The Implication of Brexit on the Competition Law of the UK

Source : LK Shields

This blog is authored by Shivani Pattnaik a second-year student at National Law University, Odisha.

Introduction

On January 31, 2020, the United Kingdom (UK) formally discontinued its membership of the European Union (EU). It had entered an 11-month transition period in which European Union law will continue to apply in the United Kingdom even if it leaves the Union by December 31, 2020. After months of arduous negotiations, the deal came in force on 1st January 2021.

Among the many changes, the deal would leave in its wake, one of the most prominent changes would be witnessed in the area of the United Kingdom’s competition law. The reason being that effective competition between businesses can provide consumers with benefits including more choices, better product quality, innovation and lower prices. Competition is central to government efforts to improve growth and productivity in the market. Where markets don't operate effectively, consumers and taxpayers can suffer.

The UK's competition law is the culmination of the Competition Act 1998, the Business Act 2002, the Business Reform and Regulation Act 2013, the Consumer Rights Act 2015, and the Industrial Competition Act. This domestic law is based on the European framework in which the EU anti-trust authorities have similar laws and requirements. The legal framework aims to make markets work well, encourage businesses to compete with each other, and protect consumers from anti-competitive practices such as bidding, pricing, and abuse of market power.

The Competition and Markets Authority (CMA) is the UK's main competition authority. Its responsibilities include protection and enforcement of competition laws, identification and elimination of competitive issues and exploration of mergers that can limit competition. Additionally, the European Commission is responsible for complying with the rules of the competition at the European level. It covers many international issues affecting the UK.

Needless to say, the competition law of the UK is intertwined with the laws of the EU.

Anti-trust

The EU Competition Rules (Articles 101 and 102 of the TFEU) still continue to apply to all businesses which could potentially impact the EU. What this essentially means is that the European Commission would still have the authority to carry out investigations on the conduct of the UK companies. However, the important difference is that the Commission does not have the authority to conduct a field investigation in the UK, it requires the CMA to do it by itself.

In addition to this, Section 60 of the Competition Act, 1998 would be amended on the date of Brexit and Section 60A would come to effect. This section pronounces that there must be an avoidance of any inconsistency between the decisions of the CMA and the courts. As a result, there would be various procedural changes which could take time to finalise.

Moreover, the UK courts can no longer refer questions about the interpretation of EU law to the European Court of Justice, which is an important factor in the consistency of the current interpretation.

At the end of the transition period, the likelihood of a parallel investigation by the UK and EU authorities will increase. This includes the possibility of criminal investigations in the UK and the investigation of the European Commission cartel.

Merger Control

A wide range of mergers and acquisitions involving UK companies are covered by EU merger management rules. In general, if a transaction is subject to EU procedures, the Commission has exclusive power over it, which precludes the possibility of national competition authorities reviewing it in individual EU member states.

At the end of the transition period (when the UK remains under EU merger control) this “one stop shop” provided by the European Commission will no longer apply to the UK. Therefore, the possibility of applying UK merger control rules in addition to possible EU notices must be considered.

As a result, parties subject to both proceedings can simultaneously file a merger application. This increases the uncertainty of the law by increasing the cost and complexity along with the risk of making different decisions on the same transaction. In order to confirm transactions within the jurisdiction of the UK after the implementation period is over, CMA has announced that it will monitor potentially important transactions and begin discussions with stakeholders from the end of 2020.

State aid

The third important aspect of competition law is state aid. Theoretically, the UK will have more freedom to provide state aid to UK companies after Brexit. The state aid rules prior to Brexit were monitored by the EU. In a post Brexit world, the legal situation would be slightly different as there are two scenarios that can take place. Firstly, if the UK wants to access the EU market, it will have to come to an agreement with the EU regarding state aid control. Alternatively, if the UK has opted for a “full divorce” (leaving without entering into any special relation with EU), then no state aid rules apply in the post-Brexit UK.

In addition to this, the UK's free exercise of state aid may be limited by international obligations, especially under the terms of existing World Trade Organization treaties and also all Brexit agreements. In the longer term, concerns have been raised that the UK's departure from the EU could result in a loosening of EU state aid policy, allowing EU member states to offer more subsidies to the private sector in future in UK. This could leave UK firms exposed to unfair competition from EU rivals.

It is noteworthy that EU law prohibits any aid directly or indirectly provided by an EU member states for the benefit of certain businesses or the production of certain goods/services, distorting or threatening competition and affecting trade within the EU. The purpose of the ban is to prevent individual EU member states from prioritizing domestic companies and restricting competition in EU markets.

The UK Business Secretary, Alok Sharma confirmed that the UK will comply with obligations agreed in the World Trade Organization (WTO) subsidy rules along with international obligations agreed under future free trade agreements after the end of the transition period.

However, WTO regulations apply to goods rather than services, prohibit subsidies based on the extent to which domestic goods are exported or used relative to imports, and provide a mechanism to resolve disputes between countries for all other subsidies. Therefore, they have a much narrower scope than EU national aid rules.

Conclusion

The Brexit deal will bring in a plethora of changes in the current competition law landscape of the UK—both in procedural and substantive laws. The transition period was a start towards identifying underlying gaps in the legislation of the UK left by the absence of EU competition laws.

Furthermore, the dual regulatory burden that would stem from the UK being independent of the EU would ultimately result in inefficient duplication of work at the expense of the UK tax-payer.

Finally, the absence of the EU competition laws could have an impact on business. If the UK chooses to support a particular company or industry, competitors cannot rely on state support rules to challenge such measures. Regarding the effectiveness of the World Trade Organization (WTO) laws, UK beneficiaries may be subject to anti-dumping tariffs if they intend to export goods or services. Finally, if the government supports the EU's competitive activities and has an impact on the UK market, the government will be limited in its ability to respond to these actions. Competitive companies in the UK may submit complaints to the Commission, but they are unlikely to respond to such complaints unless their actions in the EU have an anti-competitive effect.

Through the transition period, it was observed that there was a gradual policy shift along with some immediate procedural effects vis-à-vis merger control. Though the laws have a long way to go, it is essential that the laws of competition are just, fair and understandable by businesses and consumers.