Overview of the Egyptian Competition Law
By: Lamia Khalil
The Egyptian Competition Law was promulgated by Law 3/2005. The Law aims to ensure that economic activity does not prevent, cripple, or harm freedom of competition.
Basically, the Law handles the behavior of persons doing business in the market. A person’s market share shouldn’t constitute a violation unless one of the violations mentioned in the Law is committed. This corresponds with the very name of the Law, as it aims to prevent monopolistic practices, not monopoly.
The Law sets a number of rules that organize the economic activity of persons transacting in the market in general. This applies to Natural and legal persons, economic entities, unions, financial associations and groupings, and groups of persons, regardless of their means of incorporation.
The provisions of the Law shall apply to acts committed abroad and likely to result in the prevention, restriction or harm of the freedom of competition in Egypt and which constitute crimes under the Law. The provisions of this Law shall not apply to public utilities managed by the State and the agreements made by the governments to fix the price of one or more basic commodities upon a decree from the Cabinet of Ministers.
Prohibited Acts by the Law
The Law prohibits a number of acts that have negative impact on the economic activity, such as:
a) Agreements among competing persons in the relevant market (Article 6)
The Law prohibits certain agreements and contracts between competing persons in the subject market (horizontal relation), which is called Cartel. The Law has exhaustively listed these agreements and contracts:
- Increasing, decreasing, or fixing prices of sale or purchase of products subject matter of dealings.
- Dividing product markets according to geographic areas, distribution centers, type of customers, goods, or seasons or time periods.
- Coordination with regard to application to or refrain from tenders, biddings, or transactions as well as other procurement bids.
- Constraining production and distribution operations.
The Law considered horizontal agreements and contracts in themselves, not their outcome, as a violation (per se rule). What matters is proving the existence of a contract or an agreement, not the ensuing outcome.
b) Vertical agreements (Article 7)
The Law prohibits agreements and contracts between a person and any of its suppliers or clients (vertical relation) if such are likely to restrict competition. The Executive Regulations set the criteria that should be used by the Competition Authority to determine these agreements and contracts:
- Effect of the given agreement or contract on the freedom of competition in the market.
- Benefits accrued to the consumer by virtue of the subject agreement or contract.
- Considerations relevant to the preservation of the quality of the product and its brand name, as well as its safety and security requirements.
- Degree of compliance of the terms of agreement or contract with established commercial norms governing the activity subject to examination.
c) Abuse of Dominant Position (Article 8)
The Law prohibits any person with a dominant position on the relevant market from abusing this dominance. The person’s dominance is clear if all the following three elements exist together:
- Market share should exceed 25% of the total relevant market.
- Should have the ability to impact the prices or the supply of the product in relevant market.
- His competitors do not have the ability to limit his activities in the relevant market.
The Law provides an exhaustive list of the acts that the dominant person is prohibited to do:
- Any act bound to result in non-manufacturing, or non-production or non-distribution of a product for a certain period of time.
- Refraining from entry into sale or purchase deals concerning a product with any person or totally ceasing to deal with him in a manner that is apt to result in restricting its freedom to access or exit the market at any time.
- An act likely to limit the distribution of a specific product according to geographical areas, distribution centers, clients, or seasons or time periods among vertically related Persons.
- Setting as a condition for the conclusion of a sale of a good or a service the acceptance of the buyer to purchase goods or services that are irrelevant to the original transaction.
- Discriminating between sellers or buyers with similarities regarding trading positions either in respect of sale or purchase prices or as regards terms of the transaction in a manner that limits their ability to compete.
- Refrain from producing or providing a scarcely available product when its production or provision is economically possible.
- Mandating that the dominant person or his dealers decline to permit a competing person to have access to their utilities or services, despite their utilization is economically viable.
- Selling products at prices lower than their marginal cost or average variable cost.
- Obligating a supplier not to deal with a competitor.
The Executive Regulations sets all the restrictions and procedures that explain the meaning of each of these acts to enable the Authority to assume its role in examining them.
Penalties and conciliation
Any violation of the provisions of Articles 6, 7, or 8 of the Law shall be penalized by a fine of not less than thirty-thousand Egyptian pounds and not more than ten-million Egyptian pounds without prejudice to the civil responsibility for the damages resulting from committing any of the prohibited acts.
Or the ECA may order the defendant to ‘readjust its position’ by ceasing the unlawful conduct immediately or within a period of time specified by the Board of Directors. If an order is complied with, the ECA may decide not to refer the case to the Public Prosecutor. The great advantage of this provision is that it promotes fuller cooperation between market players and the ECA, whereas imposing a very strict regime from the outset might discourage competitors from cooperating with the authority.
The ECA may submit its decision of an infringement having occurred to the Public Prosecutor in order to commence enforcement proceedings. The Public Prosecutor then files the case with the Court. Following a Court judgment against the defendant, the defendant may file an appeal with the Court of Appeal (the “Appeal Court”).
The judgment of the first instance court (of the Economic Courts) may be appealed to one of the appeal circuits of the Economic Courts within 40 days citing errors of fact, process or law. Any subsequent appeal would be made to the Court of Cassation within 60 days.
The ECA is not entitled to impose fines. The decision with regard to penalties is a Court decision.
Paragraph 2 of Article 9 of the Law provides that the Authority may, upon the request of persons concerned, exempt, from the above mentioned prohibition, all or some of the acts in articles 6, 7 and 8 on public utilities managed by companies subject to Private Law where this lies in the public interest or for accruing benefits to the consumers that go beyond the implications of limited freedom of competition, in accordance with the regulations and procedures articulated in the Executive Regulation of this Law.
Mergers and Acquisitions
Article 11/2 of the Law provides that persons shall notify the ECA upon their acquisition of assets, proprietary or rights of use, and shares, besides the establishment of unions, mergers, incorporations or joint management of two or more persons. Article 44 of the Executive Regulations also provides that the Authority shall receive notifications from persons within 30 days from the completion of the legal act. The Law, however, does not stipulate the Authority’s former or subsequent approval of the merge or acquisition.
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