On 29 March 2017, the UK Government served formal notice under Article 50 of The Treaty on European Union to terminate the UK's membership of the EU. The statutory two year deadline by which the EU Treaties will cease to apply to the UK has been extended by agreement from the initial deadline of 29 March 2019 until 31 October 2019. The possibility of a no-deal Brexit at the end of October still remains. This article sets out the implications of Brexit on UK competition law both in the event of a Withdrawal Agreement being approved by the UK Parliament or alternatively in the event of a no-deal Brexit.

State of Play of Brexit negotiations

The UK/EU Withdrawal Agreement (the "Withdrawal Agreement") was settled by the EU and UK negotiating teams on 14 November 2018. It was approved by the EU Council but has been rejected by Parliament in three separate "meaningful votes" of the House of Commons. At the time of writing, Boris Johnson, the new UK Prime Minister, is intending to re-negotiate the Withdrawal Agreement by the 31 October 2019.  

If a renegotiated Withdrawal Agreement is eventually approved by the UK Parliament, it will include provisions for a transitional period, during which EU law will continue to apply in the UK. The existing Withdrawal Agreement includes an outline of a future UK/EU relationship agreement, in the form of a political declaration, to be negotiated during the transitional period. For the purposes of this article, we assume that this feature would remain in a renegotiated Withdrawal Agreement. If a renegotiated Withdrawal Agreement is not approved by the UK Parliament by the extended deadline, then in the absence of an agreed further extension, this will result in a "no deal" or "hard" Brexit scenario, and EU law will cease to apply in and to the UK on exit day. For a fuller explanation of the existing draft Withdrawal Agreement, please see: Finalisation of the UK/EU Withdrawal Agreement

Introduction

This article examines the impact of Brexit on competition law, one of the most visible areas of EU enforcement. We address in turn each of the main pillars of competition enforcement (1) antitrust (rules prohibiting anti-competitive agreements and abuses of dominance), (2) mergers and (3) State aid. For the purposes of this note, we are assuming that following Brexit the UK will be outside the single market (i.e. outside the European Economic Area). It is inevitable that Brexit will result in the UK Competition and Markets Authority (“CMA”) having a bigger workload than it currently does. The CMA expects to take on larger merger cases, a greater number of complex antitrust investigations (sometimes in parallel with the Commission) as well as the enforcement responsibility for State aid rules across the UK.

The European Union Withdrawal Act 2018 (the "Withdrawal Act") will repeal the European Communities Act 1972 ("ECA 1972") as from Brexit day (or from the end of the transitional agreement if the Withdrawal Agreement were approved by the UK Parliament). It also includes provisions to convert the existing body of currently directly applicable EU law into domestic UK law, by means of statutory instruments. This will mainly apply to EU Regulations which would otherwise cease to apply on Brexit, and also to statutory instruments implementing EU Directives, where the statutory instruments were adopted pursuant to the ECA 1972 and would otherwise fall away on repeal of that Act.  For a fuller explanation of the EU Withdrawal Act, please see: The European Union (Withdrawal) Act 2018

On 29 October 2018, the Government published the Competition (Amendment etc.) (EU Exit) Regulations 2019 (the "Competition SI"), which has since been approved by the UK Parliament. The full text of the Competition SI is available here and is accompanied by an explanatory memorandum (available here). It makes legislative revisions adapting the EU competition regulations to become a set of domestic competition regulations in the event of a no-deal exit (and will only come into force in this eventuality).  It revokes the EU procedural regulations and revises the substantive regulations including block exemptions by removing specific EU or inter-State references.

On 8 August 2019, the Department for Business, Energy & Industrial strategy (“BEIS”) published a guidance page (available here) with further details on the implication of a no deal Brexit to ongoing antitrust investigations and merger enquiries. We have distilled the key points in the box below.

In the event of a no-deal:

 

è Businesses will only be affected if they are the subject of an ongoing investigation or considering a merger transaction.

 

  • Antitrust - Businesses subject to an ongoing investigation at the point of exit should take legal advice on how to comply with parallel investigations.

  • Merger control - Businesses involved in live EU merger investigations with UK aspects, should contact the CMA and the European Commission to find out if they need to make parallel notifications.

 


1. Antitrust

It is important to note that the EU competition rules (Articles 101 and 102 TFEU) will continue to apply post-Brexit to agreements or conduct of UK businesses that have an effect within the EU, in much the same way as agreements or conduct of US and Asian businesses are currently subject to EU competition law where their agreements or conduct affect EU markets.  A UK participant in a global cartel will therefore continue to face investigation and fines by the European Commission.

One key difference, however, is that the Commission will have no power to carry out on-site investigations (dawn raids) in the UK, nor to ask the CMA to do so on its behalf.  The Commission's powers of investigation would be limited to making written requests for information, as it currently does on a regular basis to businesses based outside of the EU.

The impact will mainly be felt in relation to the enforcement of competition law by the UK authorities.  The substance of UK competition law is very similar to that of EU competition law, and there is currently a statutory requirement (section 60 of the Competition Act 1998) to interpret the UK competition rules in a manner consistent with competition case law of the European Court of Justice.  Section 60 is revoked by the Competition SI and in its place a new provision, section 60A, is inserted with effect from Brexit.  The new section 60A merely requires the CMA and courts to avoid inconsistency between their decisions and EU law and the decisions of the European Court of Justice before exit day.

UK courts will no longer have the facility of referring questions of interpretation of EU law to the European Court of Justice, currently an important driver of consistency in interpretation, and that is likely to gradually lead to divergence.

EU block exemptions for categories of agreements such as distribution and technology licences currently give rise to a "parallel exemption" from the UK prohibition. In the event of a no deal Brexit, the Withdrawal Act and the Competition SI will retain the block exemptions with their current expiry date in adapted form removing specifically EU references (except for the insurance block exemption which is revoked by the Competition SI). Following exit day they will in this way give "retained exemptions" from domestic prohibitions so agreements that currently benefit from such parallel exemption will continue to benefit from a retained exemption in the UK.

Following Brexit there will be a greater chance of parallel investigations by UK and EU authorities, including the possibility of UK criminal investigations in parallel with European Commission cartel investigations. When the UK authorities are no longer required to apply EU law following Brexit, the UK Government could potentially decide to diverge more significantly.  For example, it might possibly adopt a prosecutorial approach to competition enforcement.  This is a longer term prospect, however.

Some procedural interactions will also no longer apply, so for example cartel members will not be able to safeguard their position in national queues for leniency by submitting "short form" national applications in conjunction with a full EU application.

CMA guidance published in March 2019 sets out the implications for “live investigations” in the event of a no deal exit. These are summarised in Table 1 below.

For any investigations opened after exit day, only the Competition Act 1998 prohibitions will apply in relation to both pre- and post- Brexit UK conduct. The CMA will no longer enforce Articles 101 or 102 TFEU.

Table 1:

Investigations conducted by the European Commission prior to exit day

 

European Commission has reached an infringement decision

 

CMA will not be able to open an investigation into the infringements unless the decision is subsequently annulled.

European Commission has not reached a decision

CMA will no longer be prevented from conducting its own investigation into breaches of UK competition law which occurred before or after exit day.

 

Investigations with an EU element conducted by the CMA prior to exit day

 

CMA has not issued a decision

CMA may not be able to continue investigating any EU elements of the investigation. The investigation will be continued on the basis of UK Competition Act 1998 only.

 

A further important effect of Brexit in the field of private enforcement of competition law is that companies will no longer be able to rely on European Commission infringement decisions as a basis for bringing follow-on claims for damages in the UK courts. However, such follow-on damages claims will in principle still be possible in the UK courts in respect of European Commission decisions made before Brexit.

2. Merger control

Under current EU rules, mergers that satisfy the EU filing thresholds must be notified to the European Commission.  They require no clearance by or notification to the national competition authorities of the EU Member States, although national authorities can seek to have specific national aspects of mergers referred back to them, and retain a tightly circumscribed right to protect certain national interests. This "one-stop shop" will disappear in the UK, so mergers – whether of UK or foreign businesses – that meet both UK and EU thresholds will face scrutiny under both systems.  The Competition SI revokes the EU Merger Control Regulation in the UK with effect from Brexit.

Following Brexit, the UK will not be able to seek a reference back of the national dimension of an EU merger, so although it could apply its own merger control rules in such a case, it will do so in parallel with the Commission rather than in its stead. This effectively means that the CMA will have jurisdiction over much larger mergers than at present as – most large mergers are currently dealt with by the Commission alone. Parallel reviews will also raise the possibility - probably in practice relatively rare – of one authority permitting and the other blocking a merger, or of diverging remedies. In this area, Brexit now appears certain to result in an increased number of filings, and therefore a greater burden for businesses.

It must be noted that mergers involving UK businesses which satisfy the EU Merger Control Regulation criteria in the EU27 will still need, under EU law, to be notified to the European Commission and the parties will still need to submit to EC investigation, even after Brexit.  Mergers caught by the EU Regulation's provisions as they apply in relation to the EU territory will still be subject to EU jurisdiction.

In March 2019, the CMA published guidance on the effect of a no-deal Brexit on merger control cases which are “live” on exit day. We summarise the position in Table 2 below. After exit day, the CMA will be able to formally investigate any mergers which meet the jurisdictional requirements, regardless of whether the merger has a Community dimension under the EUMR. Mergers will therefore be subject to review by both the CMA and the European Commission. The CMA may co-ordinate merger reviews relating to the same or related cases with the European Commission and/or other national competition authorities and we expect increased communication and co-operation between the competition authorities.

Table 2:

Cases under review by the European Commission prior to exit day

 

European Commission has issued a decision

 

The CMA will have no jurisdiction over the merger unless the decision is annulled following an appeal.

European Commission has not issued a decision

 

The CMA has jurisdiction to review the merger and its effects within the UK if the jurisdictional requirement are met.


3. State aid

The third key pillar of EU competition law is State aid. The rules apply only to Member States and prohibit Member States from distorting competition by granting aid to specific businesses.

The UK Government has stated in a notice published on 13 September 2018 that, in a "no deal" Brexit scenario, the CMA will take over the role of State aid enforcement and supervision for the UK and that the EU State aid rules will be transposed into UK domestic legislation under the Withdrawal Act. Draft State Aid (EU Exit) Regulations were published on 21 January 2019 which lay the grounds for a UK State aid regime. The CMA published State aid guidance on 4 March 2019 setting out its role in the event of no deal.  The rules will be kept as closely aligned to the Commission’s procedural rules as possible to ensure continuity for businesses. This will include the adoption of similar State aid block exemptions to those which apply under EU law.

Existing EU approvals of State aid and the application prior to Brexit of EU block exemptions will remain valid and will be carried over into UK law.  State aid by a UK public authority to any undertaking will require notification post-Brexit to the CMA where it would previously have been notifiable to the European Commission. In the event of no deal Brexit, the CMA will accept notifications of State aid from the point at which the UK leaves the EU.  UK State aid which has been notified to the European Commission but on which the Commission has not yet made a decision will need to be re-notified to the CMA.

Conclusion

The full effects of Brexit in the field of competition enforcement will take some time to emerge. There will be an immediate risk and likelihood of parallel investigations in, respectively, the antitrust and merger control fields, with an increased burden to businesses. There will also be some risk of divergent outcomes, although EU case-law is likely to remain influential in practice for some time.

This article is part of our Brexit series

 
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