In his book “An Inquiry into the Nature and causes of the Wealth of the Nations”, economist and philosopher Adam Smith conceptualizes the idea that thriving economies are the consequence of competitive markets. He discusses how competition advances innovation, product efficiency and encourages lower prices, and contends that there must be a set of rules that protects the competitive nature within markets. Competition in the market is essentially an economic concept - when the European Union was formed, one of its principal objectives included the building of a border-free internal market, where trade amongst member states could occur efficiently. Competition policies were integral in the creation of such a market, and it therefore follows that lawyers practicing competition law must be well-versed with economic concepts.
Competition Law (“The good, the bad and the ugly”1 ) is discussed in detail in UAE Federal Law Number 4 of 2012 (the Law). The Law governs market behavior and ensures that dominant market positions are not abused, specifically by prohibiting the use of a dominant position in a market to restrict competition. Actions that can constitute an abuse of dominance include but are not limited to: imposing resale price terms, predatory pricing, discriminatory pricing, refusing to deal, compelling others not to deal, restricting supply, conditioning the sale of a good or service on the purchase of another good or service, and/or disseminating false information about products or prices, as well as artificially increasing or decreasing quantities in a market.2 Yet although such provisions are clear and unambiguous, legal professionals in the UAE will unanimously agree that confusion arises concerning the implementation and effect of the Law. The terms of the same did not clarify how the provisions therein should be implemented, which invariably caused uncertainty with regards to the scope of the Law. Further guidance was therefore required.
Consequently, on 27 October 2014 the UAE Cabinet issued Cabinet Decision Number 37 of 2014 (the Regulations). The Regulations go some way towards clarifying various aspects left uncertain by the Law, with the effect that the combined provisions are now widely considered as successfully implementing the intended purpose of the legislation.
As discussed in our aforementioned article, the Law requires that certain acquisitions and mergers are granted merger control clearance by the Ministry of Economy. This rule was applied to ensure that certain acquisitions with the potential to exceed market share thresholds within the “relevant market” were kept under check so as not to affect competition. The Regulations define the process for the application of the merger control clearance. Essentially, the applicants must submit a completed application which is then examined by the Ministry of Economy and submittedto the Minister of Economy. The Minister then has the authority to approve or reject the application within 90 days of receipt, and will notify the relevant parties. It is imperative to note that the approval from the Minister may or may not be accompanied by various conditions. The Minister can discretionally extend his decision making period by a further 45 days.
The Regulations also lay out the process for filing a complaint in the event of any violations of the Law. The process requires the complainant to submit a complaint and certain documents substantiating the complaint. The Ministry of Economy will then either accept the complaint and investigate it further or reject the complaint. If the complaint is accepted, the Ministry of Economy will notify the concerned parties and invite them to defend the contentions. The Ministry will review the complaint, the allegations and the defense before they issue a report and their recommendation to the Minister who will deliver a decision within 30 days from the receipt of the report.
It is noteworthy that any state owned establishments are exempt from the application of the Law. This exception also has the effect that any entities owned or controlled by local and/or federal government are additionally exempt from the scope of the Law. However it is imperative to note that the Law does not expressly state the amount of control the local and/or federal government must have within the entity in order for this exemption to apply. The Law also excludes “Small and Medium Enterprises” from its remit, but fails to define “Small and Medium Enterprises” thus creating further ambiguity with regards to scope. Interestingly, the remit is narrowed further by the exclusion of number of highly regulated sectors of industry, such as pharmaceuticals, transportation, oil and gas, and telecommunications.
Despite the clarification provided by way of the Regulations, legal professionals have identified further areas of uncertainty. The Regulations have not established any threshold defining the market share which may require the parties to file for a merger approval. The Regulations have also failed to explain or define the terms “dominant position” and “relevant market”. This essentially means that there is no way to determine if a party has breached the relevant market share provisions, as the market share threshold trigger has not been stipulated. In light of this uncertainty, the current approach requires all transactions to obtain merger control clearances and undergo the scrutiny of the Ministry of Economy, which seems cumbersome and contrary to the aim of facilitating trade. Furthermore, the Regulations are silent on how the Ministry or the parties involved in the merger will be able to substantiate the impact of the competition at the time of the filing. This is a result of there being no definition of the term “relevant market.”
The UAE has always embraced the incorporation of best practices from across the globe. The curbing of market dominance has therefore been a paramount concern, and the implementation of the Law may be acknowledged as a positive step towards achieving universal standards. Further to the Law, the execution of the Regulations has undoubtedly been an affirmative stride towards achieving the overriding objective, but a number of further clarifications are required in order to implement the international standard of competition legislation as is in place elsewhere in the world. Until such time, it is not possible to determine the scope of the Law and its effectiveness. Further guidance concerning the full effect of the Law is awaited – watch this space!