legal newsletter saudi and global competition...

SAUDI AND GLOBAL COMPETITION LAW: LATEST DEVELOPMENTS

SPOTLIGHT ON THE SAUDI COUNCIL OF COMPETITION

INTERNATIONAL AGREEMENTS REGULATING FREE COMPETITION

BID-RIGGING BEHAVIOUR AS A COMPROMISE TO COMPETITIVENESS

SAUDI AND GLOBAL COMPETITION LAW

Dr. Saud Al-Ammari Law Firmin association with

April 2016

VOLUME 3, ISSUE 1

Legal Newsletter

LEGAL NEWSLETTER


SAUDI AND GLOBAL COMPETITION LAWS: LATEST DEVELOPMENTS



CONTENTS

We wish to acknowledge and thank Muahammad Tahlawi for his insightful comments and guidance, as well as the Blakes legal team, including Trainee Lawyer Jumanah Al-Shiha and Legal Researcher Gehad Mahmoud, who participated in preparing this issue.

Blakes periodically provides materials on our services and developments in the law to interested persons. This Legal Newsletter is intended for informational purposes only and does not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

For permission to reprint articles, please contact the Blakes Client Relations & Marketing department at [email protected].

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VOLUME 3 , ISSUE 1 3

Dear Readers,

It is our pleasure to introduce to you our Legal Newsletter’s first issue of 2016, which focuses on Competition Law in the Kingdom of Saudi Arabia, as well as global competition law, to keep our clients and readers abreast of the latest developments in the different areas of the law.

Competition is an essential economic driver for any nation, as it contributes to the growth and prosperity of the nation’s business transactions. It is one of the main motives for businesses to enhance their productivity, improve their services, and retain, or even advance, their position in the market among competitors.

Unfair competition is a prohibited practice that violates laws and regulations and infringes on ethical values. As a result, it adversely affects the stability of any society and its economy. The Saudi legislators have, therefore, enacted competition legislation that regulates competition among businesses to protect not only businesses and consumers, but also the national and global economy. In this respect, in 2004, the Kingdom of Saudi Arabia issued the Saudi Competition Law, which was enacted by Royal Decree No. M/25, and amended by Royal Decree No. M/24 in 2014. It also established a specialized Council of Competition to issue regulations and monitor practices and behaviours of businesses that may violate the rules of fair competition.

Most countries currently have laws in place to regulate business competition. This was influenced by the World Trade Organization (WTO) and its antitrust regulations, which played a significant role in establishing competition laws and regulations in many countries, as the WTO stipulates that countries wishing to join it must have mechanisms to combat monopoly and unfair competition.

I hope you find the content informative and of value to your business. As always, we look forward to receiving your thoughts and comments.

Sincerely,

Dr. Saud Al-AmmariChair, Saudi Arabia & Gulf RegionDr. Saud Al-Ammari Law Firm in association with Blake, Cassels & Graydon LLP

Dr. Saud Al-Ammari

FOREWORD

LEGAL NEWSLETTER4

The purpose of competition laws is to maintain fair competition by regulating anticompetitive conduct by companies operating within the relevant jurisdiction. An increasing number of jurisdictions (including countries and multinational bodies) are implementing competition regimes. Because competition laws can vary among jurisdictions, compa-nies doing business internationally may be subject to a complex network of varied regulations that tend to include the following components:

• Merger control – regulation of mergers, acquisitions and other combinations

• Cartels and criminal investiga-tions – criminal prosecutions for prohibited behaviours such as bid-rigging and price-fixing

• Unilateral conduct and vertical restraints – civil penalties for anti-competitive conduct and abuses of dominant market position

Most countries have their own competition laws and authorities, as do some multinational bodies. The Kingdom of Saudi Arabia’s Competi-tion Law is fairly new (effected in 2004 and amended in 2014) but covers all aspects of competition law, including merger control and anticompetitive

behaviour. This paper will summarize key global trends in competition law along with their potential impacts in Saudi Arabia.

MERGERS, ACQUISITIONS AND JOINT VENTURES

Overview

Like Saudi Arabia, most jurisdictions have merger control regimes requir-ing notification of a planned transac-tion to the competition authority if the transaction passes certain thresh-olds. In many countries, the compe-tition authority may still review and regulate a transaction even where a notification is not required. Compa-nies considering global transactions will require a coordinated multijuris-dictional review of potential merger filings by experts in the relevant countries. Failure to file a pre-closing merger notification in a jurisdiction in which one is required can expose parties to serious financial penalties and, in some cases, is considered a criminal offence.

“The Kingdom of Saudi Arabia’s Competition Law...covers all aspects of competition law, including merger control and anticompetitive behaviour.”

The length of the pre-closing wait-ing period and substantive review process can vary in length both between jurisdictions and within one jurisdiction based on the length of statutory waiting periods, the information sought by the authority, complexity of the competition anal-ysis, and number and seriousness of potential competitive issues. Multijurisdictional review can lead to uncertainty in deal timing as different authorities’ review periods are not harmonized worldwide and should be considered early in transaction planning.

Saudi Arabia’s merger control regime applies broadly to any merger or combination resulting in “a dominat-ing position,” defined as a 40 per cent or greater market share, or ability to influence the prevailing market price of a specific commodity, product or

SAUDI AND GLOBAL COMPETITION LAWS: LATEST DEVELOPMENTS BY SAUD AL-AMMARI AND BRIAN FACEY


SAUDI AND GLOBAL COMPETITION LAWS: LATEST DEVELOPMENTS

service. The law applies to all enti-ties operating in Saudi markets. The merger notification process requires a standard form and a number of supporting documents. In addition, the transaction cannot be completed until (1) the notifying party has received written approval, (2) 60 days have expired since the complete notification has been submitted and there has been no notice from the Saudi Council of Competition that the transaction is under review, or (3) if notice has been given that the trans-action is under investigation, 90 days have expired since the complete noti-fication has been submitted, so long as there has been no written approval or rejection from the Council.

“Many competition authorities are adjusting their merger review procedures to decrease the impact of merger review on transacting parties.”

Worldwide Trends

• Global Cooperation. Due to the global nature of markets and the increasing number of jurisdictions with competition regimes, recent years have seen an increase in information sharing and coordina-tion between global authorities. Even in cases in which different concerns arise in different juris-dictions, competition authorities, in the U.S., EU and Canada, for example, often attempt to align their timing, analyses and remedies so that companies are not subject to conflicting requirements across the world. Examples of recent global mergers that reflect multi-jurisdictional cooperation include Alstom/General Electric (in which the EU and U.S. authorities cleared

the merger on the same day)1 and GlaxoSmithKline/Novartis (in which authorities in several countries were able to rely on remedies in other jurisdictions to clear the trans-action).2 The Council has received merger applications on a number of recent mergers that have been subject to review in different juris-dictions, including Alstom/General Electric and Nestlé/Pfizer Nutrition.

• Competition authorities and stake-holders are working to increase this cooperation among a greater number of jurisdictions through organizations such as the Interna-tional Competition Network (ICN). The Council is a member of the International Competition Network, as well as the United Nations Conference on Trade and Develop-ment, and of the Organization of Islamic Cooperation (OIC), and may engage with other jurisdictions through these bodies.

• Enforcement of Notification Requirements. Recent fines for failure to file pre-closing notifica-tions underline the importance of multijurisdictional notification analysis.3 The Council has been known to inquire where it believes there has been a failure to notify (though we are not aware of any public decision that has assessed a penalty).

• Impact of Merger Review. Many competition authorities are adjust-ing their merger review procedures to decrease the impact of merger review on transacting parties. Regimes such as the EU and China,

1 “‘Competition”’ Requests Public Opinions on US General Electric Company’s Acquisition of Alstom,” News, Saudi Council of Competition (October 3, 2015).

2 Vestager, Margrethe, Competition Commissioner, European Union Directorate-General for Competition, “Merger review: Building a global community of practice,” Opening Remarks, ICN Merger Workshop (September 24, 2015).

3 “Len Blavatnik to Pay $656,000 Civil Penalty for Violating Antitrust Premerger Notification Requirements,” Press Release, Department of Justice (October 6, 2015); “Competition Bureau takes steps to ensure Parrish and Heimbecker complies with pre-merger notification obligations,” Press Release, Competition Bureau (May 29, 2015).

which have significant pre-notifi-cation consultation periods, have implemented streamlined or “short form” processes to decrease the impact of review, particularly for transactions that do not raise signif-icant competitive issues.4 Attention is also being paid to the burden of document production in mergers that are subject to an in-depth review.5

• Public Interest Considerations. Many global regimes, including the United Kingdom, the EU, Saudi Arabia and African enforcement regimes, provide for the consider-ation of “public interest” factors such as employment, defence and national security, and media diversity in addition to traditional economic considerations. Competi-tion authorities are still determining best practices in the application of these factors. The ICN recom-mends that “the way in which competition and non-competition considerations interact should be made transparent.”6

Key Cases

• Al Azizia Panda United/Giant Stores. The Saudi Council of Competition approved the economic concentration between Al Azizia Panda United Company and the assets of Saudi Giant Stores Ltd. despite the fact that

4 Italianer, Alexander, “European Union: Directorate-General for Competition,” The European Antitrust Review 2016, Global Competition Review (“… the [European] Commission kicked off last year with a simplification exercise for merger control procedures that reduces red tape for business and makes it possible to process mergers more quickly.”) (2016); “China,” Merger Control 2015, International Comparative Legal Guide (“MOFCOM launched the simplified merger control procedure in 2014. The filing form for the simplified merger control regime is shorter than the normal one and requires less information.”) (2015).

5 For example, Feinstein, Deborah L., Director’s Report, Federal Trade Commission Bureau of Competition (describing efforts to achieve the “appropriate balance” between the burden of Second Requests and the ability of the agencies to obtain the necessary information from merging parties) (Spring 2015).

6 Recommended Practices for Merger Notification Procedures, p. 22, International Competition Network.

LEGAL NEWSLETTER6

the Council’s study concluded that the new merger will compose 40 per cent of the Saudi market for commodity retail trade. However, the concentration was approved on the condition that the new merger should be committed to apply a unified marketing and pricing policy throughout the Kingdom.

ANTICOMPETITIVE CONDUCT: CARTELS AND UNILATERAL CONDUCT

Overview

Cartel rules typically prohibit horizon-tal agreements between competitors to fix prices or production, allocate markets, or rig bids. In many juris-dictions, these are regulated as criminal offences that, if proven, can result in significant financial penal-ties and can even lead to individual incarceration for executives. Many global enforcement regimes offer a significant benefit to firms who could be or are already subject to investi-gations through what are generally referred to as leniency and immunity programs. These programs typically offer companies involved in a cartel either total immunity from penalty (for being the first to approach the competition authority) or a substan-tial reduction in penalties (for those who approach thereafter) when they cease participation in the crim-inal endeavour, self-report criminal conduct to the authority and cooper-ate with the ongoing investigation.

Most jurisdictions also impose civil penalties for improper conduct by a single firm with the ability to exercise market power, often characterized as “abuse of dominant position,” “unilat-

eral conduct” or “monopolistic prac-tices.” Unilateral conduct rules can differ significantly between jurisdic-tions. For example, resale price main-tenance is a prohibited behaviour in Saudi Arabia, viewed with suspicion in the U.S. but generally permissible in Canada. Companies with opera-tions in different countries, therefore, may want to consider a multijurisdic-tional review of unilateral conduct rules to ensure that impermissible behaviours are clearly understood. Penalties for proscribed anticompet-itive behaviour typically include fines, disgorgement of profits or a restric-tion on the offending company’s behaviour. Many jurisdictions also provide for private actions in which individuals or classes of individuals can recover from harm caused by anticompetitive action.

“… violations of the Competition Law may result in a fine of up to 10 per cent of the firm’s total turnover….

The Saudi Competition Law prohibits practices, agreements or contracts among current or potential compet-ing firms, whether express, verbal or implied, as well as unilateral behaviour, where such agreements or behaviour have a negative impact on competition. The Competition Law also prohibits actions by a firm with dominant status (that is, where the entity or group of entities has a market share of at least 40 per cent)

which would restrict competition among firms. Parties accustomed to operations in jurisdictions that have separate provisions for horizontal and vertical conduct should note that the Saudi law does not separate horizon-tal and vertical behaviour, as both are covered by Article 4 of the Competi-tion Law (while abuse of a dominant position is also governed by Article 6).

Prohibited anticompetitive conduct in Saudi Arabia may include foreclosure of other firms from products and services, refusal to deal, price-fixing, bid-rigging, market allocation artifi-cially lower prices to exclude other competitors, contriving a false short-age or surplus, price discrimination or resale price maintenance. Pursuant to amendments to the Competition Law that came into effect in 2014, violations of the Competition Law may result in a fine of up to 10 per cent of the firm’s total turnover, and restitution may be required. The Settlement Committee may also temporarily or permanently suspend the operations of a company.

Worldwide Trends

Robust Enforcement and Individ-ual Accountability. Global antitrust authorities have shown no hesita-tion in prosecuting corporations for criminal antitrust violations. As of mid-2015, global cartel fines totalled US$3.17 billion.7 In fiscal year 2014, the U.S. obtained nearly US$1.3 billion in criminal fines and penalties, the largest amount obtained by the Anti-trust Division in a fiscal year. The EU has also seen robust cartel prosecu-

7 Allen & Overy, Global Cartel Enforcement 2015 Mid-Year Report (June 23, 2015).


tion, reporting more than €1.6 billion in fines in 2014. Competition authori-ties are also increasingly prosecuting individuals for their roles in corporate criminal activity, and executives have been sentenced to incarceration in the U.S., Canada, South Korea and Japan, among other jurisdictions. The location of the executive may not be a barrier to prosecution.

Fines Tied to Turnover. Competition authorities worldwide may use busi-ness turnover to determine the appro-priate amount of fines to be levied for violations of unilateral conduct rules. The 2014 amendments to the Saudi Competition Law are one example of efforts to ensure that unilateral conduct fines act as a strong deter-rent to anticompetitive behaviour.8

Compliance Incentives. Many enforcement authorities have implemented or are consider-ing implementing incentives for corporate compliance programs, in recognition of the fact that effective compliance policies can have a significant deterrent effect on criminal conduct. In the U.S., the Department of Justice can consider a company’s “effective” compliance program when negotiating fines (and has given credit for implementation of an effective compliance program in at least one recent case),9 while jurisdic-tions such as Canada also recognize

8 Alqasem, Mohamed A., “Saudi Arabia: Council of Competition,” The African and Middle Eastern Antitrust Review 2015, Global Competition Review (2015).

9 “Chapter Eight – Sentencing of Organizations,” U.S. Sentencing Guidelines, §8C2.5(f) (2014); Hellings, Kathryn; Shulak, Daniel E., “DOJ delivers roadmap to compliance credit in cartel cases,” Hogan Lovells, Lexology (October 14, 2015).

that compliance programs should be given credit in penalty calculations even in cases where it did not prevent the criminal conduct.10 Competition authorities in Saudi Arabia and other jurisdictions provide written guidance for company compliance programs.11

Private Actions. Many jurisdictions allow private parties to recover damages for anticompetitive harms, both in the context of criminal conduct and vertical restraints. The EU recently implemented a Direc-tive on Antitrust Damages Action to harmonize the ability of victims of anti-trust infringements across Europe to recover damages. Where successful, private actions can lead to significant penalties in addition to those levied by the relevant antitrust authority. For example, U.S. federal antitrust litiga-tion allows treble damages in certain successful private actions.

Follow-On Investigations. Compe-tition authorities have investigated unilateral conduct based on concerns raised in the course of a merger review. In Canada, concerns raised in the Loblaw/Shoppers Drug Mart merger led to an investigation into the relationship between Loblaw and its suppliers.12 These investigations show that companies engaged in

10 “Corporate Compliance Programs,” Bulletin, Competition Bureau of Canada (recognizing as one of the benefits of compliance programs “should there be any violations of the Acts, it provides a possibility for the business to mitigate the cost of non-compliance”) (June 3, 2015).

11 Materials & guidance on compliance programs, Outreach to Business, Working Groups, International Competition Network.

12 “Loblaw under investigation by Competition Bureau for ‘pricing strategies’ with suppliers,” Retail & Marketing, Financial Post, National Post (November 17, 2014).

a merger review could face poten-tial risks under other provisions of competition legislation where their conduct excludes rivals or harms customers or suppliers.

Key Cases

Riyadh Oxygen Plant. In 2012, the Saudi Council of Competition fined Riyadh Oxygen Plant one-mil-lion Saudi Arabian riyals (SAR) for market division, customer allocation, bid-rigging and price-fixing in respect of medical gas supply to Saudi Arabia’s Ministry of Health. This is the first bid-rigging case concluded by the Council. The Court of Appeal recently upheld the Council’s fine.13

Abdel Hadi Abdullah Al-Qahtani and Sons Beverage Industry Ltd. A Saudi court recently upheld a deci-sion by the Saudi Council of Compe-tition to fine a Pepsi-Cola bottler SAR 15-million for abuse of dominant market position, the largest fine issued by the Council. The Council investigated the bottler after observ-ing a 50 per cent increase in the prices of some bottles of soft drinks. The Saudi competition authority fined a number of soft drink companies a total of SAR 135-million in July 2014 for anticompetitive conduct including price-fixing, abuse of dominance and sharing of regional markets.14

13 Lalli, Sonya, “Saudi cartel penalty upheld,” Global Competition Review (August 27, 2015).

14 Madge-Wyld, Tom, “Saudi Arabia fines Pepsi franchise for abuse of dominance,” Global Competition Review (August 13, 2015).

LEGAL NEWSLETTER8

The Kingdom of Saudi Arabia’s Coun-cil of Competition was founded along with the enactment of the Competi-tion Law in 2004, pursuant to Royal Decree No. M/25. The Council is an independent entity, which super-vises the implementation of the Competition Law, with protecting and encouraging fair competition and combating monopolistic activity as its primary purpose. This article will briefly review the key features and primary goals of the Council.

The Council’s mandate, as set out in the Competition Law, includes jurisdiction over the following tasks relating to the administration of fair competition rules in the Kingdom:

• Approving cases of merger, acqui-sition or combination that may result in a dominant position in the market

• Reviewing complaints about practices that may be in violation of provisions of the Competition Law, including proceedings of inquiry, research and collection of evidence, and ordering the investi-gation and prosecution of meritori-ous complaints

• Approving criminal prosecutions against violators of provisions of the Competition Law.

“The Council’s goals are to maintain a competitive environment for the business sector with ‘justice and transparency’....”

In addition, the Council is tasked with forming its administrative bodies, issuing financial and administrative regulations in support of the admin-istration of the Competition Law, proposing relevant draft laws and amendments to address ongoing issues in the Kingdom’s Competition Law, issuing implementing regula-tions and preparing an annual report for submission to the Council of Ministers.

The Council’s goals are to maintain a competitive environment for the busi-ness sector with “justice and trans-parency” in local markets, in order to benefit both businesses and consum-ers. The Chairman of the Council has

stated that the Council’s activities are meant to support a broader King-dom-wide goal of diversifying the Kingdom’s sources of income and expanding the economic base of the country by increasing investments of all types, including in commercial, industrial, agricultural and services businesses. A key objective of the Competition Law, and the Council’s activities in support of the Compe-tition Law, is to stimulate creativity and productivity, enhance business and create job opportunities, such that businesses will reduce prices, provide better services and increase consumer options. In this respect, by implementing the Competition Law, the Council plays a key role in the national economy by encouraging investment by the private sector and reducing the need for governmental intervention into business. In this way, the Council strives to improve and enhance the competitive environ-ment in the economy of the Kingdom of Saudi Arabia.

The Council has implemented these goals through a number of initiatives.

First, the Council has reviewed an increasing number of complaints and applications regarding economic concentrations. Since its inception,

SPOTLIGHT ON THE SAUDI COUNCIL OF COMPETITIONBY KATHRYN MCNEECE



the Council has received complaints and initiated studies with respect to a wide variety of economic activi-ties, including food and beverages, construction, medical gases, automa-tion and telecommunication. In 2014, there were 10 new studies related to complaints. The Council has also received 20 applications in respect of mergers, acquisitions and other combinations since its inception, 13 of which were received in 2014. These applications concerned busi-nesses in industries as widespread as construction, automotive, invest-ment, education and food products.

Second, the Council has published guidance as to the implementation of the Competition Law on its website and through consultations with businesses. Guides and manuals issued by the Council include those concerning procedures within the competition system, exchange of information between competitors, preventing bid-rigging in government procurement activities and appropri-ate behaviour by commercial commit-tees.

Finally, the Council has interfaced with other international competition bodies through its participation in the International Competition Network

and coordination on multinational reviews of mergers and acquisitions.

The Committee for Settlement of Violations and Prosecution Representatives

The Executive Regulations of the Competition Law require the Council to form a Committee for Settlement of Violations of Competition Law, comprised of five members, including a chairperson named by the Minister and a legal adviser. The Committee is tasked with expeditiously settling any violation of the Competition Law that is referred to the Committee. Decisions of the Committee are issued by majority votes of the pres-ent members, with approval by the Minister, and may be appealed to the Administrative Court.

“It is likely that as competition awareness continues to grow in Saudi Arabia, the Council’s work will continue to expand....”

The Council plans to continue its work to promote competition and prevent monopolistic practices. Goals set out in the most recent Annual Report of the Council of Competition include participating in additional conferences and workshops; establishing an inde-pendent headquarters building for the Council; studying the impact of promotional goods fees and goods trade-mark marketing; developing new models, procedures and criteria for studying economic concentra-tions; progressing cases already before the Council, the Committee and the Administrative Court; rede-signing the Council’s website to promote and develop awareness of competition issues in the Kingdom; and launching bulletins, workshops, lectures and awareness campaigns to promote a culture of competition compliance in the Kingdom. It is likely that as competition awareness continues to grow in Saudi Arabia, the Council’s work will continue to expand to cover an increased number of mergers and acquisitions, complaints and violations.

Note: This article was based on infor-mation from the Saudi Council of Competition’s website: http://www.ccp.org.sa.

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International cooperative efforts in the field of competition protection have focused on building a shared basis for how countries can deal with competition issues and adopting certain mechanisms and strategies that facilitate the exchange of views, accumulated experiences and infor-mation that can contribute to achiev-ing this objective.

The real beginning of orchestrated international efforts to protect the principle of free competition — mini-mizing unacceptable commercial practices and behaviours in the context of commercial transactions, fighting monopolization and mini-mizing its effects — came in 1947 with the Havana Charter, which was incepted as a result of an invitation from the United Nation’s Economic and Social Council to hold an Inter-national Conference for Trade and Labour in Havana, Cuba. Fifty-five countries have participated in this conference. The conference drew up the Havana Charter that established the International Trade Organization. The Charter was later presented to the governments of the various coun-tries represented in the conference for ratification.

The Havana Charter includes several rules and principles governing trade transactions between nations in a way that benefits these nations in a fair manner. Chapter V of the Charter includes detailed provisions for preventing restrictive business practices, whether undertaken by public or private institutions, which may influence international trade by reducing competition, restricting access to markets or promoting economic concentration operations.

“… the [Havana] Charter remains the stepping stone for supporting and strengthening the principle of free competition.”

Despite these effective efforts, most of the provisions detailed in Chapter V were not welcomed by several coun-tries at that time, and therefore, those provisions were not imple-mented because the General Agree-ment on Tariffs and Trade (GATT) did not approve them. Nevertheless, the Charter remains the stepping stone

for supporting and strengthening the principle of free competition.

Later came the Rome Convention of 1957 following the revival of the idea of creating a common European market, which was signed by the European Economic Community (EEC).

One of the most fundamental prin-ciples and pillars of the European Common Market is free movement of goods, persons, services and capi-tal, as well as the protection of free competition. However, in order to ensure the protection of competition and limiting monopolistic practices, the agreement included a set of principles and provisions for ensuring that governments or enterprises do not take any actions or practices that would restrict competition.

Examples of these provisions include the prohibition of any agreements between market participants that would prevent or limit competition, such as price-fixing, limiting produc-tion or dividing market shares, in addition to banning industrial conglomerates, unless they lead to improving and developing production processes and can contribute to achieving more economic progress to the market. Another provision involves the abolition of subsidies


BY SAUD AL-AMMARI


granted by governments should those subsidies negatively affect free competition, combating dumping and avoiding disparity between the legis-lative and administrative provisions in Member States, which may interfere with free competition.

“… most international trade agreements were developed to protect competition and prohibit such policies and practices that restrict the freedom of competition.”

Then came the United Nations Confer-ence on Trade and Development (UNCTAD) in 1964, which established a set of rules and principles that govern trade and international compe-tition, ensuring non-interference with fair trade competition and limiting the dangers of monopolistic practices. UNCTAD also identified unjustified and discriminatory provisions in goods and services contracts, as well as competition-restricting economic concentration practices, which must not be implemented.

The Organisation for Economic Coop-eration and Development (OECD)

also attends to the principle of free competition. The OECD has exerted significant efforts in trying to unify Competition Laws, and has also conducted several studies to estab-lish and strengthen international cooperation in the field of compe-tition protection, combating illegal competition and the consequent negative effects and implications. OECD has demonstrated the extent of the benefits that can accrue to the international community through encouraging cooperation between competition agencies.

In addition, the significant and effective role of the WTO must not be overlooked in organizing and protecting free competition, creating a fair competitive environment that is based on economic efficiency and the involvement of developing coun-tries in the global economic system. For these reasons, most international trade agreements were developed to protect competition and prohibit such policies and practices that restrict the freedom of competition.

A good example of these agree-ments is the Anti-Dumping Agree-ment, which was created to combat the effects of dumping policies. The agreement stipulates that dumping is a threat to the trade industry of the importing country and interferes with the establishment of new industries,

which will jeopardize the principles of competition.

Another example is the Agreement on Subsidies and Countervailing Measures, which was enacted to ban certain forms of direct govern-ment subsidies for exports, or those granted for expanding the use of domestic goods instead of imported ones, given that such subsidies violate the rules of commercial competition.

There are many other agreements that were enacted to regulate and protect fair competition, such as the Trade in Services Agreement (TISA), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the WTO’s Agree-ment on Safeguards.


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The Kingdom of Saudi Arabia enacted the Saudi Competition Law, with Royal Decree No. M/25 of 2004, and amended by Royal Decree No. M/24 of 2014, to be a tool that regulates business practices and behaviours of economic establishments and entities that are related to business competition. The aim of the Compe-tition Law is to protect freedom of competition between market partic-ipants, and support and promote fair competition. In order to achieve these goals, the Competition Law mandated the establishment of an independent council, known as the Council of Competition and assigned the Council a mandate to protect free competition in the Kingdom.

In this article, we will discuss, in partic-ular, bid-rigging agreements between competitors. The Competition Law aims to promote fair competition and to prevent any monopolistic practices. Pursuant to Article Four of the exec-utive regulations of the Competition Law, “Any practices, agreements, or written or verbal contracts, explicit or implicit, between competing or potentially competing entities which aim at or lead to restriction, violation,

or prevention of competition shall be prohibited.”

Bid-rigging is the practice by which businesses, who might otherwise be competing for a particular Request For a Proposal or bid, agree, in advance, which party will secure the bid, in order to achieve the maximum amount of benefit for each party. Bid-rigging is typically an issue with respect to requests for a proposal or contracts presented to governments or large entities. The bidders’ conduct may involve preventing entities from bidding on a particular request for a proposal or withdrawing their bids after submission to allow the agreed-upon bidder to win.

Motivation for Bid-Rigging

Competitors may be more likely to agree to bid-rig if certain factors exist. In such cases, the tender owners need to take precautions to minimize bid-rigging behaviours. The discussion below will highlight some of the factors that may incentivize bid-rigging agreements:

First, a bid process that makes other bidders’ (that is, potential compet-

itors) contact information openly available and transparent may facil-itate the communication between competitors and make bid-rigging more likely. Tendering authorities should maintain secrecy regarding the identity and number of other bidders, and take steps to reduce the ability of different bidders to commu-nicate.

Second, in areas where the number of potential bidders is relatively small, or where new market entrants are unlikely, bidders may be better able to collude or raise prices. Tendering authorities should carefully consider how the bid is structured and may want to reduce restrictions that may limit the number of qualified bidders to ensure that the process is compet-itive.

Third, repeating tenders on a regular basis without making any changes in them may stimulate bid-rigging among competitors, especially in long-term agreements. Therefore, it is preferable to make changes and innovations in tenders in order to prevent bid-rigging conduct.


BY HAMAD AL-DOSSARY



Fourth, when goods and services provided by entities are similar, it may be easier for competing entities to reach and maintain an agreement on a common price structure. Where possible, tendering authorities should attempt to expand the number of substitutable products that may be considered to increase the number of potential suppliers.

Common Practices in the Kingdom of Saudi Arabia

The Competition Law prohibits a range of acts and practices that result in manipulation and bid-rigging among bidders, regardless of whether the involved parties are successful. Paragraph 6 of Article IV of the Exec-utive Regulations of the Competition Law stipulates that: “[Bid] rigging is prohibited in Tender Offers and Bids, but when joint bids are offered with notice that the parties involved are acting jointly, such conduct is not deemed to be bid-rigging, provided that the goal of this is not to violate competition rules in any way.” This is applied because the Saudi regu-lator’s goal is to strengthen and establish the principles and rules of fair competition, and prevent any acts that would breach this principle. The Council of Competition has indicated that the following types of conduct may be considered bid-rigging and, therefore, impermissible under the Competition Law:

Cover Bidding. In cases where bidders agree in advance who will be the winning bidder, the designated unsuccessful bidders may propose higher prices than the price that will be offered by the designated winning bid, submitting bids that contain conditions which are impossible to fulfil, or introduce other defects that lead to the exclusion of their bids. These “cover bids” are meant to fool the authority and competing bidders into believing there is real competi-tion, when in fact the outcome has been determined by impermissible agreement.

Bid Suppression. In this type of scheme, bidders agree to withdraw themselves from the tender and to be excluded before applying for the last phase of selecting the winning bid, leading to acceptance of the offer submitted by the designated successful bidder.

Bid Rotation. Bid rotation is a type of conduct in which competitors in a particular field agree to rotate their winning of tenders. Where this type of agreement is reached, the collud-ing firms may attempt to conceal their practices by engaging in cover bidding or bid suppression.

Market Allocation. Bidders may also agree to divide geographic regions or to allocate customers, where each establishment has a particular client to deal with. This type of impermissi-ble conduct is often engaged in with the client’s knowledge, and complic-ity is hidden through cover bidding or bid suppression.

Practices Not Considered Bid-Rigging

Certain practices may involve inter-action between competitors in a legitimate way that furthers compe-tition. Some doubts may be raised over certain practices and whether they represent a violation of the Competition Law or not. In one of its published guidelines, the Council of Competition has addressed some of the practices that are not considered bid-rigging, such as:

Joint Tendering. Paragraph 6 of Arti-cle IV of the Executive Regulations of the Competition Law indicates that joint tenders are not considered impermissible bid-rigging where the competitors have informed the tender offeror in advance that they have agreed to submit a joint bid. This often occurs when the tender has requirements from various special-ist or geographical perspectives that exceed the capacity of a single entity to meet all such requirements. Bidders may join forces with one or more other entities in order to meet the requirements and conditions, despite the fact that such collabo-ration may reduce the number of bidders because such joint bids are furthering a competitive purpose.

Periodic Meetings of Competitors. Traders and companies working in a particular area often work together through regular meetings, whether to study the obstacles in their field, hold informational conferences or for other purposes. These activities are not per se illegal so long as compet-itors ensure they do not share sensi-tive information, use these activities as an avenue to make impermissible bid-rigging agreements or engage in other prohibited anticompetitive behaviour.

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Settlement of Bid-Rigging Cases

Article Fifteen of the Competition Law has authorized the Council of Compe-tition’s Committee of Settlement to investigate and examine cases of bid-rigging, if doubts are raised about certain practices, or upon the receipt of a complaint from the entity inviting the tender. The Competition Law also allows for appealing the Committee’s decisions before relevant administra-tive courts.

Noteworthy Cases

One of the most prominent cases regarding bid-rigging in the Kingdom involves the Ministry of Health’s complaint against suppliers of medi-cal gases for conspiring against the Ministry. The reason for this was the considerable difference in the prices offered by those suppliers for two consecutive time periods. The Council of Competition’s investiga-tions indicated that the price offered in the second bid is about 203 per

cent more compared to the first bid. Investigations have also revealed the existence of an agreement between bidders for the Ministry of Health, for the purpose of fixing prices and market sharing. As a result, a fine of SAR 45-million was charged on complicit companies.



Dr. Saud Al-Ammari Chair | Saudi Arabia & Gulf Region

[email protected] Al-Khobar: +966-13-847-5050 x9321 Bahrain: +973-1715-1500

For further information, please contact:

Graham McLeod Managing Partner | Middle East Offices

[email protected] Al-Khobar: +966-13-847-5050 Bahrain: +973-1715-1523

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