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Brexit and competition law

22 August 2016 by Robert Bell

Brexit and competition law - read more

What could a post-Brexit competition law landscape look like?

Although much ink has been spilled on Brexit and the UK’s negotiating position, I wanted to take the opportunity to focus on the likely impact on competition law; an important consideration for companies focusing on mergers and acquisitions, as well as cross-border trade within the EU.

The EEA option

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.

If the UK remains a member of the European Economic Area (EEA) − as is currently the case with Norway, Iceland and Liechtenstein − the price of EEA membership will include continued observance of the ‘EU acquis’, 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.

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 Competition and Markets Authority (CMA) forgoing jurisdiction, subject to application of the existing jurisdictional tests.

Non-EEA options

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). This could entail:

Independent UK merger review

Currently the CMA only examines mergers under a certain size and where there is no significant pan-EU aspect. Conversely, in a non-EEA scenario, the UK authorities would be required to handle an increased workload of merger cases. Although this creates less certainty for EU business with a two track UK−EU system, the UK would gain full sovereignty and independence of its merger control procedures.

Antitrust enforcement

Post-Brexit, any UK business involved in anticompetitive arrangements which has 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.

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 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 have common origins.

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 these 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 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.

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. 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.

State aid

UK businesses, as with those throughout the EU/EEA, are currently subject to the EU state aid rules. The rules are designed to prohibit the grant of competitive advantages, including subsidies, to particular companies through state action, unless such 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 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.

European cooperation

Interaction with European competition bodies will be necessary after 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.

As can be inferred from the above, the EU’s competition law regime mostly works well for the UK and is well respected. However, we actually see the main contention being any future adherence to current state aid policies − the recent media clamour over the Port Talbot steelworks saga shows there is still some public appetite for 1970s style industrial interventions. It remains to be seen how serious the new Government is in pursuing its ‘industrial policy’, or whether this was just a populist pleasing soundbite.

Robert Bell is a Partner at Bryan Cave LLP

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