The UAE Cabinet has issued resolutions setting out the relevant percentage thresholds applicable under the Competition Law. All relevant legislation required to understand the Law has now been issued.
Previous Clyde & Co updates have considered in detail the main provisions of the UAE Competition Law (Federal Law No. 4 of 2012) (the Law) and the Executive Regulations (Council of Ministers' Resolution No. 37 of 2014) (the Regulations).
The Law prohibits certain anti-competitive practices and provides for the establishment of a "Competition Regulation Committee" (the Committee) under the authority of the UAE Ministry of Economy (the Ministry). The Regulations deal in detail with the procedures relating to applying to the Committee for exemptions, approvals and the examination of complaints.
The Law has been in force since February 2013 and the Regulations since October 2014. However, the application and enforcement of the provisions has not been possible in practice due to the absence of certain key information. This has now been addressed by two Cabinet Resolutions (Resolution Nos. 13 and 22 of 2016). Both Resolutions take effect as from 1 August 2016.
What is now prohibited?
Restrictive agreements - the Law prohibits "restrictive agreements", such as those which specify prices for the buying or selling of goods and services or which divide a market based on geographic areas. A "weak impact agreement", however, is taken outside of the scope of the definition and therefore will not breach the Law. Resolution No. 13 provides that a restrictive agreement will be deemed to have a "weak impact" if the total share of the parties does not exceed 10% of the total transactions in the relevant market.
Dominant position - it is prohibited for "dominant" establishments in a relevant market to take advantage of this position to breach, minimise or prohibit competition, for example by undertaking practices such as price fixing. Resolution No. 13 specifies that a "dominant position" accrues if the market share of the establishment exceeds 40% of the total transactions in the relevant market.
- Economic concentrations - where a proposed "economic concentration" may affect competition in a relevant market, particularly to create or enhance a "dominant position", an application for approval should be submitted to the Committee prior to concluding the relevant contract. The concept of "economic concentration" captures not only share acquisitions but also transfers of assets and liabilities. Under Resolution No. 13, an application must be made where the market share of the parties exceeds 40% of the total transactions undertaken in the relevant market.
What are the implications for businesses?
Now that the applicable thresholds have been specified, businesses operating in the UAE must analyse their current contractual arrangements and market position in order to determine whether they should apply to the Committee for an exemption from the provisions on restrictive agreements or dominance. Potential mergers and acquisitions with a UAE element will also need to be reviewed in light of the provisions on economic concentrations, with transactions meeting the 40% threshold requiring pre-approval. In practical terms, undertaking this analysis may not be straightforward. See further below – Are there any other issues to be aware of?
Breach of the Law may result in significant fines and other penalties, such as a requirement to suspend business activities.
Are there any exemptions?
Under the Law, there are a number of exemptions granted. These include:
registered commercial agency agreements from the scope of the prohibition on restrictive agreements;
certain sectorial exemptions, including telecommunications, financial services, oil and gas, pharmaceuticals, electricity and water, transport, post services, cultural activities, and drainage and sanitation activities;
government-owned entities. Resolution No. 13 extends this exemption to establishments which are owned at least 50% by the Federal or an Emirate government; and
- small and medium enterprises (SMEs). Resolution No. 22 sets out a "unified definition" of a SME for the purposes of UAE law and distinguishes between enterprises operating in the trading, manufacturing and services sectors.An establishment may meet the relevant criteria depending on the number of employees or annual revenues.The thresholds are relatively high - for example, an enterprise in the manufacturing sector will qualify as "medium" with annual revenues of up to AED 250 million.
Are there any other issues to be aware of?
Despite the welcome clarifications provided by the Resolutions, certain issues remain. For example:
- Status of Committee - the Law provides for the Committee to be formed by way of Cabinet Resolution. We understand that the Committee has been appointed and has convened at least four times, although the relevant Cabinet Resolution has not yet been made publicly available. It is not clear whether the Committee is fully operational yet and whether it is accepting applications for exemptions or pre-approvals.
- Definition of "relevant market" - no further guidance is provided to explain what will constitute a "relevant market" in any given case. This is critical to the practical application of the Law and the Regulations. The way in which a market is defined may vary and affects whether an establishment holds a dominant position, whether a restrictive agreement will have a weak impact or whether an economic concentration is captured. For example, the market in "luxury 4x4 cars" is more restrictive than the market in "4x4 cars" or the market in "luxury cars" and more likely to trigger a notification requirement. It is also not clear how "transactions" are to be calculated (for example, by volume or by revenue generated) and how the scope of the geographic area of a relevant market is to be determined. It is hoped that the Ministry will issue further guidance in this respect.
Accessibility of information – if a party is making a filing with the Committee, it will need to include an analysis of its share of the relevant market in the UAE. This may not be easy, given the lack of official public information. A new "Federal Competitiveness and Statistics Authority" has recently been set up, with a view to strengthening the availability of national data and, in particular, open data. This may be a useful source of market share information in the future.
- IP licensing - Article 3 confirms that the Law applies to any exploitation of IP rights which may affect competition in the UAE. For those involved in the licensing of IP, Article 5 of the Law on restrictive agreements is likely to be of most concern. For many IP owners and their licensees, restrictions of this nature are common place. Take, for example, an exclusive trade mark licence which places restrictions on the licensee’s use of the trade mark. This may potentially contravene Article 5 of the Law.
Importantly for the licensing of IP rights, the Law does not include any specific exemptions either for vertical agreements (such as franchise agreements and other IP licences) or for technology transfer agreements. Similar block exemptions which are available in the European Union do not apply under the Law. In other words, the Law does not contain any ‘safe harbour’ provisions for those involved in the licensing of IP rights in the UAE.
The Resolutions are another key development in the UAE's business law landscape. This positive step will, we hope, be complemented with further official guidance on some of the practical issues, which should become clearer in due course.