On 28 September 2023, the United Arab Emirates (UAE) has issued Federal Law No. 36 of 2023 (the “New Competition Law“), which has repealed and replaced Federal Law No. 4 of 2012. The New Competition Law signals a new era of enforcement by the UAE Ministry of Economy by providing a functional competition regime through, inter alia: extending a wider scope of application to almost all economic activities; expanding its mandate by prohibiting new conducts and introducing a new dominance test; and finally introducing administrative penalties and stricter financial penalties. The New Competition Law will officially enter into force on 28 December 2023, with the executive regulation to be published within six months thereafter.
In more detail – Main features of the New Competition Law
The New Competition Law introduces numerous new provisions including on the jurisdiction and scope of application, anti-competitive conducts, administrative and financial penalties and other details. Set out below are the main features:
Jurisdiction and Scope of Application
The New Competition Law applies to all entities engaging in economic activities that take place in the UAE, in addition to practices taking place overseas that have effects on the UAE market. Further, the New Competition Law introduces a new and wide definition for economic activity, including all activities related to goods and services at different levels of production and distribution.
It is important to highlight that the previous sectorial exemptions under the old law have been removed under the New Competition Law, the scope of which now applies to all industries across the board.
It is also worth noting that entities owned by the Federal or Emirate-level governments may be exempted from the application of the New Competition Law in case the relevant government issues a specific decision of exemption for the entity. In other words, all Federal and Emirate-level government-owned companies are subject to the New Competition Law unless specifically exempted by a Federal or Emirate-level government decision.
Despite not introducing major amendments to the agreement section, the New Competition Law removes the exemption given to low market share threshold agreements. It also introduces a new effects prohibition approach in the agreement section. This development expands the jurisdiction of the authority to review agreements that do not necessarily violate the New Competition Law by object but can have a restrictive effect, e.g. horizontal cooperation agreements.
Under the abuse of dominance position, the New Competition Law presents a new dominance test with the introduction of the concept of collective dominance, which entails that entities are now liable for their partnerships with other entities. This new concept of collective dominance seems to be a catch all prohibition on controlling or limiting production processes, markets or technological developments, as it is broadly worded. Further, the New Competition Law introduces the concept of objective justification as a defense to refusal to deal.
Besides predatory pricing, the New Competition Law introduces Article 8, which prohibits selling at very low prices in comparison to the costs of production, transportation and marketing. If the object of this low pricing is to foreclose a competitor or a new entry, this is different from the predation test as it does not require prices to be below cost. However, it might be meant to address the concern of profit sacrifice.
Finally, the New Competition Law includes a new prohibition on conduct abusing economic dependency. It will remain to be seen, how the implementing regulations are going to define “economic dependency” and whether they will be guided by the existing international regimes adopting this concept such as in France and Tunisia.
Generally, the merger control filing is still mandatory and suspensory. However, the New Competition Law includes a new threshold test of the “annual turnover” of the entities, in addition to the test of market shares under the old law. The New Competition Law gives the parties the right to propose remedies to address the anti-competitive effects upon submission of the filing. Turnover thresholds will be determined by virtue of a Minister Council Decision.
Unlike the old law where non-response by the Minister is considered acceptance, under the New Competition Law, silence is a sign of refusal of the transaction. The New Competition Law introduces a mechanism whereby the Minister of Economy may invite interested parties to express their views on the transaction. It also allows any interested party to submit any information to the Ministry regarding an economic concentration process presented to the Ministry with the right to object.
The New Competition Law includes stricter financial penalties by increasing the maximum threshold to 10% of the annual turnover for anti-competitive practices. Failure to notify a notifiable transaction is punishable by the same penalty. Further, the New Competition Law introduces administrative penalties that may be imposed on entities violating any provisions of the new law, in addition to a penalty of AED 500,000 for obstructing the Competition Committee’s work during an investigation.
While the old law was not effectively enforced and provided for an extensive list of exemptions, the New Competition Law seems to cast a wider net and encourages the Ministry of Economy to take more action. There are still several points that need to be clarified with the new law which the executive regulation is anticipated to address. We will keep you updated on further developments as and when the executive regulation is issued.
To speak with us in relation to the New Competition Law, or any commercial matters or issues more generally, please contact one of the Baker McKenzie team members below.