The expiration date is looming for the six month transitional period granted to the Federal Law No. 4 of 2012 (the “Competition Law”) On 23 February 2013, the new Competition Law came into force in the UAE, prohibiting certain types of restrictive agreements and abuses of dominance, and introducing merger control. The 23 August 2013 marks the end of this transitional period. In the run up to August, no penalties are likely to apply for non-compliance with the Competition Law.
Getting Clarity on Competition Law
The full impact of the Competition Law will only be clear once the Implementing Regulations (the “Implementing Regulations”) are in force. Implementing regulations will be published sometime during the summer of 2013 and will provide more detail on a number of important points, including:
- The maximum duration of the initial merger control review period
- The de minimis threshold and the exemption procedure
Adopting the EU Structure
The structure of the Competition Law is similar to the regime in the EU in that it broadly covers three distinct areas: (i) merger control; (ii) restrictive agreements; and (iii) abuse of dominance. The provisions on restrictive agreements and abuse of dominance in particular are similar to the equivalent EU provisions.
How will new UAE Competition Law impact businesses?
- FILING: One of the most important effects of the introduction of the new Competition Law is that enterprises planning international or domestic mergers must now start considering whether filing is required in the UAE. Although the jurisdictional thresholds have yet to be announced, the regime enshrined in the Competition Law provides for a mandatory filing requirement and for the transaction to be suspended pending clearance.
- TIMING: One key unanswered question is the maximum time period in which a Ministerial resolution can be issued to end the initial (Phase I) review of a merger: this should normally be about four weeks/one month to comply with international best practice and not unduly delay international transactions.
- EXEMPTIONS: The Competition Law is also notable by the broad categories of entities which will be exempted from its application. These include state-owned entities (although the level of state ownership or control for the exemption to apply has not been defined) and SMEs (the term SME has not been defined) but also the following industries: telecommunications, financial services, cultural activities (readable, audio and visual), pharmaceutical, utilities, waste disposal, transportation, oil and gas and postal services.
The penalties for breaching the merger control provisions can be between 2% and 5% of relevant annual revenue (or between AED 500,000 and AED 5 million where revenue calculations are not possible). Fines of between AED 50,000 and AED 500,000 also apply for gun-jumping. Fines for abuse of dominance and restrictive agreements are between AED 500,000 and AED 5 million. Fines can be doubled or establishments “shut down” (such term is undefined) for a period of between 3 and 6 months for repeated violations of the Competition Law.
Complying with new UAE Competition Law
Establishments operating in the UAE must now make sure that they are fully compliant with the legislation when the transition period expires on 23 August 2013. Practical steps that can be taken at this stage include:
- In the context of mergers and acquisitions, considering in good time the potential for making a notification in the UAE and the need for an appropriate condition precedent in sale and purchase agreements;
- Reviewing all existing agreements and practices to ensure compatibility with the Competition Law;
- Ensuring that all new agreements are negotiated and concluded on terms that are in line with the terms of the Competition Law; and
- More generally, ensuring that there are robust compliance policies in place – this includes training staff as to the do’s and don’ts going forward.
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