Saudi Arabia: Spotlight On Saudi Arabia's Competition Rules

Last Updated: 19 June 2015
Article by Sahin Ardiyok and Dilara Yeşilyaprak

Competition law in the Kingdom of Saudi Arabia emerged under the influence of the global developments. The Competition Act was enacted in 2004 by issuance of the Royal Decree No. M/25 and the application of rules in the Act have been recently revised with the amendment of The Implementing Regulations of Competition Law. The relevant legislation has been modelled in a structure similar to the structure in the European Union.  However there exists a difference between the scope and application of competition rules in the KSA and Europe mainly due to the different market structure that prevails in the KSA and the adoption Islamic Legal System in the country which already embodies restrictions concerning a number of anti-competitive practices under the general fair dealing rules applicable to all commercial exchanges.

Similar to the main competition law provisions in the EU, the main provisions of the KSA Competition Act govern anticompetitive practices and agreements (Article 4), abuse of dominant position (Article 5) and mergers and acquisitions resulting to dominant positions (Article 6).

The application of Article 4 is limited to competition restricting agreements between competing firms (which have a horizontal relationship). As opposed to the competition legislation adopted in the EU, vertical agreements are left outside the scope of the current competition rules. Stemming from that, there are no group exemptions available in the KSA as opposed to the group exemptions available for the motor vehicles sector, R&D agreements, insurance sector, technology agreements and specialization agreements in the EU.

However, it must be noted that vertical agreements may be subjected to competition analysis in situations where the undertaking that operates in the upstream market is also active in the downstream level as the relevant undertaking which is regarded to be a dealer may also be regarded to be a "competitor" of the undertaking.

In application of Article 5, it is observed that a structural definition of dominance is adopted in the KSA. Diverging from the behavioural rules applicable in the EU, the competition law in the KSA defines an entity having a market share exceeding the 40% threshold for a period of 12 months or is in a position to influence the prevailing price in the market as a dominant undertaking. Yet, it must be noted that the conditions within the relevant market are evaluated in order to justify dominance in situations where the undertaking has a market share below 40%. Thus, the application of the behavioural definition is pertinent for assessing dominant position of the undertakings with a market share below 40%.

Moving on, Article 6 applies to entities who engage in an economic concentration (M&A) are required to notify the CCP only if the market share of the relevant entity exceeds the 40% threshold or gains a position influencing the prevailing price as a result of the economic concentration realized between firms operating in different market levels or competing firms. It is observed that this practice differs from the practice in the EU where an M&A notification evaluates the global and national turnovers of the relevant parties against defined thresholds.

Other take away points on the Saudi Arabian take of competition law are as follows:

  • The scope of application of competition law is limited to firms working in or affecting the Saudi markets, and government entities such as public corporations and wholly-owned state companies are left outside scope of the relevant legislation.
  • All groupings practicing commercial, agricultural, industrial or service activities, or selling and purchasing commodities or services are considered to fall under the definition of the term "undertaking"; however interpretation of the concept of control remains ambiguous.
  • The Council of Competition Protection regulating competition rules in the KSA holds an independent position; however it constitutes of members from the Ministry of Commerce and Industry, Ministry of Finance, Ministry of Economic and Planning and the General Investment Authority.
  • The prosecutors may exercise their right to plead pursuant to the decision made by the CCP and submit the memorandum of the charges before the Committee for Settlement of Violations of Competition Law; moreover there exists a Board of Grievances in order to bring litigation actions.
  • A maximum of 10% turnover threshold is set for penalties and additionally, it is provided that a fine imposed may not exceed 10 million Saudi Riyals.
  • Despite this penalty cap, the competition law penalties in the KSA are regarded to be harsh as the continuation of violation may lead to revocation of the activity license of an entity, and restitution may be claimed for profits acquired via a competition law violation.
  • No explicit reference is made to penalties imposed for obstruction of investigations; however the provision stating that the Criminal Procedure Law will be applicable for the CCP investigations portray that the CCP experts have significant investigative powers, and obstruction of an investigation may constitute a violation of the Saudi criminal laws.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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