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Editorial

Saudi Arabia's Competition Law

May 2005 - EU & Competition. Legal Developments by A&L Goodbody.

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1. SUMMARY

1.1 Introduction
Businesses in Saudi Arabia have until 21/5/1426 H / 28 June 2005 to comply with the provisions of the Competition Law enacted last year, notwithstanding that the Implementing Regulations have yet to be issued. This presents a clear challenge.

Nonetheless, with fines of up to Saudi Riyals five million (SR 5,000,000) for first-time violations of the Competition Law, its terms merit close attention and timely compliance. Businesses should adjust their practices to comply with the Competition Law at the earliest opportunity.

1.2 Key points
(a) Establishments (as defined below) need to comply with Competition Law by 28 June 2005.
(b) The Implementing Regulations of the Competition Law have not yet been issued.
(c) The Competition Law is directed at the vast majority of businesses in Saudi Arabia, with the exception of public and wholly state-owned corporations.
(d) Fines for non-compliance with the Competition law can amount to SR 5,000,000.

1.3 Timeline

4/5/1425 H / 22 June 2004 Competition Law enacted by Royal Decree No. M/25
21/5/1425 H / 9 July 2004 Saudi Arabia's new Competition Law published
19/11/1425 H / 31 December 2004 Competition Law came into force
21/5/1426 H / 28 June 2005 Practices of all Establishments in Saudi Arabia must be in compliance with the terms of the Competition Law

2. BACKGROUND

On 21/5/1425 H / 9 July 2004, Saudi Arabia's new Competition Law, as enacted by Royal Decree No. M/25 dated 4/5/1425 H / 22 June 2004 (the "Competition Law"), was published in Saudi Arabia's Official Gazette. According to its Article 21, the Competition Law came into force on 19/11/1425 H / 31 December 2004, one hundred and eighty (180) days after its publication.

The key elements of the Competition Law are reviewed below. However Article 20 of the Competition Law calls for the Competition Law's implementing regulations (the "Implementing Regulations") to be issued on or before 20/8/1425 H / 5 October 2004, ninety (90) days after the publication of the Competition Law. Once issued, the Implementing Regulations will clarify the provisions of the Competition Law by providing additional detail. However, as of 22/3/1426 H / 1 May 2005, the Implementing Regulations have not been issued. Accordingly, pending the release of the Implementing Regulations, certain issues arising under the Competition Law remain unclear.

3. KEY ELEMENTS OF THE COMPETITION LAW

3.1 Scope
The Competition Law has a broad scope and applies to all plants, establishments, companies, and associations carrying out commercial, agricultural, industrial or service works or buying and selling goods or services in the Saudi markets ("Establishments"). It is important to note, however, that Article 3 of the Competition Law provides that the Competition Law does not apply to public corporations and wholly state owned corporations.

3.2 Generally
Article 4 of the Competition Law prohibits all practices, agreements, and contracts -whether written or verbal, express or implied - between competing Establishments or likely competing Establishments where the intention or the result of such practices, agreements, or contracts is to restrict commerce or limit competition between Establishments ("Prohibited Contracts").

However, the Council for the Protection of Competition (the "Competition Council;" see section ?3.5 below) may elect not to prosecute the parties to Prohibited Contracts if the Prohibited Contract leads to an improvement in the performance of the Establishments and benefits consumers to an extent greater than the effects of the Prohibited Contract upon free competition.

3.3 Dominant Establishment
Article 4 of the Competition Law also prohibits any Establishment or group of Establishments that is able to influence the market price of a product or service through control of a certain proportion of the aggregate demand (a "Dominant Establishment") from engaging in practices that limit competition between Establishments ("Prohibited Practices"), particularly:

(a) Controlling the prices of goods or services by increasing, decreasing, or fixing prices or by other means harmful to competition;
(b) Limiting the free flow of goods or services to the market or removing goods or services from the market by concealing, hoarding, or refraining to deal in such goods or services;
(c) Creating a sudden abundance of goods or services in the market resulting in unrealistically low prices that affect other Establishments in the market;
(d) Prohibiting or impeding any establishment from using or right to enter or exit the market;
(e) Concealing from other Establishments goods or services available in the market;
(f) Dividing or allotting the market for goods or services on the basis of geography, types of clients, seasons and periods of time, or distribution centres;
(g) Influencing the normal price of offers to buy, sell, or supply goods or services in public or private bids and tenders; and
(h) Stopping or restricting the manufacturing, development, distribution, or marketing processes.

As with Prohibited Contracts, the Competition Council may elect not to prosecute Prohibited Practices where the Prohibited Practice leads to an improvement in the performance of the Establishments and benefits consumers to an extent greater than the effects of the Prohibited Practice upon free competition.

3.4 Mergers, Acquisitions, and Consolidation of Management
Article 6 of the Competition Law requires that where:
(a) A Dominant Establishment would be created by the merger of Establishments or by the acquisition by an Establishment of assets, property rights, usufruct rights, or shares; or
(b) Competing Establishments wish to combine their management while remaining as separate legal entities and where such unification of management would create a Dominant establishment;
the Establishment(s) involved must notify the Competition Council at least sixty (60) days prior to the completion of the merger or acquisition.
Any Establishment(s) that gives the Competition Council notice as required by Article 6 of the Competition Law ("Article 6 Notice") may proceed to completion where:
(c) Sixty (60) days have passed since the date of the giving of Article 6 Notice and the Competition Council has not notified the Establishment(s) that the Competition Council:
(i) Objects to the proposal set forth in the Article 6 Notice; or
(ii) Is studying the proposal set forth in the Article 6 Notice; or
(d) Ninety (90) days have passed since the date of the giving of Article 6 Notice and the Competition Council:
(i) Is still studying the proposal set forth in the Article 6 Notice; and
(ii) Has not notified the Establishment(s) of the approval or rejection of the proposal set forth in the Article 6 Notice.

3.5 The Competition Council
Article 8 of the Competition Law creates an independent Competition Council chaired by the Minister of Commerce and Industry. Article 9 of the Competition Law provides that the Competition Council will, among other things:
(a) Approve or reject applications for the acquisition, merger, or consolidation of the management of Establishments, pursuant to Article 6 of the Competition Law;
(b) Order the investigation and prosecution of complaints regarding violations of the Competition Law; and
(c) Approve the criminal prosecution of parties accused of violating the Competition Law.

3.6 Penalties
3.6.1 The Penalties Committee
Article 15 of the Competition Law provides that the Competition Council will establish a committee to determine the financial penalty to be imposed on any party found to have violated the provisions of the Competition Law (the "Penalties Committee"). The decisions of the Penalties Committee may be appealed before the Saudi Arabian Grievances Board.

Article 12 of the Competition Law limits the scope of the financial penalties that may be imposed by the Penalties Committee to no more than Saudi Riyals five million (SR 5,000,000), although the fine may be extended to no more Saudi Riyals ten million (SR 10,000,000) if the violator has previously been convicted under the Competition Law. The financial penalties that may be imposed under the Competition Law are imposed without prejudice to any other penalties that may be applicable under any other laws.

3.6.2 Other Remedies
In addition to the financial penalties that may be imposed by the Penalties Committee on any party that has violated the Competition Law, the Competition Council may order any party that has violated the Competition Law:
(a) To remedy the violation of the Competition Law within a set period of time; and/or
(b) To dispose of some of its assets, shares, or property rights; and/or
(c) To pay a daily fine of not less than Saudi Riyals one thousand (SR 1,000) and not more than Saudi Riyals ten thousand (SR 10,000) until the violation is remedied.

3.6.3 Appeals
The decisions of the Penalties Committee and the Competition Council regarding the imposition of penalties and remedial measures may be appealed to the Saudi Arabian Grievances Board.

3.7 Time Limit
Article 19 of the Competition Law provides that all Establishments have one (1) year from the law's publication in which to comply with the provisions of the Competition Law. Accordingly, by 21/5/1426 H / 28 June 2005, the practices of all Establishments must be in compliance with the terms of the Competition Law.

John Beaumont / Mohammed Al-Jadaan
The Law Firm of Yousef & Mohammed Al-Jadaan