A vision of UK competition law after Brexit

In July 2017, the House of Lords EU Internal Market Sub-Committee launched an inquiry into the impact of Brexit on UK competition law and policy. As part of its inquiry, on 14 September 2017 the Committee heard the UK Competition and Markets Authority (CMA). The inquiry is wide-ranging and the questions put to the CMA were similarly broad, covering discrete areas of competition law but also the CMA’s altered duties and role post Brexit. Prior to the hearing the CMA filed a written submission. The hearing was an opportunity for delegates to expand on their written submissions, and for the Committee to ask supplementary questions. The CMA was represented by the Chairman, Lord Currie, Chief Executive Dr Andrea Coscelli and General Counsel Sarah Cardell. The key aspects of the CMA’s contribution are summarised below.

Brexit does not necessarily require a change of UK competition policy. The CMA considers there is no reason that Brexit should lead to a fundamental reassessment of competition law. There is an international consensus on competition law objectives and benefits, which leads to a broadly similar approach to competition policy. This is especially so given the UK’s part in shaping competition law in Europe. On practical matters, the Committee contrasted the very rapid emergence of digital competition issues with the slow speed of regulatory responses, and asked if the EU regime precluded less formal arrangements which may be suitable antidotes, such as “yellow cards”. The CMA considers that innovations of that kind would be possible after Brexit.

The CMA emphasises the practical benefits of retaining a connection (albeit looser) with EU case law. Retaining a connection with EU case law would minimise the risk of UK departures from it without clear reasoning, and would afford the UK authorities a body of precedent “on which they could choose to rely”. It would also facilitate parallel investigations with the European Commission and other EU national authorities and encourage “a degree of mutual respect and recognition”. On the other hand, departures from EU case law could well be beneficial where decisions have been made which have been criticised or are otherwise adverse to the UK’s interests. On balance the CMA suggests a “softer duty” to “have regard” EU to case law.

At the hearing the Committee pointed out that legislative encouragement to merely “consider” foreign case law had recently been deemed “inappropriate” by the Supreme Court. The CMA replied that the substantive law was so bound up with EU treaties that an “overarching consistent approach” was very important. It also dismissed the European Commission’s notions that the UK might end up in “regulatory competition” with the EU.

Cooperation in parallel investigations with other EU authorities will require new bilateral or multilateral agreements. The CMA often pursues antitrust investigations with EU National Competition Authorities (NCAs), and new bilateral or multilateral agreements with NCAs will be required in order to maintain co-operation. Brexit will also mean that the CMA will have to work alongside the European Commission in pan-EU investigations. This is a significant departure from the current regime, which allocates competence between the European Commission and NCAs, and necessary to avoid enforcement gaps. Outside the EU, cooperation with entities such as the US Department of Justice is common, and the CMA expects this line of work to increase over time.

Lying at the heart of this are cooperation agreements (CAs) with NCAs. The CMA pressed strongly for replication of these agreements after Brexit, and a new CA with the European Commission itself. The CMA recently scrutinised precedent agreements with Canadian and Swiss authorities, particularly looking at information exchange provisions. But it pointed out that these agreements appeared to have been “packaged” with a trade agreement and that a standalone CA may constitute a departure for the European Commission.

The risks of a dual merger regime are manageable. After Brexit, the UK and EU will constitute separate jurisdictions from a merger notification perspective, under slightly different procedures and rules. This might mean increased costs for businesses due to dual notifications, and the risk of divergent outcomes.

The CMA feels these issues are manageable. It notes that many larger mergers are multi-jurisdictional and the additional cost of one more filing is unlikely to be prohibitive. The number of these cases might also be limited by the fact that the EU turnover test will no longer include UK revenues. The CMA emphasises the importance of minimising divergence but was optimistic that the substantive similarity of law between the EU and UK might minimise it. It notes that divergence is already theoretically possible in any event (where the European Commission does not have jurisdiction). Further, merger parties would have a strong incentive to identify and implement remedies, given the close economic connections between the UK and the EU.

The CMA will require extra resources to deal with extra workload. On merger control, the CMA forecasts around 30-50 Phase I investigations and around six Phase II investigations. It estimates a further five to seven large antitrust investigations cases. Owing to the nature of the new work (i.e. replacing the European Commission in cross-border cases), these would probably be larger, more complex cases (10:16). The CMA is in talks with the government about securing extra resources and is confident it can attract the right talent. It also believes that the extra fines generated by the new work would more than cover these extra costs in the long run. Given all this, it saw no need to re-allocate responsibilities between it and the other UK competition enforcers.

At the hearing, the Committee asked if there might be a need for an agency with the power to review state aid, and whether the CMA would be the most appropriate agency for this. The CMA pointed out that while it had the skills to undertake the work, it had little experience (limited to former private practitioners). On further questioning, Lord Currie agreed that the expanded CMA could also include new state aid investigatory capabilities.

Transitional arrangements are “highly desirable” to avoid uncertainty for both antitrust and merger control cases which straddle the actual date of Brexit. Transitional arrangements should address who has jurisdiction, who enforces the UK aspects of European Commission decisions, and what the appeal routes are. Where the Commission keeps control of cases, the CMA said it wanted the existing mechanisms that allow it to have influence over and be involved in those cases to be replicated.

Comment. The CMA gave a fairly complete overview of the technical obstacles to Brexit, especially around the transitional and co-operative agreements required, and avoided criticism by choosing not to stray into areas outside its remit (notably the status of the UK as a venue for private damages actions, and how state aid rules and the public interest doctrine should develop). This is by contrast to Ofcom, for instance, which the Committee heard on the same day, and which used the hearing as an opportunity to repeats its comments to Parliament last year concerning the potential new flexibility (including around state aid) which Brexit might allow (see our update available here). The status of EU competition decisions in the UK post Brexit is of primary importance, and likely to be debated further, but in reality is likely to follow the wider Brexit agreement on the status of EU law generally. Overall, the CMA seemed to be ambivalent about Brexit: it highlighted genuine concerns, but is also planning in earnest for its expanded role and increased procedural freedoms that Brexit will bring.

The committee will continue to hear from interested parties up until November 2017, and plans to publish its final report in early 2018.

Co-authored by Sam Fisher, trainee solicitor.