Turkey: Recent Activities In Competition Law

When considering the developments in recent months regarding competition law and practice in Turkey, the words ‘fast’ and ‘furious’ come to mind.

Debate continues regarding amendments to Law No. 4054 on the Protection of Competition ("Law") and changes in the secondary legislation. Various significant decisions have been taken, emphasizing the importance of the role played by the Competition Board ("Board") in the economy. Moreover, the Council of State decisions regarding both the procedural aspects of the Board decisions, and the substantive assessment thereof, have created ambiguity regarding the application of competition law.

i. The Legislative Work

The proposed amendment to the Law published by the Board has long been debated among the practitioners as well as scholars. However, while the scope of the proposal is almost equal to a redrafting of the Law, nothing further has been declared or published by the Board regarding any possible amendments to the published version of the proposed amendments. Accordingly, it appears that any interested party will again be informed of the amendments through proposals sent to the Turkish Grand National Assembly as was the case in the proposed amendments regarding the Telegraph and Telephone Law No. 406, which opened for discussion substantial changes to the Law’s application in the telecommunication sector.

ii. Draft Electronic Communications Law

The scope and the content of the Law have been greatly debated within the telecommunications sector, particularly in the aftermath of the Roaming¹ decision, with the tension between the Telecommunication Authority and Competition Authority coming to the surface in almost all instances. The draft Electronic Communications Law ("Draft") aims to settle the question of jurisdiction in restrictions of competition proceedings in the sector by allocating the duty and the power to investigate restrictions of competition in the sector to the Telecommunication Authority. However, certain aspects of the Draft seem to aggravate rather than ease the problems previously identified such as (i) granting both authorities jurisdiction relating to restrictions of competition in the sector; (ii) not classifying the behaviors restricting competition (i.e. agreements or abuse of dominance) or the procedure to be followed when investigating such; and (iii) not including any instrument to harmonize with the measures of the authorities.

iii. The Revision in Secondary Legislation

Three recent developments, (i) adoption of the new Communiqué No. 2005/4 on Vertical Agreements in the Motor Vehicle Sector ("Communiqué No. 2005/4"); (ii) abolition of Communiqué No. 1997/2 on the Notification of Agreements, Concerted Practices and Decisions of the Association of Undertakings ("Communiqué No. 1997/2"); and (iii) amendments to Communiqué No. 1997/1 on Mergers and Acquisitions ("Communiqué No. 1997/1") are of significance regarding the secondary legislation.

Communiqué No. 2005/4, substantively in line with the European Commission Regulation No. 1400/2002 on the Application of Article 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices in the Motor Vehicle Sector, is expected to bring about significant changes in the organization of the motor vehicles sector with its implications being felt well before the adoption of the communiqué. While this is the case, ambiguities within Communiqué No. 2005/4 unfortunately affect its application. While the heart of the communiqué resides in limiting the exemption benefit to those below the market share threshold and the abolition of non-compete restrictions, which were formerly allowed under the preceding Communiqué No. 1998/3 on the Distribution and Servicing of Motor Vehicles,² the relevant measuring sticks determining the proper application of the communiqué must be explained through explanatory notes as is well known from the EU experience. However, despite the European practice, the Board has not yet published any notice, communication or alike explaining the fundamental concepts of the communiqué. Accordingly, once again, the lack of guiding rules dominates the practice and there is an immediate need for administrative standards regarding such secondary legislation that will have its blueprint on the future of the motor vehicle industry in Turkey.

As we have announced in previous newsletters, the obligation to notify the Board of the agreement’s concerted practices or decision of association of undertakings has been abolished through an amendment in Article 10 of the Law.³ Accordingly, the Board recently withdrew Communiqué No. 1997/2, which outlined the rules and provided the relevant form for such notification.⁴ While this was expected, considering the fact that the Board still holds the exclusive power to exempt agreements from the prohibition under Article 4 of the Law, it is not clear as to how undertakings that wish to obtain an exemption from the Board as the most appropriate way to achieve legal certainty for their future transactions, should apply to the Board.

Finally, the Board, through the foregoing communiqué abolishing Communiqué No. 1997/2, amended Communiqué No. 1997/1 in order to reflect such changes in the notification of agreements.

One expects that the change in the black law will be reflected in practice, particularly with regard to ancillary restraints that become burdensome for businesses. In this context, the decision on the assessment of ancillary restraints in Intralot⁵ is of significance.

The Intralot Decision

This decision, which deemed the decrease in the number of the shareholders jointly controlling the target as a concentration subject to notification, is important due to its interpretation of ‘ancillary restraints’. The decision determines that any restriction aimed merely to protect the "value of shares" subject to transfer should not be deemed as an "ancillary restraint" and only those that aim to protect "the transfer of the business to the acquirer" should be classified as such.

The Board ruled that because there was not a transfer of the business, the non-compete obligation imposed on the seller may not be classified as an ancillary restraint. The decision is of importance as it casts doubt on the legal validity of any possible non-compete restrictions imposed in similar instances.

However, the decision creates other intriguing debates (considering the fact that the transaction should have, in fact, not been notified to the Board as it did not fall within the scope of the communiqué since there was no change of control) such as the legal status of restrictions imposed on sellers in cases either not falling within the scope of the communiqué or below thresholds and, the legal nature of the conditional approvals by the Board imposing obligations on the parties to amend such restrictions. Because the Law has changed in respect to the notification obligation regarding agreements, the Board should focus its analysis solely on the assessment of the substance of the case and should assess the restriction if necessary from an exemption point of view, rather than merely adopting conditional approvals to amend such restrictions. It may also be argued that such obligations do not affect the substance of the case, since they are deemed as ancillary by nature and they may not be subject to a "conditional approval" by the Board.

The Cement Decisions

The Board’s decision in the cement privatizations⁶ has also attracted the attention of the press. The Board blocked certain of the cement privatizations through utilizing, in particular, the collective dominance theories. However, it was in fact the approach of the Council of State, in its judicial review while rendering a suspension order, that remarkably ignited discussions among scholars and practitioners. The Council of State noted in its decision7 that (i) the transaction did not lead to a single dominance; (ii) the assumption about the undertakings’ future behavior in the post-merger market structure by considering the previous restrictions of competition among the same parties in other geographic markets was erroneous in itself and inconsistent with the approach in the geographic market definition; and (iii) the collective dominance was not referred to in the wording of Article 7 of the Law, dealing with mergers and acquisitions.

Privatization Decisions

While the Board’s approach to privatizations has encountered much debate particularly in respect to the scope of the powers of the Board under the model of privatizations, which has not yet been judicially tested, the decisions of the Board in the last year, particularly regarding Türk Telekom and the privatization of the ports where the Board blocked the acquisition of the İskenderun Port by the acquirer of a neighboring port, were significant. However, the real importance of such decisions goes beyond the actual effect of the acquisitions, because many such decisions involve the granting of a concessionary right to the successful bidder regarding the operation or provision of certain economic activities that reside, arguably, outside of the scope of the Law. The Board decision regarding granting of a concessionary right for the provision of a compulsory physical ⁸

The Yeast Decision

The yeast market has long been subject to investigations of the Board, as the market is composed of a very limited number of participants. As expected, the issue of price movements in this market has been scrutinized by the Board. Drawing a distinction between rational market behavior of the undertakings in question and coordinated behavior was a daunting task for the Board. While this task is sometimes a heroic one, the recently published yeast decision of the Board⁹ blurred the line between restricted practices and the ordinary market behaviors of undertakings, which has been criticized for stretching the outer bounds of the presumption of concerted practice under the Law because the only material issue was the parallel nature of the undertakings’ prices subject to investigation that was uncovered by the Board.

"Procedural" Decisions

One peculiar characteristic of Turkish Competition Law has been the procedural irregularities in the decisions of the Board, that later resulted in a great tide of annulments by the Council of State. Certain Council of State decisions, formerly adopted on the grounds that the decisions lacked dissenting opinions, are currently followed by the decisions taken on the grounds that such were legally erroneous because the investigating Board member took part in the decision meetings. Moreover, a recent set of decisions by the Council of State is to vacate many of those decisions adopted by the Board in the last year on the ground that, while it is stated in the Law that the Board is formed of seven members, it was legally erroneous for the Board to convene and adopt decisions with eight members, the additional seat emanating from the fact that as the number of the Board members changed, there were already eight members and the amending Law did not contain a temporary article considering the status of such 8th member.Within this environment, and the delicacy of procedural issues before the Council of State, the Board’s approach to those decisions vacated by the Council of State is significant. To date, the Board has re-adopted such decisions without, however, initiating a separate procedure about the alleged facts. Accordingly, one may also see a new tide of decisions by the Council of State annulling such decisions as well as the standing of the Board in such decisions is even more arguable among scholars before their judicial review.

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