How will state aid and competition law fare after Brexit? This update provides a concise summary on where things currently stand.
With just under a year to Brexit day, this article looks at what we can expect in the area of competition and state aid law and identifies areas of ongoing uncertainty.
Cartels, anti-competitive agreements and abuse of dominance
UK competition law (which applies to trade within the UK) is modelled on EU competition law (which applies to trade between EU member states). Currently the interpretation of UK competition law is explicitly linked to that of the European Commission and Court of Justice (ECJ). While such a strong link is unlikely to continue post-Brexit, it is possible that regulators and courts applying UK competition law could be required to 'have regard to' the interpretation of EU competition law in the EU. This would provide for a degree of consistency for businesses operating in the UK and EU post-Brexit, that would be generally welcomed.
The Prime Minister’s recent Mansion House speech in March does not perhaps extend to the requirement for UK courts to 'have regard' to judgments of the ECJ, but is not far off.
She said: ‘where appropriate, our courts will continue to look at the ECJ's judgments, as they do for the appropriate jurisprudence of other countries' courts. And if, as part of our future partnership, Parliament passes an identical law to an EU law, it may make sense for our courts to look at the appropriate ECJ judgments so that we both interpret those laws consistently’. She also said: ‘If we want good access to each other's markets, it has to be on fair terms…for example, we may choose to commit some areas of our regulations like state aid and competition to remaining in step with the EU’s. The UK drove much of the policy in this area and we have much to gain from maintaining proper disciplines on the use of subsidies and on anti-competitive practices.’
The emerging withdrawal agreement and transitional agreement drafts suggest that the EU Court of Justice will continue to have a direct role at least until the end of the transition period in December 2020.
Consensus appears to be gathering that, in the absence of the 'single market imperative', there may be occasions where the UK seeks to be more innovative as regards competition policy. Any divergence is likely to be evolutionary rather than revolutionary. In parallel to this, there are concerns that in certain sectors (e.g. telecoms, energy, financial sectors), the same flexibility may lead to divergence through the politicisation of competition law.
Divergence appears slightly more likely in relation to procedure, with calls for more use of interim measures – particularly in relation to fast moving digital markets. As an enforcer, the Competition and Markets Authority (CMA) appears open to streamlining procedures to be faster and more effective.
Finally, there have also been calls for moves towards a more prosecutorial approach to competition enforcement (which was considered but rejected following consultation in 2011) and calls for more of an economics focussed 'effects' based approach. However, these ideas do not appear to have much traction at present.
Actions for damages
At present the UK is an attractive forum for litigating anti-trust damages (e.g. damages arising from cartels found by the European Commission). However, the uncertainty as regards the future status of EU anti-trust prohibitions in the UK and European Commission decisions, could put this status at risk. This continues to be an area where the future is uncertain.
How will mergers be affected?
Post-Brexit will see the end of the ‘one stop shop’ under EU merger control for mergers involving large companies. Multinational mergers will need to be considered in the UK as well as the EU, in the same way as multinational mergers often need to be considered in any number of jurisdictions worldwide. This may lead to an additional 30-50 Phase I mergers and 'half a dozen or so' Phase II cases.
There is no suggestion of changing the basic test for prohibition (i.e. ‘substantial lessening of competition’), but the government has suggested that there may be additional strategic policy considerations (e.g. economic, social or environmental policy) in the form of wider ‘public interest’ criteria. However, there is no clarity at this stage in relation to these ideas and some resistance to them on the grounds that they would increase uncertainty.
How will state aid be affected?
It seems very likely that rules on state aid will continue to operate at a similar level, and the government has confirmed that, for the duration of the implementation period, the Commission will still be enforcing EU state aid rules.
The Prime Minister's recent Mansion House speech referenced the need for protection against what she referred to as 'anti-competitive practices', but it seems likely that she was referring primarily to reciprocal commitments on state aid so that ‘‘UK businesses can compete fairly in EU markets and vice versa’’, which this should include an ‘arbitration mechanism’.
Indeed, the government has recently confirmed its intention to transpose EU state aid rules wholesale under the EU (Withdrawal) Bill, and these rules will continue to apply to all sectors, including agriculture, fisheries and transport and will replicate any existing exemptions from state aid rules.
Should the UK have more of a free hand as regards state aid controls, the key focus of change appears currently to not be the level of aid permissible, but streamlining the procedures for approving aid.
What about institutions?
The government appears to have recognised that Brexit will lead to a significant growth in the work of the CMA, both in relation to mergers and anti-trust cases. The government has recently confirmed that it will provide up to £23.6m in 2018/19 for the CMA in relation to its additional Brexit related work (a significant increase to its current budget of approximately £66 million).
The government has recently confirmed that at the point that a UK state aid authority is required, the CMA would be best placed to take on the role of state aid regulator. This reflects its experience and understanding of markets and the independence of its decision-making from government.
A high degree of future co-operation between competition enforcement bodies seems to be likely. This will mean a comprehensive competition co-operation agreement will need to be negotiated with the EU and similar agreements will be required with those jurisdictions with whom the EU currently has similar bilateral agreements.
In the latest draft of the Transitional Agreement (draft 3) between the UK and the EU it has been agreed that there will be a transition or implementation period that will start on Brexit day, 29 March 2019 and end on 31 December 2020. Though negotiations remain ongoing with much still to be agreed, the aim is to agree a final draft by October 2018.