EGYPTIAN COMPETITION LAW OVERVIEW9 Jul 2019 4470 Views
The Law on Protection of Competition and Prohibition of Monopolistic Practices in Egypt was promulgated by Law No. 3 of 2005 and its Executive Regulation. The aim of the law is to ensure economic activity does not prevent, restrict or damage the freedom of competition. The law sets out a number of rules that regulates the economic activity of persons dealing in the relevant market.
Basically, the law applies to natural and juristic persons, economic entities, unions, financial grouping or group of persons, regardless the means of their incorporation, the mechanisms of their financing, nationalities or headquarters. The previously mentioned persons are monitored by an Authority called the Egyptian Competition Authority (ECA) and that occurs by receiving complaints concerning any violations to the provisions of the said law, examining the filed complaints, and taking the appropriate decision thereon.
It is noteworthy that the law is applied as well to acts committed abroad if they result in preventing, restricting or damaging the freedom of competition in Egypt and these acts are constituted as crimes under the Egyptian Competition Law.
Positive Impacts on the Consumer and the Relevant Market under the Competition Law
The benefits to the consumer are:
- Diversity of commodities and services available in the market.
- Increase of the quality of commodities and services and the reduction in their prices.
- Development of commodities and services and the increase of opportunities for innovation.
- High productivity of companies.
The benefits to the market are:
- Attracting more investors and allowing new investors to enter the market.
- Increase of job opportunities.
- Increase in the rate of the economic growth.
Mergers and Acquisitions
The law does not provide provisions regarding merge control. However, the Competition Authority is responsible for receiving notifications from persons about any mergers or acquisitions, which they have conducted. This notification shall be submitted to the Authority within 30 days from the date of concluding the procedures of mergers or acquisitions.
Prohibited Agreements and Acts by the Law
The Law prohibits specific acts and agreements that might have negative impact on the economic activity in the relevant market, such as:
- According to Article 6: Agreements between Competitors (Horizontal Practices).
- According to Article 7: Agreements a Person and his Suppliers or Clients (Vertical Practices).
- According to Articles 4 & 8: Illegal use of control (Abuse of Dominant Position).
A- According to Article 6: Agreements between Competitors
The Law prohibits agreements or contracts between competing Persons at the same level in any relevant market, if they are intended to cause any of the following:
- Increasing, decreasing or stabilizing prices of the sale or purchase of commodities.
- Allocating product markets according to geographic areas, distribution centers, type of customers, commodities, seasons or time periods.
- Coordinating with regard to refraining from or participating in tenders, auctions, negotiations as well as other procurement offers.
- Restricting production, marketing or distribution operations whether in their availability or kind or volume.
The Law adopted a per se rule in which it considered horizontal agreements as the agreement itself, not its result, as a violation.
B- According to Article 7: Agreements a Person and his Suppliers or Clients
Such kind of agreements are prohibited, if it restricts freedom of competition. ECA determines such agreements according to a criteria stated in the Article 12 of the Executive Regulation. These criteria includes:
- The effect of the agreement on the freedom of competition in the relevant market.
- Benefits accrued by the consumer based on such agreements.
- Preserving the quality of the product, its reputation and its safety, as well as security requirements.
- The extent of compliance of the terms of agreement with established commercial norms in the activity subject to examination.
C- According to Articles 4, 8: Abuse of Dominant Position
The Law defined the Person as Dominant Person if:
- Market share exceeds 25% of the total relevant market.
- It has an effective impact on the prices or the volume of supply in the relevant market.
- Other competitors do not have the capability to restrict his practices in the relevant market.
The law provides, exhaustively, list of abusive practices that the dominant Persons are prohibited to engage in:
- Any act that leads to non-manufacturing, non-producing or no-distributing a product for a certain period of time.
- Refraining from entry into sale or purchase agreement with any Person or cease dealing with, in a manner that could limit his freedom to access or exit from the market at any time.
- An act that would lead to the distribution of a specific product according to the geographic areas, distribution centers, clients, seasons or time periods between Persons having vertical relations.
- Concluding a sale of product or service agreements on a condition that leads to the acceptance of the buyer to purchase products or services irrelevant to the original agreement.
- Discriminating between sellers or buyers with commercial standings similarities, regarding sale or purchase prices or as regards terms of the agreement.
- Refrain from producing or providing a scarcely available product when its production is economically possible.
- Mandating the dealers with the dominant Person to prevent a competitor to have access to their facilities or services, when it is economically possible.
- Selling goods or services below their marginal or average variable cost.
- Obliging a supplier not to deal with a competitor.
The provisions of this law shall not apply to public utilities managed directly by the State in accordance with Article 9 (a) of the Competition law.
According to Article 10, agreements concluded by the Government for the purpose of fixing the sale prices of one or more basic commodities pursuant to decrees issued by the Cabinet of Ministers.
Furthermore, agreements or practices of public utilities managed by the State indirectly whether through the Government, Private Companies, Associations or Syndicates, these agreements or practices are exempted from this Law on a condition which is, achieving consumer benefits beyond the limits of freedom of competition or Public interest.
Agreements or Contracts between competing companies shall as well be exempted from this Law, if such agreements achieve economic efficiency, that have a clear benefit to the consumer that exceeds the effects of reducing competition such as the reduction of the price of the commodity or the service.
According to the amendments of Law No. 56 of 2014, the penalties provided for in the Law have been changed from the imposition of fixed fines to the imposition of changeable fines which is the percentage from the revenues of the product subject matter, allowing the law to achieve justice when imposing the fine as well as achieving the required deterrence.
Penalties for monopolistic practices
Without prejudice to any stricter penalty stipulated in any other Law, the following sanctions shall be inflected on:
- Violation of Article 6: the value of the fine shall be not less than 2% of the total revenues of the product subject matter and not exceeding 12% of the said revenues, during the violation period. In case of failure to compute the said revenues, the fine shall not be less than EGP 500,000 and not exceeding EGP 500,000,000.
- Violation of Article 7: the value of the fine shall be not less than 1% of the total revenues of the product subject matter of the violation and not exceeding 10% of the said revenues, during the violation period. In case of failure to compute the said revenues, the fine shall not be less than EGP 100,000 and not exceeding EGP 300,000,000.
The aforementioned distinction was made in imposing fines according to the nature of the violation in order to confirm the seriousness of the violation stipulated in Article 6 of the Competition Law, since the agreements between the competitors in the same market are one of the most difficult to prove with the progress of the means of communication.
Furthermore, the law provides for double the fine of the monopolistic in the following two cases:
- If the company recommitted the same violation.
- If the company failed to correct the situation in case of proven violation in accordance with Article 20.
- Submission of incorrect data shall be sanctioned by a fine not less than EGP 50,000 and not exceeding EGP 1,000,000.
- Failure to provide the required data, information and documents by the Authority shall be sanctioned by a fine not less than EGP 20,000 and not exceeding EGP 500,000.
- Disclosure of data and information relating to cases examined by the employees of the Authority shall be sanctioned by a fine not less than EGP 50,000 and not exceeding EGP 500,000.
- Failure to cooperate with the employees of the Authority when conducting their duties shall be sanctioned by a fine not less than EGP 20,000 and not exceeding EGP 500,000.
- Failure to perform the mergers and acquisitions notice within 30 days from the date of its entry into force shall be sanctioned to a fine not less than EGP 20,000 and not exceeding EGP 500,000.
The Competent Court shall impose the abovementioned fines, since the Authority cannot impose such fines on its own.
Regarding the criminal fines, there are no legislative provisions to determine the fine between maximum or minimum as it is subject to the judge’s discretion. The judge uses two guiding criteria to determine the fine between maximum and minimum, such criteria is divided into objective criteria and personal criteria.
Objective Criteria: Such as the seriousness of the crime, the circumstances surrounding the crime, the method of its implementation, the extent of the government’s involvement in the violation, the speed of the infringing companies on their own in removing the violation and the extent of cooperation with the Authority in providing the required information and data.
Personal Criteria: Such as bad faith of the accused, and the reasons of committing the crime.
The competent Minister or the person he delegates may settle with the violator with regards to any violation, before the final judgment is rendered, in return for the payment of an amount not less than double the minimum fine and not exceeding double its maximum.
The settlement shall be considered a waiver of the criminal lawsuit filing request and shall result in the lapse of the criminal lawsuit relevant to the same case.
The Application of the Law by the Authority
Before mentioning how the Authority applies the law, it is noteworthy to mention that the one of the duties of the Authority’s employees is to keep the information and sources confidential. Their information and data as well as their sources shall not be used for any purposes other than those for which they were submitted.
According to Article 11 of the Law, there are two methods:
Initiating inspection Measures
The Authority initiates inspection measures, collects information or issues orders to initiate such actions in relation to anti-competitive agreements and practices.
Making a complaint
Any person may notify the Authority of any violation of the provisions of the Law that they are aware of. The Authority examines the complaint and if it decided that any of Articles 6, 7 or 8 of the Law has been violated, it shall order the violator to modify the situation and remove the violation either immediately or within a time specified by the Board of Directors of the Authority.