United Arab Emirates: The New Federal Competition Law In The UAE

The new UAE Federal Competition Law (Federal Law No. (4) of 2012) has been published in the Official Gazette and will come into force on 23 February 2013, following its enactment on 23 October 2012.

Until now, there has been no specific law or provisions in existing laws, which deal comprehensively with the issue of anti-competitive behaviour, but that is not to say that there was no regulation of competition in the market. Federal Law No. 18 of 1993 (Commercial Code) contains a section on unfair competition, however the provisions are aimed more at disclosure of trade secrets, poaching a competitor's employees, or disseminating false information about a product in order to entice customers away from another trader.

Similarly, Federal Law No. 4 of 1979 (Suppression of Fraud in Commercial Transactions Law) also contains some provisions on competition issues, but relating more to fair dealing in commodities. Finally, Federal Law No. 24 of 2006 (as amended) and its executive regulations (Consumer Protection Law and Regulations) grant the Consumer Protection Department the power to take appropriate action against monopolistic practices, though the remainder of the provisions are aimed more toward defective product and recalls.

In this legal update we provide an overview of the key provisions of Federal Law No. 4 of 2012 (Competition Law) and their potential impact for companies operating in the UAE.

Purpose and application

The Competition Law aims to provide an encouraging environment for companies to enhance effective competition, and to maintain a competitive market consistent with economic freedom by prohibiting anti-competitive practices.

While the Competition Law will apply to companies with respect to their economic activities and intellectual property rights in the UAE (and abroad where it affects competition in the UAE), there are a number of excluded companies. The actions of the Federal and Local Governments, and any state-owned enterprises are expressly excluded from its application, as well as small and medium enterprises (which will be determined by the Council of Ministers). Certain sectors are also carved out, such as the financial, pharmaceutical, utility, waste disposal and transportation sectors, among others. The Cabinet has the power to add to, or otherwise alter, this list as it sees fit.

Anti–competitive practices

The Competition Law prohibits 'restrictive agreements', such as those which specify prices or conditions for the buying or selling of commodities and services, or are tantamount to collusion in respect of tendering and bids, or which have the effect of limiting the flow of commodities and services to the market, or conversely flooding the market with such items. Agreements which divide markets or assign clients based on geographic area, and those which hinder the entrance of businesses to the market are also banned. The Competition Law does expressly state, however, that this aspect is subject to the provisions of Federal Law No. 18 of 1981 (as amended) (Commercial Agency Law).

It is also prohibited for dominant companies in a relevant market to take advantage of this position to breach, minimise or prohibit competition, by undertaking practices such as price fixing, undercutting prices, discriminating with no objective justification in respect of prices for identical contracts, or obliging a client not to deal with a competitor. Such companies are also prohibited from disseminating false information about products or their prices, and undersupplying or flooding the market with their products.

For the purposes of these provisions, a dominant position accrues if the market share of the company (as determined by the Cabinet) exceeds the total transactions in the relevant market. The Cabinet can also, upon recommendation from the Minister of Economy, increase or decrease the rate of this 'economic concentration' depending on economic need.

It is possible for companies to apply to the Ministry of Economy for an exemption from the application of these prohibitions, by adducing evidence to demonstrate that the practice will, in fact, enhance economic development and improve competition. The provisions also deal with the procedures to be followed for companies which currently hold a dominant position in the market, or will attain a dominant position (it is assumed that this may be relevant in the context of mergers and acquisitions). The Executive Regulations (once issued by the Council of Ministers) are likely to provide further detail on these prohibitions and the exemption process.

Competition Regulation Committee

The new Competition Law also provides for the establishment of a Competition Regulation Committee, tasked with proposing policy and legislation for the protection of competition, considering issues, making recommendations on exempting restrictive agreements or dominant market practices and preparing annual reports. It seems likely that a Resolution will be issued setting out the Committee's roles and responsibilities in more detail, as was the case with the Supreme Committee for Consumer Protection.

The Ministry of Economy will also play an active role in executing and monitoring the Competition Law, investigating potential breaches in cooperation with the competent authorities and conducting studies on competition in the market. The Ministry is also under a duty to ensure the confidentiality of any information reviewed where the disclosure thereof could cause serious damage to the commercial interests of the company concerned.

Penalties

Although affected companies have six months from the date the Competition Law comes into force to ensure that their practices are compliant, the penalties that are applicable for breach after this grace period can be quite severe, particularly when compared, for example, with the Consumer Protection Law.

Breach of the provisions prohibiting restrictive agreements and dominant market practices carry a fine of between AED 500,000 and AED 5 million.  Further, any company found to be in breach of their economic concentration requirements can face a fine of between 2% and 5% of its total annual sales from commodities or revenue from services, as appropriate. Where it is not possible to determine the sales or revenue, then the standard fine will, again, be between AED 500,000 and AED 5 million.

Disclosure of confidential information received about commercial practices carries a fine of between AED 50,000 and AED 200,000, and any other breach of the Competition Law or its Executive Regulations (which are to be issued within six months of the Competition Law coming into force) will be penalised by a fine of between AED 10,000 and AED 100,000.

It is also important to note that the penalties can be doubled in the event of repeat offenders, and the payment of a fine under the Competition Law will not protect the violating company from a civil suit for damages by an aggrieved party, or the application of more severe penalties under any other applicable law. The competent court also has the power to close down the offending establishment for between three and six months, and can also order the suspension or prevention of any violating actions until final judgment is given.

Impact

Although the Competition Law goes much further than existing legislation and adds much-needed detail onto what will constitute anti-competitive practices, it remains to be seen how many companies will be caught out once enforcement of the law begins later next year after the Executive Regulations are issued.

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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