negatively affect their growth and prospects. Competition makes the economy work, enabling freedom of choice to consumers, keeping prices low and the quality and choice of goods and services high.

Anticompetitive practices are potentially damaging to the reputation of a business. It is very important for businesses, especially for major suppliers of goods and services, to ensure that their agreements and practices are compliant with the Competition Law.

Should you require additional information about compliance with the UAE Competition Law, please contact Ahmed Hadeed, Partner, Abu Dhabi or Victoria Woods, Partner, Dubai.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.