The Trade and Cooperation Agreement will govern the future relationship of the UK and the EU. This article will examine some key areas to note for Competition law, reviewing important changes to state aid regulation and the Competition and Market Authority’s ("CMA") function.
The UK formally left the EU on 31 December 2020, signalling the end of the ‘Brexit’ transition period. Replacing the transition period arrangements is the Trade and Cooperation Agreement ("TCA"), which will govern the relationship between the UK and the EU going forward. The TCA is unique in that it is trying to control and provide a framework for regulatory divergence, as opposed to promoting convergence and harmonisation between the nations.
The overall position on competition law has remained largely the same. UK companies must comply with EU competition law where their activities may affect competition within the EU. The UK has adopted the EU block exemption regulations, which provide automatic exemptions to many commercial agreements once the relevant conditions are met. Lastly, the existing UK prohibitions on anti-competitive agreements and abuses of dominance, based firmly on Articles 101 and 102 TFEU remain in place. For the moment, the two sets of rules are expected to remain largely aligned.
However, two areas of change to be aware of are the rules governing state aid and the function of the CMA post-Brexit. These will be explored in more detail.
Revised rules to state aid
Subsidy control will be significantly changed from 31 December 2020. The TCA requires the parties to maintain independent authorities to govern subsidies, and to ensure that courts can review subsidy decisions and can order the recovery of unlawful aid. Governing principles are based on EU state aid, with some exceptions. The subsidy rules largely restate in some detail the state aid rules that currently apply in the EU (which remain applicable to aid granted by EU Member States or through EU State resources). However, the new rules in the TCA will also require the assessment of the effects of aid on trade and investment between the EU and the UK.
The CMA has provided guidance for public bodies awarding subsidies. Subsidies for services are outside the scope of the World Trade Organisation ("WTO") Agreement on Subsidies and Countervailing Measures ("ASCM"). The WTO ASCM is most likely to be relevant to subsidies in sensitive sectors such as aerospace, steel or automotive. The guidance notes that attention needs to be given to the Free Trade Agreements the UK has agreed to, including the TCA.
The TCA creates independent authorities to govern subsidies. The EU authority for this will be the EU Commission, whilst the UK authority is yet to be created. The parties must make provision for the authority to maintain an effective system of subsidy control which gives effects to the seven principles listed in Article 3.4 of the TCA. Article 3.10.1 states that courts or tribunals must be competent to review the subsidy decisions taken by the independent authority for compliance against the law implementing Article 3.4. In the event of a dispute, it appears the relevant reviewing body will be assessing the facts against the principles of Article 3.4 and the principle of transparency at Article 3.7.
Notably, action can be invoked unilaterally, without judicial intervention, where a party that considers that a subsidy granted by the other party “causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties” (Art 3.12). The other party may then engage a specialised arbitration process to determine whether there is in fact a significant negative effect.
The CMA’s function
Bird & Bird provided a thorough summary of the CMA’s function post-Brexit in November 2020. Since then, there have been some minor changes to the draft guidance, although the document remains overall the same.
While mergers initiated before 31 December 2020 with a Community dimension involving UK parties will still be subject to review by the European Commission (these being known as Continued Competence cases), the Commission will no longer have exclusive jurisdiction in respect of the UK. Mergers may therefore be subject to parallel merger investigations by the Commission and CMA. The guidance stresses the importance of cooperation between the two competition authorities in such instances. With effect from 1 January this year, the CMA may open an investigation into competition concerns which are the subject of a Continued Competence Case, insofar as those concerns relate to the effects of conduct which took place after 31 December 2020.
The latest guidance notes an update to the legal framework. This reflects the fact that references to any concepts under EU law contained in CMA guidance will continue to be understood and have effect. This will be the case unless the EU law to which these concepts relate is superseded, whether through the application of section 60A of the Competition Act (which removes the requirement to interpret UK competition law in accordance with corresponding principles of EU competition law) or by the ruling of any Court or Tribunal.
Leniency regimes will remain separate and the fact that a party has made a leniency application to the European Commission, whether before or after the end of the transition period, will not provide it with any protection from fines with respect to any UK investigation.
Consumer protection remains high on the CMA’s agenda. The CMA noted that they will continue to take an active role in international enforcement and will seek to continue to work with EU enforcers for the benefit of UK consumers.
The TCA is a living and evolving agreement, with further Memoranda of Understanding to be agreed and annexed to the document over the coming years. It will be important to pay close attention to the developments within UK competition law, as the CMA embraces its new-found independence, and arrangements are to be confirmed for the UK’s subsidy authority. However, for now, the TCA offers some clarity on the UK’s competition law position.
For more information please contact Peter Willis, Ariane Le Strat or Chloe Birkett.