31 December 2020 marked the end of the transition period following the UK’s withdrawal from the European Union (EU). The exit was marked by the conclusion of the EU-UK Trade and Cooperation Agreement (TCA), governing the post-Brexit relationship from 1 January 2021. In many respects the changes to the UK’s competition law regime have been minimal, reflecting the pre-Brexit status quo. However, in others, the UK will have to come up with its own regime, distinct from that of the EU. From a practical standpoint, the CMA will be free to deal with matters previously reviewed by the European Commission. Both the CMA and the courts will be at liberty to determine the extent to which they follow EU competition law developments and case law, taking into account the form any future UK-EU cooperation may take.
This article considers the likely practical impact of Brexit across three key areas of competition enforcement:
- investigations into violations of competition law;
- merger control; and
- state aid.
Competition law enforcement
The key provisions of UK competition law have always been structurally the same as those of the EU. The CMA (and other UK regulators) will continue to investigate suspected infringements of UK domestic competition law, although they will no longer be able to enforce the EU equivalent powers, Articles 101 and 102 TFEU. However, these principles remain relevant for businesses with cross-border activities, since the European Commission will continue to have jurisdiction to investigate UK companies as long as anti-competitive conduct is implemented or produces effects within the EU.
The result of this is the potential for parallel investigations by the UK and EU with respect to alleged anti-competitive agreements as well as abuses by dominant companies, where there are effects in both jurisdictions. Although this dynamic of UK/EU parallel investigations is new, many cartel and abuse of dominance investigations have already been undertaken by numerous competition authorities globally, and cooperation between global competition authorities is commonplace. Whilst the CMA will no longer be part of the European Competition Network, the EU forum for coordination between competition authorities, it will continue to be influential as part of its global counterpart, the International Competition Network.
Despite the UK and EU competition regimes being based on the same principles, there will theoretically be scope for divergence between them in the application of competition rules. Whereas previously, the CMA and courts were obliged to ensure that there was no inconsistency between their decisions and those taken at the European level, this requirement has now been replaced with a softer obligation which recognises that there may be circumstances where UK law changes and divergence is justified by differences that emerge between the UK and EU markets. In addition, both the UK Supreme Court and the Court of Appeal, but not lower courts, have been given the power to deviate from EU retained case law. In deciding whether to depart from EU retained case law, the relevant court must decide “whether it appears right to do so” – the same test as the Supreme Court uses in deciding whether to depart from its own case law.
In relation to private enforcement, unless the investigation was commenced by the European Commission before Brexit, claimants who wish to pursue follow-on damages claims in UK courts will no longer be able to bring follow-on claims based on post-Brexit European Commission decisions as binding findings of infringement. It will, nonetheless, remain possible for claimants to bring standalone actions for damages based on the same facts. However, it remains to be seen how European Commission decisions will be treated by the UK courts in such cases and whether the status of the UK as a favourable forum for damages cases will be adversely affected by Brexit.
Merger control
The effect of Brexit on the CMA’s workload will be more immediately felt in the field of merger control. Following the end of the transition period, the European ‘one-stop shop’ principle will no longer apply to the UK. As a consequence, the UK will be free to review all mergers which meet its merger control thresholds even where the European merger thresholds are also met. For example, on 6 January 2021, the CMA announced it would review Nvidia Corp.’s proposed $40 billion takeover of ARM Ltd, which would previously have been considered in Brussels alone.
In many cases, therefore, there may be parallel assessments by the UK and European Commission, which was previously not permissible. As with competition enforcement, although parallel UK/EU investigations were not possible pre-Brexit, the CMA investigated many cases which were also the subject of parallel investigations in other countries, such as the United States, China and other EU member states, and was accustomed to coordinating these investigations with other competition authorities.
In situations where competition authorities share jurisdictions, the CMA has stated that “where possible and appropriate, [it] will endeavour to coordinate merger reviews relating to the same or related cases with the EC (and other competition authorities)”. The TCA provides a legal basis for such cooperation as regards the European Commission.
As a result of Brexit, the CMA is expected to have a more prominent role in assessing global transactions and review an increased number of mergers. A number of potentially interesting issues arise in this regard. For example, the UK’s voluntary merger regime means that there is no obligation on parties to notify mergers in the UK, even where these are being considered in Brussels, Washington and Beijing. CMA officials have expressed some concern that the voluntary nature of the UK regime may mean that the CMA has less ability to provide input into the global coordination of remedies in these cross-border deals.
For its part, the European Commission will disregard UK turnover when considering whether transactions meet the jurisdictional requirements of the EU Merger Regulation. However, the fact that the UK is now considered a third country has no impact on the applicability of the EU merger rules to UK undertakings. When the EU jurisdictional criteria are fulfilled, EU rules may still apply to transactions involving UK companies, as has been the case for companies from non-EU countries for years.
State aid
State aid was an important issue in the negotiation of the TCA, and represents an area with the potential for substantial change to occur. As of 1 January 2021, the UK no longer follows the EU’s state aid rules but instead must develop its own domestic ‘subsidy control regime’ (except for aid that is caught by the Northern Ireland Protocol).
The TCA requires the UK to implement “an effective system of subsidy control that ensures that the granting of a subsidy” pursues an identified public policy objective or remedies an identified market failure. Any subsidies will need to be proportionate and limited to what is necessary such that the public policy objective “cannot be achieved through other less distortive means”.
The TCA mirrors many of the TFEU provisions and jurisprudence on state aid, although there are some notable differences:
- the de minimis threshold has been increased from €200,000 over three years under the EU state aid rules to €380,000 over three years under the TCA;
- supranational programmes are not subject to cooperation or independent authority supervision;
- large cross-border or international cooperation projects, most likely to be undertaken by the EU, in relation to transport, energy, the environment, and research and development, are presumptively allowed;
- aid granted to compensate for the damage caused by natural disasters or other exceptional non-economic occurrences (presumably including a pandemic) are covered; and
the TCA does not cover subsidies related to the audio-visual sector.
- The TCA also does not oblige the UK to follow the EU approach that aid cannot be implemented until notified and approved, although this may be advisable in order to provide legal certainty.
The TCA requires certain specified subsidies to be prohibited or subject to conditions if “the subsidies concerned have or could have a material effect on trade or investment” between the EU and the UK. The powers of review and enforcement will lie with the courts. It is also expected that a new UK authority for subsidy control and the courts will follow many of the EU state aid rules, the key remaining question being to what extent they do so in practice.
What next…
The EU and UK have very similar systems of competition law enforcement, with the UK statutes being based on equivalent EU provisions. The changes outlined in the TCA give the UK some autonomy to apply UK competition law to activity in the UK independently from the European Commission. As competition rules have proliferated worldwide and businesses operate globally, we have seen many cases where antitrust and merger control issues have been reviewed in parallel by numerous jurisdictions, with relatively few instances of material divergence in outcomes. Accordingly, whilst the scope for material divergence between the UK and EU in practice remains to be seen, it seems unlikely that conflicting decisions will be a regular occurrence.
In-depth 2021-036
