Introduction
Regulation of the activity of the business units is not new branch of the law. In fact, the local authorities in different jurisdictions attempt to exercise control over the performance over the companies by virtue of the adoption of different regulations. However, the commercial practices shows that this activity is not always efficient due to the fact that the companies refer to the supplementary instruments suitable for the completion economic growth in the market. This implies that several organizations usually enter special horizontal or vertical agreements in terms of the competition legislation that may be prosecuted by the authorities. The United Arab Emirates is not an exclusive jurisdiction as the current legislation contains the separate legislative documents devoted to the relation of the fair and honest competitive behaviour or the companies in the business environment within the country. Given the diversity of the arrangements between the companies, the focus of this paper is limited to the examination of the pillars of the exclusive supply agreements signed by PCIC with relevant distributors regarding delivery of the bottles to different cafes and restaurants. Due to the fact that in some jurisdictions any kinds of the exclusive supply arrangements are regarded as the direct violation of the competition legislation, this paper considers their nature and effect over the state of the competition in the country.
Analysis of PCIC Exclusive Supply Agreements
In order to proceed to the analysis of the exclusive supply arrangements made by the representatives of the PCIC in the UAE, the author considers it is necessary to define the nature of the exclusive supply arrangements as form of the cooperation between the producers and distributors within the territory of the country. First, the close cooperation between the producer and supply centres may have anti-competitive effect on the state of the competition in the country so that this cooperation may fall under the scope of the infringements prohibited by the current competition of the UAE. With that, any agreement should be considered separately by the local state authorities with the external circumstances preceding the signature of the agreement, while the effect of this cooperation should be addressed. In this regard, it is recommended to start from the examination of the position of the PCIC and distributors existing in the bottler industry. According to the merits of the case, the PCIC performs the functions of the independent local organization that is vested in with the obligations to supply bottles to the several distributors in order different cafes and restaurants have relevant amount of the bottles. This organization have signed agreements in form of the exclusive supply arrangements with significant portion of the restaurants existing in the food chain industry in the UAE what in turn creates presumption that the PCIC maintains the dominant position in the market. Besides, this portion of the restaurants in compliance with the details of the case ca not reach the dominant amount due to the fact that it constitutes less than half of the available restaurant outlets in the country. From the other perspective, the performance of the PCIC with the suppliers forms basis for the ambiguous treatment in terms of the UAE competition legislation. This implies that the entire amount of the revenue out of the cooperation with 1000 restaurants by the PCIC reaches up to 70% of the total volume of the revenue available in this market (Vogel, 2011).
In addition, it is necessary to state that the current competition legislation of the United Arab Emirates stipulates that the competition may be restricted as the result of the abuse of the dominant position. There is no information in the merits of the case that the PCIC holds dominant position in the market in form of the monopolist, but this data can be confirmed with the amount of the revenue obtained. In particular, the organization cooperates with the cafes that constitute 70% of this industry. In this regard, it is possible to state that the organization influences the policy on the purchase of the bottles by these restaurants, while it is free to define prices necessary for the management of the organization (Gal, n.d.).
Consequently, the agreements signed with restaurants and the PCIC should be addressed. The managers of the organization included the provision in the text of the exclusive supply arrangement that the restaurants may receive relevant support for the promotion their position in the market in exchange for the executive right to supply them carbonated soft drinks. For the purposes of the completion this business strategy, the PCIC used the key accounts management. By virtue of this policy, the managers of the company may discuss special offers for the restaurants for the exclusive rights. It is clear from the merits of the case that the leadership of the organization have instructed the managers responsible for the key accounts management to sign these arrangements by any measure so that they have to refer to the aggressive tools which are not appropriate in the business community. In this regard, the focus on the illegality of the contracts signed by the PCIC with several restaurants and outlets as KFC, should be assessed. For the completion the evaluation of the validity of the agreements in terms of the current competition law, the effect of the agreement, it's object and duration are examined. In fact, any activity of the business unit in he relevant industry should create several benefits for the customers purchasing the products, while the state of the competition should be improved. Given this statement, the local authorities of the UAE should define the intention of the PCIC for the signature of the executive supply arrangements. In case the organization has the purpose to increase its market share in the relevant industry, these agreements should be prohibited by the competition authorities. This assumption is grounded on the fact that the such types of the exclusive supply agreements may limit the opportunity for the new entrants to come to the retail industry in the UAE and compete with the PCIC. However, the organization has not signed the agreements personally with the restaurants as it preferred to act via additional distributors vested in with the functions to act on behalf of the company. This approach of the organization is not welcomed by the commercial practice and competition authorities as the company attempts to avoid prosecution from the state authorities regarding its activity in the retail market with the help of indirect agreements (Björkroth, 2013).
There are several types of the exclusive supply agreements that may be prosecuted by the state authorities in the UAE. They are the following:
Contract regarding the exclusive supply of the goods or products in the market;
Imposition of the strict ban in addition to the territorial protection in the text of the agreement;
Establishment of the single-branding;
Completion of the control over the sales of the distributors;
Price fixation and price regulation policy (Kaplow, n.d.).
The merits of the case inform the audience that the managers of the PCIC suggest to sign the exclusive supply agreements with the organization while there is no stipulation in the text of the agreement that these bottles solely should be bought by the restaurants. At the same time, the managers state that in case the restaurant outlets purchase the bottles of the PCIC on the solely basis, they will be able to receive several discounts during the purchase of the bottles. This offer is quite beneficial for the restaurants as they understand that with the promotion of their position in the market they will be able to maximize profit and decrease expenses necessary for the operation of the business unit. In contrast, only PCIC as the giant organization is able to provide such proposals in the market due to this position while the newcomers entering the market are not able to maintain this tendency. From this perspective, it is clear that arrangements suggested by the managers of the PCIC may have detrimental effect over the competition in the country regardless the fact that the leadership of the organization did not have such intention (Lin, 1990).
Consequently, the duration of the agreements should be addressed. The case law and commercial practice in the sphere of the competition legislation states that any exclusive agreement should not be long-lasting in order to diminish the possible negative effects of such agreement. Besides, there are several kinds of the agreements proposed by the PCIC. In particular, there are contracts signed for one year, two years and some of them may be up to 5 years. According to the current legislation of the United Arab Emirates, the duration of the agreement between the producers and supplies under the exclusive supply arrangement should not be significant in order to prevent the spread of the anti-competitive consequences in the relevant industry. Therefore, it is seemed logic that the management of the PCIC should reconsider the provisions and term of the exclusive supply agreements with the purpose of the removal of the attention of the competition authorities in the UAE to the activity of the PCIC. Furthermore, it is evident from the provisions of the agreement that the leadership of the PCIC intends to control the price fixation over the bottles and carbonated soft drinks. The inclusion of the price fixation in the text of the exclusive supply arrangements falls within the scope of the violation of the competition legislation so that this dimension should be amended (Flores, n.d.).
Moreover, the competition authorities of the UAE should take into account the practice of the European Union and the United States where the competition law is highly respected. In fact, the Federal Trade Commission of the United States define that the exclusive supply contracts signed between the company with the monopolist and dominant position should be regarded as the action having the anticompetitive effect. The experts believe that these agreements are not legal under the competition law due to the fact that it may undermine the state of the competition in the country. However, it is necessary to examine the economic growth of the rivals in the wholesale industry in the UAE under the activity of the PCIC aimed to control the exclusive rights over the supply of the bottles. In this regard, it is possible to presume that the key account managers hired by the PCIC forced the representatives of the restaurants to enter the distribution agreements. Given the fact that the behaviour of the managers was similar to the aggressive conduct, it is possible to suggest that the the excessive force of the managers took place (Vogel, 2015).
Simultaneously, the nature of the appointment of the exclusive supply agreements should be assessed. There is sole and exclusive appointment under the provisions of the distribution agreements existing in the competition legislation. Given this statement, the appointment should be understood as follows:
Sole – in case one particular distributor is nominated with the purpose to release the goods and services within the relevant territory of the UAE;
Exclusive – the supplier is vested with several limitations based on which he has no opportunity to resell the goods of the initial supplier to other agents (Guesalaga, 2014).
The merits of the case present the evidence that in the agreements suggested by the managers of the PCIC, there was a stipulation that the goods of the organization were not allowed to be sold out to the other agents that were not in cooperation with the PCIC. Therefore, certain limitation of the freedom of the activity of the distributors appeared with the signature of the exclusive supply arrangement. However, the local authorities before the examination the validity of the agreements should consider the condition of the market before the signature of these arrangements. The analysis of the flow of the competition and the development of the market should be devoted to the consideration of the economic growth of the rivals of the PCIC and the demand of the consumers. In addition, it is highly important to define as to whether the interests of the consumers were satisfied upon the spread of the exclusive supply agreement with the PCIC. Given the fact that the company cooperates with approximately half of the restaurant outlets available in the UAE, it possible to state that it reaches the overwhelming amount of the customers (Accardo, n.d.).
At the same time, the object of the exclusive supply arrangements should be addressed. This implies that the activity of the other companies in the wholesale market may be influenced with the activity of the PCIC with restaurants outlets. From one perspective, the object may cover the prices for the bottles released in the market. Due to the fact that the PCIC stipulates that the fluctuation of the prices for the goods may occur based on the events in the business market, the company states that it has the intention to control it. This activity of the business unit is not allowed under the competition law of the United Arab Emirates as it should act within the reasonable limits. However, in case there are no other alternatives to the activity of the PCIC in form of the direct supplier of the bottles and soft drinks to the restaurant outlets, the activity of the PCIC should not be restricted. Finally, the organization should amend the text of the agreements in order to avoid the prosecution for the horizontal or vertical agreements.
Conclusion
This particular case is devoted to the analysis of the nature of the exclusive supply agreements signed by the significant organization in the UAE with the distributors. The state authorities in competition law area attempt to limit and prosecute any arrangements of vertical and horizontal value between the business units. In fact, the entrance into the exclusive supply arrangements may be in contradiction with the competition legislation in some cases. However, the overview of this particular case confirms that there is not direct effect of the restriction of the competition in the country. Moreover, there is no evidence of the detrimental effect to the commercial rivals of the PCIC in the foods market of the UAE. Although, there are some points that should be removed by the leadership of the PCIC in order to stay within the legal limits of the competition policy of the country,
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