In May 2007 European Commission launched an inquiry in the motor vehicle sector aiming to assess the evolution of the competitive landscape. Outcome of the inquiry was the Commission Regulation[1] on vertical agreements and concerted practices in the motor vehicle sector. Similar to the efforts of the Commission, in 2011 Turkish Competition Authority launched a sector inquiry into the motor vehicle industry to evaluate the effectiveness of the Block Exemption Regulation. As a result of these efforts, the new Regulation and the explanatory Guidelines have recently been promulgated in the Official Gazette and entered into force.

The Regulation in general simplifies the process of granting block exemption yet it introduces major changes as well. Companies operating in the motor vehicle sector are now required to adopt their practices and comply with these changes. Below are some of the points introduced by these new set of rules.

Equivalent spare parts

New Regulation provides a more detailed definition for equivalent spare parts whereas the usage of such parts by insurance companies remains a controversial issue. In 2015, Turkish Standards Institute (TSI) was appointed as the authorized body to determine which spare parts qualified as "equivalent". However this system did not serve expectations of increasing local manufacture of spare parts. Accordingly, manufacture of such parts decreased significantly. Subsequently, the decision of the Council of State prohibiting usage of such parts by insurance companies caused to reduce the production significantly.  As the authorization of TSI comes to an end, future of equivalent spare parts remains unknown.

Imposing non-compete obligations

Bearing in mind that the old Regulation aimed at promoting multi-branding, it prohibited all kinds of direct or indirect non-compete obligations. This ultimately ensured that suppliers in the sales and after sales markets were able to supply goods and services of different brands.

New Regulation on the other hand, not only changes the definition of the non-compete obligation but also allows the imposition of these obligations in certain cases. It makes a distinction between thresholds stipulated for the motor vehicle sales market and the after-sales market. Accordingly; direct and indirect obligations providing that the buyer shall purchase more than 80% of goods and services in the new motor vehicle sales market and 30% of goods and services in the after-sales market from the supplier, are defined as non-compete obligations.

Moreover, motor vehicle suppliers can now impose non-compete obligations on buyers during the term of the agreement. Imposing such obligations regarding spare parts distribution and repair and maintenance services is still not possible yet there is an exception.  These obligations can be imposed by spare part networks established by independent spare part suppliers and by maintenance and repair service chains during the term of the agreement. In any case, non-compete obligations should not exceed 5 years.

Excluding certain general exemption conditions

Under the previous Regulation, agreements were required to include clauses on the transfer of rights, notification of termination and the right to refer disputes. These requirements were not favored during the early discussions. This is because such clauses result in significant intervention in the contractual relationship between parties. The reason why justified termination requirement remains as a general exemption condition is a mystery given Turkish Competition Board has previously ruled that failure to comply with this requirement does not itself breach the Competition Act[2].

Amending existing agreements

Although certain assumptions are made, future effects of the new Regulation are still unknown. For the time being, it is important to note that agreements which have already been granted block examination but fail to fulfill conditions stipulated under the new Regulation should be amended until February 24, 2019 accordingly.

[1] Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector.

[2] Decision of the Turkish Competition Board dated 08.01.2009 and numbered 09-01/8-7.

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