Saudi Arabia: New guidelines aim to boost competition

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Directorate General of Competition (“authorityThe Saudi Arabian Competition Authority (Saudi Arabia) recently issued new guidelines aimed at promoting competition in the supply and sale of school uniforms and related items. The guidelines cover all related equipment, including uniforms, desks, chairs and other necessary supplies. The guidelines are part of the agency’s ongoing efforts to strengthen consumer protection and competition law in the Saudi market.¹ (“law“) in Saudi Arabia.

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1. background
2. Scope of application
3. Prohibition on the supply and sale of school uniforms and related items
4. Obligations to consider when issuing school uniforms

• In 2023, the authority received several complaints from parents of students at private and international schools in Saudi Arabia, alleging that they were obliged to purchase uniforms from exclusive suppliers selected by the schools.
• The Authority found that some schools had signed exclusive agreements with suppliers for the sale of uniforms for periods ranging from 5 to 15 years. Such exclusive agreements prevented other suppliers from entering the market and selling uniforms to parents; this resulted in increased costs for parents and raised quality and pricing issues.
• “To address this issue and ensure continued fair competition in the education sector, the Bureau has decided to prohibit schools from appointing exclusive suppliers to promote market competition and provide parents with a variety of choices when purchasing school uniforms. The Bureau’s aim is to protect consumer rights and help parents make informed decisions when purchasing school uniforms.”

The guidelines specify that school uniforms and related items/accessories are considered to be ancillary markets (i.e. aftermarket) of educational institutions, as school uniforms are compulsory to wear during school hours. Therefore, each school is considered to be dominant in the market for “supply, distribution and sale of school uniforms and related items”, as schools determine their own (i) specifications, (ii) sales mechanisms and policies, and (iii) sales outlets for their school uniforms.

Prohibited conduct by dominant entities includes:

• Setting prices or conditions for the sale or resale of goods or services (i.e. price fixing); and
• Bundling/tying unrelated products.

The prohibitions on the conduct of dominant entities apply to all educational institutions, manufacturers and suppliers of school uniforms and related items. All relevant entities operating in this market are required to comply with the issued directives and instructions.

1. Bundling/tying unrelated products

Bundling of unrelated products (i.e. requiring the purchase of additional unrelated products) limits students’ ability to choose the items that are best for them when purchasing school uniforms. Forcing students to purchase a complete set of uniforms or their accessories (e.g. sportswear) is prohibited.

For example, the school requires parents to purchase a complete set of school uniforms from a specific distributor/retailer and prohibits parents from purchasing school uniforms individually according to the actual needs of their students.

2. Price manipulation

Fixing the retail prices of school uniforms and related items by distributors/retailers is a violation of Section 5.1 of the Competition Act. This restricts the ability of distributors/retailers to set their own prices, thereby hampering fair competition between suppliers and buyers.

For example, a school enters into an agreement with suppliers A, B and C to manufacture/supply/distribute school uniforms respectively and to determine the retail price of the uniforms, or to set a minimum resale price.

3. Selling school uniforms and related items only on campus or through exclusive suppliers

This violates Section 6.7 of the Competition Act as it restricts (i) the ability of other suppliers and manufacturers to compete on that market and (ii) the choice of consumers to choose the most appropriate product in terms of quality and price.

4. An agreement between a school and a supplier that stipulates that the supplier will exclusively produce and supply school uniforms and related items through specific channels

• This is in violation of the Minister of Education Circular No. 38742779, which prohibits such agreements to prevent the emergence of monopolies in this market. Such agreements restrict students from freely choosing suppliers of different prices and/or quality that best suit the students.

For example, a school enters into an agreement with a supplier to produce and supply school uniforms, and stipulates that students can only purchase school uniforms from this supplier through the school.

• All entities active in the market for the “supply, distribution and sale of school uniforms and related articles” must refrain from the anti-competitive practices described above (or any other similar practices) and must comply with the following provisions:

1. The design, shape, color, intricate pattern or embroidery of school uniforms should be available from multiple sources.
2. School uniforms must be available at multiple sales outlets.
3. Schools shall publish a description of their uniforms at least ninety (90) days before the start of the school year.
4. Students must have the option to purchase uniforms as a whole or piece by piece (not in bundles).
5. Schools should not fix prices at the point of sale or set a minimum retail price.
6. The school logo should be provided separately (and charged a nominal fee) so that students can sew it on later if needed.
7. Schools should deal with all relevant manufacturers, suppliers and distributors unless there is a valid reason.
8. The school may not enter into exclusive agreements with any manufacturer, supplier or distributor.

For more details on Saudi competition law and its practical impact on your business in Saudi Arabia, please feel free to contact our Saudi Antitrust and Competition team.

* Trainee lawyer Ruwaa AlAbdullatif contributed to this Legal Update.

1 The Competition Law was promulgated by Royal Decree No. M/75 dated 29/6/1440 AH (corresponding to 6/3/2019), and its Implementing Regulations were promulgated by Resolution of the Board of Directors of the Authority dated 25/1/1441 AH (corresponding to 24/9/2019).