Competition Law in Turkey
Prof. Dr. Arif ESİN

 

I. General Information and Obligations of Turkey

The liberalisation trend inclined by the globalisation process has necessitated that the trade both in the domestic and global markets should be free of unfair competition and competition abuses. The national competition laws enforce the development of the competition between nations by applying national competition rules in their domestic markets and not to allow competition abuses.

Turkey has rapidly and successfully harmonised its regulations concerning intellectual property rights and unfair competition in importation. The same success was also gained in harmonisation of the competition law.

The application of intellectual property rights and the introduction of competition law in Turkey, are the results of international obligations regarding WTO Agreement and Customs Union Decision. In fact, the articles 32, 33 and 41 of the Decision of the Association Council No. 1/95 of 6 March 1995 provide competition rules to be applied for the proper functioning of the Customs Union. These articles are actually identical with the articles 85, 86 and 90 of the Treaty (81, 82 and 86 after the Amsterdam Treaty).

Furthermore, Turkey has accepted the effectiveness of the case-law constituted by the Institutions of the EC pursuant to the article 39(2)(a) of the Decision of the Association Council No. 1/95. Thus the cases of EC Court of Justice have been adopted to the national legislation. In addition, Turkey has been obliged to adopt the new arrangements of EC concerning the competition rules to its legislation within one year.

Considering the national legislation, article 167 of the Turkish Constitution bestowed on the government the duty to take for money, credit, capital, product and service markets, measures providing and improving healthy and regular procedures to prevent monopolisation and cauterisation created as result of activity or agreement in the markets.

As a requirement of this constitutional clause, in order to prevent agreements, decisions and practices which prevent, restrict or distort competition within the markets for goods and services in the territory of Repuclic of Turkey and the abuse of dominant position by those undertakings which are dominant in the market, Turkey put into effect the Law on the Protection of Competition No. 4054 as of December 7,1994 that was published in the Official Gazette and became effective on December 13 1994. However, the appointment of the Members of the Competition Authority have been realized on March 5th, 1997 and the Competition Authority started functioning on the date of March 7, 1997.

The competition authority is the body responsible for enforcing the Law on the Protection of Competition No 4054. Article 20 includes a clause stating that while carrying out its duties, the Authorty will be completely autonomous. The Competition Board established its own internal structure and organisation, while preparing decrees pntsuant to the Law (called the second regulation). According to the legal harmonisation between the European Union and Turkey, the Competition Board shall also have the power to authorise and control state aids.

II. The Fundamental Prohibitions and the Exemption Scheme

II. The Fundamental Prohibitions and the Exemption Scheme

1.PROHIBITIONS

Law No. 4054 is based on two fundamental prohibitions:

A)Prohibition via Article 4

Article 4 of the Law No. 4054 aims to prevent the distortion of the competition by the associations between enterprises or agreements, or concerted practices between enterprises in a certain market for goods and services. Such practices and decisions are in particular;

Fixing purchase or selling prices or forming the trading conditions concerning purchase and sales.;

Sharing the markets or sharing and controlling the sources and elements of the markets;

Control the quantities of supply or demand;

Preventing the new competitors in the market or impeding the activitiesof the already existing competitors;

Applying dissimilar conditions to equivalent transactions with other trading parties;

Maintaining purchase or resale conditions;

B) Prohibition via Article 6

Article 6 of the Law No. 4054 aims to prevent the abuse of dominant position by enterprises in such a position. Such abuses may, in particular, consist of:

Preventing the new competitors in the market or impeding the activities of already existing competitors;

Applying dissimilar conditions to equivalent transactions with other trading parties;

Maintaining purchase or resale conditions;

Distorting competitionin a market by means of taking financial, technological and commercial advantages of dominant position in another market;

Restriction of production, marketing or technical development;

Two above-mentioned Articles equate to Articles 81(1) and 82 of the EC Treaty.

2. EXEMPTION SCHEME

Article 5 of the Law No 4054 (which contains the same provisions as Article 81(3) of the Tteaty) is the main exemption clause. According to the provisions of Article 5, even in the presence of an agreement, concerted practices or decisions which restrict competition, in some cases, the Board may allow exemption from the provisions of Article 4. The exemption regulation in question includes agreements, concerted practices and decisions which allow consumers to:

gain a share from the resulting benefit;

contribute to new developments and progress or technical or economic improvement in production or distribution of goods and in providing services, which do not eliminate competition in a substantial part of the relevant market, and do not induce a restraint on competition that is more than essential.

In any case, a decision for exemption is issued for a specified period of not more than five years.

Article 5 also bestows on the Board the power to issue communiqués by which certain categories of agreements are exempted as a group. Within this framework, the Board issued the following Communiqués under the foregoing principles of an exemption regime:

the Block Exemption Communiqué on the Exclusive Distribution Agreements No. 1997/3;

the Block Exemption Communiqué on the Exclusive Purchasing Agreement No. 1997/4;

the Block Exemption Communiqué Concerning the Distribution and Servicing Agreements in Relation to Motor Vehicles No. 1998/3; and

the Block Exemption Communiqué Concerning the Franchising Agreements No. 1998/7.

The Block Exemption Communiqué Concerning Vertical Agreements No. 2002/2.

Along with the The Block Exemption Communiqué put into effect by the Competititon Authority on July 14. 2002, the Block Exemption Communiqué No.1997/3, No 1997/4 and 1998/7 was annulled. Therefore, the Communiqué No 2002/2 will be binding for any system settled with the aim of the distribution of the goods in question.

A)VERTICAL AGREEMENTS and THE BLOCK EXEMPTION REGULATION NO. 2002/2
Vertical agreements are defined as agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement, at a different level of the production or distribution chain, and which relate to the conditions under which the parties may purchase, sell or resell certain goods or services.

Vertical restraints are restraints of competition contained in vertical agreements. There are three elements to this definition;

The agreement must be between two or more undertakings,

Each undertaking must operate , for the purposese of the agreement, at a different level of the production or distribution chain,

The agreement must relate to the conditions of purchase, sale or resale of services or goods. This means that vertical agreements relating to goods and services, final and intermediate, are all covered.

a)Hardcore Restrictions

The Block Exemption Communiqué in relation to Vertical Agreements, No 2002/2 contains a blacklist of vertical restraints which, if included in a vertical agreement, will mean that the block exemption cannot apply. The inclusion of any such restraint prevents the entire agreement from obtaining the benfit of the block exemption, not merely the clause or sub-clause in which the restraint is contained.

The hardcore restrictions are as follows:

Resale Price Maintenance: Restricting the buyer's ability to determine its sale price. Any agreement or restrictive practice having as its direct or indirect object the establishment of a fixed or minimum resale price level to be observed by the buyer is blacklisted. Forbidden resale price maintenance would include an agreement fixing the distribution margin or the maximum level of discount, making the grant of rebates or the sharing of promotional costs conditional on adhering to a given price level, linking a resale price to the resale prices of competitors, or using threats, intimidation, warnings, penalties, delay or suspension of deliveries as a means of fixing the prices charged by the buyer.

Resale by Members of a Selective Distribution System: Restricting the members of a selective distribution system, operating at a retail level, from making active or passive sales to end users. The dealers in a selective distribution system cannot therefore be restricted as to the users to whom they sell. A dealer ina selective distribution system may, however, be restricted as to the location of its business premises. Selected dealers may be prevented from running their business from different premises or from opening a new outlet in a different location. Selective distribution can be combined with exclusive distribution provided that active and passive sales are not restricted. The supplier may therefore limit the number of authorised resellers in a territory.

Cross-supplies Between Distributors within a Selective Distribution System: Restricting distributors within a selective distribution system from supplying goods to other distributors within the same system is blacklisted. Distributors must remain free to purchase the contract goods from other appointed distributors within the network. Selective distribution cannot therefore be combined with vertical restraints aimed at forcing distributors to purchase exclusively from a given source, such as exclusive purchasing obligations.

Access to Spare Parts: A provision in an agreement between a supplier of spare parts and a buyer who incorporates the spare parts into its own product which restricts the supplier from selling the spare parts to end users, independent repairers or service providers not entrusted by the buyer with the repair or servicing of its goods . However, the original equipment manufacturer may require his own repair and service network to buy spare parts from him.

This last hardcore restraint is the only prohibited restriction on the supplier; the other hardcore restraints relate to restrictions on the buyer.

b)Other Obligations

In addition to the hardcore restrictions described above, the Comminuqué No 2002/2 identifies a number further obligations that fall outside the scope of the block exemption. Unlike hardcore restrictions, severability does apply to these obligations, so that the inclusion of such an obligatipn will mean that the benefit of the block exemption is only lost in relatiojn to any part of the agreement from which the offending obligation cannot be severed.

The obligations in Article 5 are as follows:

Non-Compete Obligation Exceeding Five Years: Any direct or indirect non-compete obligation which exceeds five years , or is indefinite.

Post-term Non-compete Obligations: Any direct or indirect obligation preventing the buyer, after termination of the agreement, from manufacturing, purchasing or distributing the goods or services, unless the obligation:
-relates to the goods or services which compete with the contract goods or services;
-is limited to the premises and land from which the buyer has operated during the contract period;
-is indispensible for protecting substantial and necessary know-how transferred by the supplier to the buyer; and
-is limited in duration to a period of one year after termination of the agreement.
Non-Compete Obligations On Members of Selective Distribution Systems: Any direct or indirect obligation preventing the members of a selective distribution system from selling the brands of specified competing suppliers.

3) MERGERS and ACQUISITIONS

As mentioned in the Law, the merger of two or more enterprises and acquisition (except by way of inheritance) by an enterprise or by a person of another enterprise, either by acquisition of all or part of its assets or securities or other means by with that person or enterprise concerned, which creates ot strengthens the dominant position of one or more enterprises as a resullt of which competition is significantly impeded in the market for goods and services in the whole or part of the state, is unlawful and prohibited.

There are strict thresholds for mergers and acquisitions in Turkey. Where total market shares of the undetakings that are parties to the merger or acquisition exceed 25% of the market in the relevant product market within the whole territory of the country or a part of it, or even though they do not exceed this rate, and their total turnovers exceed 25 trillion Turkish lira (approximately US$40 million), it is compulsory for them to file for authorisation from the Competition Board. Market share or turnover is calculated by the sum of market shares or sum of turnovers of the undertakings (and connected undertakings) within the relevant product market.

The filing is mandatory where the thresholds are exceeded. In cases where a merger or an acquisition has not been notified, the Board, when it is informed about the transaction concerned, by any means, will investigate the merger or acquisition. Upon conclusion of the investigation:

If the Board finds that the merger or acquisition concerned does not create any problems with regard to competition issues, it wiil consent to the transaction. However, the Board can irnpose fines against the parties concerned for their failure to notify.

If the Board finds that the merger or acquisition concerned creates or stengthens the dominant position of one or more undertakings as a result of which, competition would be significantly impeded in a market for goods and services in the whole territory of state or in a substantial part of it, the Board, as well as imposing fines, may terminate the transaction.

In cases where a merger or acquisition has been closed before clearance, the Board imposes fines against the parties concerned, regardless of the final decision concerning the merger or acquisition.

In making its appraisal in a merger transaction, the Board takes into account inter alia:

the market position of the undertakings concerned;

their economic and financial powers;

the alternativea available to suppliers and users;

their opportunities for access to resources of supply or entry into markets;

any legal or other barriers to entry into the market;

supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers;

developments in the technical and economic progress provided that they are to the advantage of consumers and do not form an obstacle to competition.

When making its decision, the Board considers mainly the criteria which are directly related with competition issues. Although they play a limited role, the Board may also take into account economic and social factors.

According to the provisions of Law No 4054 and the related communique on mergers,the parties to a merger cannot give divestment undertakings. However, the Board may permit a merger or an acquisition notified on condition that remedial measures deemed appropriate by the Board are taken, and certain other obligations, determined by the Board , are complied with; thus, parties cannot negotiate undertakings with the Board. There is no sğecific premerger negotiation procedureor any other mechanism such as the Merger Task Force in the EU.

In assessing a mergeror an acquisition, the Board may, where necessary, request information from the parties to the merger as well as third parties such as the customers, competitors and suppliers of the parties, and other parties concerned with the merger; it may also invite such persons to the hearing. Third parties may also make a request to the Board to be heard, provided that they can prove their legitimate interest.

Application for a review of any of the Board's decisions and the decisions regarding the interim measures, fines and periodic penalty payments can be made to the Council of State within the specified time. The decision of the Board becomes final if no action is taken within this specified time limitation.

Turkish merger legislation does not contain special provisions for foreign investments or special sectors. Foreign investors, regardless of whether the investment is direct or with a Turkish partner, are subject to same rules and are under the same obligations as a Turkish firm.

4)INVESTIGATION PROCEDURE

A) Typical Steps In An Investigation

The Competition Board may , upon an application or upon its own initiative, instigate a direct investigation. Equally, the Board may decide on a initial investigation to determine whether a preliminary proceeding for the application is necessary. In cases where a preliminary investigation is carried out, the director appoints one or more experts from the Board's staff to act as reporters and to carry out the preliminary investigation. The reporters then have 30 days to notify the Board in writing of all relevant information and evidence, together with their views of the matter.

The Board will meet within 10 days of this report being submitted to decide whether it is necessary to initiate a preliminary investigation. If, on the basis of the information in its possession, the Board consider that there are serious and sufficient grounds, it will inform the applicants in writing of its decision and of the commencement of the proceedings.

Anyone who claims to have a direct or indirect interest may bring an action against the decision of the Board concerning an express or implied dismissal of the application.

The Board, having decided to initiate the investigation, appoints Board members, together with a reporter or reporters, and authorises them to carry out the investigation, which must be completed within six months. The Board may extend this period only once by a further six months, where it is deemed necessary.

The Board must inform the parties concerned of the commencement of the investigation within 15 days of its decision. The parties then have 30 days to submit arguments in writing relevant to their defence. Fır this submission period to begin to run, the Board must inform them of the legal grounds and the nature of the alleged infringement, together with its request for the arguments of the parties. The decision of the Board on the initiation of investigation is final.

The parties, having been informed that an investigation has started against them, can request a copy of all documents issued by the Authority and all types of evidence obtained, from the date of initiation of the investigation up to the date of the request for a hearing. It is important to note that the Board cannot base its decision on any matter about which the parties are not informed or not given the right of defence.
Those who are deemed to have infringed the Law are asked to submit their second defence in writing to the Board within 30 days. Upon the defence arguments, the experts authorised to carry out the investigation submit their additional views in writing within 15 days; these should also be notified to all the Board members and to the parties concerned who then have 30 days to reply. These periods may be extended for only once for up to another 30 days, and only in cases where the parties can show justified reasons why its should be; otherwise, replies of the parties not made within the specified timeperiod is not taken into consideration.

A hearing is held if the parties concerned have requested so in their defence or reply petitions. On the other hand, the Board may also decide on a hearing on its own initiative. The hearing is held between 30 days and 60 days of the end of the investigation stage. The invitations for the hearing are sent to the related parties within at least 30 days prior to the date of the hearing.

Hearings are held in public, though the Board may, on grounds of protecting public morality or trade secrets, decide to hold it in close session. Nonetheless, experience shows that the parties must submit strong arguments if they are to persuade the Boıard to hold a close session.

Hearings are presided by the chairman and in his absence by the deputy chairman. A hearing can only be held in the peresence of the chairman or the deputy chairman and at least seven members of the Board. Hearings should to be concluded in no more than five consequent sessions (several meetings held on the same day shall be considered as one session). The final decision of the Competition Board should be made on the same day, and if this is not possible, together with its reasoning within 15 days following the hearing.

In cases where a heraing is neitherrequested by the parties nor imposed by the Board, the final decision is given within 30 days of the end of the investigation stage.

B)The Authority's Power During the Investigation Stage

During the course of the investigation, the Investigation Committee may request information and carry out on-the-spot investigations. Within this period, the Committee may also request the parties and other related authorities to submit all necessary documents and information. The Board may also request all necessary information from all public authorities and entities, enterprises and associations of enterprises. During the investigation, any person or persons who are alleged to have infringed the law can, at nay time, submit to the Board any information and evidence that may affect the decision.

During any on-the-spot investigations, the Board is empowered to examine accounting and other books, all types of documents and other records of the enterprises or of the associations of enterprises and, where necessary, to take copies of those documents. It may also request written or oral explanations of certain issues and carry out investigations on the premises concerning the assets of the enterprises. Investigations must be carried out by experts working under the authority of the Board. These experts must carry authorisation documents displaying the subject matter and the purpose of the investigation, and the fact that administrative penalty payments shall be imposed if incorrect ijnformation is provided. Oral evidence can also be used, but testimony may have to be complelled, as the involved parties have the right to remain silent.

C)Sanctions

There are no criminal sanctions for cartel activity; imprisonment is not established as a punishment. All the fines regulated the Law No 4054 are administartive.

The Board may impose fines on natural persons or legal entities which have the status of an enterprise, and associations of enterprises and/or on the members of these ssociations in cases where incorrect or misleading information is provided in an application for clearance of a merger, in a request for information or in an on-the-spot investigation. Fines also apply in cases of failure to notify a merger or an acquisition or an agreement within the specified time period, and for the infringement of any obligations or conditions attached to an exemption decision of the Board.

The enterprises and associations of enterprises against which a Board decision is given on the infringement of the fundamental prohibitions cited in Articles 4 and 6 of the Law are fined up to 10% of their gross income for the previous financial year. In cases for where such a fine is imposed, an additional fine of up to 10% of the corporate fine may also be imposed on the individuals managing of these entities. The Board may also impose periodic penalty payments per day.

5) ADJUDICATION

A) Appeal Process

Final decisions of the Board, decisions on interim measures and on fines and periodic penalty payments can be subjected to a judicial review before the Council of State within the specified time period following the notification of the decision to the parties. The decision becomes final if no action is taken within the time limit.

Fines can be collected before the decision of the Board becomes final. The enforcement of Board decisions on fines and periodic penalty payments is subject to the provisions of Law 6183 on the Procedure for Collecting Public Credits.

B) Burden of Proof

The onus of proof is not on the Competition Board. In cases where those who have suffered damage submit evidence to the judicial authorities concerning the existence of an agreement, the burden of proving that the enterprises are not engaged in a concerted practice shall be shifted to the defendants. The same is true of cases where parties alleging damage submit evidence that competition in the market is distorted, in particular on market-sharing, stabilisation of the market price for a long period, and price increases at close intervals by enterprises in the market.

C) Private Damage Claims

Anyone who, by a decision, an agreement or a practice contrary to the Law No 4054 prevents, distorts or limits competition or abuses a dominant position in the market for goods and services must compensate persons who are damaged as a result. If damages occur as a result of the practices of more than one person, they are jointly and severally liable.

Those who have suffered damage as a result of the limitation, distortion or prevention of competition can request as damages the difference between the amount they paid and the amount they would have paid if competition had not been limited. Competitor enterprises that are affected by the distortion of competition may request all their damages from the enterprise or enterprises that distorted competition. In calculating damages, all profits that the damaged enterprises might have gained shall be taken into account the balance sheets of previous year.

In cases where damage arises from an agreement, or a decision, or from the negligence of the parties, the judge may, upon the request of the damaged parties , decide on compensation three times that of the actual damage, or three times the profit gained or likely to be gained by the parties who caused the damage.