Update on competition law enforcement in Saudi Arabia

For many businesses in the Middle East, competition law risks are not on their list of top risks that require mitigation - this is understandable: there is no significant known history of enforcement; despite the existence of specific laws, the executive infrastructure to police competition law is underdeveloped; and in some countries, such as the UAE, there are entire industry sectors which are excluded from the scope of competition law. But occasionally, a tale of enforcement emerges which provides some food for thought and reminds us that relying on the perception of certain laws being “dormant” is unwise. One such tale of enforcement concerns the long running saga of soft drinks in Saudi Arabia.

This month we saw a decision to impose the heaviest sanction in the history of Royal Decree No. (M/25) (Saudi Competition Law) for abuse of a dominant position. Six soft drinks companies (including a franchised bottler of Pepsi Cola) have been fined a total of SR 30m (over $8m). The Appeals Court in Riyadh recently upheld the original decision of the Competition Council which decided that the increase in retail prices by 50% was contrary to provisions of the Saudi Competition Law. According to reporting of the background facts, the six companies had mutually agreed to increase the retail price from SR 1 to SR 1.5 during the last quarter of 2009. The companies were found to have breached Article 4 (1) of the Saudi Competition Law which prohibits certain cartel behaviour and, what other jurisdictions would conventionally regard as abuses of a dominant position. This long-running investigation and set of proceedings may be drawing to a final conclusion (some reports have mentioned a possible appeal) but the lesson for other businesses is that the Competition Law, unlike certain other laws, is alive and being enforced.

Although competition laws across the GCC are not entirely harmonised and contain a number of material differences from each other, each of them contain provisions dealing with restrictive agreements, abuse of dominance and merger control. International businesses should seek appropriate specific and general guidance to avoid fines and other sanctions.