Under Turkish competition law rules, the Block Exemption Communiqué on Vertical Agreements ("Vertical Block Exemption") creates a 'safe heaven' against the enforcement of Article 4 of Law No. 4054 on Protection of Competition ("Turkish Competition Act"), which is akin to Article 101 of the Treaty on the Functioning of the European Union ("TFEU"). Once specific criteria are fulfilled, the parties have the foresight that the agreement did not infringe Article 4 of the Competition Law. The main criteria to be met to benefit from the protective cloak of the Vertical Block Exemption are (i) market share threshold (and (ii) the duration of the agreement/restraint (i.e., must not exceed five years).
Until November 5th, 2021, the market share threshold for benefitting from the block exemption had been specified as 40%. More specifically, a vertical agreement used to be exempted from enforcement of Article 4 of the Turkish Competition Act if the supplier's market share in the relevant market does not exceed 40%. The same principle also applied to the vertical agreements concerning an obligation to supply to a single buyer. The buyer's market share in the relevant market should not have exceeded 40% to benefit from the Vertical Block Exemption. Accordingly, any undertaking structuring vertical restraints in its agreements was making its assessment according to this threshold to ensure its compliance with the Turkish competition law rules.
However, on November 5th, 2021, the Turkish Competition Authority ("TCA") amended this market share threshold specified under the Vertical Block Exemption with the publication of Communiqué No. 2021/4 ("Amending Communique"). By way of the Amending Communiqué, the TCA lowered the market share threshold for benefiting from the block exemption regime from 40% to 30%, which aligns with the EU regulation.
On the one hand, the market share threshold that sets out safe heaven for vertical agreements under Turkish vertical block exemption regime was brought in line with the EU rules1. Accordingly, although it was a well-known fact that the vertical exemption rules had differed from the EU rules in term of market share threshold for many years, some interpreted that the main objective of this amendment was to align with the EU rules after realizing the negative impact of a higher threshold2.
On the other hand, The Amending Communique has significantly limited the benefit of the block exemption. A vertical agreement will not benefit from the block exemption where the supplier or the exclusive buyer has a market share of more than 30%. Besides its economic objectives and consequences, the Amending Communique will inevitably cause a higher burden on the undertakings (i) whose market share is between 30% and 40% and (ii) have effectively implemented vertical restraints relying upon the revoked Communiqué. As stated within the Provisional Article 3 of the Amending Communiqué, the agreements that fell under the Vertical Block Exemption before the Amending Communiqué must now meet the individual exemption criteria set forth under Article 5 of the Turkish Competition Act. In addition, any undertaking implementing vertical restraints should consider whether an individual exemption application before the TCA is required or self-assessment would suffice for their business purposes. As a result, the workload of the TCA could unsurprisingly skyrocket.
What does the Amending Communiqué bring?
Undertakings benefit from the block exemption regime or continue to preserve their exemption for their vertical agreements if the following market share thresholds (and other criteria stipulated under Communiqué no. 2002/2 such as 5-year duration limit) are met:
- A supplier must hold a market share that does not exceed 30% in the relevant product market.
- For agreements including an obligation for supply to a single buyer, the Buyer's market share must not exceed 30% in the relevant product market.
In line with this amendment, Article 6/A of the Communiqué no. 2002/2 governing the calculation and implementation of market shares has also been revised. The Amending Communique maintains the calculation method of market shares. However, the market share thresholds for assessment of the validity term of the exemption have been amended.
In case an undertaking that previously held less than 30% market share (and benefits from the block exemption under Communiqué no. 2002/2) experiences an increase in its market share, the exemption will be valid for the following terms:
- If the increased market share is below 35% - 2 years following the year when the 30% market share threshold has been exceeded
- If the increased market share exceeds 35% - 1 year following the year when the 30% market share threshold has been exceeded
What will be the consequences for the undertakings currently benefiting from the block exemption regime?
As the market share threshold is lowered by 10%, the first question that comes up concerns the aftermath of the position of undertakings that hold market share higher than 30% in their relevant product markets and that currently benefit from the vertical block exemption regime (i.e., undertakings with a market share between 30-%-40%).
The Provisional Article 3 of the Amending Communiqué calls for the undertakings stayed outside of the Vertical Block Exemption's scope due to the amendment at hand to take necessary actions to comply with the criteria applied in the assessment of individual exemption stipulated under Article 5 of the Turkish Competition Act. These undertakings have six months to check their compliance with individual exemption criteria, and decide whether to submit an individual exemption application before the TCA. Considering that the Amending Communiqué effectively entered into force by November 5th, 2021, the deadline for such undertakings to re-examine their vertical agreements and take the necessary measures is May 5th, 2022. Accordingly, until May 5th, 2022, the TCA will not apply Article 4 of the Turkish Competition Act to the undertakings whose market share is between 30% and 40% in the relevant product market.
It should also be noted that the definition of a relevant product market could differ according to the nature of each vertical agreement. Therefore, the prudent approach would be to evaluate each vertical agreement (or certain groups according to the subject) separately after defining the relevant product market and determining the market share. Otherwise, any generalized assumption regarding the main activity field of the undertakings and market share calculation could be misleading for competition law compliance purposes.
Narrowing market share cap
Market power is at the heart of the economic analysis of such agreements, and the market share cap is a useful proxy for the non-existence of the market power. Where the suppliers or the single buyers have a market share that is not exceeding 30%, the TCA strengthens the presumption that vertical agreements that do not contain certain types of restrictions improve production or distribution from which consumers derive benefit. In other words, TCA sets off a more sensitive filter for identifying the agreements that satisfy Article 5 of the Competition Law. Therefore, for the next phase, undertakings will either conduct a self-assessment or prefer to submit an individual exemption decision to TCA.
However, it should also be noted that the TCA has recently been developing a more conservative approach to evaluating individual exemption criteria. For instance, the TCA started to request numerical data demonstrating the economic efficiency gains from the vertical restraint at hand and preferred the applicant to concretize how the consumers will benefit from numerical data. Therefore, if the anticipated efficiency gains do not reflect the cost or pricing structure numbers, the TCA could appear to be more hesitant to grant individual exemption to such vertical restraints.
Concerning the foregoing, it is worth mentioning that the Amending Communique will increase the number of individual exemption applications before the TCA. In addition, the Amending Communique will also enhance the role of Article 4 of the Competition Law and create room for TCA for more intervention to the vertical agreements.
Footnotes
1. Vertical Block Exemption Regulation, Article 3
2. Çakır, Merve Özlem, Rekabet Kurumu dikey anlaşmalarda grup muafiyetini belirleyen pazar payı eşiğini yüzde 30'a indirdi, Anadolu Ajansı, 05.11.2021 (Please see: https://www.aa.com.tr/tr/ekonomi/rekabet-kurumu-dikey-anlasmalarda-grup-muafiyetini-belirleyen-pazar-payi-esigini-yuzde-30a-indirdi/2412686 )
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