The new law highlights the UAE's commitment to free market principles whilst ensuring that it remains a world class competitive market for its consumers.
Recently the UAE Federal Government promulgated Federal Decree Law No. 36/2023 on the Regulation of Competition ("the New Competition Law") which came into effect on 29 December 2023.
The New Competition Law abrogates and replaces Federal Decree Law No 4 of 2012 Concerning Regulating Competition ("the Old Competition Law").
The New Competition Law has made some key changes to the competition landscape in the UAE which need to be carefully evaluated by role players in the market, some of which we highlight below.
The scope and application of the New Competition Law has been widened to include not only Establishments (natural and legal persons) which carry on their activities in the UAE but to include economic activities which are carried out outside of UAE but which effect competition within the UAE. Branches and representative offices situated within the UAE of entities incorporated outside of the UAE have furthermore been included in the definition of the "Establishment" and thus are subject to the New Competition Law.
New legislative protective measures have been included to prevent anti competitive behavior including the:
- prohibition of the sale of goods at prices which considerably undercut the cost of production, processing or marketing where there is an intention to exclude other players in the market or from entering the market. This will be subject to certain controls which are to be published in the implementing regulations which are still to be published.
- prohibition of the exploitation (without a valid justification) of the economic dependency of a customer who lacks alternative sources for marketing or supply.
- addition of further prohibitions with regard to the abuse of a dominant position by an Establishment (which had already been introduced by the Old Competition Law) including:
- Controlling or limiting production, markets or technological development; and
- Purposely preventing other organizations in the same field from accessing things that are crucial in the market they are entering. These preventions can relate to their own facilities or their own networks, and even their own physical or digital infrastructure.
Apart from the above, the New Competition Law has introduced new changes in the mergers and acquisition landscape. A merger or acquisition ("M & A") which is referred to in the New Competition Law as "Economic Concentration". Economic Concentration is then defined in the as "Any Action that leads to the full or partial transfer (merger or acquisition) of ownership or usufruct rights in properties, rights, stocks or obligation of an Establishment to another. This action grants an Establishment or a group of Establishments direct or indirect control over another Establishment or a group of establishments". Where such an M & A is to take place that would impact the level of competition of the relevant market an application will need to be made to the Ministry of Economy for approval no less than 90 (ninety) calendar days prior to the completion of the transaction. Crucially, the New Competition Law has changed the requirements for this application for pre-approval. Previously, in the Old Competition Law, the requirement for such preapproval was only if after closing, the combined market share of the parties would exceed 40 % (forty percent) of the market share. However, the New Competition Law has changed the requirements to either:
- The total annual sales value of the parties in the relevant market during the last fiscal year exceeds the amount determined by the council of ministers based on the minister's proposal; or
- The Total share of the parties (involved in the specific transaction) exceeds the percentage of the total transactions in the relevant market during the last fiscal year as determined by the council of ministers.
The Minister will issue his approval within 90 (ninety) calendar days, which can be extended by a further 45 (forty-five) calendar days. However, whereas in the Old Competition Law, if on conclusion of the time period no approval had been issued, the application would be deemed to have been approved. In the New Competition Law if no approval has been obtained on conclusion of the relevant time period, the application will be deemed to have been rejected.
The New Competition Law furthermore has imposed additional penalties for anti-competitive behavior and non- compliance (including fines which can be quantified as a certain percentage of the annual turnover of the non-complying person/entity).
The New Competition Law is a welcome addition to the UAE regulatory framework and highlights the UAE's commitment to free market principles ensuring that the UAE remains a world class competitive market for the benefit of its consumers. By its application the New Competition Law intends to prevent anti-competitive behavior in the market as well as keeping a level hand on potential M & A s where monopolies in a particular market could be potentially created in future.
The impact of the New Competition Law is still to be seen however from the M & A perspective given the widening of the requirements to file for approval, we anticipate that more applications for approval will be required prior to closing and this aspect will need to be carefully considered prior to engaging a potential M & A transaction going forward.
As indicated, we are still awaiting the promulgation of the implementing regulations which shall provide further clarification on various aspects of the New Competition Law.
This article was originally published by Law Middle East.
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