06 February 2017
During the second half of last year the UAE Cabinet approved two regulations that implemented key aspects of the 2012 UAE Competition Law. These regulations did not receive the publicity they deserve. As a result of their enactment, the body of competition legislation in this country has now come to life in earnest and is fully operational. Indeed, prior to the 2016 regulations, the Competition Law had largely not been put into practice because several key elements were not yet in place.
The UAE Competition 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 regulations provided 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 percent. In respect of restrictive agreements, only those between businesses whose combined market share exceeds 10 percent will be potentially subject to scrutiny by the Competition Regulation Committee. Lastly, the 2016 regulations established that an abuse of dominant position may only occur if the market share of the business allegedly abusing its position exceeds 40 percent.
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”: it may legitimately wonder whether its relevant market is that of energy drinks, or if it’s the much larger one of “soft drinks”. In the former case, its market share may exceed 40 percent, while in the latter case its 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 relevant market. It is likely that the UAE Competition Regulation Committee will draw from their experience in developing its own interpretation of the law.
Currently, the Competition Law has a limited field 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 falls outside its scope of application. That said, the gamut of exceptions may be significantly reduced in the future, once the legislation will have been successfully road-tested.
The very first notifications of economic concentration are now being processed by the Competition Regulation Committee, and an important body of precedents will soon start to develop. This is a space that specialist practitioners and leading economic operators should watch closely in the coming months.Any opinions expressed here are the author’s own.