New UAE Antitrust Legislation in Force from February 23, 2013 — Six-Month Grace Period before Enforcement

January 18, 2013

On October 23, 2012, the United Arab Emirates enacted its Federal Competition Law (Federal Law No. (4) of 2012) ("FCL"), which laid down new rules on anti-competitive agreements, merger control and abuse of dominance. The UAE currently partially addresses competition regulation by means of the Commercial Code and the Consumer Protection Law, although it does not have merger control regulation.  The FCL represents the UAE’s first attempt to comprehensively regulate anti-competitive behaviour, and implementing regulations are expected to provide further detail on the provisions of the FCL.

Although the FCL will come into force on February 23, 2013 and provides enterprises with a six-month grace period to comply, enterprises active in the UAE should start reviewing their business practices and consider implementing compliance programs in order to avoid violating the FCL.  Emphasis should be made on the fact that the FCL provides for the possibility that third parties bring private actions and that other areas of law apply to the conduct described in the FCL.  In order to avoid unnecessary risks, companies might consider the following:

• Determining whether they are caught within the scope of the FCL by virtue of their size (SMEs should be exempted from some or all of the provisions of the FCL, although a clear definition of an SME and the scope of the exemption is yet to be provided) or their activity (e.g., telecommunications, financial services, petroleum and gas, production and distribution of pharmaceuticals, land, sea and air transport, sanitation and waste disposal services are exempted);
• Assessing whether their commercial agreements contravene the FCL (e.g., collusion, resale price maintenance), in which case they should be revised or an application for an exemption should be made to the Ministry of Economy;
• Determining whether they might be in a dominant position in the market, in which case they will have to ensure to not engage in conduct that might qualify as an abuse (e.g., exploitative or exclusionary conduct);
• Taking notice of the yet to be specified merger and acquisition notification thresholds.

Scope of the FCL

Similarly to other well-established competition regimes, the FCL will apply to enterprises present in or affecting competition in the UAE.  However, the law will not apply to Federal or Emirate level governments, enterprises owned or controlled by or acting pursuant to an authorisation from Federal or Emirate level governments or to SMEs (in accordance with the rules established by the UAE Cabinet). Additionally, certain sectors will not be subjected to the FCL, such as the financial, telecommunications, cultural (written, audio, visual), petroleum and gas, pharmaceutical, postal, electricity and water, sanitation and waste disposal and transportation sectors.  The list of excluded sectors may be amended by the UAE Cabinet.

Anti-competitive Agreements and Abuse of Dominance

The new competition regime prohibits restrictive agreements.  These are agreements that prejudice, limit or prevent competition, especially agreements which, inter alia, specify prices or conditions for the buying or selling of commodities and services, or which are equivalent to collusion in respect of tendering and bids.  Geographic market sharing and customer allocation are also banned. 

Dominant firms (those whose market presence exceeds the market share thresholds to be determined by the UAE Cabinet) are also precluded from taking advantage of their position to breach, minimise or prohibit competition in a relevant market.

Enterprises will benefit from a six-month grace period after the coming into force of the FCL.  Following this period, the breach of provisions prohibiting restrictive agreements and abuse of dominant positions may lead to fines ranging from AED 500,000 (approximately USD 136,000) to AED 5,000,000 (USD 1,370,000).  These penalties may be doubled for repeat offenders, and private enforcement and application of other areas of law are likely to add to the costs incurred by the enterprises concerned.

Specific Exemption from the Application of the FCL

It should be noted that enterprises may apply to the Ministry of Economy for an exemption from the application of the FCL to restrictive agreements and abuses of dominance, provided that they notify the Ministry of the restrictive agreements and practices related to a dominant position, and that they demonstrate that their practices enhance economic development and improve competition.  Although the Council of Ministers is expected to adopt Executive Regulations detailing the procedural aspects of exemption applications, the FCL already sets out a time period of 90 days (extendable by 45 days) for the scrutiny of exemption requests.  In the absence of a resolution by the Ministry of Economy, the request for an exemption will be deemed to have been approved.  The Ministry may revoke an exemption under certain conditions. Once an agreement or practice has been exempted, the Ministry must be notified of any potential amendments to the agreement or practice at least 30 days prior to such amendments taking place.

Merger and Acquisition Control

The FCL introduces a merger and acquisition control regime. The regime also captures any other agreement or arrangement between two or more enterprises that reduces the level of competition, particularly agreements or arrangements that create or enhance a dominant position. Although the UAE has still not established the nature and the level of the filing thresholds, it is expected that notification will be triggered by the attainment of yet-to-be determined market share thresholds.

Mergers and acquisitions that would result in enterprises exceeding the filing thresholds should notify their concentration at least 30 days prior to the planned closing of the deal.  The merger or acquisition should not be completed unless the Ministry of Economy has approved the deal by Ministerial Resolution within the period of 90 days (extendable by 45 days).  A concentration may be approved unconditionally or with conditions.  If the Ministry of Economy fails to issue a Ministerial Resolution within that period, the Ministry shall be deemed to have approved the transaction and the deal may be completed. 

The breach of the merger and acquisition control provisions may result in fines representing between 2 and 5 % of total annual sales or revenues.  If sales and revenue data cannot be determined, fines ranging from AED 500,000 (approximately USD 136,000) to AED 5,000,000 (USD 1,370,000) may be imposed. 

Ministry of Economy and Competition Regulation Committee

Although the UAE Ministry of Economy is likely to constitute the principal competition regulator, a Competition Regulation Committee (chaired by the Deputy Minister of Economy) will be in charge of proposing legislative and policy oriented initiatives.  The Committee will also review and make recommendations on the approval of exemption requests.  A future Cabinet Resolution will establish the Committee and should set out the Committee’s role and responsibilities in more detail.

Further Implementing Regulations and Resolutions

The FCL is, in large part, a piece of framework legislation. Further regulation will be required to flesh out the provisions of the FCL.  We are expecting such regulation in relation to a number of matters including the following:

• Competition controls in respect of SMEs;
• The exclusion of "weak-impact" agreements from the provisions relating to restrictive agreements and abuse of dominance;
• The market share threshold above which firms will be deemed to hold a dominant position in a market;
• The nature and level of the merger and acquisition control thresholds and filing requirements;
• The specific role and responsibilities of the Committee.

© 2013 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.