Turkiye's Digital Markets Act: Purpose and Scope
Turkiye's proposed amendments to its competition law framework, again closely modeled on European Union's Digital Markets Act
The competition law legislation in force in Turkiye is based on the legislation of the European Union. This is generally reflected in texts with the phrase "closely modeled on EU competition law."
In Turkiye, unlike in the EU, competition law is regulated by a separate law. While in the EU, competition law is regulated by the articles of the Treaty of the Functioning of the European Union, in Turkiye, it is regulated by Law No. 4054 on the Protection of Competition.
Similar to the Digital Markets Act implemented in the EU, a similar work has been carried out in Turkiye. This regulation will be made by amending Law No. 4054 on the Protection of Competition. A draft regulation for amending Law No. 4054 was shared with various stakeholders for their views on October 14, 2022. The draft law is expected to be enacted during the course of 2024.
Why introduce ex ante regulation?
The proliferation of digital markets presents unique challenges for competition law enforcement, often straining existing regulatory frameworks.
The complexities encountered in applying competition law principles to digital markets and the imperative for complementary regulations are multi-faceted .
According to the report on "The Implications of Digital Transformation on Competition Law" released by the Turkish Competition Authority in April 2023, these problems can be listed as follows:
Adaptation of Classical Market Definition Tools: Classical tools for defining markets face hurdles in the digital realm, necessitating adaptation to account for the intricacies of these markets.
Complexity of Supply and Demand Substitution Assessments: Assessing supply and demand substitution in digital markets becomes more intricate due to the diverse and dynamic nature of digital business models.
Impact of Dynamic Business Models on Market Typology: The ever-evolving nature of digital business models complicates the typology of markets, making it challenging to categorize them within traditional frameworks.
Adaptation of Indicators to Digital Market Dynamics: Traditional indicators of market power must be adjusted to align with the unique dynamics of digital markets, ensuring accurate assessments.
Challenges in Determining Market Shares for Each Platform: Accurately determining market shares for digital platforms requires bespoke methodologies due to the fluid nature of market dynamics.
Reliability Issues with Market Share Data: Reliability concerns surround market share data in digital markets, necessitating a cautious approach in relying on such data for competition assessments.
Challenges in Understanding and Addressing Anti-Competitive Actions: Temporal challenges hinder the swift identification and remediation of anticompetitive conduct in digital markets, risking irreversible market distortions.
Uncertainty in Categorizing Violations: The rapidly evolving nature of digital markets introduces uncertainty in categorizing violations, often necessitating novel interpretations of competition law.
Expansion of Competition Problems Beyond Conventional Theories: Digital markets challenge conventional competition theories, necessitating the exploration of new paradigms to address emerging competition issues effectively.
Difficulty in Designing Solutions to Address Identified Violations: Designing effective remedies to address identified violations in digital markets poses significant challenges due to the unique characteristics of these markets.
Challenges in Implementing and Monitoring Solutions Effectively: Implementing and monitoring remedies in digital markets require careful consideration and robust mechanisms to ensure their effectiveness.
Limitations in Retroactively Correcting Market Effects of Violations: Retroactively correcting the market effects of violations in digital markets is often constrained by the irreversible nature of market distortions.
Recognition of Inadequacies in Competition Law: Acknowledging the inadequacies of existing competition law frameworks in addressing digital market challenges is crucial for fostering effective regulation.
Need for Introducing Complementary Regulations: There is a pressing need to introduce complementary regulations tailored to the specificities of digital markets to address gaps in competition law enforcement.
Global Trend Towards Proactive Competition Regulation: A global trend towards proactive competition regulation reflects the recognition of the urgency in addressing digital market challenges through comprehensive regulatory frameworks.
Observations on the Board's Reviews and Decisions: Recent decisions by regulatory bodies predominantly focus on addressing abuses of market power by resident undertakings in digital markets.
Focus on Abuse of Market Power by Dominant Undertakings: Regulatory scrutiny often centers on resident undertakings abusing their market power, particularly under Article 6 of Law No. 4054.
Purpose of the Draft
The purpose of the legislative amendment is to establish and protect competition in digital markets in an ex ante manner. This includes imposing obligations on major providers of core platform services, monitoring compliance with these obligations and granting authority to the Competition Authority for enforcement. Sanctions will be determined for non-compliance with obligations.
The obvious contradictions
The evolution of digital markets has prompted regulatory reforms to ensure fair competition and consumer protection. In this context, the draft legislation aimed at enacting ex ante regulations in Turkiye represents a pivotal step towards addressing the challenges posed by digital platforms. However, amidst the push for regulatory overhaul, inherent contradictions within the proposed framework warrant careful consideration.
Do we really need brand-new theories of harm?
One notable contradiction arises from the need for new theories of harm to effectively regulate digital markets. While acknowledging the inadequacies of current approaches, the introduction of novel criteria introduces a layer of legal uncertainty. While current theories of harm may prove inadequate to address the complexities of digital markets, introducing new theories of harm could exacerbate legal uncertainties.
For instance, the concept of self-preferencing poses challenges within competition law. The Competition Authority may still undertake investigations without ex ante regulations, as evidenced by recent cases. However, the absence of clear guidelines on what constitutes a violation could lead to ambiguity for enterprises navigating the regulatory landscape.
The emergence of new theories of harm introduces legal uncertainties
The necessity for new theories of harm highlights the evolving nature of digital markets. However, the potential for any market behavior to be labeled as a violation introduces legal uncertainty. Despite some behaviors being outlined in draft Article involving ex ante rules (6/A), the lack of comprehensive criteria may result in enterprises facing challenges in understanding their compliance obligations.
What if ex ante regulation ends up being slower?
Efforts to expedite regulatory interventions through ex ante regulations may inadvertently prolong investigation processes. Despite the intent to streamline procedures, the requirement for similar investigation protocols in cases of non-compliance may lead to extended timelines for enforcement. Thus, there exists a paradox where attempts to enhance regulatory efficiency may result in unintended delays in addressing anti-competitive behaviors.
The current procedural framework may contribute to delays in intervention. While ex ante regulations aim to streamline processes, the requirement for similar investigation procedures in case of non-compliance paves the way to an investigation, following traditional procedures. Thus, there is a paradox where efforts to expedite regulatory action may inadvertently lead to extended timelines for enforcement.
Does ex ante regulation truly align with the spirit of competition law in force?
Despite aligning the legislative changes with the foundational principles of competition law, certain modifications may deviate from established norms. Previously, dominant enterprises could provide “justifications” based on objective necessity or efficiency. However, under the proposed amendments, this avenue is closed, introducing a departure from established practices. Although Article 8/A allows for a “justification” defense, clarity regarding its applicability within the ex ante regulatory framework is essential.
In conclusion, while the draft legislation signifies a proactive approach towards regulating digital markets, inherent contradictions necessitate careful deliberation. Addressing these contradictions is crucial to ensuring that the regulatory framework strikes a balance between fostering innovation and safeguarding competition in the digital age.
How will the “purpose” of the current act be revised?
The first provision of the Draft reads as follows:
"The purpose of this Law is to prevent, by making necessary regulations and inspections, agreements, decisions, or practices that restrict, distort, or impede competition in the markets for goods and services, as well as the abuse of dominance by undertakings dominant in the market or the abuse of significant market power by undertakings in terms of core platform services, thereby ensuring the protection of competition and the establishment and preservation of a fair and competitive market structure in core platform services."
The purpose of the Law's first article has been expanded to include the prevention of abuse of significant market power by undertakings in terms of core platform services, in addition to the abuse of dominance by undertakings dominant in the market. Furthermore, the aim of establishing and preserving a fair and competitive market structure in core platform services has been added to the same article.
The rationale of the relevant article refers to the irreversible competition problems that undertakings with significant market power can cause, citing the weak competitive power of users of digital services and information asymmetry.
The scope of the objective of establishing a fair and competitive market as included in the Draft remains open-ended. It is unclear whether this objective aligns with the spirit of Law No. 4054, whether it deviates from the objective of establishing a competitive market and if it does differ, in what way it differs. Moreover, it can be said that the Draft, in aiming to establish a fair and competitive market, actually intervenes structurally in the market.
Indeed, the Draft provides a wide range of interventions extending to the transparency of contractual terms of platforms with significant market power. In this regard, the general rationale of the DMA (see para. 31-35) can serve as a reference point.
How will the “scope” of the current act be revised?
An additional provision has been added to the second article regulating the scope of Law No. 4054, stipulating that behaviors prohibited for undertakings with significant market power providing core platform services to end-users or business users resident or located in the Turkiye will fall within the scope of Law No. 4054, as well as the obligations imposed on such undertakings.
As stated in the rationale of the relevant article, this provision emphasizes that the actions of digital platforms serving end-users located in Turkiye, the majority of which operate globally and are not headquartered in Turkiye, will also be covered by Law No. 4054.
Undertakings providing at least one core platform service in Turkiye are obliged to fulfill technical and administrative requirements to facilitate on-site inspections by the Authority. Failure to do so is considered an obstruction of on-site inspection and leads to the imposition of an administrative fine amounting to 0.5% of the undertaking's turnover.