The Saudi Competition Law Revamped

The KSA Government has recently issued an updated draft of the Competition Law. Although this law hasn’t come into effect yet, Anas from Hammad & Mehdar illustrates in the following article the keys changes of the new draft being introduced, including scope of application, competitiveness, resolution of disputes and sanctions.

The Kingdom of Saudi Arabia (the “Kingdom”) issued on March 29, 2019 and pursuant to a Royal Decree No. M/75 29/06/1440H (Corresponding to 07/03/2019G) its reinvigorated draft Competition Law (the “New Law”) to replace its existing Competition Law[1] (the” Old Law”) and its Implementing Regulations[2]. The New Law aims to combat unfair practices affecting consumer’s interests in order to lead to development of the economy and reach fair competition in the market

While the New Law has not yet been brought into effect, this article will outline the main provisions that were tackled by the New Law and that entities need to take into consideration before the New Law comes to effect in late September 2019, (i.e. 180 days following its publication).

Applicability
The New Law will not only apply to operating entities in the Kingdom but also to businesses taking place outside the Kingdom if such businesses’ anticompetitive effect is produced in the Kingdom. A crucial amendment that will limit competition in the Saudi market and will force the violating businesses remotely accessing the Saudi market to reconsider their competition threshold in accordance with the New Law.

This said, the New Law is applicable to natural or legal persons conducting economic activity in the Kingdom and to practices conducted outside the Kingdom that prejudice fair competition inside the Kingdom

Anti-Competition
While the Old Law required that anti-competitive agreements take place between competing or potentially competing entities (and no definition has been ascribed to “competing entities” or “potentially competing entities” under the Old Law), the New Law no longer imposes such requirement and instead states that all practices and agreements among entities are restricted if their impact is considered a violation of the competition. The New Law restricts in general all practices that are aimed at or may lead to prejudicing competition (including agreements of all sorts (implied or explicit).

The New Law sets a complete list of situations that are considered anti-competitive and are as follows:

1. Setting the price of services and goods, or its production volume or weights;
2. Dividing market goods or services on the basis of certain criteria;
3. Controlling of distribution, manufacture, development, and marketing operations in the market;
4. Arranging for or engaging in collusive bidding or tendering in public tenders or in other anti-competitive practices;
5. Restricting entities from entry into the market and from their right to access goods or services in the market; and
6. Restricting, whether partially or totally, the flow of goods and services into or out of the market.

The Old Law distinguishes between horizontal and vertical relationship between entities subject to competition while the New Law removed such distinction and provided that all restrictive practices will be regarded as a violation of the New Law regardless of the nature of the relationship between the parties involved and whether they are regarded as potential or actual competitors. The removal of these limitations will no doubt place many entities under investigation and will force them to reconsider their practices in the Saudi Market.

The Old Law and the New Law refer to a list of anticompetitive practices which include price fixing and restriction of trade. The New Law introduces additional elements such as weight or quantities for the production of commodities or the performance of services, price recommendation and fixing the size.

Its worth noting however that although the New Law implemented a wider definition of competitive practice and therefore targeted more practices in the Kingdom, it has introduced a new article to allow certain anti-competitive businesses to be conducted in the Kingdom only if such businesses succeed in proving (subject to an assessment conducted by a technical committee) that their presence generate and escalate the level of quality in certain businesses, creativity, and technology.

Economic Concentration
The Competition Council in Saudi Arabia had under the Old Law the sole discretion to decide, on a case by case basis, whether an entity’s practices fall into the prohibitions adopting the market share threshold or economic concentration which was set to be in the range exceeding the 40%. The New Law however went further to adopt the “Economic Concentration” test and is yet to decide on the economic concentration percentage adopted in its implementing regulations. The alteration of the adopted test to a more lenient easy to use test will no doubt increase the competing merger notifications as it will make it easier for the authorities to track, determine and evidence the breach.

Determination of Prices of Goods & Services
The New Law introduced a new principle being the competitive market principle which implies that the prices of goods and services shall be determined by the market rules and principles of free competition unless otherwise decided by the Council of Ministers or under the applicable regulations in the Kingdom. The introduction of such principle will affect the setting of the prices and ultimately lead to less competition in the market.

Dispute Resolution
A specialized committee comprised of five members associated with the settlement of the disputes and enforcement of the penalties is introduced under the New Law. The Board was given additional authorities under the New Law and is now granted the power to temporary shut down entities failing to remedy breaches to the New Law and also, at its sole discretion, decide not to refer violating entities to the Committee in certain situation, and instead arrange for amicable settlement taking into consideration adequate compensation to the affected party.

Sanctions
The New Law imposed fines not exceeding 5% of annual turnover (capped at SR 5 Million) for violators of certain provisions of the New Law relating to preventing investigators/officers from performing their duties. A fine not exceeding SR 10 Million for breaches of provisions of the New Law relating to dominant position, competition arrangements and economic concentration. In addition, an introduction of a fine not exceeding SR 2 Million for breaches to various provisions of the New Law.

The New Law also gave the authorities the right to increase the fine in certain situations, and subject to certain limitations, especially in the situation where the breach is repeated by the violating party.

Conclusion
The New Law will not doubt set a new threshold for triggering breach of its provisions and will therefore subject entities, which were not previously regarded as violators under the Old Law, to more scrutinization and force them to commit to a higher standard of anti-competitive assessment.

The application of the New Law to businesses outside the kingdom when anticompetitive effect is produced in the Kingdom applies to both goods and services. Its not clear whether such application can also extend to apply to relationship between the parties and contracts entered into between entities and persons and whose effect is produced directly or indirectly in the Kingdom (i.e. contracts with production companies and artists limiting the artists’ performance in the market).

It will be interesting to know how the courts will look at anti-competitive contracts entered into with artists outside the Kingdom that restricts/limits their performance in the Kingdom. Such practices are recently active and are yet to increase in the GCC market especially with the recent media and artistic revolution in the Kingdom.

Author: Anas Jeser, Associate, Hammad & Mehdar (in affiliation with Simmons & Simmons LLP)

References
[1] Issued by Royal decree M/25 dated 4/5/1425H, as amended by Royal Decree M/24 dated 11/4/1435H.
[2] Issued by Council of Ministers Decision No. 126 dated 4/9/1435H.