Part 2 - Beyond Merger Control
Competition Focus
Part 2 of UAE's New Competition Law analysis highlights major changes beyond merger control. The law removes 'safe harbors' for minor agreements and introduces stricter criteria for dominance.
Law Update: Issue 367 - Saudi Arabia & Competition Focus
Mariam SabetPartner,Competition & Antitrust
After outlining the significant changes related to all matters concerning merger control in Part 1 of our analysis of the UAE's New Competition Law (“New Law”), we now turn our focus to Part 2, which delves into the notable changes beyond merger control. Expectations are high for the forthcoming implementing regulations (“Regulations”) to provide further clarity on specific aspects.
In this second part, we examine the key changes introduced by the New Law outside of merger control.
Removal of Safe Harbors
One of the notable revisions in the New Competition Law pertains to restrictive agreements, specifically the elimination of the 'safe harbour' provision for agreements previously considered to have a minor impact.
Under the previous regime, agreements with a market impact below a 10% threshold could benefit from an exemption to the restrictive agreements provisions. This safe harbour has now been removed under the New Law. Companies are now required to carefully evaluate all types of arrangements even those that historically were considered as low impact.
However, the New Law does permit certain exemptions if companies can demonstrate that their agreements are essential for economic progress, enhancing company efficiency and competitiveness, advancing production or distribution systems, or producing consumer benefits. To qualify for these exemptions, agreements must not:
a) Impose restrictions that exceed what is necessary for achieving the stated objectives. b) Result in eliminating competition within the entire relevant market or a substantial portion of it.
Companies wishing to secure these exemptions must submit an application to the Ministry. The specific procedures, form, and requirements for these submissions will be detailed in the forthcoming Regulations.
The New Law has introduced an additional threshold for deeming a company as holding a dominant position. Now, beyond the numerical market share, a company is also considered dominant if it has the capacity to significantly affect the relevant market in a detrimental manner. This additional criterion caters to instances where a company's market share falls below the 40% mark but still wields considerable market power, potentially leading to abuse of dominance concerns.
Further guidance on interpreting and applying this additional threshold is expected to be detailed in the Regulations. Meanwhile, the pre-existing standard from the previous regime persists: a company is regarded as dominant if it meets or surpasses a market share threshold prescribed by the Council of Ministers, currently remaining at 40% until any new resolutions come into effect.
The New Law has introduced the concept of 'abuse of economic dependency,' which prohibits establishments from engaging in unjustified practices that capitalize on the economic reliance of partners lacking viable alternatives for supply or marketing. While the New Law does not yet offer a detailed definition of economic dependency, it echoes similar constructs in certain EU jurisdictions. In these EU contexts, a finding of abuse does not necessitate the existence of a dominant market position. This concept proves crucial in instances where abusive conduct is perpetrated by an entity that does not possess a dominant market share. Economic dependence abuse happens when one market actor can exploit its significant negotiating power over another, as can be seen when a buyer with considerable purchasing leverage imposes unfair terms on smaller suppliers. Acts deemed abusive and prohibited—whether they stem from a position of market dominance or economic dependency—include, among others, coercing a client to refrain from doing business with a competitor, alongside imposing various tying provisions and restrictions.
The New Law also outlaws predatory pricing that involves selling products at prices significantly below the costs of production, processing, or marketing, with the intent or consequence of excluding or preventing the entry of competitors or products into the market.
The definition of the 'relevant market' has been expanded to acknowledge that competition can take place within digital spaces where supply & demand intersect for a product or service, & where competition conditions are comparable or uniform.
These regulatory changes are poised to significantly impact business practices in the UAE, particularly with the elimination of SME and government exemptions as highlighted in Part 1. Anticipation is palpable for the forthcoming Regulations to offer comprehensive guidance on key aspects. This includes clearer directives on interpreting and implementing the additional threshold for determining dominant positions, as well as the procedural details for seeking exemptions from restrictive agreements and other similar arrangements.
For further information,please contact Mariam Sabet.
Published in April 2024
