Brexit: what would it mean for the UK competition law landscape?
EU and UK competition law
The objective of competition law in the European Union („EU‟) has been the protection of the Single
Market using undistorted competition to create a level playing field and remove any artificial barriers
which threaten the foundation of that system.
EU law is supreme to domestic legislation, and member states must give full effect to EU provisions even
at the expense of conflicting national legislation, such supremacy confirmed in the United Kingdom
(„UK‟) by the European Communities Act 1972 („ECA 72‟).
The EU has exclusive competence over the establishment of the competition rules necessary for the
functioning of the internal market1. Competition law in the UK is centred on the Competition Act 1998
(„CA 98‟) and the Enterprise Act 2002 („EA 02‟). These statutes and supporting secondary legislation
fundamentally reflect the EU regime, and in their application of national competition law to activities
falling within Article 101(1) and Article 102 Treaty on the Functioning of the European Union („TFEU‟),
the UK‟s national courts and competition authorities must also apply that corresponding EU law2.
Options for the UK on Brexit
There has been much debate on the options for the UK in the event of an exit from EU membership,
essentially amounting to three possibilities; becoming a member of the European Free Trade Association
(„EFTA‟), following Switzerland‟s model of EU interaction, or restoring all sovereign powers to the UK.
The least disruptive option may be to join Iceland, Lichtenstein and Norway in the EFTA and re-join the
European Economic Area („EEA‟) through membership of EFTA. This would allow the UK to continue
its access to the Single Market but it would remain bound by EU competition law while losing any power
to influence the EU legislative process as a member state.
The second option is for the UK to adopt a Swiss style approach to EU interaction. Switzerland is neither
a member of the EEA nor EFTA but employs bilateral treaties to legislate its relationship with the EU.
This gives the opportunity for the UK, like Switzerland, to negotiate agreements in which it retains EU
competition law albeit with the caveat that it will remain outside any decision making circle. Extrication
of the UK from the constraints of EU competition law would however, depend upon unrestrained UK
bargaining power which is unlikely.
The final option for the UK is a complete detachment from the EU. In such a scenario, directly effective
EU legislation including the TFEU and Regulation 1/2003 would cease to apply and the ECA 72 would
need to be repealed or amended. This transition may offer the opportunity to modify the current UK
competition law regime.
Given that on the materialisation of this final scenario the UK will gain the greatest freedom to alter its
competition law landscape, it is on this outcome that this essay will focus, initially examining general
impetus to change before looking at the impact of such a Brexit on state aid, mergers and antitrust policy.
1
Article 3(b) Treaty on the Functioning of the European Union.
Article 3(1) Regulation 1/2003/EC on the implementation of the rules on competition laid down in Articles 81 and
82 of the Treaty.
2
UK and competition policy
The UK government in 2014 concluded that, in respect of competition law, competence should remain at
the EU level in order to best create the level playing field required for the creation of the Single Market 3.
However, following a complete Brexit, this will no longer be an objective for the UK.
Since the Treaty of Rome, competition law in the EU has been based upon the principle of undistorted
competition, a belief also propagated in the UK. The UK has defended this notion as a foundation of
competition law against attempts by other member states to introduce more protectionist policies, indeed
it has been noted that the UK took this position during the negotiations to the Lisbon Treaty4.
The UK took this stance even before implementing CA 98 and EA 02. That the introduction of the
current UK competition law regime only occurred relatively recently has been described as “perplexing
given that the UK has been a primary exponent of the neoliberal philosophy that places faith in markets
as the most efficient means of allocating resources”5. These domestic reforms were not the result of EUrequired harmonisation, but a decision of the UK government to improve a competition system which was
“widely disparaged and not well understood” and with the intention of reducing the dual regulatory
burden on British businesses6. UK competition law has also developed independently of EU influence,
for example with the introduction of the criminal cartel offence7.
Together with the unilateral development of UK competition law, the similarity in the underpinning
ideologies to the two regimes suggests there may be a reluctance to amend the substantive UK
competition law on Brexit, the government noting “it is worth observing that the UK has generally taken
a position closely allied to the Commission on competition issues, so it ought not to be assumed that the
UK would take a different view on the points, were it to have competence” 8.
However, a conclusion the similar underlying philosophies of UK and EU competition law will dissuade
any substantive change to the UK landscape is dependent upon retention of such status quo in the EU.
Currently, the UK has a strong involvement in the development of EU competition policy, for example
the Competition and Markets Authority („CMA‟) co-chairs the EU mergers working group. Upon Brexit
the UK would no longer be entitled to such a position and would also lose its place on the European
Competition Network („ECN‟), the organisation that coordinates competition policy with the
Commission. The UK‟s standing on the world stage is also likely to suffer. The EU is represented
amongst the co-chairs of the majority of the International Competition Network („ICN‟) working groups,
so has a “proactive role” in shaping global competition policies9. Loss of EU membership would remove
the ability of the UK to indirectly control the direction of world competition policy by virtue of the EU‟s
position.
As discussed, the UK has promoted a liberal pro-competition approach to competition policy both
domestically and within the EU. However, other member states endorse protectionism and intervention
(as illustrated by French dialogue during the Lisbon Treaty negotiations). Should these influences grow
in the absence of UK pressures, the UK government may be persuaded towards a comparable approach to
3
Paragraph 4.46, Review of the Balance of Competences between the United Kingdom and the European Union
Competition and Consumer Policy Report.
4
http://www.cer.org.uk/insights/what-would-brexit-mean-eu-competition-policy
5
https://www.lse.ac.uk/collections/law/wps/WPS2009-09_Scott.pdf
6
https://www.lse.ac.uk/collections/law/wps/WPS2009-09_Scott.pdf
7
Section 188 Enterprise Act 2002.
8
Paragraph 3.20, Review of the Balance of Competences.
9
http://www.keepcalmtalklaw.co.uk/why-brexit-may-not-be-worth-it-a-competition-law-perspective/
shield UK industry from competitive advantage conferred by European protectionism. Indeed, free from
EU law restraints, the UK may move in such direction regardless, in an attempt to safeguard national
champions operating in a new post-Brexit economic environment.
Change demanded by Brexit
Even without change to substantive UK competition law, the practicalities of divorcing the UK regime
from that of the EU will result in uncertainty within the UK competition law landscape. For example, the
Vertical Agreements Block Exemption Regulation („VABER‟) will cease to have direct effect following
separation from the EU. There is doubt as to the future of the parallel provision in section 10 CA 98 in
such a situation; whether the exemption will be removed within the UK, the reference to VABER will
remain valid through a UK enactment, or a new mirror provision will be drafted into UK law. There will
also be necessary drafting amendments to any retained legislation assigning roles to the Commission or
other EU bodies, whether by umbrella legislation or piecemeal amendment.
Interaction with European competition bodies will still be necessary post Brexit. Therefore, dedicated
competition cooperation agreements must be entered into between the UK and the EU and its member
states. These agreements will allow for exchange of information and co-ordination of enforcement
activities by competition authorities. Such agreements already exist between the EU and the US, Canada
and Japan amongst others so it is improbable that the EU would not enter into similar arrangements with
the UK. However, these co-operation agreements exclude the exchange of confidential information. In
practice therefore, the sharing of information obtained through formal investigations is prohibited without
the specific consent of the companies involved10, placing restrictions on future inquiries into cross UK/EU
competition law breaches.
The enforcement priorities of the CMA currently mirror those of the Commission, however, upon
divergence of competition law there is a question as to the extent to which this may continue, particularly
if competition law in the UK becomes a tool by which UK companies are strengthened against postBrexit European pressures. The system utilised by the CMA in their enforcement is unlikely to be
subject to change however. Although judicial or prosecutorial systems operate in other member states,
given the UK decided against these following consultations on reform of the UK competition regime in
2011/1211, any change in such a direction post Brexit would be surprising.
If the EU legislative landscape is retained on exit from the EU, it is likely that issues will arise on
interpretation of that law. As a consequence of Brexit, the UK national courts will no longer be required
to interpret domestic law consistently with the EU, even if it that law is preserved EU law. The EU and
UK courts have differing approaches to the interpretation of legislation. The former utilise a purposive
approach whereas the latter favour a literal interpretation. The UK courts will also no longer have the
option of requesting guidance on interpretation with a preliminary reference12. Therefore, if the UK
courts choose to follow a diverging path, discrepant interpretations of parallel provisions may potentially
arise. Such conflict may cause practical problems of implementation for companies active across the UK
and EU and, to ensure the stability of those UK companies, the UK courts may choose to give effect to
EU interpretations even though no longer bound to do so.
10
http://uk.practicallaw.com/5-422-5178?source=relatedcontent
Paragraph 2.14 Review of the Balance of Competences.
12
Under Article 267 Treaty on the Functioning of the European Union.
11
State aid
The development of state aid rules in the EU has extended activities deemed to come within the regime
under Article 107(1) TFEU, such activities being tightly controlled at Commission level due to the
potential of state aid to distort normal market competition. Competence at EU level for state aid has been
deemed appropriate13, but following Brexit any remaining competence will necessarily shift to the UK
government. This does not automatically mean the UK government would seek to exploit new freedoms
to champion UK businesses. The UK has a history of constrained non-crisis spending, and even when
more flexible rules were in force during the financial crisis, it neglected to grant large amounts of state aid
in respect of the real economy14.
The state aid regime has been instrumental in helping the UK to rein in more industrially active member
states15, but on Brexit the UK would lose ability to challenge Commission decisions or complain about
abuses of the regime. Together with the risk, as discussed above, that protectionist and interventionist
tendencies may prevail in Europe, this may trigger a new willingness of the UK government to relax state
aid restrictions.
Antitrust and mergers
The UK introduced a comprehensive merger regime in 196516. In comparison, merger control was only
introduced on an EU level in 1989 and the UK regime has remained “relatively uninfluenced” by that of
the EU17, suggesting UK merger law is unlikely to be altered post Brexit.
The UK will however lose the right to influence EU merger control with an Article 9 request18 or even to
give submissions to the Commission on potential detriment to a UK business from a merger by two of its
EU competitors. Therefore, the government may feel inclined to give advantages to UK businesses via
different routes, such as state aid discussed above.
The current parallel merger system is described as a „one stop shop,‟ that is, mergers either fall within the
EU regime or the UK regime but not both, an approach terminated by an exit from the EU and likely to
result in greater legal uncertainty through the increased risk of contradictory decisions if both the UK and
EU authorities must give merger clearance to a single transaction. Such altered procedure is also likely to
place a greater burden on the CMA and UK national courts. Over the last decade, the Commission has
been notified of over 3000 mergers while the UK competition authorities have issued decisions on
approximately 1000 transactions19. It is foreseeable therefore, that post Brexit, a proportion of the
Commission‟s workload will also fall on the UK authorities necessitating an increase in dedicated
competition resources.
The UK authorities are also likely to feel the increased weight of antitrust cases post Brexit. Of the
antitrust cases of which the ECN was informed during the last decade, 77 were dealt with in the UK and
281 by the Commission20. Currently, EU wide infringements involving the UK are investigated by the
13
Paragraph 4.46 Review of the Balance of Competences.
Paragraphs 2.54 and 2.56 Review of the Balance of Competences.
15
Paragraph 2.56 Review of the Balance of Competences.
16
Monopolies and Mergers Act 1965.
17
https://www.lse.ac.uk/collections/law/wps/WPS2009-09_Scott.pdf
18
Article 9 Regulation 139/2004 on the control of concentrations between undertakings.
19
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/465322/Merger_inquiry_outcomes_
-_30_Sep_15.pdf and http://ec.europa.eu/competition/mergers/statistics.pdf
20
http://ec.europa.eu/competition/ecn/statistics.html
14
Commission alone, but post Brexit concurrent CMA and Commission scrutiny will be required,
suggesting UK authorities should be prepared to handle a higher proportion of cases.
Damages actions
Together with Germany and the Netherlands, the courts of England and Wales are a preferred forum for
both standalone and follow on competition law damages claims, but this favoured position may be
threatened in the event of Brexit.
As discussed above, a departure from the EU may lead to a loss of the legal certainty that draws claimants
to England and Wales. Potentially, UK authorities may also no longer be bound by any finding of anticompetitive conduct by the Commission when considering private enforcement actions. This, together
with any doubt as to the ease with which UK judgements may be enforceable throughout a separate EU,
suggests a strong deterrent to bringing claims in England and Wales.
However, post Brexit, UK courts may become more willing to allow disclosure of leniency materials, so
potentially having a positive effect on the UK‟s position as a jurisdiction of choice. EU case law21 and
the Damages Directive22 currently provide protection for certain leniency documents in damages actions.
Given that post Brexit the UK will not be bound by EU case law nor have any obligation to transpose the
Damages Directive into national law, the courts may elect to allow greater disclosure of leniency
materials. Any increased potential to rely upon such documents would provide an incentive for claimants
to bring damages actions in the UK.
What would Brexit mean for the UK competition law landscape?
A Brexit consisting of full separation from the EU, by creating the opportunity for complete renovation,
has the potential to transform the UK competition law landscape. However, even in such a scenario there
is no stimulus for substantive change. The UK has a sophisticated competition framework that allows UK
businesses to compete globally; it is only if this security is removed by change in the direction of
competition policy in the EU and beyond, that the UK may be forced to follow the same path. Indeed, the
Law Society has stated “EU competition law, and its effective enforcement, has been one of the more
successful outcomes of EU membership for the UK”23. Why throw the baby out with the bathwater?
21
C-360/09 Pfleiderer AG v Bundeskartellamt as applied by National Grid Electricity Transmission plc v ABB Ltd
[2012] EWHC 869 (Ch).
22
Art 6(6) Directive 2014/104/EU on certain rules governing actions for damages under national law for
infringements of the competition law provisions of the Member States and of the European Union („Damages
Directive‟).
23
Paragraph 3.2 Review of the Balance of Competences.