Turkey: New Block Exemption Communiqué No. 2017/3 for Vertical Agreements in the Motor Vehicle Sector in Turkey

New Block Exemption Communiqué No. 2017/3 for Vertical Agreements in the Motor Vehicle Sector ("Communiqué No. 2017/3" or "New Communiqué") was published in the Official Gazette on 24 February 2017. The New Communiqué spells the beginning of a new regime in the motor vehicle sector as it replaces the former Block Exemption Communiqué No. 2005/4 for Vertical Agreements and Concerted Practices in the Motor Vehicle Sector ("Communiqué No. 2005/4" or "Former Communiqué"). The Turkish Competition Authority ("Authority") also published a new set of guidelines along with the new legislation to elucidate finer and more practical issues pertaining to the implementation of the New Communiqué.

The road to the official adoption of the Communiqué No. 2017/3 had been an exemplary process, as the Authority issued white papers and sought stakeholders' input on draft versions of the secondary legislation. To that effect, the Authority previously launched a sector inquiry in 2011 to assess the impact of the Communiqué No. 2005/4, held a workshop on the motor vehicles sector in 2014, and published a draft communiqué in March 2016, which was widely noticed and favorably received by the stakeholders. The most notable changes in the Communiqué No. 2017/3 as compared to the Former Communiqué are as follows: (i) conditions for granting an exemption, (ii) non-compete obligations and multi-branding issues, and (iii) withdrawal of the exemption and calculation of market shares.

The New Communiqué sets a unilateral market share threshold in order for both quantitative distribution agreements and exclusive distribution agreements to benefit from the block exemption. Previously, the corresponding market share threshold provided for the quantitative selective distribution system was set at 40% in the Former Communiqué. The New Communiqué maintained the 30% market share threshold indicated for both sales markets and after-sales markets. As in the Former Communiqué, the New Communiqué did not quantify a threshold limit for the market share on the application of the block exemption for a qualitative selective distribution system.

Moreover, the New Communiqué excluded certain obligations and/or principles from its scope of application, including (i) the freedom to transfer the rights and obligations subject to the vertical agreement, (ii) the obligation to send a detailed and reasoned termination notice in writing, and (iii) the mandatory arbitration clause. On the other hand, the New Communiqué maintained the deep-rooted provisions propounded in the Former Communiqué concerning the time periods that apply to the termination notice. To that end, the provisions regarding (i) 6-month notice period for agreements that are made for at least 5 years, and (ii) a minimum 2-year notice period for agreements with an indefinite duration have been well-kept and remain in force.

Further, the New Communiqué separately regulates the sales of motor vehicles and after-sales services (i.e., maintenance and repair services and spare parts) with respect to non-compete obligations, whereas the Former Communiqué regulated these non-compete obligations collectively. 

The Communiqué No. 2017/3 defines a non-compete obligation within the context of motor vehicles as follows: "any direct or indirect obligation imposed on the buyer, aimed at purchasing, from the supplier or another undertaking to be designated by the supplier, more than 80% of the goods or services, or substitutes of such goods or services subject to the agreement, based on the purchaser's purchases within the previous calendar year, in the market for sales of motor vehicles." This section represents a major divergence from the Former Communiqué that set the threshold at 30%, as opposed to the new 80% threshold. Accordingly, in regard to the sale of motor vehicles, the New Communiqué increases the 30% threshold to 80%, thereby allowing for the multi-branded distribution structure to be abandoned. The New Communiqué also indicates that non-compete obligations which do not exceed 5 years —or where an extension beyond 5 years is possible with the mutual consent of the parties and there are no circumstances hindering the purchaser from terminating the non-compete obligation —will benefit from the block exemption.

In line with the Former Communiqué, non-compete obligations regarding the distribution of motor vehicles and of spare parts, as well as the provision of maintenance and repair services, are not included in the scope of the exemption following the termination of the agreement. The New Communiqué preserved the provisions on repair services and the distribution of spare parts; it set forth that direct or indirect obligations that oblige the purchaser to make more than 30% of its purchases regarding a certain type of product cannot benefit from the group exemption in terms of maintenance repair services and the distribution of spare parts. Conversely, as an exception to the foregoing provision, non-compete obligations of up to 5 years, attributed to independent spare part distributors in terms of the spare part distribution networks that are established by independent spare part suppliers, and chain services in terms of maintenance repair chains, can benefit from the group exemption.

The New Communiqué lifts the provisions that hindered the establishment of additional sales under certain conditions. However, the same approach was not adopted for the establishment of additional service points in terms of the distribution of spare parts and maintenance repair services. Furthermore, the exemption is not applicable to the direct or indirect obligations that restrict the establishment of additional facilities and service areas where the selective distribution system is being applied.

Furthermore, the New Communiqué altered the statement of 'the case in which a substantial part of the relevant market is covered,' as set forth in the Former Communiqué, to 'the case in which the application covers more than 50% of the relevant market' (Article 8 of the New Communiqué), with respect to the withdrawal of the exemption. To that end, the Board may withdraw a block exemption in cases where this threshold is exceeded.

The New Communiqué also brings about several inferences on the grounds of (i) equivalent and original spare parts, (ii) restrictions hindering benefits of group exemption, and (iii) changes made to market shares which leap to the eye and are striking in terms of their scope.

With respect to the foregoing, it is worth mentioning that the definition of 'equivalent quality original spare part' under Communiqué No. 2005/4 provided that the compliance with the mandatory standards required by law was to be documented by the manufacturer, whereas under Communiqué No. 2017/3 the definition was amended as follows to be more definitive: "compliance of a part, which has been produced with the purpose of the replacement of the original parts used in a motor vehicle, with criteria such as mass, size, material, functionality, which is determined by comparison to the original part pursuant to inspection methods, is to be documented by an accredited institution."

Lastly, there have been minor amendments in terms of the restrictions that prevent certain agreements from benefiting from the group exemption. However, it would not be going too far to state that Communiqué No. 2017/3 preserved the provisions included in Communiqué No. 2005/4 to a large extent.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in June 2017. A link to the full Legal Insight Quarterly may be found here.

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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