Amendment of the Executive Regulati

The executive regulations of the Competition Law (the “Executive Regulations”) were amended pursuant to Decree No. 2509 of 2016 issued by the Prime Minister (the “Decree”).[1] The amendments of the Executive Regulations were introduced to reflect the amendments to the competition law that were issued pursuant to Law No. 56 of 2014.[2]

Background

Egypt has only known a competition law in 2005 when Law No. 3 of 2005 regarding the Protection of Competition and the Prohibition of Monopolistic Practices[3] (the “Law”) was adopted. Egypt thereby followed many other countries who had enacted competition laws and policies, especially the European Union and the United States of America. The Law aims at protecting competition in the Egyptian market to safeguard consumers’ best interests through fair competition between market players and thereby the high quality of goods and services at competitive prices. For example, the Law prohibits horizontal agreements between competitors on sale or purchase prices of products to ensure that products are priced according to the forces of supply and demand which works in the best interest of consumers. The Law also prohibits, along with other abusive practices, the abuse by a person of its dominant position in the market which works to the detriment of the dominant person’s competitors and consumers. The Law also established the Competition Authority. The first board of directors was formed in August of 2015. In 2008 Law No. 120 of 2008[4] was issued and established the Economic Court which became the competent court for criminal lawsuits filed for competition law related crimes. The first judgment rendered in relation to the Law was in 2008 in the case of the cartel of cement manufacturing companies. The court ordered the executives of ten companies to each pay EGP 10,000,000 for conspiring to fix prices of cement. The Law was amended a few times, starting in 2008 and most recently in 2014 pursuant to Law No. 56 of 2014, referred to above. As for the Executive Regulations, they were amended in 2010[5] and most recently pursuant to the Decree. The most important amendments introduced by the Decree are set out below.

The Amendments

The amendments to the Executive Regulations introduced by the Decree are varied and affect many areas of the Executive Regulations. The Decree amended certain definitions, some executive articles of the criminal provisions for anticompetitive practices in the Law as well as the provisions on leniency and immunity for whistle-blowers and other amendments affecting the formation of the board of directors of the Competition Authority and the procedures followed by the Competition Authority in exercising its powers.

1. The Amendment of certain definitions

The Decree amended a number of definitions set out in the Executive Regulations, as follows:

• Related Parties

The Law deals with economic enterprises and persons carrying out economic activities in the market and there are a number of concepts related to the inter-relation or independence of such persons. The Executive Regulations define persons as “natural or juristic persons, economic entities”[6] and other entities listed in the Executive Regulations. The Executive Regulations go on to provide in the same article that “persons … [shall] include related parties that are composed of two or more persons, each of whom has an independent legal personality, where the majority of stocks or shares of one of them is owned, directly or indirectly, by the other party or where the majority of stocks or shares in both parties are owned by one party. Related parties also include the person or persons who are subject to the actual control of another person, including such person’s spouse and relatives up to the second degree unless circumstances indicate the absence of such actual control. Actual control means every arrangement, agreement or ownership of stocks or shares, regardless of its percentage, in a manner that leads to the control of the management or decisions-taking”.

The Decree added the phrase related to the person’s spouse and relatives to ensure that spouses and relatives under the actual control of the person under investigation are considered related parties. This amendment appears very logical given that many market players in Egypt invest in their projects in the name of their children or spouses. The importance of determining related parties lies in the determination of the market share and thereby the dominance or absence thereof of a person in the relevant market.

• The Relevant Market

The relevant market is one of the most important concepts that are provided for by the Law. The relevant market consists of a relevant product in a relevant geographic area at which the Competition Authority looks to determine whether any anticompetitive practices were committed. Article 6 of the Executive Regulations provide how the relevant market can be defined. The Decree has introduced a number of amendments to the definition of the relevant market. As they stand now, the Executive Regulations provide that the relevant product shall be all products that are considered, from the point of view of the consumer, practical and objective substitutes to one another. In determining the point of view of consumers, especially the following factors are taken into account:

• • The resemblance of the products in characteristics and usage;
• • The ability of buyers to shift from the product under investigation to another as a result of the relative change in price or in any other competitive factors;

And in this case, the Competition Authority may look at whether sellers take their commercial decisions based on the buyers’ shifting from the product under investigation to other products as a result of the relative change in prices or any other competitive factors.

The Executive Regulations further define the relevant geographic area as that geographic area in which circumstances of competition are homogenous, while taking potential competition into consideration according to the following two criteria:

• • The ability of buyers of the relevant product to move from the geographic area under investigation to other areas, inside Egypt or abroad, as a result of the relative change in prices or any other competitive factors.
• • The ability of sellers of the relevant product, inside Egypt or abroad, to enter the geographic area under investigation in which the buyers are located, as a result of the relative change in prices or any other competitive factors.

The Executive Regulations provide that, in determining the ability of buyers or sellers to move as set out above, the following is taken into consideration; the transportation and insurance cost as well as the time needed for transportation between the geographic area under investigation and other areas and local and international duties including custom duties.

It becomes clear from the above that the amendments to this article have deleted the criteria related to the relative ease of entry by persons from other markets to the relevant product market and the availability of substitutes of the products to the consumer. Such criteria remain however included in those criteria still provided for in Article 6 of the Executive Regulation. Although the Decree has not introduced new concepts or notions, since the redrafting of the article merely provides more clarity on the determination of the relevant market, however and more importantly the amendments confirm that the relevant market is defined based on potential competition from products coming from other geographic areas that may even be outside of Egypt.

• Dominance

Article 8 of the Law prohibits the abuse by a person of its dominant position in the market and it lists all those practices that are considered abuse of dominance by the person subject to investigation. However, before such practices committed by the person under investigation are examined, two important tests are made; (1) the definition of the relevant market in which this person operates (as set out above) and (2) determining whether this person is in a dominant position in such relevant market to decide whether it is subject to Article 8 of the Law.

Article 7 of the Executive Regulations provide that a person is in a dominant position when it has a market share that exceeds 25% of the relevant market and if it has the ability to exercise an effective impact on the prices and the volume of products available in the relevant market when its competitors do not have the ability to limit such effective impact.

The Decree has amended Article 8 of the Executive Regulations that define the term “effective impact” on which relies the determination of whether a person in the relevant market is in a dominant position.

Article 8 of the Executive Regulations now provide as amended that a person has effective impact on prices and volume of products available in the market if it unilaterally has the power to set the prices and volume of the products available in the market when its competitors do not have the ability to limit such effective impact, all in light of, in particular, the following factors:

• • The market share of the person in the relevant market and its position vis-à-vis the remaining competitors;
• • The conduct of the person in the relevant market in the period prior to acquiring the ability to determine prices and volume of the products;
• • The number of competitors in the relevant market and their relative effect on the market structure;
• • The ability of the person and its competitors to access raw materials or distribution channels; and
• • The effect of legal and other actual restrictions on the ability of existing competitors to grow in the relevant market or other the ability of another person to enter that market.

The Decree amended Article 8 of the Executive Regulations to give the Competition Authority – and the court – more discretion in determining the factors that play in for confirming a person’s ability to exercise effective impact and thereby its dominant position in the market. The Decree has also introduced a number of amendments to Article 8 to avoid any ambiguities. For example, it has replaced the term “barriers” with the phrase “legal and other actual restrictions”; it has added the phrase “prior to acquiring the ability to determine prices and volume of the products;” and it has added that the existence of restrictions may not only affect the ability of other persons to enter the market but also the ability of existing competitors to grow their businesses.

2. Practices Prohibited by the Law

As mentioned above, the Competition Law prohibits specific practices that are considered anti-competitive. Law No. 56 of 2014 had amended certain provisions of the Law which were reflected on the Executive Regulations pursuant to the present Decree.

• Horizontal Agreements

The Law prohibits in its Article 6 a number of specific agreements between competitors in the relevant market. Law No. 56 of 2014 had introduced a number of amendments to the phrasing of Article 6 to clear any ambiguity.

Accordingly, the Decree amended Article 11 of the Executive Regulations providing the rules for the enforcement of the prohibition of such horizontal agreements to reflect what has been amended in Article 6 of the Law in addition to other amendments. For example, Article 11 of the Executive Regulations, as amended, provide that “agreements or contracts between competitors in a relevant market are prohibited if they may cause (a) the increase, decrease or fixing of prices of the products subject of a transaction. The agreement on prices shall also include agreement on interest payable on instalments, guarantee, pre-sale or after-sale services and or any other means that may lead to price fixing” (instead of: “and other contractual conditions that influence the purchasing or selling decision”). It becomes obvious from this amendment that the legislator intended to grant the Competition Authority the authority to determine – in light of the specifics of the case it is investigating – whether the agreement between competitors may lead to price fixing without being restricted by the scenarios listed in the Article.

Accordingly, this amendment aims at equipping the Competition Authority with the tools to face future cases even if not expressly listed in the Executive Regulations.

The Decree has also introduced a number of amendments to the expressions used in the following paragraphs of the Article in line with the amendments that were introduced to the Law. It has also added a new paragraph to Article 11 that provides: “competing persons are those persons that operate in the same relevant market at present or that have the ability to operate in the same relevant market in the future. The agreements and contracts concluded between competing persons in the relevant market include written and verbal agreements and contracts.” This new paragraph to Article 11 is a replacement for Articles 9 and 10 which have been cancelled by the Decree.

In addition to the above, the Decree has added a new Article 11 bis to reflect what Law No. 56 of 2014 had added to the Law. Article 11 bis provides that “The Authority may, at the request of the concerned parties, exempt from [the prohibition of horizontal agreements set out in Article 11 of the Executive Regulations] any such agreement or contract that aims to accomplish economic efficiency, if it is established that the agreement or contract may benefit consumers outweighing the anti-competitive effect.” Applying for the exemption shall be made pursuant to the regulations and procedures set out in Articles 16 and 17 of the Executive Regulations.

Article 16 sets out the procedures for applying for the exemption – as will be explained at a later stage when discussing the public utilities operated by the State as they are subject to the same procedures – and Article 17 provides that the approval of the Competition Authority on the exemption shall be valid for two years and is renewable according to the same procedures.

• Vertical Agreements

Article 7 of the Competition Law provides that “agreements or contracts between a person and any of its suppliers or clients are prohibited if they may restrict competition.” The Decree amended Article 12 of the Executive Regulations that may seem slight but is evidence for the actual state of competition in the Egyptian market, which is what the legislator aims at responding to. Article 12 of the Executive Regulations provides that “agreements or contracts between a person and any of its suppliers or clients are prohibited if they may restrict competition. The evaluation of whether or not the agreement or contract between a person and any of its suppliers or clients may restrict competition is based on the inquiry made by the Authority on a case by case basis in light of the following factors:

1. The effect of the agreement or contract on the freedom of competition in the market;
2. The existence of benefits for the consumer from the agreement or contract; and
3. The considerations of preserving the quality of the product, its reputation, safety, and security requirements, in a manner that does not harm competition.

The Decree cancelled point number 4 which provided: “The extent of compliance of the conditions of the agreement or the contract with established commercial customs in the activity subject to examination.” This is evidence that the Egyptian market used to have many commercial customs that are anticompetitive. The legislator has now realized that the mere fact that practices are in line with commercial customs does not preclude and is not an excuse for their anticompetitive effect.

• Abuse of Dominance

The Law prohibits in its Article 8 the abuse of dominance and lists the practices that are prohibited for any person in a dominant position given their anticompetitive nature and effects. Article 8 was amended at first pursuant to Law No. 190 of 2008[7] and then again pursuant to Law No. 56 of 2014 given then importance of this Article in the Law and the legislator’s desire to remove any ambiguity surrounding it.

The amendments of Article 13 of the Executive Regulations pursuant to the Decree were introduced either as a reflection of what has been amended in Article 8 of the Law pursuant to Law No. 56 of 2014 by amending a few phrases and expressions to align the article with that of the Law or in an intention to remove any ambiguity through rephrasing some parts of the Article.

For example, Article 13(h) of the Executive Regulations provides the executive provision for the enforcement of Article 8(h) of the Law prohibiting a person in a dominant position to sell products at prices below their marginal cost or average variable cost, i.e. predatory pricing. The Executive Regulations provide in Article 13(h) definitions for the terms “marginal cost” and “average variable cost” and lists the factors that have to be taken into consideration when determining whether a product is being sold at a price that is below its marginal cost or average variable cost. Here the Decree added the phrase “or prevent other competitors from entering [the market]” to Article 13(h). Accordingly, the dominant person’s ability to raise prices after driving out its competitors from the market or its ability to prevent other competitors from entering the market is among the factors that are taken into account in determining whether a dominant person is committing predatory pricing.

• The Exemption of Public Utilities Run by the State from the Prohibition in the Law.

Law No. 56 of 2014 amended Article 9 of the Law. Prior to its amendment, Article 9 of the Law provided that “The provisions of the Law shall not apply to public utilities operated by the State. The Competition Authority may, at the request of the concerned parties, exempt from the prohibition of all or some of the conducts listed in Articles 6, 7 and 8, the public utilities operated by companies subject to private law in cases where public interest or consumer benefits achieved by the exemption outweigh the anticompetitive effect of the practices, all pursuant to the rules and regulations set out by the Executive Regulations.” Law No. 56 of 2014 then amended the article to provide that the exemption from Articles 6, 7 and 8 (the articles prohibiting horizontal and vertical agreements and abuse of dominance) is compulsory only for “public utilities operated directly by the State.” As for the possibility to apply to the Competition Authority to be exempt from the prohibitions provided in the Law, this shall only apply to “public utilities indirectly operated by the State,” which is a more accurate legal term compared to the expression “public utilities operated by companies subject to private law” as was the wording of Article 9 of the Law prior to being amended.

Accordingly, and in line with the amended wording of the Law, the Decree amended Articles 14, 15 and 16 of the Executive Regulations to provide the enforcement mechanism for the Law and to set out the regulations and procedures to be followed when applying for the exemption.

Most notably, the Decree added a paragraph to Article 16 of the Executive Regulations allowing the Competition Authority to supervise “the extent of compliance by the relevant person of the conditions and rules of the exemption” and in case of any non-compliance, the Competition Authority has the authority to cancel the exemption and suspend the agreement or conduct subject of the exemption.

This reinforces the role of the Competition Authority in relation to the oversight of the market and taking the initiative to suspend any anticompetitive practices without waiting for receiving complaints about anticompetitive practices in the market.

3. Merger Notices

Article 44 of the Executive Regulations as amended provides that “The Authority shall receive notifications of acquisition of any assets, property rights, usufruct, shares, setting up of unions, mergers or amalgamations or joint management of two or more persons. The notification shall be submitted within 30 days as of the date of entry into force of the notified legal action as long as the annual turnover in Egypt according to the most recent consolidated financial statements of the concerned persons exceeded one hundred million Egyptian pounds.” The words “in Egypt” were added by the Decree to rid the Executive Regulations of the ambiguity that has often surrounded the enforcement of this provision.

The Decree further amended Article 45 of the Executive Regulations that provides the rules on the submission of notifications, however the amendments were limited to some rephrasing seeking more clarity without really affecting the meaning of the article.

4. Leniency Program

Given the secret nature of anticompetitive agreements that are in violation of the Competition Law, many countries have chosen to adopt a leniency program whereby the person notifying the competition authority or agency of the existence of a cartel and providing such authority or agency with sufficient proof is granted immunity from the penalties foreseen for the crime it has committed. Leniency programs help competition authorities gather evidence on and prosecute cartels that they otherwise would not have been able to successfully prosecute.

A leniency program was introduced to the Egyptian Competition Law pursuant to Law No. 193 of 2008,[8] it was however far from being successful. Immunity from the penalties was at the discretion of the courts and was only a partial immunity whereby a person would still have to pay at least half the penalty ordered by the court. Hence, there was no guarantee for whistle-blowers that they will be relieved from the penalty and even then, relief was only partial.

Law No. 56 of 2014 attempted to rectify this situation and provides that the Competition Authority must refrain from filing criminal lawsuits against any person involved in a violation of Article 6 of the Law (the articles prohibiting horizontal agreements) takes the initiative to notify the Competition Authority of the crime and provides evidence thereof leading to the successful investigation and proof of the existence of the agreement.

The Decree then added Articles 46 and 47 to the Executive Regulations to provide the rules governing the notification of the Competition Authority and the conditions for not filing criminal lawsuits by the Authority. Article 46 provides that in order for criminal lawsuits not to be filed, a two-pronged test must be fulfilled: (1) the notification to the Competition Authority must have occurred prior to the filing of a criminal lawsuits or before a decision was taken by the board of directors of the Competition Authority to suspend the anticompetitive practices and (2) that the person applying for leniency must submit all evidence it has on the occurrence of the crime which is likely to successfully establish the crime committed.

Article 47 of the Executive Regulations provides that the notice to the Competition Authority shall be on a specific form at the Authority or verbally, and if it has been made verbally to the Authority then minutes of the notification must be taken that must be signed by the person applying for leniency, the judicial officer taking the confession as well as the person taking the minutes.

Conclusion

As we have seen, Decree No. 2509 of 2016 has introduced a number of amendments to the Executive Regulations. Some amendments were to reflect the amendments that were introduced to the Law pursuant to Law No. 56 of 2014 and some were to clear ambiguities that surrounded certain provisions and that stirred up many questions among businesses in Egypt. It is noteworthy that the Decree has restated the provisions that were amended in whole and was not limited to the particular paragraphs that were amended, which serves to give a better understanding of the amended articles according to their last wording.   [1] Prime Minister’s Decree No. 2509/2016 amending certain provisions of the executive regulations of the law on the protection of competition and the prohibition of monopolistic practices issued by Prime Minister’s Decree No. 1316/2005 on 20 September 2016, Official Gazette, Issue No. 37 (cont.), 20 September 2016. [2] Law No. 56/2014 amending certain provisions of the law on the protection of competition and the prohibition of monopolistic practices on 2 July 2014, Official Gazette, Issue No. 26 (cont.) (h), 2 July 2014. [3] Law No. 3/2005 issuing the law on the protection of competition and the prohibition of monopolistic practices on 15 February 2005, Official Gazette, Issue No. 6 (cont.), 15 February 2005. [4] Law No. 120/2008 issuing the law on the establishment of the economic courts on 22 May 2008, Official Gazette, Issue No. 21 (cont.), 22 May 2008. [5] Prime Ministerial Decree No. 2957/2010 amending certain provisions of the executive regulations of the law on the protection of competition and the prohibition of monopolistic practices issued by Prime Minister’s Decree No. 1316/2005 on 13 November 2010, Official Gazette, Issue No. 45 (cont.), 13 November 2010. [6] The Executive Regulations of the Law on the Protection of Competition and the Prohibition of Monopolistic Practices, Article 5. [7] Law No. 190/2008 amending certain provisions of the law on the protection of competition and the prohibition of monopolistic practices on 22 June 2008, Official Gazette, Issue No. 25 (cont.) (a), 22 June 2008. [8] Law No. 193/2008 adding a new article 26 to the law on the protection of competition and the prohibition of monopolistic practices on 22 June 2008, Official Gazette, Issue No. 25 (cont.) (b), 22 June 2008.