LEGAL COLUMN: Change in saudi competition

Muhammad-AnumThe Competition Law of Saudi Arabia was recently recommended to enhance punishments. According to the amended Article 12 of the law, those who violate any provision of the law will be fined either 10% of the total value of sales or 10 million Saudi riyals ($2.7 million). 

This represents a doubling of the maximum fine. Meanwhile, the linkage with the total value of sales of the offender has given a new dimension to the penalty. 

The change has apparently come after the Ministry of Commerce and Industry and other government agencies realised that in view of the large turnover of some companies operating in the Saudi market, a maximum fine of 5 million riyals was not a sufficient deterrent.

People in the private sector have long cautioned governments against enhancing punishments for violation of Competition Law, arguing that the market intrinsically regulates itself and does not allow one firm to take an unfair advantage. The private sector in Saudi Arabia has therefore viewed this recommendation sceptically, especially the fact that presently no time period has been determined to calculate the total value of sales of an offender.

However, after comparing the Competition Law in force in Saudi Arabia with those regulating the market elsewhere in the world, it does seem that such a framework was needed. Practices that would normally fall foul of Article 101(1) of the Treaty on the Functioning of the European Union are common in Saudi Arabia, for instance. 

Moreover, in the case of competition law currently in force, if a firm has committed a violation, it will most likely retain the advantage gained unlawfully. 

Article 18 of the Competition Law quite simply requires the affected consumers to approach the competent judiciary for compensation payable. Absence of an objective criteria and technique to evaluate the “harm” mentioned in Article 18 of the law will tend to benefit accused firms, helping them to get away, even in case of conviction, with a fine. The firms may even debit the cost to their marketing budgets – the prohibited practice having probably increased total sales of the firm in Saudi Arabia. On top of it, the firm will continue to derive benefit from the position it has acquired in the consumer market as a result of the prohibited activity.

However, in my opinion the government has stopped short of carrying out the full reform needed. Since the disposal of a complaint instituted under the Competition Law is time-consuming in Saudi Arabia, it is imminent to put interim measures in place to restrain the accused firm from taking advantage of the violation during the pendency of the proceedings. Currently, the Committee of Competition Protection, constituted under the Competition Law, can temporarily halt the firm’s activities for one month or revoke the licence altogether only if a violation is proved to have been carried out on more than three occasions.

Although Article 16(2) of the Competition Law requires a convicted firm to “dispose of some of its assets, shares or proprietary rights, or to undertake any other action which removes the effects of the violation”, the advantage gained by the convicted firm in the market and especially the consumer appeal will be hard to roll back. 

For most firms, Saudi Arabia is still an attractive market owing to the gaps in the prevalent law. 

 M. Anum Saleem is senior associate at Eversheds, Riyadh

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