There is widespread consensus among commentators that although the UAE has developed a world-class “hard” infrastructure (roads, ports, airports, etc.), there is still room for improvement in its “soft” infrastructure, namely its legal system. That said, those same commentators readily acknowledge that significant legislative developments occurred during the last few years.
These include a new Commercial Companies Law, a very recently enacted Bankruptcy Law, and other notable pieces of legislation in a number of key sectors. A recent development that attracted slightly less attention is the approval, by the UAE Cabinet, of a key implementing regulation to the 2012 UAE Competition Law. Until now, the Competition Law has largely not been put into practice due to the absence of crucial implementing regulations.
A first regulation was adopted in 2014, but left a number of aspects unresolved. Arguably the most important regulation, which provides essential terms of reference on the law’s scope of application, was enacted this past summer. As a result, the UAE Competition Law is now fully operational.
The law governs three key areas of economic activity: transactions leading to concentrations between businesses, restrictive agreements, and actions that constitute an abuse of dominant position. On each of these fronts, the 2016 regulation provides crucial application parameters.
In respect of economic concentrations, the combined market share that triggers the obligation to obtain pre-completion clearance has been set at 40 per cent. In respect of restrictive agreements, only those between businesses whose combined market share exceeds 10 per cent will potentially be subject to scrutiny by the Competition Regulation Committee. Lastly, the 2016 regulation established that an abuse of a dominant position may only occur if the market share of the business allegedly abusing its position exceeds 40 per cent.
Anchoring the materiality threshold for the application of the Competition Law to the concept of market share is consistent with the approach taken by most legislations. The precise notion of market share can, however, at times be highly elusive, as it depends on the often debatable definition of the “relevant market”. For example, consider a producer of so-called “energy drinks”: he may legitimately wonder whether his relevant market is that of energy drinks, or if it’s the much larger one of “soft drinks”.
In the former case, his market share may exceed 40 per cent, while in the latter case his market share would be significantly below the materiality threshold.
Competition authorities in several countries have grappled with such matters for a long time, and have developed an analytical methodology and wide body of precedents in addressing issues such as the definition of a relevant market. It is not entirely unreasonable to assume that the UAE Competition Regulation Committee will draw from their experience in developing its own interpretation of the law.
On the other hand, one must also consider that the committee will face certain challenges that are peculiar to the UAE. In defining a relevant market, the EU and US authorities can — and do — rely on a body of publicly available statistical data whose scope is vast and whose level of detail is extremely granular. A comparable body of statistical data is currently not available in the UAE, and this will undoubtedly constitute a practical hurdle in the application of the law.
This is merely an example: there are of course several other uncertainties and challenges that will need to be addressed going forward.
Another important aspect of the Competition Law is its current limited scope of application. It is not applicable to small and medium enterprises (which have been defined in the 2016 regulation), state-owned entities, and companies operating in certain specific sectors (such as telecommunications and financial services).
In practice, for the time being a significant fraction of UAE businesses fall outside the scope of the Competition Law. That said, all economic operators would be wise to closely monitor developments in this sector, as the gamut of exceptions may be significantly reduced in the future, once the legislation will have been successfully road-tested.
As has been the case in the past, the UAE Government is wisely adopting a gradualist approach in implementing a body of rules that will significantly impact economic activity in this country. Such a strategy will allow market participants the time to understand and adapt to the new rules.
And, indeed, just as sizeable “hard” infrastructure is typically erected in successive phases, so will the “soft” infrastructure of the Competition Law come into being in a number of stages. The 2016 regulation effectively completes Phase I.
The writer is a Partner at Baker & McKenzie Habib Al Mulla, UAE.
