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The Competition Law of Turkey

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

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The Article 167 of Turkish Constitution attributed to the government the duty to take ?for money, credit, capital, product and service markets, measures providing and improving healthy and regular procedures? to prevent ?monopolization and cauterization created as result of activity or agreement in the markets?.

As a requirement of this Constitutional clause, in order to prevent agreements, decisions and practices which prevent, restrict or distort competition within the markets for goods and services in the territory of Republic of Turkey and the abuse of dominant position by those undertakings which are dominant in the market, the Law on The Protection of Competition No. 4054 was enacted in the Turkish Parliament on 07.12.1994 and published in the Official Gazette and became effective on 13.12.1994. The Competition Board, which is the decision body of the Competition Authority responsible to apply the Law, was established on 27.02.1997 with a delay of 27 months. By accomplishing his organization in a short period of 8 months, the Authority has announced this situation to the public with a decree published on 05.11.1997. After this date the Authority has started to evaluate quickly the applications. Thus, the process of realization of Turkish Competition Law, which was initiated in the beginning of the 1970’s and the institution that will carry out the Law, was completed.

Competition Authority is the unique body responsible to apply the Law on the Protection of Competition no 4054. In the Article 20 of the same Law has been put under the clause that while carrying out its duties, the Authority shall be independent and shall not receive any orders or directives from any organ, authority, entity or person.

Competition Board established its physical infrastructure and organization, while preparing quickly the decrees relative to the practice of the Law called also the second regulation, it made them effective.

The Fundamental Prohibitions and the Exemption Scheme

The Law No. 4054 is based on two fundamental prohibitions: the Article 4 which aims to prevent the distortion of the competition with the decisions of the associations of enterprises or agreements or concerted practices between enterprises in a certain market of goods and services and the Article 6 which aims to prevent the abuse of dominant position by enterprises which are in a dominant position. These two Articles have got parallelism successively with the articles 81(1) and 82 of the Treaty.

The Article 5 of the Law (which contains the same provisions as the Article 81(3) of the Treaty) is the main exemption clause. According to the provisions of Article 5, even in the presence of an agreement, concerted practice or decision which restrict the competition, in the existence of some conditions, the Board may declare the exemption of the application of the provisions of Article 4. The exemption regulation in question includes agreements, concerted practices and decisions which allow consumers to get a share from the resulting benefit, contribute to new developments and progress or technical or economic improvement in production or distribution of goods and in providing services, which does not eliminate competition in a substantial part of the relevant market and does not induce a restraint on competition that is more than essential. In any case, a decision for exemption is issued for a specified period of not more than five years.

The Article 5 of the Law also attributes to the Board the power to issue communiqués by which certain categories of agreements are exempted as a group. Within the framework the Board issued the following Communiqués under the foregoing principles of an exemption regime: the Block Exemption Communiqué on the Exclusive Distribution Agreements no 1997/3, the Block Exemption Communiqué on the Exclusive Purchasing Agreements no 1997/4, the Block Exemption Communiqué Concerning the Distribution and Servicing Agreements In Relation to Motor Vehicles no 1998/3, and the Block Exemption Communiqué Concerning the Franchising Agreements no1998/7.

Mergers and Acquisitions

As it is mentioned in the Law, merger of two or more enterprises and acquisition, except acquisition by way of inheritance, by an enterprise or by a person, of another enterprise, either by acquisition of all or part of its assets or securities or other means by which that person or enterprise concerned, which creates or strengthens the dominant position of one or more enterprises as a result of which, competition is significantly impeded in the market for goods and services in the whole or part of the territory of the State, is unlawful and prohibited.

There are strict thresholds for mergers and acquisitions in Turkey. Where total market shares of the undertakings that are parties to the merger or acquisition exceed 25 % of the market in the relevant product market within the whole territory of the country or a part of it, or even though they do not exceed this rate, their total turnovers exceed twenty-five trillion Turkish Lira (approximately 19 million US$), it is compulsory for them to take permission of the Competition Board. Market share or turnover is calculated via sum of market shares or sum of turnovers of the undertakings (and connected undertakings) within the relevant product market.

The filing is mandatory where the thresholds are exceeded. In cases where a merger or an acquisition has not been notified, the Board, when it is informed about the transaction concerned, by any means, shall, upon its own initiative, investigate the merger or acquisition. Upon conclusion of the investigation:

  • If the Board finds that the merger or acquisition concerned does not create any problems with regard to competition issues, it shall give consent to the merger or acquisition. However, the Board shall impose fines against the parties concerned for their failure to notify.
  • If the Board finds that the merger or acquisition concerned “create or strengthen the dominant position of one or more undertakings as a result of which, competition would be significantly impeded in a market for goods and services in the whole territory of State or in a substantial part of it”, the Board, as well as imposing fines, shall decide on the termination of the transaction.

In cases where a merger or an acquisition has been closed before clearance, the Board imposes fines against the parties concerned. This being regardless of the final decision concerning the merger/acquisition.

In making its appraisal in a merger transaction, the Board takes into account the market position of the undertakings concerned, their economic and financial powers, the alternatives available to suppliers and users, their opportunities for access to sources of supply or entry into markets; any legal or other barriers to entry into the market; supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers, developments in the technical and economic progress provided that they are to the advantage of consumers and do not form an obstacle to competition, and other factors are also taken into account.

When taking its decision, the Board considers the criteria which are directly related with competition issues. Although it plays a limited role, the Board may also take into account economic and social factors.

According to the provisions of The Law No. 4054 and the related communiqué on mergers, the parties to a merger cannot give divestment undertakings. However, The Board may permit a merger or an acquisition notified on condition that remedial measures deemed appropriate by the Board are taken, and certain other obligations, which are determined by the Board, are complied with. Thus, the parties cannot negotiate undertakings with the Board. There is also no specific pre-merger negotiation procedure or any other mechanism such as the Merger Task Force in the EU.

In assessing a merger or an acquisition, the Board may, where necessary, request information from the parties to the merger as well as third parties such as the customers, competitors and suppliers of the parties, and other persons concerned with the merger. The Board may also invite such persons to hearing. The third parties may also request from the Board to be heard, provided that they prove their legitimate interest.

Application for the review of the Board's decisions and the decisions regarding the interim measures, fines and periodic penalty payments can be made to the Council of State within the specified time. The decision of the Board becomes final if no action is taken within this specified time limitation.

The Turkish Merger legislation does not contain special provisions for foreign investments or special sectors. The foreign investors, regardless of whether the investment is direct or with a Turkish partner, are subject to same rules and are under the same obligations as a Turkish firm.

Typical Steps During the Investigation

The Competition Board may, upon an application or its own initiative, decide on a direct investigation or a preliminary investigation for the purposes of determination of whether or not there appears a necessity for an initial proceeding for the application brought before it.

In cases where a preliminary investigation will be carried out, the Director of the Board appoints one or more experts amongst the staff as a reporter.

The reporter who is appointed to carry out the preliminary investigation notifies to the Board in writing, all the information and evidences together with his view on the matter concerned, within 30 days.

Within 10 days following the submission of the report on the preliminary investigation, the Board meets to conclude its decision on whether or not it is necessary to initiate preliminary investigation.

Where the Board, having received an application or a notification, considers, on the basis of the information in its possession, that there are serious and sufficient grounds, it informs the applicants in writing, of its decision and of the commencement of the proceedings.

Anyone who claims to have a direct or indirect interest may bring an action against the decision of the Board concerning an express or implied dismissal of the application.

The Board, upon the decision on initiating the investigation procedures, appoints the Board members together with a reporter or reporters authorized, to carry out the investigation. The investigation has to be completed within six months at most. The Board may extend this period for only once, to a further six months, where it is deemed necessary.

The Board, informs the parties concerned, of the investigations initiated within 15 days following the date of the decision by which the investigation proceeding is initiated and requests from the parties to submit their first arguments relevant to their defense in writing, within 30 days. For this submission period to begin to run, the Board, together with its request for the arguments of the parties, informs them of the legal grounds and the nature of the alleged infringement.

The decision of the Board on the initiation of investigation is final.

During the course of investigation the Investigation Committee may exercise the powers of requesting information and the powers of on the spot investigation. Within this period, the Committee may also request from the parties and other related authorities to submit all necessary documents and information. During the investigation stage of the Board, any person or persons who are alleged to have infringed the Law may at any time, submit to the Board any information and evidence that may affect the decision.

The parties, who are informed that an investigation has started against them, may, from the date of initiation of the investigation up to the date of request for a hearing, request a copy of all documents issued in the Authority and if possible, all types of evidence obtained.

It is important to note that the Board cannot base its decision on any issue about which the parties are not informed or not given the right to defense.

The report prepared at the end of the investigation stage is notified to all the Board members and to the parties concerned.

Those who are decided to have infringed the Law are notified to submit their second defense in writing to the Board within 30 days. Upon the defense arguments, the experts authorized to carry out the investigation submit their additional views in writing within 15 days and this shall also be notified to all the Board members and to the parties concerned. The parties may reply to these views within 30 days. In cases where the parties have justified reasons, this time period may be extended for only once to another thirty days.

Reply of the parties not made within the specified time period is not taken into consideration.

A hearing is held if the parties concerned have requested so in their defense or reply petitions. On the other hand, the Board may also decide on a hearing on its own initiative. The hearing is held within at least thirty days and no longer than within sixty days following the end of the investigation stage. The invitations for the hearing are sent to the related parties within at least thirty days before the date of the hearing.

Hearings are held in public. However, the Board may, on the grounds of protection of public morality or of trade secrets, decide for closed sessions. Despite the possibility for closed sessions, the experiences showed that for the Board to decide for a closed session the parties have to submit strong arguments.

Hearings are presided by the Chairman and in his absence by the Deputy Chairman. A hearing can only be held with the attendance of the Chairman or the Deputy Chairman and at least seven members of the Board. Hearings are to be concluded within no longer than five consequent sessions (several meetings held on the same day shall be considered as one session).

The final decision of the Competition Board is made on the same date and if this is not possible, together with its reasoning within fifteen days following the hearing.

In cases where a hearing is neither requested by the parties nor decided by the Board on its own initiative, the final decision is given within 30 days following the end of the investigation stage.

Fines

The Board may impose fines on natural persons or legal entities which have the status of an enterprise and associations of enterprises and/or to the members of these associations in cases where incorrect or misleading information is provided in a notification made for exemption or negative clearance or for permission for a merger, in a request for information or on the spot investigation. Fines are also applied for failure to notify a merger or acquisition or an agreement within the specified time period and for the infringement of any obligations imposed concerning the conditions attached to an exemption decision of the Board.

The enterprises and associations of enterprises against which a Board decision is given on the infringement of the fundamental prohibitions cited in Articles 4 and 6 of the Law are fined up to 10 % of the gross income occurred in the previous financial year. In cases where such a fine is imposed, a fine up to ten percent of that fine may also be imposed on the individuals personally who are in the management organs of these legal entities. The Board may also impose periodic penalty payments per day.

Up till now, the maximum amount that the Board has ruled as fine is about 1.7 million US$ in the Aegean Cement Case concerning parallel conduct, about 1.6 million US$ in Istanbul Wholesale Case concerning refusal to supply and 500.000 US$ in TV Advertisement Marketing Case.

The Actions of the Competition Board

A total of 896 applications have been submitted to the Competition Board between 05 November 1997, which was the date when the completion of the Board’s organization was announced to the public, and 31 December 1999. While 444 of these applications involved violation of competition, 294 of them involved applications related to negative clearance/exemption and 143 of them involved merger transactions.

With regard to the applications submitted to the Board in connection with violation of competition, preliminary investigations were conducted on 50 of those applications which were found to fall within the scope of Competition Law and were subsequently processed. A decision of inquiry was taken on 20 of the 50 investigations started, with 2 additional decisions of inquiry taken ex officio. Thus in the period concerned, a total of 22 investigations were started, and the Board announced its final decision regarding 7 of them, as of 31 December 1999.

The high number of applications received by the Board clearly indicates the extent of delay experienced by Turkey in preparing the necessary legislation to regulate the competition regarding the markets handling goods and services, and also points out to the fact that the Board is anticipated to encounter the same heavy load of work in the near future. On the other hand, the fact that about half of the total number of applications concerning violation of competition was found to be outside the scope of Competition Law demonstrates that the relevant circles including the lawyers and public were considerably unaware of the concept of “competition” defined in and governed by said law.

Considering the fact that the Competition Law is a relatively new branch of Law and that the rights and obligations brought by the Law are not sufficiently known by the public yet, by its Communiqué No. 1997/2 the Board has allowed, the undertakings and the associations of undertakings to inform the Board about their agreements existing on 5 November 1997, which was the date of announcement to the public that the Board had completed its organizational set up, within a considerably long period of 6 months. Within said period and afterwards, a total of 294 applications concerning negative clearance/exemption were entered in the files of the Board and were subsequently examined. 78 of these applications have been so for finalized.

In accordance with Article 7 of Law No. 4054 as well as with the Communiqués’ issued pursuant to this Article, a total of 143 applications concerning merging and taking over were submitted to the Board. The Board one being a decision of rejection has finalized 132 of these applications, 11 of the applications are still being examined.

Despite the applications relevant to matters concerning competition legislation are rather new, the high number of applications involving mergers is noteworthy. The main reason for this was the frequent cases of company marriages experienced in the last two-year. It should be noted however that another factor involved here was the significant number of applications received by the Board which were outside the scope of Article 7 and relevant Communiqués’, due to the fact that the public is not adequately informed about the competition legislation yet.

There were 8 applications finalized by the Competition Board during this period, which involved the taking over transactions realized through the process of privatization. These applications were particularly noteworthy not only from the standpoint of being finalized but also because they showed the need for laying down the legislation required to ensure taking into consideration to a great extent the rules of competition in carrying out the privatization transactions.

In view of inadequacy of Communiqué’ No. 1997/1 in this respect, a new set of rules has been desired and the “Communiqué’ No 1998/4 Concerning the Principles and Procedures to the Followed in Submission of Preliminary Declarations and Authorization Applications to the Competition Board in order to Ensure the Legal Validity of Taking Over Transactions Realized through Privatization” has been issued for exclusive application to privatization transactions. By requiring the parties concerned to obtain, prior to commencement of tender procedures, the opinion of Competition Board regarding the outcome of the dominance or privileges exercised by public enterprises in their respective markets following privatization and to obtain, after realization of tender, the authorization of Competition Board concerning the transactions of taking over to be realized through privatization, the Law of Competition has been ensured to play a major role in the privatization transactions.

Another remarkable point regarding the merger applications is that the share of transactions involving enterprises at least one of their parties is a partner with foreign capital, in the total number of transactions has reached a significant level such as 51%. These transactions, which are realized by the enterprises, with foreign capital by taking over, partly or wholly, the partnership shares of enterprises domiciled in Turkey, or by establishing joint ventures with them, indicate that there has been a significant entry of foreign capital in our country in this way during the same period.

The Competition Board has assumed a determinative function in the process of Turkey’s full membership in EU. The joint competition policy has unquestionably played an important role in the attainment of “Customs Union” by EU in late 1960s, in the attainment of “Single Market”, and in the process of realization of “Monetary Union” during the present period.

From this perspective, the Turkish Competition Board and the Authority have to develop a cooperative relationship with other antitrust authorities both on case-by-case basis (when necessary for big scale mergers and violations of competitions involving foreign firms) and on instructive basis such as educational issues. Moreover, it is to be noted that the cooperation system between the Turkish Authority and the Commission of the European Union’s Directorate General of Competition is based on bilateral agreements between Turkey and the EU.

In addition, the application of competition law in Turkey is also the result of obligations regarding the “Decision of the Association Council No. 1/95 Establishing Customs Union between the European Union and Turkey”. Correspondingly, Turkey has enacted the Law No: 4054 on the Protection of Competition and accepted the effectiveness of the case-law constituted by the Institutions of the EU pursuant to the article 39(2)(a) of the Decision of the Association Council No. 1/95. Thus, the case law of EU Court of Justice has also become the case law of Turkish national legislation. For competition matters that consist of cases in which a Turkish undertaking and a EU based undertaking are involved; both the Commission of the European Union and the Turkish Competition Authority are considered as “competent authority”. The principles of this cooperative system are laid down in Article 43 of the Decision of the Association Council No. 1/95.

As a final point, the adoption of same rules of competition by Turkey as adopted by EU should, in a sense, be recognized as running in the same track with EU in the field of economics. In other words, the establishment of a joint competition policy between Turkey and EU will create the legal foundation of economic integration. Furthermore, the full membership of Turkey in EU will be also formed within this framework.

Professor Arif ESIN- ESC Consulting