Regulation of competitions is a part of governmental duties. In practice, competition laws target regulating operations in order to ensure a fair environment for players that compete. Owing to such practices, it is possible to increase economic efficiency, growth, and development. The encouraging competition also serves the objective of ensuring that the customer gets the best value for their money. Often, the law attributes such anti-competitive practices to private entities, and governmental measures that influence market competition through trade barriers, restrictions on foreign direct investment, licensing procedures among other requirements. Such measures put pressure on markets and levels of competition as well as direct the completion policy. The current paper reviews competition laws in the United Arab Emirates (UAE) in light of the shift towards globalization.
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In brief, the UAE has practiced an open regime that has facilitated extensive growth and development in the country. It is not surprising that the open nature of the UAE economic environment has played an instrumental role in the expansion of the country’s economy. Although the trade regime is largely open, the investment is restrictive, given that foreign players cannot have more than 49% of capital in a venture. However, within the Emirates’ free zones, 100% ownership is accommodated.
The UAE comprises seven emirates: Abu Dhabi, Sharjah, Dubai, Ras Al Khaimah, Ajman, Fujeirah, and Umm Al Qaiwan. The Emirates were colonized by the British. In a bid to bridge the gap in education, immigrants were invited into the country. From the initial times an open door policy was adopted. The UAE is ranked as a second-tier economy, owing to the robust growth that it has registered in the recent past. The country’s business environment is relatively open although conducting business in the Arab world demands that certain factors are considered. Important aspects include starting an enterprise, handling construction permits, accessing electricity and credit, investor protection, tax payment, cross-border trade, contract enforcement, and resolving insolvency cases.
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The country’s competition laws took effect in February 2013. Companies were given a period of six months to align their activities with the law. The provision included revisions to existing agreements and retraining staff to make certain compliance. Before the adoption of the law, provisions/ regulations relating to the competition were scattered across numerous laws, including the UAE consumer protection law and regulations and the UAE commercial code.
According to 709, the new law has the objective of:
the protection and enhancement of competition and the combat of monopoly practices … [in particular through] keeping a competitive market governed by the market mechanisms in accordance with the economic freedom principle through banning restrictive agreements, banning the business and actions that lead to the abuse of a dominant position, controlling the operations of economic concentration and avoiding all that may prejudice, limit or prevent competition.
Overall, the chief regulator remains the UAE Ministry, which is in charge of the economy. The specific clauses were to be introduced and implemented later. The country’s cabinet was also left to decide the time for the implementation of the new law. Additionally, a Competition Regulation Committee was to be formed to help with the policy and formulation of the legislation to protect competition, consider emerging issues, and propose recommendations on cases of exemptions or dominant business practices, in addition to preparing yearly reports regarding the competition.
Scope of the Competition Law
One of the aspects covered by the law is foreign investment. In practice, foreign investment bridges the gap in the investment sphere that exists in developing countries. The UAE government restricts foreign investment in agency companies, trading companies, insurance, service sectors, distribution services, monopolies, quasi-state companies, among others. The act of limiting production results in deterioration of competition, which is a threat of undermining economic growth. The primary justification for the incorporation of competition laws into a country’s legal system is to regulate the conduct of business. As such, the laws should encourage investment into the country instead of redefining existing trade restrictions.
Regarding other cases of competition laws such as in the emerging economies of India and Brazil, foreign investment invokes mixed responses from different countries, although it is overall encouraged based on competition objectives. A high degree of restrictions negate diversity in markets. However, a successful implementation of competition laws requires caution to avoid stifling competition by encouraging restrictions. Concise wording of the laws is essential for enhancing confidence among foreign investors. Competition laws serve promotional purposes and create an environment of legal and economic stability. In the UAE, the wording of the law is precise as it pertains to the scrutiny and protection of investors’ interests. The law is however restricted to some sectors. Without interference, competition laws might be rendered irrelevant.
For a market to develop, entry freedom is necessary. Failure to have an adequate system might harm the economic and legal culture of the state. However, the law has contributed to the privatization of businesses, brining additional benefits. The result is partly linked to the removal of nationalistic tendencies that previously characterized the competition regime.
UAE Legal Systems
The vast majority of countries from the Middle East, the UAE included, maintain both a civil law system and sharia law (688). In practice, constitutions of Arabian countries serve as expressions of national sovereignty, ideological proclamations, and identification of authority. Based on the UAE government, sharia law is a reflection of a conglomeration of divine regulations and principles dictated by god as recorded in the Quran. Consequently, governments hold organizational and administrative powers or authority bestowed on them by the civil law. Secular courts have authority over civil and commercial disputes while sharia law applies to family matters and civil issues affecting the national citizenry.
Besides the sharia law, commercial and Federal Civil codes apply in the administration of the UAE. For instance, the recent Dubai International Financial Center (DIFC) has introduced a new legal framework based on common law. The DIFC also operates as an independent judicial system. Although it comes out as an independent arrangement, its activities must be in compliance with local customs and laws.
Regarding the free areas formed in the UAE, the DIFC, No. 9 of 2004 was promulgated with the objective of streamlining both civil and commercial disputes. However, the dependence of the DIFC is likely to be compromised since it financially relies on the federal court system. In this regard, the protectionist leaning is likely to influence the DIFC.
The design of the DIFC is to attract foreign investors who might demonstrate skepticism about the protectionist behavior of the country. In addition, foreigners were previously concerned with the slow pace of court proceedings, conducting of processes in Arabic, and the application of Sharia law in instances where the UAE Civil and Commercial Codes were silent or ineffective. The new body’s operation as a parallel judicial system reinforces efforts to portray it as independent. It is also noted that the competition law in the country is a federal code that operates under the civil system.
The free trade zones are also integral to the understanding of competition laws in the UAE. The first such center was the Jebel Ali Free Trade Zone founded in 1992. The zones operate under independent legal systems and are not obliged to observe domestic laws pertaining to corporate governance.
Be they secular or Sharia courts, the concept of binding precedent does not exist in the UAE. Although previous court decisions are used as references, the courts are not obliged to follow them. Thus, the legal framework seems to be unstable and subject to fluctuations. Such uncertainty discourages investment, given the potential risk involved.
As a process, globalization has far-reaching consequences. The process demands a free flow of capital, services, goods, ideas, and people, leading to connectivity in societies and their economies. The concept of global markets fits well into the country’s culture. In particular, almost all countries from the Middle Eastern region have reformed the Islamic Legal frameworks to varied levels since the influx of globalization seeds in the early 19th century. In particular, European and western commercial procedures and codes were embraced in order to bridge the gap left by the Islamic finance and trade laws. Based on the observation of the World Bank, globalization has a general effect of reducing poverty through the integration of economies, leading to faster growth. The process of globalization also provides poor markets with access to international markets where they can sell their products and acquire what they are incapable of producing. In general, globalization leads to increased productivity.
The introduction of the competition law into the UAE is one of the advances that are directly linked to globalization. In other words, the global influence is affecting the laws that the country is adopting. In addition, it is also held that to take advantage of the opportunities presented by globalised markets, the UAE has chosen to alter its economic landscape in order to attract global players that can contribute to its development. It is noted that the competition laws adopted by the UAE is a replica based on standards that are accepted globally. Thus, its adoption eases application and overall use. The development advances globalization and lets the UAE reap the benefits attributable to the process. One of the most noticeable benefits of globalization is job creation in the UAE cities.
The Federal Law No 4/2012 of 2012 on competition regulation preceded the Competition Law whose aim is to enhance competition and eliminate monopolies. In addition, the law provides an environment that facilitates efficiency, competition, and protection of consumer interests. The law is also in line with the goal of ensuring economic freedom in the UAE.
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Scope of Application
The Competition Law applies to all establishments alongside their economic activities in the country. As a result, intellectual property rights and economic activities related to the UAE are put into perspective. It is important to point out that certain sectors/ businesses are exempted from the law. A lot of the exempted businesses are subject to other laws or authorities.
The following areas are covered by the exemptions:
· oil and gas;
· cultural activities;
· production & distribution of pharmaceuticals;
· transportation of water and electricity;
· sewerage treatment, hygiene, and garbage disposal;
· marine, air or land, railway transport, and related services.
The cabinet reserves the right to delete or add activities, sectors, or businesses to the list. The law exempts small and medium enterprises constraint to cabinet controls. Further, the Competition law stipulates powers of the emirates, federal agencies, or local agencies in reference to trade in or outside the country.
In such markets, each player is expected to be in possession of all information and is free to enter or exit the market. Thus, consumers are sovereign, and the producer is just a price taker given the role of the former in determining the market price. For perfect competition to prevail, the supplies of players and the quantities bought by a consumer are so small that they have no influence on the entire market price.
Under perfect competition, no entity is likely to earn above normal rates of profits. The position holds since the concept of free entry is applicable. In case of high levels of profits, new entrants will join the market and decrease gain. In cases of perfect competition, the need for competition laws is limited.
The other concept is monopoly. Such market conditions reflect the existence of one player in the extension or supply of goods and services. The absence of competition implies that they have the power to abuse their positions by charging higher prices or supplying substandard products. Monopolies exist in circumstances of small businesses, limited competition, and high fixed costs. In such market arrangements, the need for competition laws is high.
Oligopolistic markets are also another form of market structuring. The concept of oligopoly refers to a scenario where few players are in control of the market. Participants in production pay attention to what their rivals are doing before adjusting their activities. In case one company increases the price, others are likely to follow. Entry into the sector is limited, given that in many cases barriers to entry are impenetrable. In practice, in an oligopolistic market structure, the possibility of collusion is high. The implication is that greater controls are required in such markets. Thus, competition laws would be beneficial.
Justification for Competition Laws
A number of factors justify the adoption of competition laws. Economic rationale is among the considerations when adopting such laws. The maintenance of competitiveness and allowance for free competition or the enhancement of competition emerges as the primary reason for supporting competition law. The factor resonates with the need to strike down or prevent unjustifiable restrictions on competition. Other clove objectives include enhancing the freedom of choice, market access, and free trade.
A competition policy is largely linked to economic concepts, owing to the zeroing on efficiency in product delivery. Excluding potential competitors is likely to occur in the absence of robust regulations. In addition, dominant players are likely to merge or collude in order to gain selfishly while disadvantaging consumers. Overall, the absence of competition law is a precursor to economic inefficiency.
Another justification for the adoption of the law is to discourage restrictive agreements among establishments. However, as stated in Article 5 (1), the target is agreements that violate, prevent, or reduce competition. The agreements targeted are those that limit the sale/ buying of products either directly or indirectly, leading to a reduction, increase, or fixing of prices. Secondly, the law targets the limitation of conditions on transactions. Collusion in biding/ tendering is also part of the focus. In addition, the Article has the objective of limiting agreements that have a negative impact on the flow of goods and services. In essence, the Article 5 is intended to enhance free market where, collusion or malpractices likely to affect prices are discouraged. On the basis of the above discussion, it is discerned that the objective of protecting consumers is a major factor influencing the adoption of competition laws.
Within the framework of the Federal Law No 18/1981, Article 5 (2) outlaws restrictive pacts that violate or undermine competition. In this regard, deals that lead to market division based on geography, distribution of customers, period/ season that might affect competition adversely are not allowed. Hindering market entry is also disallowed under the Article.
The other justification for the adoption of the laws is to check abuse of a dominant position that is largely attributable to big organizations. The attribute of dominance is captured under Article 6 of the law. The Competition law defines a ‘dominant position’ as the capacity of an entity to itself or in collusion with others to influence a market. If the proportion of transactions surpasses a given percentage of market activities, then such a position is said to have been obtained. In cases where establishment occupy dominant positions, the law limits them from engaging in acts that reduce competition. In particular, behavior from dominant players aimed at the following is discouraged.
- Imposition of conditions or prices for resale of products;
- Disposal of goods and services for prices lower than their actual cost with the objective of obstructing the entry of other establishments into the market or keeping them out or forcing them to loss-making positions;
- Discriminating customers of comparable contracts without any rationalization regarding product prices or sale terms and purchase contracts;
- Compelling customers to avoid dealing with competing establishments;
- Failure to observe universal trading conditions;
- Unreasonably refraining from selling or buying products, restricting or obstructing such dealings in a manner that leads to unreal prices; etc.
Based on the above exposition, it is evident that the introduction of the competition law is necessary to control market dominance. It is also clear that without such measures, dominant players are likely to abuse their positions to disadvantage competitors and customers. In this regard, it is held that market dominance is a factor in the adoption of competition laws not only in the UAE but also in other jurisdictions.
It is a complex task to quantify costs and benefits of laws. However, it is evident that laws such as competition laws are useful for enhancing efficiency and reducing bottle necks associated with impediments to free trade. Without a doubt, competition laws enhance market efficiency in the market both in the dynamic and static sense. By promoting efficiency, competition ensures that businesses incur the least costs in their production ventures. In addition, the laws provide incentives for businesses to explore ways to increase productivity. In addition, open competition ensures that consumers benefit from low priced products. In this regard, the UAE economy stands to gain more from the competition law, given its role in increasing competition and discouraging discriminatory trade practices that, in many cases, undermine economic advancement.
However, the adoption of the competition law opens the economy to the outside world. The dangers associated with economic interconnectedness are evident, considering the recent global economic downturn. The UAE economy suffered the adverse effects due to its slowed growth. The implication is that although benefits accrue from adopting laws that liberalize an economy, dangers to the economy remain. It should be noted that liberalization brings increased attractiveness of an economy to external investors, which is a major factor in increasing economic efficiency and lowering production costs. However, the possibility to get products and services at low prices and increased job opportunities are benefits that outweigh the costs of the law.
Areas for Improvement
By and large, the competition law is a step in the right direction for the UAE. Not only does the law provide guidelines to competition, but it also outlines measures to be taken to ensure compliance. For instance, entities that do not comply face fines and penalties. These encompass business closure for some, which is a positive measure to ensure compliance.
The country can improve on the issue of uniform. From the current paper, it became evident that the country does not rely on precedents in making judgments. As a result, the element of uncertainty is common. Such a state of affairs scares investors. In this regard, the country can improve its uniformity concerning the application of laws so that investors understand the overall expectations.
Summary and Conclusion
The UAE may be regarded as a diverse country due to its development in terms of facilitating business. The adoption of the most recent laws to streamline competition is a clear demonstration of its aspiration to improve economic efficiency and align with global trends, which have contributed to lowering the differences that characterized trade when carried out in diverse locations.
Based on the findings, the competition law regulates trading activities and has various objectives. As already indicated, the primary objective is to improve efficiency. In a bid to improve efficiency, the law contributes to the development of the economy. In order to increase efficiency, the country is also able to weed out unscrupulous traders who are interested in engaging in malpractices that ultimately undermine productivity. In this regard, reference is made to the role of the laws in outlawing such conduct among businesses that produce substandard products. In this regard, the law protects the interests of an economy through consumer protection. In addition, the law discourages negative businesses arrangements, which are perpetrated by dominant players, in an effort to level the playground for every other entity. In particular, the law ensures that dominant players do not influence the market in a negative way.
Based on the cost benefit analysis section, it is evident that the UAE is likely to gain from the adoption of the completion law since it addresses matters that border on economic efficiency. One of the most notable benefits is the opening up of the economy to foreign investment and outlining of its functioning. Thus, the benefit of increased job opportunities, product choices, and quality emerge. In addition, numerous players in an economy encourage competition, which paves the way for the enjoyment of quality products. However, there is a danger that allowing global players in an economy is likely to expose the country to external shocks such as the ones witnessed in 2008, following the global economic downturn. It is also observed that the country can improve its laws to ensure uniformity in their application to business.
In conclusion, it is observed that competition laws are normally geared to streamline business operations. In practice, the primary objective is to improve efficiency and enhance investor confidence, paying attention to the needs of consumers at the same time. With the spread of globalization, each country is prepared to adjust its laws in order to align with global trends. In addition, globalization is bringing opportunities that are worth exploiting. Thus, it is not surprising that the UAE has taken the step of adopting the competition law. Such a move is an attractive proposition to foreign investors who have encountered difficulties operating in the Middle East region.