Competition – Post-Brexit: What does it mean for Business?
1.
The Immediate Impact of the Referendum
UK competition policy is unlikely to change radically in the immediate aftermath of
UK vote to leave the EU following the referendum on 23rd June 2016. The UK will
remain a full member of the EU subject to its duties and obligations under the EU
treaties until it has agreed the terms of an exit treaty or two years have elapsed
(subject to any agreed extensions) from the date the UK formally serves notice of its
intention to leave the EU to the European Council (under the Lisbon Treaty Article 50
procedure), whichever is the sooner.
2.
If the UK Remains in the European Economic Area (EEA)
Many believe the EU competition rules, designed to protect the single market from
anti-competitive behaviour, abusive monopolies and state interference, are one of
the most attractive features of the EU. It provides a unitary authority in the European
Commission for pan-EU investigations of anti-competitive behaviour as well as a
“one stop shop” for merger control reviews.
A recent study by the UK Government on the balance of competences between the
EU and the UK Government found that “Overwhelmingly stakeholders consider that
the competition rules are a key pillar of the Single Market and having an effective
regime at supranational level is the best way of ensuring that there is a level playing
field for competition” (Review of the Balance of Competences between the United
Kingdom and the European Union Competition and Consumer Policy Report 2014).
If the UK remains a member of the EEA (as is currently the case with Norway,
Iceland and Liechtenstein), the price of EEA membership will include continued
observance of the “EU acquis” which is the body of EU legislation which is essential
for all members of the EEA to comply with for the proper functioning of the zone.
That includes the rules on competition. The UK would find itself bound by the EEA
equivalents to the EU competition rules (including Article 101 and 102 of the TFEU)
and EU merger control legislation in Regulation 139/2004. The UK would also
remain subject to rules on state aid prohibiting national subsidisation or assistance to
industry without approval.
In addition as part of the EEA, the UK must observe the rulings of the EFTA Court,
which closely follows the jurisprudence of the European Court of Justice and the
formal supremacy of that law to domestic competition law (although in practice UK
competition law has in any event largely developed in parallel to EU competition
law). UK law would also continue to track and observe the requirements of EU
competition law and adopt similar interpretation in the enforcement of UK
competition law. We would expect section 60 of the Competition Act 1998, which
broadly speaking requires the UK equivalents to the prohibitions in Article 101 and
102 to be interpreted in a manner consistent with equivalent EU provisions, to
remain in place.
Whether this situation would be considered favourable by the UK Government
negotiating an exit of the EU remains to be seen. The EEA option essentially
involves a continued transfer of responsibilities in respect of merger control (larger
transactions with effects in the UK would be subject to approval, prohibition or
remedy by the relevant EEA authorities, with the UK CMA forgoing jurisdiction
subject to application of the existing jurisdictional tests). Equally, the UK would not,
in practice, be able to run parallel investigations into anticompetitive conduct
affecting the UK where there was an existing European Commission investigation,
and the UK Government’s ability to support national industry through subsidy etc.
would remain subject to state aid constraints.
Whether the UK might be able to negotiate partial EEA-membership, giving the
advantages of access to the single market without acceptance of the EU acquis –
including the rules on competition remains to be seen, but this scenario appears
unlikely.
3.
A UK Outside the EEA
More radical change would only be likely if the UK decided to follow an entirely
detached policy from the EU (i.e. not being part EEA in some form). That would be
likely to lead to a loss of legal certainty within the UK competition law landscape in
the following ways:
(a)
Parallel Review of Merger decisions: The UK authorities would be
required to handle an increased workload of merger cases because,
while currently larger merger reviews with pan-EU impact are handled
at the EU-level, if the UK exited the EEA such transactions may also
qualify for review in the UK. This would result in an increase in
bureaucracy and red tape with businesses potentially having to file
qualifying transactions for merger clearance in the UK as well as the
EU where relevant jurisdictional thresholds are satisfied and there
would be a risk of divergence between the merger decisions of the EU
and the UK. This would be bad for business and a possible deterrent to
investment in the UK.
(b)
Antitrust Enforcement Objectives of the Competition and Markets
Authority (CMA): Post-Brexit, any UK business involved in
anticompetitive arrangements with an impact on trade between the
remaining EU Member States would still be subject to investigation and
sanction by the European Commission (as companies from non-EU
countries are currently). Where the conduct in issue also affects the
UK, the UK authorities would have to decide whether to run parallel
investigations under the Competition Act 1998 (or its post-Brexit
replacement). There would therefore be an extra layer of regulatory risk
for companies trading in the EU as they might face sanction in the UK
and at EU-level for the same anticompetitive conduct. Such increased
enforcement is also likely to mean UK competition regulators would
need extra resources. The UK’s criminal competition law powers
(under the Enterprise Act 2002) would not be affected by Brexit.
(c)
Differing Court Decisions: UK courts would no longer be subject to
the supra-national authority of the EU Courts, and would have freedom
to depart from European Court of Justice rulings. This loss of direct
effect of the wide body of EU case law will create some legal
uncertainty in relation to many important legal concepts. One possible
solution would be that on Brexit, EU case law at that point in time is
deemed to retain effect within UK law and/or that EU case law
developments continue to be referred to as persuasive, non-binding
precedent in UK proceedings (as they are in many other non-EU
jurisdictions). Over time, the EU and UK courts may develop different
interpretations of competition legislation even though the principles
underpinning Article 101 and 102 and the Competition Act 1998 had
common origins.
(d)
Competition Damages Claims: The UK would risk its position as a
favoured forum of EU-wide competition damages claims. The UK
(along with Germany and the Netherlands) is currently a preferred
forum for both standalone and follow-on competition law damages
claims. However, departure from EU membership is likely to create
uncertainties as to the ability of claimants to recover damages in
relation to losses suffered outside of the UK (as the directly applicable
provisions of Article 101 and 102 TFEU would lose their direct
applicability into English law). In addition, if the UK courts would no
longer be bound by findings of infringements of competition law by the
EU Commission this would make it harder for potential claimants of
damages flowing from European Commission competition infringement
decisions to bring cases as they would need to establish their case
regarding the existence of a competition law breach from first
principles. However, it will be a considerable time before these claims
begin to relate to a period when EU law was not part of English
law. Even after that, English courts will have jurisdiction on UK follow
on actions in any event. Also English courts do have a long tradition of
hearing claims arising under foreign law, where they can find
jurisdiction over the defendants, and their more extensive disclosure
rules may attract claimants whose claim is not merely a follow-on to a
European Commission decision.
4.
(e)
EU Safe Harbour Legislation: The EU block exemptions such as the
Vertical Agreements Block Exemption will cease to have direct effect
following a separation from the EU. The UK could introduce individual
block exemptions under Section 10 of the Competition Act 1998, but
doubt could remain as to the nature and scope of the parallel
legislation. The UK Government might decide upon Brexit to recognise
that existing EU Block Exemptions would remain in force in UK law (or
be transposed) to provide legal certainty to businesses.
(f)
State Aid: UK businesses, as with those throughout the EU/EEA, are
currently subject to the EU state aid rules designed to prohibit the grant
of competitive advantages, including subsidies, to particular companies
through state action, unless such as aid qualifies for block exemption
or has been notified to and approved by the European Commission.
Post-Brexit, if the UK is outside the EEA, such rules would no longer
apply to the UK, so that the UK Government would have greater scope
to intervene to support particular UK businesses. However any
bilateral trade agreements the UK enters into might restrict such aid,
and the UK can expect such aid to be badly received by the EU.
(g)
European Cooperation: Interaction with European competition bodies
will be necessary after any Brexit. Therefore dedicated cooperation
agreements will need to be entered into between the UK and the EU
and its member states. These agreements will allow for the exchange
of information and the coordination of enforcement activities by
competition authorities. Such agreements exist between the EU and
the US, Canada and Japan. However, the UK would lose its position
within the European Competition Network where it currently plays a
leading role. This might also impact on the UK’s broader influence on
the development of competition law regimes globally.
Loss of Influence
The sting in the tail for UK competition law in the context of leaving the EU, whether
this is in the shape of EEA membership of some form or entirely outside the EEA, is
that the UK Government will have less influence with the EU as the champion of free
markets and as an advocate for competition law and enforcement decisions being
based solely on competition grounds.
Those member states which advocate a greater role for industrial policy (and
designated national champions) may have greater freedom to put their policies into
practice. Indeed it has already started. The French president on 29th June 2016 in
the aftermath of the European Council meeting (the first that the UK did not attend)
called for a revision of the EU competition rules in light of the British exit from the
EU.
The UK will face a loss of influence over EU competition policy in the long term. Its
potential detriment to UK business is difficult to quantify but could be significant.
Competition Law Committee
City of London Law Society
13th July 2016
© CITY OF LONDON LAW SOCIETY 2016
All rights reserved. This paper has been prepared as part of a consultation process.
Its contents should not be taken as legal advice in relation to a particular situation or transaction.