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Is the horizon level? Current updates and predictions for Competition Law in the UAE

The goal of preserving fairness in the marketplace, through the regulation of anti-competitive practices, continues to be an area of significant focus for regulatory authorities globally. We are seeing an ever-increasing willingness to take affirmative action in the face of market-restricting M&A activity (such as the steps taken by the U.S. Federal Trade Commission and the U.K Government to block Nvidia’s US$40 billion acquisition of Arm)1, as well as to pursue civil actions for violation of antitrust laws (such as the recent US Justice Department’s lawsuit filed against Live Nation-Ticketmaster for monopolization and other unlawful competition-thwarting conduct)2  and levy substantial fines and penalties on those found to have engaged in anti-competitive practices.

In the United Arab Emirates, Federal Decree-Law 36 of 2023 on the Regulation of Competition (the Competition Law) has now been in effect for just over six months. In this article, we take stock of the changes brought about by the Competition Law and offer some insights as to how this new regime could shape the regulatory landscape in the UAE.

The Competition Law replaced Federal Decree-Law 4 of 2012 (the Previous Competition Law), however, some of the Previous Competition Law’s enforcement measures do still apply. For instance, the Competition Regulatory Committee (the Committee), which was introduced under the Previous Competition Law, will continue to oversee, administer, and apply enforcement measures under the Competition Law. In addition, until the much-anticipated implementing regulations to the Competition Law are introduced (the Implementing Regulations), those decrees, regulations, and decisions of the Previous Competition Law, which were not expressly repealed by the Competition Law, will continue to be effective.

At present, it remains to be seen whether (and if so, how) the Implementing Regulations or other supplementary legislation will address a number of salient topics. For example:

Defined powers allocated to the Committee

Will the Committee be awarded defined investigative powers, such as the ability to compel companies to provide information, or to conduct so-called dawn raids3 at company premises or employee homes within the UAE? Anecdotally, such investigations may already be happening at a smaller scale. If these are to become established regulatory practice4 and target larger organisations, companies will need to start planning and preparing more thoroughly for such events; for example, implementing adequate dawn raid policies and training for all personnel - from the front desk to the C-suite.

Digital Markets Regime

The creation of a digital markets regulatory regime has become a point of focus amidst the proliferation of digital markets and businesses worldwide. This is exemplified by the enactment of the Digital Markets, Competition and Consumers Act 2024 in the UK (DMCCA), whose primary objective is to establish a regulatory framework tailored to the digital economy, specifically targeting the significant market power concentrated within a handful of digital corporations. It introduces comprehensive reforms aimed at bolstering UK competition and consumer protection legislation and, significantly, mandates that certain designated companies must inform the concerned authorities of impending acquisitions that meet specific criteria. As the digital market in the UAE continues to expand, it remains to be seen whether analogous regulations will be adopted here to govern and monitor the digital landscape.

Liability of individuals

Will the forthcoming Implementing Regulations extend the scope of accountability to include not only corporate entities but also individuals, imposing personal liability for anti-competitive conduct? Under the current framework, corporates bear the consequences of their directors' and employees' misconduct.5 Yet, in instances where employees deliberately engage in collusion, thereby placing their company in contravention of the Competition Law, the possibility of them facing disciplinary action for such breaches fails to be considered. In the UK, for example, the Competition and Markets Authority is empowered to pursue the disqualification of directors from companies adjudged to have been involved in the violation of competition law (such as the exploitation of a dominant market position, or participation in anti-competitive agreements or cartels).

Responsibilities to extend cooperation

Could the Implementing Regulations introduce an extra-territorial element to the UAE regime, for example, requiring the Committee to cooperate with other competition authorities around the world (including the EU Commission and US antitrust agencies)

Anti-competitive practices

Articles 5 through 8 of the Competition Law prohibit any ‘restrictive agreement’ or concerted practice made between two or more independent businesses that may affect trade competition, and which has the object or effect of preventing, restricting, or distorting competition.

Agreements or practices caught by the Articles 5-8 prohibitions could be unenforceable and expose the parties to third party actions for damages in the UAE local courts. In addition, the Committee can investigate and impose fines for serious breaches in accordance with Article 24. Any establishment which violates the provisions of Articles 5, 6, 7 and 8 will incur fines of no less than AED 100,000 and no more than 10% of the violating establishment's annual total sales within the UAE during the previous fiscal year.

The forthcoming Implementing Regulations are anticipated to bring greater clarity around these prohibitions. It will be interesting to see if these will include a block exemption for vertical cooperation alongside a 'safe harbour' provision for certain vertical agreements, contingent on the parties' market shares not surpassing a predetermined threshold. This could be similar to the EU Commission’s 'effects-based' approach, which prioritises the impact of the agreement on market competition over its form.6 Additionally, the EU Commission has issued a block exemption for technology transfer agreements, acknowledging that licensing of technology is typically pro-competitive. It is conceivable that, under the Competition Law and Implementing Regulations, certain agreements will become subject to independent evaluation where a more nuanced and subjective analysis will be applied. This could particularly include exclusive licensing agreements that could potentially restrict technological development or service products to a limited number of dominant market players.

Merger Controls

Few merger control filings were made under the Previous Competition Law, however, the Competition Law has lowered the bar for submissions, introducing the new concept of ‘Economic Concentration7

Article 12 provides that an establishment shall apply for merger clearance no less than 90 days prior to the completion or implementation of a transaction (which qualifies as an ‘Economic Concentration’) to the Ministry of Economy, if any of the below conditions are satisfied:

  • the total annual sales revenue of the combined establishments in the Relevant Market during the last fiscal year exceeds the amount determined by the Ministry of Economy Council of Ministers based on the Minister’s proposal; or
  • the total share of these combined establishments exceeds the percentage of the total transactions in the Relevant Market during the last fiscal year determined by the Ministry of Economy Council of Ministers.

Although the ‘Economic Concentration’ controls still remain to be determined by ministerial resolution, this represents a significant departure from the ‘dominant market position’ test under the Previous Competition Law8. The definition clarifies that this must result in “direct or indirect” control by one establishment or a group of establishments over another establishment or a group of establishments (which may therefore still include asset sales).

Furthermore, the Competition Law discontinued previous exemptions which applied to SMEs and medium-sized enterprises, as well as ‘sector’ specific exemptions;9 although the exemption for certain entities or establishments owned by the federal or Emirate governments or establishments has been retained. 

We expect the sum effect of these measures to result in a significant increase in the number of merger control filings.

Takeaways

The Competition Law signifies a pivotal shift in the regulatory framework, aiming to enhance the scope of application to both merger activity and anti-competitive practices. As the UAE business community awaits the Implementing Regulations, there is gathering anticipation over how the law will address several critical areas.

The Competition Law’s prohibition of restrictive agreements and concerted practices that distort competition, such as price-fixing and market-sharing cartels, is set to have significant implications for businesses operating in the UAE. With the Committee expected to be empowered to investigate and levy fines for serious breaches, companies are advised to prepare by establishing robust dawn raid policies and training programs. Furthermore, the new 'Economic Concentration' controls for merger filings and removal of previous exemptions for SMEs and certain sectors are expected to increase the number of merger control filings. The prospect of increased cooperation with international competition authorities, the approach to handling legally privileged documents during investigations, and potential personal liability for directors / managers are other areas that warrant close attention. 

We will continue to monitor the impact of this evolving regime on companies operating in the UAE and provide a further update once the Implementing Regulations come into force.

 

 

1  NVIDIA-Arm Holdings Deal Hits a Wall: FTC Sues to Block Deal (yahoo.com).
2 Office of Public Affairs | Justice Department Sues Live Nation-Ticketmaster for Monopolizing Markets Across the Live Concert Industry | United States Department of Justice.
3 Dawn raids: more accurately described as surprise inspection visits by or on behalf of the regulatory authority, such as conducting warehouse inventory audits, or requisitioning and examining company trading records.
4 Article 18(4) of the Competition Law prescribes that the Ministry of Economy is responsible for exercising various powers related to competition affairs including “Seeking information and investigating anti-competitive practices, investigating the same based on a complaint or sua sponte, dealing therewith in cooperation with the Concerned Authorities, and submitting recommendations to the Minister on the decisions that shall be issued in this regard to take appropriate measures regarding them”.
5 For example, failure to notify the Ministry of Economy of a qualifying Economic Concentration risks incurring a fine of no less than 2 percent, and no more than 10 percent of the total annual revenues achieved from the relevant product or service in the UAE during the previous fiscal year, or where it is not possible to determine the relevant aggregate annual sales revenue, AED 500,000 and not more than AED 5,000,000.
6 Companies bring their goods and services to market in different ways. Often, they involve others in the process by entering into an agreement with companies operating at a different level of trade. The EU competition law for example, considers these arrangements as “vertical agreement”. Common vertical agreements include distribution and purchase agreement, agency agreements and industrial agreements which are not in most cases considered as anticompetitive practices. While “Horizontal Agreements” are considered as anti-competitive as they involve agreements between enterprises which operate in the same market and are competitors on the market.
7 ‘Economic Concentration’ is defined in the Competition Law as “any action that leads to the full or partial transfer (merger or acquisition) of ownership or usufruct rights in properties, rights, stocks, shares, or obligations of an [E]stablishment to another”. The definition further clarifies that such action must result in “direct or indirect” control by one establishment or a group of establishments over another establishment or a group of establishments (which may therefore still include asset sales).
8 Under the Previous Competition Law and Cabinet Resolution 13 of 2016, a merger control filings was required or triggered in cases where the transaction would result in an enterprise attaining a dominant market position of 40% or more in the UAE or elsewhere.
9 Such exceptions include:

  • Telecommunication and financial services;
  • Cultural activities;
  • Oil and gas;
  • Pharmaceuticals;
  • Postal services including express mail service;
  • Activities relating to production, distribution, and transportation of electricity and water;
  • Activities on the treatment of sewerage, garbage disposal, hygiene and the like, in addition to supportive environmental services; or 
  • Sectors of land, marine or air transport, railway transport and services.

 

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