Recently the UAE Federal Government promulgated Federal Decree Law No. 36/2023 on the Regulation of Competition which came into effect on December 29, 2023.
The new competition law abrogates and replaces Federal Decree Law No. 4 of 2012 on the Regulation of Competition.
The new law has made some key changes to the competition landscape in the UAE which need to be carefully evaluated by players in the market, some of which are highlighted below.
The scope and application of the new law has been widened to include not only establishments (natural and legal persons) which carry out their activities in the UAE but to include economic activities which are carried out outside of the 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 behaviour 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:
a) Controlling or limiting production, markets or technological development; and
b) Purposely preventing other organisations 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 law has introduced new changes in the mergers and acquisition (M&A) landscape. A merger or acquisition is referred to in the new law as “economic concentration”, which is then defined 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 calendar days prior to the completion of the transaction. Crucially, the new law has changed the requirements for this application for pre-approval. Previously, under the old law, the requirement for such pre-approval was only if after closing, the combined market share of the parties would exceed 40% of the market share.
However, the new 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 calendar days, which can be extended by a further 45 calendar days. However, whereas under the old law, if on conclusion of the time period no approval had been issued, the application would be deemed to have been approved. Under the new 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 law 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 law is a welcome addition to the UAE regulatory framework and highlights its commitment to free market principles whilst ensuring that it remains a world class competitive market for the benefit of its consumers. By its application the new law intends to prevent anti-competitive behavior in the market as well as keeping a level hand on potential M&As where monopolies in a particular market could be potentially created in future.
The impact of the new law is still to be seen, however from the M&A perspective, given the widening of the requirements to file for approval, it is anticipated 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 law.
By Derek Robins, commercial associate at BSA Ahmad Bin Hezeem & Associates, based in Dubai.
