Turkey: Current Issues Of Competition Law

Last Updated: 17 November 2005
Article by Ilmutluhan Selçuk

Law No. 4054 on the Protection of Competition (“Law”) was only enacted in 1994 and the Board announced that it had completed its establishment three years after. While we, practitioners, can still comment that the Law is yet to reach a level of maturity in its consistent application, one cannot help but be amazed as to how fast the impact of the Law has surpassed its travail through significant administrative and judicial decisions and created awareness at business communities. The developments of the past six months are evidence to this fact.

Of these developments, we have selected, for brief comment, (i) the proposed amendments to the Law as well as certain recent amendments already in place, i.e., the “legislative environment”, and (ii) Digiturk and Port Privatization decisions.

A. The Law (The Legislative Environment)

1. Proposed Amendments to the Law

Recently, the Turkish Competition Board (“Board”) has made public1 its discussion paper2 regarding the proposed amendments to the Law (“Proposal”).3

The articles of the Law that are proposed to be changed or replaced include the following: (i) definitions (definition of undertaking); (ii) Article 44 (inclusion of “de minimis”); (iii) Article 7 (introducing “Substantial Lessening of Competition (SLC)”5 test); (iv) renewing procedural rules for merger control; (v) introducing brand new rules for regulatory measures; (vi) Articles 14 and 15 (strengthening the Boards’ powers related to requests for information and inspections); (vii) Articles 16 and 17 (amending penalties); (viii) Articles 40-41, 43-48 (substantially amending procedural rules for investigations, i.e., introducing a commitments mechanism and clarifying rights of access to file); (ix) Article 56 (amending civil law procedures regarding competition law infringements); and (x) abolishing Articles 9-12 and 50, 52 (those that have been merged, replaced by other articles or are inconsistent with the amendments).

While the scope of the amendments and in particular the number of articles proposed to be changed are undoubtedly huge in size (30 over 65 articles6), and the amendments bring about substantive changes as well as procedural changes (i.e., switching from the dominance test to the SLC test), it is worth underlying the fact that the Board has not published a preamble regarding the rationale behind the changes.

Accordingly, while it is clear that the proposed amendments will bring substantial changes in respect of procedure and it may be argued in view of the proposed changes in the merger control regime that the Board has aimed to switch to a more economics based approach in the application of the Law, it is still not clear whether our wishful thinking regarding the latter will also be valid for the Law as in general.

One interesting note is that the Board left Article 6 of the Law untouched. The scope of this article, which is related to abuse of dominant position, is widely being discussed and in terms of practical application, argued to be dangerously stretched. Accordingly, considering also that the proposal suggests very slight changes in the rules applicable to agreements7 and that the “exemption system” is still alive, it may be argued that, even in the existence of the change to SLC, the amendments aim to “fix” the Law rather than bringing about a fundamental change in its application from a substantive point of view.8

i. Amendments Made to the Law

During the period while the proposed amendments were made public, the Law was surprisingly amended on 2 July 2005. The scope of the changes as compared to the Proposal was much limited but are noteworthy.

The “obligation to notify agreements restricting competition” was finally abolished and relevant changes in the penalties regarding thereof were made. Furthermore, the “need to request exemption in order for the Board to grant an exemption” has been abolished as well.

Following the changes, it is now not necessary to notify agreements in order to be eligible for an exemption. Nevertheless, the amendments do not amount to a change parallel to the European experience where the meaning attributed to Article 81(3) of the Treaty has been switched to “legal exception” from “legal exemption” and following that, naturally, the Courts have been granted the right to apply Article 81(3) at their own initiative. Accordingly, since no change occurred as such in Turkey, the divergence in jurisdictions of the Board and the Courts in the application the Law remains, perhaps even more strongly as they will have survived the amendments or are not being discussed in the Proposal.

One important note regarding the changes, however institutional, is that the number of the Board members has been decreased from 11 to 7 and the methods applicable in selection of the Board members have been amended.

B. Significant Decisions

Two decisions are of significance in respect of the Board’s practice, namely the Digiturk Decision9 and Port Privatization Decisions.

a. Digitürk Decision

In Digitürk, which involved an agreement regarding the transfer of live broadcast rights, executed between Digiturk10 and the Turkish Radio and Television Institution including exclusivity and resale restrictions and which could have easily been evaluated by the Board within the scope of Communiqué No. 2002/2 on Group Exemption Regarding Vertical Agreements11 the Board assessed the agreement from the view point of its “object” and “effect”, and found that the agreement did not infringe the Law despite the existence of exclusivity or resale restriction clauses.

Digitürk is truly a landmark decision in many aspects. The case is significant since, despite numerous cases to the contrary where the Board carried out its analysis limited to the texts of the agreements (“papers”), it clearly underlines that the mere existence of some contractual restraints such as exclusivity and/or sales restrictions are not in themselves enough to establish infringements within the meaning of the Law.

Furthermore, the Decision clearly states that the only type of agreement that could qualify as prohibited agreements by their objectives (i.e., classified “per se” illegal) are cartels between rivals and the rest of the types of agreements, in particular, vertical agreements, should be subject to a “rule of reason” or, in other words an “effect test”. The Decision then follows that considering the efficiency enhancing nature of vertical agreements, only those that may create a foreclosure12 effect are prohibited under Article 4 of the Law.

The decision clearly establishes a stronger burden of proof on the Board by means of underscoring the role of economic factors13 and by obliging the Board to explain the economic reasons as to why an agreement restricts competition.

b. Port Privatization Decisions

The interaction between privatizations and the application of the Law has always drawn attention, and since the very early times of competition law practice in Turkey the Board has placed utmost importance on the modeling and market effects of privatizations.

The sometimes-strong market positions of privatized entities, mostly created with the use of public resources or as a result of State measures, have been the driving factor in this regard. The unique nature of privatizations vis-à-vis other mergers or acquisitions has necessitated their assessment to be carried out through specific procedures, under a separate Communiqué14. The Communiqué established a two-prong system whereby the Board first issues its opinion regarding in particular the modeling and any possible post-merger competitive issues that may arise as a result of the (mostly) unique market positions of the privatized entities and later on assesses the transaction, and especially the post-merger effects of the transaction once the successful bidder is identified.

Nevertheless, the legal nature and the effect of intervention by the Competition Board have always been a discussion topic for scholars and sometimes created tension between the Privatization Administration (“PA”) and the Competition Authority. Whether the opinions of the Board are binding on the PA has been debated in depth. Decisions of both the Board and the administrative courts in port privatizations may open a new era in this regard.

The port privatizations involved the privatization of ports operated by Republic of Turkey National Railroads General Directorate (“TCDD”). The Board opined that certain ports of the TCDD must be sold to different entities (i.e., the owner of one port should not own another) and certain ports should be privatized to more than one bidder (i.e., certain docks in certain ports have to be sold to different entities).15

Nevertheless, the PA in this specific case -unlike the important example of Türk Telekom (former telecommunications monopoly) where the Board had opined16 that the cable TV infrastructure should be divested from public switched telephony network and the PA reflected this opinion in the bid-package- conducted a tender without complying with the Board’s opinion. Interestingly, the transaction was approved by the Board in the second stage of the assessment.

However, and perhaps more remarkably, the local administrative courts granted an interim order suspending the privatization transaction on the basis that the PA’s decision was against public interest since it did not follow the Board’s opinion (considering the fact that competition itself also is an issue for public interest).

Soon after the decision, the Regional Administrative Court annulled first instance administrative courts’ interim suspension order on the ground that there were no violation of public interest since the Board had at the end approved the transaction [even if it had opined differently at the first stage].

One final note is that the Board, as of the day when this article was being prepared has announced17that it has blocked the acquisition of the one port by the successful bidder of another port on the ground that it would create a dominant position.18

The decisions in chain adopted by different administrative and judicial bodies cast doubts as to the nature of the Board’s opinion in privatizations, whether it has a binding or advisory nature. The issue is important since legal certainty plays a vital role in privatizations and any uncertainty stemming from a possible disagreement between different public bodies or the nature of the roles they play, or any hesitation in respect of the scope of their jurisdiction, is the very enemy of legal certainty needed for investment.

Footnotes

  1. Published on 19 April 2005
  2. Please note that the Board has issued its first discussion paper (the “First Paper”) in late 2003 to a very limited group of academicians and practitioners. However, the contents of and comments to the First Paper have not been public yet.
  3. Please see www.rekabet.gov.tr
  4. which is almost a translation of Article 81 of the EU Treaty.
  5. The current substantive test under Article 7 of the Law is the Telecommunications Authority “dominance test”.
  6. Please note that almost all of the rest of the articles relate to the administrative structure of the Competition Authority.
  7. While it is argued among scholars that introduction of a wording in Article 4 that will pave the way for a de minimis practice in Turkey is a significant step, many believe that the meaning and the role of de minimis in Europe is misunderstood. Some argue that the procedural role attributed to de minimis in order to detect some agreements that do not appreciably affect intra community trade is mistakenly stretched to the substantive assessment of the agreements.
  8. In this regard one should underline the newly started meetings held under the umbrella of State Planning Organization (“SPO”). The SPO has initiated the first round of the preparatory meetings for the preparation of 9th Five-Year Plan for Development and an important aspect of these meetings is the Ad Hoc Committee on Competition Policy. The Committee has held its first meeting early this month and unsurprisingly the very first heading discussed in the meeting was the purpose of competition laws and policies and whether the practice is in line with the competing aims of the Law. It is noteworthy that the report of the Committee, to be adopted as a five-year initiative by the Turkish Parliament, may shed some light on this issue.
  9. Competition Board decision, Digiturk, dated 12 August 2004 and numbered 04-52/699-180. Please note that the reasoned decision was published in spring this year.
  10. Holder of the broadcasting rights for the Turkish Super (football) League.
  11. A piece of secondary legislation to a great extent in line with EC Regulation 2790/99 on the Application of Article 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices.
  12. As an other significant case, please see Efes Beer Distribution Decision, dated 22 April 2005 and numbered 05-27/317-80 where the Board has decided that the exclusivity clauses in the agreements of Efes, having a dominant position in the market, created a foreclosure effect in the market restricting entries, and therefore withdrew the exemption granted to Efes under the Communiqué No 2002/2 on Group Exemption Regarding Vertical Agreements.
  13. Please see also Competition Board decision, Efes RPM Decision, dated 13 July 2005 and numbered 05-46/669-171 where the Board, in dealing with a resale price maintenance allegation, assessed (despite the existence of certain correspondence evidencing that the regional offices of the supplier asking the distributors to strictly abide by the “recommended” prices) that the invoices evidenced the opposite and even from an “objective” point of view, the supplier could not have an aim to restrict its distributors’ prices.
  14. Communiqué No: 1998/3 on the Acquisitions Through Privatizations
  15. See for the opinion of the Board http://ww.rekabet.gov.tr/word/limanlar.doc
  16. See for the opinion of the Board http://www.rekabet.gov.tr/pdf/ttasozellestirmesi.pdf

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.

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