As part of Kingdom of Bahrain’s (Bahrain) package of laws designed to further boost its economic diversification and liberalization, the Bahrain government issued Law No. 31 of 2018 with respect to the Competition Promotion and Protection (the Law). The Law came enter into force on 1 January 2019 and is expected to have broad repercussions on the way businesses carry out their operations in the country. Below we highlight some of the main features of the law.
While Bahrain has never had a standalone competition law to date, it is important to note that certain key concepts related to competition law are embedded in a number of laws already in force in the country, such as the Commercial Code, Civil Code and Consumer Protection Law. However, due to Bahrain's determination to foster its regulatory framework in accordance with international legislative developments, the Law has been created based on a wide range of international sources.
The Law focuses on regulating the following core issues:
- anti-competitive arrangements;
- abuse of dominant position; and
- economic concentration.
The Consumer Protection Directorate at the Ministry of Industry, Commerce and Tourism (MOICT) has been appointed temporarily as the authority (the Authority) to govern and enforce the Law, pending the financial allocation of the Authority in the general budget of Bahrain and the issuance of a decree forming the Board of Directors. The Undersecretary of the MOICT will assume the functions and powers prescribed to Board of Directors of the Authority and the Chairman of Board of Directors, in accordance with the provisions of the Law. The Director of the Authority will assume the same functions and powers as the Executive Chairman of the Authority.
The powers and duties of the Authority include:
- monitoring compliance with the Law;
- receiving and investigating complaints concerning the possible violations of the Law; and
- investigating any possible violation discovered by the Authority or where requested to do so by the Minister.
The Law applies to:
- all businesses carrying out economic activities inside Bahrain;
- any conduct or arrangement which is intended to or results in the hindering of competition in Bahrain, even if one or more of the parties involved is not incorporated in Bahrain; and
- economic activities conducted outside Bahrain, which affect competition inside the country.
However, the Law sets out clearly that it will not apply in relation to:
- arrangements approved by international conventions applicable in Bahrain;
- facilities and projects owned or managed by the state of Bahrain; and
- arrangements required for the use, exploitation, transfer or authorization for the exploitation of intellectual property rights prescribed by law, provided that these arrangements do not unnecessarily hamper the transfer or diffusion of technology or hinder the competition.
Arrangements are defined broadly as any understanding, contract, agreement, alliance or practice between two or more businesses, any cooperation between the businesses, or a decision, whether written or oral, explicit or implicit, public or private, to be made by the group of businesses.
The Law includes a general prohibition on anti-competitive arrangements between businesses, but does not prohibit intra-group arrangements which would otherwise be viewed as being anti-competitive. Anti-competitive arrangements are arrangements which are intended to or result in the hindering of competition in Bahrain such as:
- causing an effect on the prices of the products by increasing, reducing or fixing the price or through fictitious transactions or in any other form;
- limiting or controlling the production, marketing, technical development or investment;
- sharing the markets or sources of supply;
- disseminating, with knowledge, incorrect information about products and their prices;
- doing collusive practice in bids or proposals submitted in the auctions, tenders or practices, and causing an effect on the price of offers for sale and purchase of products;
- fabricating sudden abundance of products leading to exchanging these products at a false price that affect other competitors; and
- doing a collusive practice by refusing to buy, sell or supply from a particular business (or businesses) in order to prevent or impede the exercise of that business’s activities.
Any agreement which is found to be in contravention of the above will be null and void in Bahrain.
There are various exceptions to the general prohibition against anti-competitive arrangements. In general terms, agreements which would normally be prohibited on the basis of being anti-competitive may be permitted if:
- the Authority decides that certain positive outcomes of the arrangement (as set out in Article 4 of the Law) outweigh the harm caused by the anti-competitive nature of such arrangements;
- the Authority decides that specific categories of arrangements between „small” businesses having one of the positive outcomes set out in article 4 of the Law are excepted for a certain period of time. The Law does not define what is meant by „small” businesses; and
- the Minister decides that the arrangement is in the public interest in accordance with Article 7 of the Law.
Abuse of dominant position
Dominant position is defined as a situation in which any business, solely or jointly with other businesses, can control or influence the market.
A business has a dominant position if it has an economic power to prevent an effective competition in the market, whereby the business has the capacity to act independently significantly more than its competitors.
Unless the contrary is proven, a business is in a dominant position if its share in the relevant product market in Bahrain exceeds 40%. A group of businesses, consisting of two or more businesses, are in a dominant position if their market share in a relevant product market is more than 60%. However, a business may have a dominant position in the market, even if its share does not meet the aforementioned ratios. The Authority will prescribe further criteria to determine whether or not a business is dominant in a relevant market.
It is important to note that the Law does not prohibit a business being in a dominant position per se. Instead, it prohibits a business from abusing its dominant position. The Law specifies the following activities as constituting as an abuse of a dominant position:
- directly or indirectly imposing the sale or purchase prices or other trading conditions;
- limiting production, markets or technological development to the prejudice of consumers;
- discriminating in agreements or contracts, whatever their kind, concluded with the suppliers or the customers if their contractual positions are similar, whether it is a discriminating in terms of price, product quality or other dealing conditions;
- suspending the conclusion of the contract, on the condition of accepting obligations or products which by their nature or commercial use are not related to the original agreement, contract or transaction; and/or
- failing, without any legitimate justification, to conclude with any business transactions for the sale or purchase of a product, the sale of products with an artificially low cost, or terminating the dealing with the competing business resulting in excluding them from the market or causing them losses which make the continuation of their activities difficult.
As is the case in relation to anti-competitive arrangements, there is an exception to the prohibition of abuse of a dominant position. The Minister has the power to approve such exception, if it is deemed to be in the public interest.
The Law also regulates certain types of economic concentrations in Bahrain. It defines an „economic concentration” as any act that results in the whole or partial transfer (merger or acquisition) of assets, stocks, shares, uses, rights or obligations from a business to another, that would enable a business or a group of businesses to control, directly or indirectly, another businesses or group of businesses. Article 11 of the Law further prescribes the specific circumstances which will give rise to an economic concentration under the Law.
Pursuant to the Law, certain types of economic concentrations (which will be set out in a decision to be published by the Minister) will require the prior approval of the Authority before being concluded. The procedure for obtaining such approval is set out in the Law.
The Law also includes a general prohibition against economic concentrations which would have the effect of significantly reducing competition in the market. As is the case with the other anti-competitive conduct prohibited in the Law, there is an exception to this general prohibition where the economic concentration is deemed, by the Minister, to be in the public interest.
Enforcement and penalties
As noted above, the Authority is granted powers to ensure compliance with the Law and investigate circumstances where its provisions may have been breached. Where there has been a violation of the Law, the Board of Directors is granted a wide range of powers to ensure remedial action is taken.
Most notable amongst these, the Board of Directors may:
- decide to impose a fine not exceeding 5% of the daily value of the violating party’s sales of products. Such fine shall not exceed BHD1,000 per day in case of the first violation, and BHD2,000 per day for a repeat violation within three years from the date of the first decision; and
- decide to impose an administrative fine ranging between 1% and 10% of the total value of product sales for the period during which the violation is committed for a maximum period of three years.
Other penalties for violations of the Law can be both criminal and pecuniary in nature. Any person who commits any of the following acts may face imprisonment of up to one year and/or a fine ranging between BHD5,000 and BHD50,000:
- providing the Authority with false or misleading data, or data contrary with the Authority's records;
- concealing any data, information, records or documents which are required to be provided or available to the Authority for the performance of its functions under the Law;
- hindering or disturbing the work of the Authority's inspectors or any investigation that is being conducted by the Authority; and/or
- damaging any documents that are related to an investigation that is being conducted by the Authority.
The Law is a very important feature of the new economic laws implemented in Bahrain, to encourage and enhance the competitiveness of Bahrain’s economy, attract foreign investment and protect businesses and consumers.
Businesses should act now to review their current business arrangements and practices to avoid falling foul of the Law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.