On 2 February 2018 the Internal Markets Sub-Committee of the House of Lords European Union Committee published its report “Brexit: competition and State aid”. The report explores the short-term implications of Brexit for competition law and its enforcement in the UK, the need for transitional arrangements for competition matters, and the impact on future UK competition and State aid policies. It also briefly considers the related future UK institutional framework.
The report concludes that maintaining consistency with the EU’s approach to competition policy - at least in the short term – could help to provide stability and predictability for UK businesses. It also recognises, however, that Brexit provides an opportunity for the UK to take “a more innovative and responsive approach to tackling global competition enforcement challenges”. On State aid, the report considers that it is highly likely that any UK—EU Free Trade Agreement (FTA) will include “some form of State aid controls”. It also concludes that, outside of the EU, a UK-wide State aid framework will be required to avoid the risk of subsidy races between parts of the UK.
The short-term implications of Brexit
The report notes that the EU antitrust provisions are “mirrored” in the corresponding UK antitrust rules and that domestic competition law currently includes a “consistency principle”. This principle requires that: (i) UK law not diverge in its substantive application from EU law; and (ii) national judges ensure consistency of interpretation between the domestic rules, EU rules and case law. Most witnesses agree that Brexit does not require a fundamental revision of the UK’s well-established competition framework. It does, however, leave open the question of the relationship between the UK and EU competition rules post Brexit. The Committee considers that the consistency principle would no longer be appropriate in its current form (as EU law will lose its primacy). It recommends that it is replaced with a “softer duty”, whereby UK authorities might “have regard to” EU law and precedent. At the same time, the Committee acknowledges that such an approach may not be appropriate in the longer term. It therefore calls on the Government to clarify this point during the negotiations with the EU.
Given their value to businesses in providing legal certainty, the Committee also concludes that similar arrangements to the current EU block exemptions for certain types of agreements should be preserved after Brexit. Under the current rules, these block exemptions automatically apply in the UK.
On merger control, the report notes that currently larger mergers fall under the exclusive jurisdiction of the European Commission under the ‘one stop shop’ arrangement. Following Brexit, this arrangement will fall away, resulting in the potential for parallel reviews by the Commission and the Competition and Markets Authority (CMA) and a likely increase in the number of merger reviews by the CMA. The Committee welcomes the CMA’s commitment “to continue to work on procedural efficiencies” to minimise the administrative burden of such parallel reviews.
On private actions and the role of UK legal services, the Committee acknowledges the position of the UK, and London in particular, as “Europe’s foremost jurisdiction for private damages actions”. It warns, however, that uncertainty about the future status of EU antitrust prohibitions and European Commission decisions could endanger this leading status. The Government should consider this risk when deciding whether to repeal or amend related domestic legislation.
The Committee notes that transitional arrangements will be necessary in relation to: (i) court cases and administrative procedures that are live at the point of Brexit; and (ii) future cases relating to pre-Brexit activities. It therefore welcomes the Government’s recognition of the necessity of transitional (or ‘implementation’) arrangements. The Committee urges the Government to come to an early agreement with the EU on jurisdiction over competition cases during any transition period. This is necessary to provide certainty for businesses and to prevent cases falling through the cracks. The Committee also believes that an agreement on any transition period with the EU should ensure continuity with current arrangements to avoid businesses having to adapt to the implications of Brexit twice.
Future UK competition policy
The Committee notes that “ongoing consistency with the EU’s approach to competition policy – at least in the short-term – could help to provide stability and predictability for UK businesses in the face of the significant changes Brexit will bring”. The report also recognises, however, that the UK could, over time, depart from EU competition case law (e.g. where it relates to the Single Market objective, which will no longer be relevant to the UK).
Based on the evidence submitted, it further considers that Brexit provides an opportunity for the UK to develop “a more effective competition enforcement regime”. It could adopt a more innovative and responsive approach to tackling global challenges, including in relation to “fast-moving digital markets and dominant online platforms”. On balance, the Committee does not, however, believe that Brexit represents an opportunity significantly to change the existing public interest criteria in merger control.
The Committee also recommends that the UK and the EU continue to cooperate on competition matters post Brexit, ideally on the basis of a formal cooperation agreement covering both antitrust and merger case investigations and enforcement actions. Such an agreement should allow reciprocal evidence sharing. The UK will also have to enter into cooperation arrangements with other countries that are currently covered by existing EU bilateral agreements.
Future UK State aid policy
The report highlights that the future of State aid policy is an area that requires more active decision making on behalf of the Government. The EU is likely to insist on some form of State aid controls in the FTA with the UK, and there is “likely to be a link between the level of access to the Single Market the UK hopes to secure and the degree of coherence with the EU State aid regime the UK is required to maintain”. But the Committee also considers that, outside the EU, a UK-wide State aid framework will be necessary to “prevent the risk of domestic subsidy races and distortions of competition between various parts of the UK”.
On the enforcement of any State aid regime, witnesses to the inquiry gave mixed views as to whether this should be the responsibility of a separate State aid agency or whether the CMA could take up this role. The Committee notes that it would be important that any extension of the CMA’s remit does not detract from its existing and expanding responsibilities.
Future UK institutional framework
In the Committee’s view, it is clear that Brexit will have major implications for existing institutions with a statutory competition remit, as well as require the creation of new institutions. It recommends that:
- the CMA is “appropriately resourced” to deal with the additional caseload in the areas of antitrust, merger control and possibly State aid;
- all newly created organisations are also “sufficiently resourced” and have clearly-defined remits; and
- the UK should seize the opportunity to develop a system that “more closely reflects domestic needs and priorities”.
The Committee’s report provides a useful overview of the many ways in which Brexit will affect the UK competition landscape. Many of its recommendations and conclusions appear largely to embrace continuity. It is clear, however, that the Committee also believes that the UK’s competition regime can use this juncture to innovate in some areas.