Brexit implications for businesses
With less than four months to go until Brexit Day, we now have a draft Withdrawal Agreement, supplemented by a Political Declaration, and the Competition (Amendment etc.) (EU Exit) Regulations 2019 (the Regulations) which provide an outline on the future of UK competition law post-Brexit in the ‘deal’ and ‘no deal’ scenarios. As many businesses will undoubtedly want to know how they will be affected and how to prepare for both outcomes, this article sets out in simple and straightforward terms what businesses need to know to be prepared.
This note refers exclusively to the Competition and Markets Authority (CMA) for ease of reference, but it should be noted that the UK’s concurrent competition regulators will retain their concurrent Competition Act powers.
The Deal: Withdrawal Agreement (Brexit Transitional Period to 2020)
UK competition law is currently integrated into the wider EU competition law regime. The Withdrawal Agreement essentially allows for ‘business as usual’ by preserving the status quo for the duration of the transitional period, which ends on 31 December 2020. However, what will happen after that remains unclear, and could end up looking like the ‘backstop’ or 'no deal' scenarios (see below). The key implications under the Withdrawal Agreement to the end of 2020 are as follows:
- State aid - The European Commission will continue to have jurisdiction over UK state aid notifications. In addition, the Withdrawal Agreement allows the European Commission to bring enforcement action against the UK in relation to state aid for up to four years from the end of the transitional period in relation to aid granted before the end of the transitional period.
- Merger control - Where mergers satisfy EU merger control jurisdictional thresholds, the ‘one-stop shop’ principle will continue to apply and the European Commission will continue to have exclusive jurisdiction.
- Antitrust investigations (including cartel investigations) - The CMA will continue to investigate antitrust cases in the UK under both UK and EU competition law (namely Articles 101 and 102 TFEU and the Chapter I and II Prohibitions), and UK courts and competition regulators will continue to be required to interpret UK competition law in a manner that is consistent with EU law. Judgments of the ECJ made before the end of the transitional period will continue to be binding in the UK.
The Deal: Withdrawal Agreement (Post-Brexit Transitional Period from 2021)
The Withdrawal Agreement provides for the UK and EU to use their 'best endeavours' to reach an agreement before the end of the transitional period. We do not know what this will look like at the moment, but the likelihood is that, if any deal is reached in that period of time, the position will be somewhere between the transitional period arrangements (above) and the 'no deal' arrangements (below).
However, there is an agreed 'backstop' in the event that the EU and UK fail to agree on the terms of their future relationship before the end of the transitional period, which avoids the risk of a hard border between Ireland and Northern Ireland. Under the ‘backstop’:
- State aid – The UK has committed to continue to apply EU state aid rules. EU institutions will have jurisdiction as regards Northern Ireland, and for the remainder of the UK, the CMA and UK courts will have jurisdiction to apply the EU state aid rules (albeit that these will likely be a UK version of the EU rules which is 'dynamically aligned' to them).
- Merger control and Antitrust investigations (including cartel investigations) – anti-competitive agreements, the abuse of dominance and mergers which threaten to significantly impede or to substantially lessen effective competition and have an effect on trade between the EU and UK will continue to be prohibited. While there is no clear structure for these arrangements as yet, the UK has committed to ensuring that administrative and judicial proceedings will be available to enforce the EU/UK competition rules. This looks very much like the current position in practice.
No Deal Brexit: the Regulations
In the event that there is no deal on Brexit Day, the UK will no longer be part of the EU from 11pm on 29 March 2019. The Regulations create a stand-alone UK competition law regime by, inter alia, amending domestic legislation in so far as it incorporates EU law and to avoid any enforcement gap. The key changes introduced by the Regulations are as follows:
- State aid – EU state aid rules will be transposed into UK law under the EU (Withdrawal) Act 2018 and the rules will apply to all sectors. The CMA will have the power to investigate and enforce state aid rules (applicable to aid which may affect trade between the UK and EU).
- Merger control – the ‘one-stop shop’ principle will no longer apply. This means that where a merger satisfies both the UK and EU merger control thresholds, the CMA and European Commission will be able to conduct parallel investigations into the merger and, as such, businesses may have to submit parallel notifications (as with other non-EU jurisdictions).
- Antitrust investigations including cartel investigations – the CMA will only be able to apply UK competition law domestically. However, the European Commission will continue to have power to investigate UK firms in relation to anti-competitive behaviour that has an effect on trade between EU member states. Furthermore, seven EU Block Exemption Regulations, including the Vertical Agreements Block Exemption Regulations, will be retained in UK law which means that businesses will continue to benefit from the exemptions where relevant.
However, even in the event of 'no deal', the CMA envisages close ongoing co-operation with the European Commission on merger control and competition investigations.
No Deal - Impact on live cases
In a no deal scenario, where there are live European Commission cases (i.e. no final decision has been made), the CMA has said that the following will happen:
- State aid – given that the CMA will take over state aid regulation on Brexit Day, the CMA has said that any state aid notifications not yet approved by the European Commission will need to be submitted to the CMA. However, existing European Commission approvals will remain valid.
- Merger control – after Brexit Day, the CMA will have exclusive jurisdiction over UK aspects of a merger that has been notified to the European Commission. Although notification under UK merger control is voluntary, the CMA has said that businesses envisaging such a situation should engage with the CMA as soon as possible. Furthermore, parties that had satisfied the EU merger control thresholds may need to re-assess their turnover figures as the loss of UK turnover might result in a merger no longer needing to be notified to the European Commission.
- Antitrust investigations including cartel investigations – after Brexit Day, the CMA will only be able to investigate breaches of UK competition law, irrespective of whether the breach occurred before or after Brexit Day. However, the European Commission will still be able to enforce EU competition law against UK companies whose business has an effect on trade between Member States (and in relation to previously committed EU competition law infringements involving trade between the UK while it was a member of the EU and one or more other EU member states). The CMA has therefore said that businesses that are undergoing live investigations should seek legal advice on how to comply with parallel European Commission and CMA investigations. Furthermore, existing EU leniency applicants should consider whether to make separate leniency applications to the CMA in so far as the conduct applies to the UK and is covered by the CMA’s leniency policy (and potentially vice versa), bearing in mind the risk of criminal sanctions in the UK and Director Disqualification.
The main effect of a ‘no deal’ Brexit scenario is that where competition cases were previously solely reviewed or investigated by the European Commission, businesses will risk being investigated by both the CMA and European Commission for parallel breaches of competition law where there are effects on both UK and EU markets. The biggest immediate impact of a ‘no deal’ scenario will be on businesses with live cases with the European Commission. Businesses without any live cases do not need to do anything immediately but should ensure that they continue to comply with UK and EU competition law.
Post-Brexit: Development of UK Competition Law
The CMA has indicated that there may be some changes to competition law post-Brexit. For example, it has talked about the UK merger control regime moving from a voluntary system to a system of mandatory notifications (or even some sort of hybrid system - although what this might be is not entirely clear).
In addition, the CMA has said that there may be scope for UK competition law to diverge from pre-Brexit EU law in the future (as European Commission decisions and ECJ judgments made after Brexit Day will not be binding on the UK courts, and decisions and judgments prior to Brexit Day may be departed from where it is considered appropriate in the light of specified circumstances – e.g. market differences, economic developments, generally accepted principles of analysis and developments in EU case law). The CMA has acknowledged that it would be beneficial for multi-national businesses to be subject to competition laws that do not radically differ from each other; for example, all jurisdictions agree that price collusion and bid rigging are anti-competitive. However, it has also acknowledged that some jurisdictions differ in their approach to certain aspects of competition law; for example, in relation to practices such as fidelity rebates and price discrimination. A post-Brexit environment would allow the UK to consider other approaches in other jurisdictions and develop its own approach to such matters.
What happens if Brexit is cancelled?
On 10 December 2018, the European Court of Justice (CJEU) issued a judgment stating that a member state can unilaterally revoke its notification to withdraw from the EU under Article 50 of the Treaty of the European Union, provided that a withdrawal agreement has not been entered into and the two-year period from notification has not expired. Therefore, in the event that the UK decides to revoke its notification to withdraw from the EU before Brexit Day, it is likely that UK competition law will remain integrated in EU competition law and the status quo will be preserved.
Comment
It is yet to be seen whether there will be a deal, no deal or even no Brexit at all and only the next few months (and years) will reveal the impact of Brexit on UK competition law and the UK economy more generally.
We have been tracking developments closely and will continue to do so, and have advised a number of clients on their implications. If you have any queries please contact your usual Burges Salmon contact, we would be delighted to hear from you.