In an effort to create a more business-friendly environment in the UAE, the government has drawn up a new “competition” law to be enacted in the near future. Complying with the new law poses some challenges for businesses despite its aim to protect businesses and consumers from anti-competitive behavior, stimulate effective competition, and deliver open, dynamic markets and enhanced productivity, thus driving more value to customers. It is important to note that the new competition law consolidates and adds to existing competitive legislation in the UAE, specifically defining what is considered as anti-competitive behavior.
Are you affected by the law?
All businesses operating in the UAE, no matter where in the world they are incorporated, will be required to comply with the UAE competition law, and there can be serious consequences for businesses for non-compliance. A list of sectors and activities that will be specifically excluded from the provisions of the competition law are currently expected to include financial, oil and gas, pharmaceuticals, postal services, and sewage treatment sectors, amongst others. Additionally, the competition law will exclude small and medium-sized enterprises. Further exclusions will likely be contained in the final version of the competition law for acts initiated by the UAE Federal Government or the government of any Emirate.
Things that you need to watch for
There are three key things businesses affected by the new competition law should keep an eye on in your own as well as your competitor’s businesses. They include; (1) abuse of a dominant position; (2) merger and acquisition control; and (3) restrictive agreements.
- Abuse of a dominant position. A business has a dominant position if it can profitably and materially restrain or reduce competition in a market for a significant period of time. Typical practices where abuse of the dominant position may be found include price fixing, undercutting prices, forcing customers not to deal with competitors, or discriminating between customers of similar contracts without rational justification. Actions of a dominant business position include creating obstacles to the entry of competing businesses, to the expansion of existing competitors, or eliminating competing businesses from the market. Notably, it is not the holding of a dominant position in a market that is prohibited, but rather the abuse of that position. The new competition law aims simply to prohibit the abuse of such a dominating position by imposing serious consequences.
- Merger and acquisition control. From the perspective of the competition law, a merger or acquisition will involve the unfair concentration of economic power in the hands of fewer than before. As a result, a business can take advantage of their increase in market power and decreased number of competitors, which can have a knock on effect on the deal that consumers get, but will require obtaining prior approval from the relevant government department in order to pass the test as owning a non-dominant market position as a result of a merger or aquisition. If approval is not sought, then the business can be subject to a substantial fine.
- Restrictive Agreements. A restrictive agreement can be harmful to competition if such an agreement has or would likely have as its principal effect: (1) fixing or setting prices; or (2) dividing the market whether by territory, by volume of sales or purchases, by type of goods sold by customers or sellers or by other means. The competition law prohibits such restrictive agreements. This prohibition also covers commercial agreements such as distribution agreements or joint ventures where the agreement reduces or prevents competition in a market.
What happens if the law is broken?
Businesses that are found to have breached the competition law can be fined between AED 500,000 to AED five-million. Where a business continues to violate the provisions of the competition law, the fine can be doubled. In severe cases there is also a possibility of suspension of the business’ activities for a period of up to six months. These penalties are severe and have the potential to inflict considerable reputational damage as well.
What do you need to do?
Businesses need to be fully committed to compliance with the competition law. There are different ways to ensure that your business complies with the competition law, the most critical being an embedded compliance culture in your organization. Managers at all levels of a business, from the top down, need to demonstrate a commitment to complying with the law, and businesses would be wise to look carefully at their operations now, in order to identify areas where they might risk breaking the competition law. If an area of risk is indentified and it is determined that your business might break the competition law, you should assess the seriousness and take steps to come into compliance. Lastly, having policies, procedures and training in place will help, but also, businesses need to review them regularly. This simple step can reduce your exposure to risk and ensure that your business has an effective compliance culture.