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25.06.2020

Amendments to the Turkish Competition Legislation

Introduction


On June 24, 2020, Law numbered 7246 Amending the Law on Protection of Competition numbered 4054 (“Amending Law”) has been published in the Official Gazette numbered 31165 and entered into force in the same day.

As per the Amending Law’s preamble, its purposes were to increase the alignment between Law on the Protection of Competition numbered 4054 (the “Law”) and the relevant European Union competition legislation (“EU Competition Law”) and modernize the Law for it to address continuous changes occurring within markets. In this framework, the Amending Law provides the following noteworthy changes:

  • implementation of the commitment mechanism within preliminary and full-fledged investigations, which do not involve severe and hardcore infringements,
  • the opportunity for adopting settlement procedure for full-fledged investigations,
  • introducing the test of “significant impediment of effective competition” for merger control analyses in addition to the “creation/strengthening a dominant position” criterion,
  • the introduction of de minimis practice into the Turkish competition law,
  • clarification of the individual exemption regime’s wording, so that the principle rule is indeed self-assessment of undertakings; whereas undertakings may prefer to file an exemption application for the Competition Board’s evaluation,
  • prioritizing behavioral measures over structural measures, within remedies to be imposed to undertakings for competition violations, and
  • providing a legal basis for the Competition Authority (“Authority”) for obtaining copies of computers and information systems of undertakings, which the Authority, indeed, applies in practice during on-site inspections.

The amendments (i), (ii), (iii) and (iv) listed above are of great significance in the context of increasing harmonization between the Law and the EU Competition enforcement. In this framework, the commitment mechanism, the settlement procedure, the “significant reduction of effective competition” test and the de minimis application mechanisms, which have been included in the EU legislation for a long time and currently added to the Law, are detailed in the last part of our memorandum.


Regulations Introduced by the Law Amending the Law on the Protection of Competition

Commitment Mechanism 

With the Amending Law, the title of the Article 43 of the Law “Opening of Investigation” has been changed to “Opening of Investigation, Commitment and Settlement” and commitment mechanism for the Competition Authority’s investigations have been introduced through new paragraph insertions.

Article: Commencement of Investigation – Article 43 (3) The decision of the Board to initiate an investigation is final.

Amended Version: Commencement of Investigation, Commitment and Settlement - Article 43 (3) A commitment may be proposed by the concerning undertakings or associations of undertakings to eliminate the competition problems arising under Article 4 or 6 during a preliminary or full-fledged investigation in progress. If the Board evaluates that the competition problems could be resolved with these commitments, it may decide not to open an investigation or to terminate the ongoing investigation by making these commitments binding for such undertakings or associations of undertakings. Commitments regarding clear and hardcore infringements, such as price fixing among competitors, territory or customer allocation, or restriction of supply shall not be accepted. The procedures and principles regarding the implementation of this paragraph shall be determined by the communiqué issued by the Board.

(4) After the Board renders a decision according to the third paragraph, it can re-open an investigation in the following circumstances:

a)  A substantial change in any element that constitute the basis of the decision

b) Violation of their commitments by concerning undertakings or associations of undertakings

c)  The decision was based on incomplete, incorrect, or misleading information provided by the parties.

 

According to the commitment mechanism brought with this amendment, undertakings or associations of undertakings, which have been subject to preliminary or full-fledged investigation within the scope of (i) Article 4 of the Law on anti-competitive agreements, concerted practices or decisions or (ii) Article 6 of the Law on abuse of dominant position, will have the opportunity to propose commitments to the Competition Board (“Board”) in order to eliminate the competition problems subject to examination.

Regarding the post-commitment acceptance, if the Board finds that; (a) there is a significant change in the elements it relies on in its decision, (b) that the relevant undertaking or associations of undertakings violated their commitments; or (c) the decision was made based on incomplete, incorrect or misleading information provided by the parties, it will be able to re-investigate the violation in question on ex officio.

However, it should be noted that this mechanism cannot be implemented for cases where clear and hardcore violations such as “price-fixing, region or customer allocation or restriction of supply”.

In the recital[1] of the Amending Law, it has been stated that until an administrative decision for the detection of the violation could be rendered, the loss caused by this possible violation may aggravate; and in cases where the commitment mechanism could have been adopted, such aggravation would be prevented and public resources would be used more effectively.



Settlement Mechanism

As per other five sub-paragraphs added to the Article 43 of the Law, it is aimed to bring the settlement mechanism into the Turkish competition law legislation, akin to the EU competition law.

Article: N/A

Amended version: Commencement of Investigation, Commitment and Settlement

Article 43 (5) After the investigation is initiated, the Board may initiate the settlement procedure at the request of those concerned or ex officio, while taking the procedural benefits, which may arise from the rapid completion of the investigation process and disputes regarding the existence or scope of the infringement at hand into account. The Board may settle with the undertakings or association of undertakings that it had initiated a full-fledged investigation against and that accept the existence and scope of the infringement until the legal service of the investigation report [i.e. equivalent of Statement of Objections].

(6) In this context, the Board shall provide the parties investigated a certain amount of time to submit a settlement text, in which they accept to the existence and scope of the infringement. Notifications made after the given period shall not be considered. The investigation shall be terminated with a decision involving detection of infringement and administrative fines.

(7) As a result of the settlement procedure, up to twenty-five percent reduction could be applied in administrative fines. The reduction in administrative fines pursuant to this article does not prevent applying further reduction under the sixth paragraph of article 17 of the Law No. 5326.

(8) In the event that the process results with settlement, administrative fines and the matters included in the settlement text cannot be the subjected to a litigation process by the parties.

(9) Other procedures and principles regarding settlement shall be determined by the regulation issued by the Board.

Pursuant to this amendment, undertakings or association of undertakings, which are subject to a full-fledged investigation and accept the existence and scope of the violation, will have the opportunity to reach a settlement with the Board until the legal service of the investigation report. As a result of the settlement, the investigation will be terminated, and the Board will render a final decision involving detection of the infringement and administrative fines made. In addition, administrative fines and the matters included in the settlement text cannot be the subjected to a litigation process by the parties.


SIEC Test in Merger and Acquisition Examinations

With the amendment made in Article 7 of the Law regulating mergers and acquisitions, “significant impediment of effective competition” (“SIEC”) criterion is added to the Law as the fundamental ground for prohibiting notified transactions, which is also applied in EU competition law within the scope of the EU Merger Regulation No. 139/2004.

In the former version of the Law, creation or strengthening of a dominant position was a condition precedent for the Board to find before prohibiting a merger or acquisition; whereas the amended version includes creation or strengthening of dominance merely as an example of significant impediment of effective competition. In other words, sign which covers the “dominant position test” applied by the Board when evaluating permit applications for mergers and acquisitions and also applied in EU competition law within the scope of the EU Merger Regulation No. 139/2004, has been introduced to Turkish competition law.

Article: Mergers or Acquisitions

Article 7 (1) Merger by one or more undertakings, or acquisition by any undertaking or person from another undertaking, except by way of inheritance, of its assets or all or a part of its partnership shares, or of means which confer thereon the power to hold a managerial right, which result as a significant lessening of competition in a market for goods or services within the whole or a part of the country, with a view to create a dominant position or strengthening an existing dominant position, is illegal and prohibited

Amended Version: Mergers or Acquisitions

Article 7 (1) Merger by one or more undertakings, or acquisition by any undertaking or person from another undertaking, except by way of inheritance, of its assets or all or a part of its partnership shares, or of means which confer thereon the power to hold a managerial right, which result as a significant lessening of effective competition in a market for goods or services within the whole or a part of the country, particularly by creating a dominant position or strengthening an existing dominant position, is illegal and prohibited.

In the former dominant position test applied, creation or strengthening of dominance was the prerequisite for a merger or acquisition process to be prohibited. The SIEC test, on the other hand, includes creation or strengthening of dominance merely as an example of significant impediment of effective competition. In other words, post-amendment, the Board will be entitled to also prohibit transactions, which do not necessarily create or strengthen a dominant position, if it fulfills the SIEC test.[1]

The function of the SIEC test is clarified in the recital of the article, which states: “In addition to the transactions resulting in the creation of a dominant position or the strengthening of the existing dominant position, transactions that has the ability to significantly reduce the competition may also be prohibited[2].

On the other hand, when a reverse interpretation of this statement is made, it can be concluded that a merger or acquisition, which do not significantly impede the competition in the relevant market but create or strengthen a dominant position, may nevertheless be permitted to be consummated within the scope of the SIEC test. Therefore, it should be noted that the discretionary power of the Board in the examinations regarding mergers and acquisitions will be expanded in both directions with this new instrument added to the Law.


De Minimis Principle

With the second paragraph added to the Article 41 of the Law titled “Conclusion of Preliminary Investigation”, the de minimis principle in the EU legislation has been introduced to Turkish competition law.

Article: Conclusion of Preliminary Inquiry

Article 41 (1) Within 10 days following the submission of the preliminary inquiry report to the Board, the Board convenes in order to evaluate the information obtained and decides on whether or not to open an investigation.

Amended Version: Conclusion of Preliminary Inquiry

Article 41 (1) Within 10 days following the submission of the preliminary inquiry report to the Board, the Board convenes in order to evaluate the information obtained and decides on whether or not to open an investigation.

(2) Board may decide not to open a full-fledged investigation on the agreements, concerted practices between undertakings, and decisions of associations of undertakings that do not materially restrict competition in the market, except for open and hard-core infringements such as price fixing among competitors, region or customer allocation and restriction of supply. The procedures and principles regarding the implementation of this paragraph shall be determined by the communiqué issued by the Board.

The thresholds of the de minimis principle are not clearly stated in the added paragraph of the article; however, it has been envisaged that with the communiqué to be issued by the Board, market share, turnover and similar other criteria will be set and relevant other fields of application of this principle can be determined. Needless to say, infringements concerning dominant undertakings would serve as a natural threshold demarcating de minimis rule’s scope, since abuse of dominance violations are not prescribed in the amended text, for violation types that may benefit the de minimis exemption.

In parallel with the EU practice, clear and hardcore violations such as price fixing, region or customer allocation and restriction of supply are excluded from the scope of the de minimis exception.

It is noteworthy that the Board has already been applying the de minimis principle by not opening a full-fledged investigation (by sending an opinion letter instead) despite the clear evidence and findings for some cases occasionally, if it deemed the violation was not material in terms of its effects to the market. Thus, with this new version of the Law, such decisions mostly rendered for small and medium-sized enterprise activities and undertakings operating in very narrow geographic markets, will have a clear legal basis.

Moreover, considering the digitalization in economic activities and the transformation in the entrepreneurial ecosystem, exempting negligible anti-competitive agreements and practices that seed start-ups may realize in order to gain volume in the market, can contribute to the productivity of entrepreneurship ecosystems.

 

Clarification of Individual Exemption Regime

Amendments made in the Article 5 of the Law, which regulates the individual exemption mechanism akin to Article 101(3) of the TFEU, with the intention of clarifying its wording that undertakings’ self-assessment on whether they fulfil the conditions prescribed in Article of 5 of the Law for benefiting the Law’s exemption mechanism is essential; whereas, they may file an application for the Competition Board to render an exemption decision for an agreement, concerted practice or a decision of association of undertakings, by their sole discretion.

Article: Exemption

Article 5 (1) The Board, in case all the terms listed below exist, may decide to exempt agreements, concerted practices between undertakings, and decisions of associations of undertakings from the application of the provisions of article 4:

a) Ensuring new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services,

b) Benefitting the consumer from the above-mentioned,

c) Not eliminating competition in a significant part of the relevant market,

d) Not limiting competition more than what is compulsory for achieving the goals set out in sub-paragraphs (a) and (b).

Amended version: Exemption

Article 5 (1) In case all the terms listed below exist, agreements, concerted practices between undertakings, and decisions of associations of undertakings are exempt from the application of the provisions of article 4:

a) Ensuring new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services,

b) Benefitting the consumer from the above-mentioned

c) Not eliminating competition in a significant part of the relevant market,

d) Not limiting competition more than what is compulsory for achieving the goals set out in sub-paragraphs (a) and (b).

(2) Undertakings and associations of undertakings may apply to Authority for the determination of the Board regarding whether agreements, concerted practices between undertakings, and decisions of associations of undertakings under article 4 meet the exemption requirements


Behavioral Remedies

As per the amendment, the remedies are classified under two categories, which are (i) behavioral remedies, i.e. practices that the undertakings shall conduct or avoid, and (ii) structural remedies, such as divestment of businesses, shareholdings or assets.

The amendment, which is currently not included in EU legislation, requires the Board to impose structural remedies, only if behavioral remedies imposed earlier have not yielded the necessary results. Also, structural remedy decisions shall include a minimum of 6 months period for the concerned undertakings to comply with.

In addition, the article requires any remedy to be imposed to be (i) necessary for effective elimination of the infringement and (ii) proportionate. Thus, the amendment could be construed as industry friendly revision, since it will restrict the Board’s power of discretion on imposing sanctions, despite existence of an infringement.

Article: Termination of Infringement

Article 9 (1) If the Board, upon informing, complaint or the request of the Ministry or on its own initiative, establishes that articles 4, 6 and 7 of this Law are infringed, it notifies the undertaking or associations of undertakings concerned of the decision encompassing those behaviour to be fulfilled or avoided so as to establish competition and maintain the situation before infringement, in accordance with the provisions mentioned in section Four of this Law.

Amended Version: Termination of Infringement

Article 9 (1) If the Board, upon informing, complaint or the request of the Ministry or on its own initiative, establishes that articles 4, 6 and 7 of this Law are infringed, it notifies the undertaking or associations of undertakings concerned of the decision encompassing those behavior to be fulfilled or avoided and structural remedies such as undertakings' transfer of certain activities or partnership shares or assets so as to establish competition. Behavioral and structural remedies should be proportionate to the infringement and necessary for the effective termination of the infringement. If it is determined by the decision that the behavioral remedies do not yield results, at least 6 months are given to the relevant undertakings or associations of undertakings to comply with the structural remedies

 

References:

 [1]Preamble of the Law Proposal No:2/2875: https://www.tbmm.gov.tr/sirasayi/donem27/yil01/ss215.pdf (last access date: 22.06.2020) 

[2] Lars-Hendrik Röller and Miguel De La Mano, “The Impact of the New Substantive Test in European Merger Control”, European Competition Journal, April, 2006: https://ec.europa.eu/dgs/competition/economist/merger_control_test.pdf (last access date: 22.06.2020)

[3] Preamble of the Law Proposal No:2/2875: https://www.tbmm.gov.tr/sirasayi/donem27/yil01/ss215.pdf (last access date: 22.06.2020)