Saudi Arabia has recently approved a new Competition law, which is expected to implement further restrictions and monitor all competition acts. The new law will officially come into effect within six months, following its publication in the Saudi official gazette on 29 March 2019. This article outlines the key features that operating entities in the Saudi market should consider before the applied requirements come into force.
The Saudi Council of Ministers has recently approved the draft Competition Law in its held meeting on 03 March 2019 (the Competition Law). The implementing regulations should also be issued by the Board of the General Authority for Competition (the Board) within 180 days starting from the publication date of the Competition Law (the Implementing Regulations).
The Competition Law will effectively replace the enacted Competition Law by the Royal Decree No. (M/25) dated 22 June 2004 and is expected to implement further restrictions and monitor all competition acts.
Who is concerned?
The provisions of the Competition Law will be applied on any:
- natural or juristic person undertaking economic activity, including commercial, agricultural, industrial, service business as well as sale and purchase of commodities and services in Saudi (the Establishments).
- practices conducted outside Saudi which might breach the overall fair competition inside Saudi.
Government owned Establishments and companies shall be excluded from the application of the Competition Law if they were solely authorised by the government to render services or provide commodities in a particular area.
The main objectives of the Competition Law are:
- protect and encourage the overall fair competition.
- monitor and prohibit all competition practices that might affect the fair competition and the Saudi consumers' rights.
- enhance the Saudi competition market and regulate all commercial practices in the investment market.
- protect medium and small businesses to ensure the continuity of their operations in the market.
- provide products and commodities with sufficient quality and fair prices.
In general, the provisions of the Competition Law set out wide prohibitions on unfair competition practices which mainly include the following:
Economic concentration act is strictly prohibited under the Competition Law which is defined as: "any act resulting in the whole or partial transfer of the title to the assets, rights, liabilities, shares or stocks of an Establishment to another, or the merger of two or more departments in one joint department" (the Economic Concentration). Establishments are obligated to notify the General Authority for Competition of any Economic Concentration transactions within (90) days prior to the completion date if the total annual turnover of the participating Establishments exceeds a specific amount which should be determined by the Implementing Regulations. The Implementing Regulations will further identify the Economic Concentration percentage in accordance with specific criteria to be decided by the Board, which was at the range of (40%) under the previous Competition Law.
The dominant position is defined under the Competition Law as "the position in which an Establishment or group of Establishments are controlling and/or capable of affecting a given percentage of the market where they are carrying out their activities" (the Dominant Position). Under the previous Competition Law, the dominant position occurs if:
- an entity or a group of entities have a market share of at least 40% of total sales of a good or service for a period of 12 months; or
- an entity or group of entities were able to affect the applied price in the market.
Establishments with a Dominant Position are not permitted to abuse their strong position to either affect or restrict the competition in the market and the Competition Law has listed 7 prohibited practices in this regard (the Prohibited Practices). The Prohibited Practices generally include affecting the overall prices and quantities of products and restricting the dealings with certain businesses with the aim of limiting their operations in the market.
The Implementing Regulations shall further specify the new applied percentage for the Dominant Position under the Competition Law which should be in accordance with the determined criteria by the Board.
The Competition Law prohibits all agreements and/or contracts between Establishments, whether written or verbal, explicit or implicit, that aim or might as a consequence restrict the trading or fair competition in the market. The Competition Law has identified 8 prohibited competition arrangements, some of which are determining or suggesting the prices of products and sale and purchase conditions, determining the quantities, sizes or weights of products' production or performance of services, practices that may block the entry of businesses into the market and/or restricting all means of investment including the manufacturing, development and distribution of products (the Competition Arrangements).
The Board may exceptionally not apply articles 5, 6 and 7 of the Competition Law relating to the Economic Concentration, Dominant Position and Competition Arrangements if they will enhance the performance of the market or Establishments in terms of the quality of products, technical improvement and creativity competence. However, the consumers' benefit must ultimately outweigh the effects of restricting the free competition.
Disputes Settlement Committee
The Competition Law introduces the formation of a specialised committee for the settlement of the disputes and enforcement of the penalties under the Competition Law (the Committee). The Committee will be comprised of (5) members with a membership period of (5) years (renewable). The authorities of the Committee shall not extent to the identified breaches under articles 12(1) and 24 of the Competition Law relating to conducted acts by the Board. The Board may additionally in its sole discretion:
- not refer the breaching Establishment to the Committee, if the Establishment initiated the disclosure of evidence revealing its partners in such breach.
- accept the settlement with breaching Establishments, provided that the Implementing Regulations should determine the necessary criteria, conditions and applied mechanism to compensate the affected parties.
Penalties and Compensation
Affected parties of any prohibited practices under the Competition Law may be eligible to requesting compensation before the competent courts. In addition, the application mechanism of the penalties under the Competition Law takes into consideration the following conditions:
- financial fines will be determined based on the nature of the breaching activity if the Establishment had multiple activities in contrast with one another.
- the circumstances and conditions of the breach.
- significance of the breach.
- consequences of the breach.
The Competition Law has also introduced the following penalties on breaching Establishments:
- financial fine not exceeding (10%) of the yearly total sales which are under breach or (SAR 10,000,000) if the yearly sales were inestimable. Such fine shall be applied on any breaches of articles 5, 6 and 7 of the Competition Law relating to the Economic Concentration, Dominant Position and Competition Arrangements.
- financial fine not exceeding (5%) of the yearly total sales which are under breach or (SAR 5,000,000) if the yearly sales were inestimable to be applied on the breaches of article 16 of the Competition Law relating to preventing investigators/officers of performing their duties.
- fine not exceeding (SAR 2,000,000) of any other breaches and without prejudice to the provisions of the related articles under the Competition Law.
If the breaching party repeated its breach, the Committee may double the issued financial fine in respect of the first breach.
While the Competition Law and its Implementing Regulations are yet to come into force, operating entities in the Saudi market should take into account the applied requirements and restrictions on their future transactions and evaluate their commercial position to avoid breaching the provisions of the Competition Law.
For further details on the Prohibited Practices, Competition Arrangements and practical application of the Competition Law on your future or current business operations please do not hesitate to contact Alain Sfeir.