07 Jul 2016

While the dust is still settling from the UK people's vote to leave the European Union, we need first and foremost in true British style to "keep calm and carry on" and take a look at the implications of Brexit on competition law.

Keep calm – a lot will carry on as usual

  1. The UK has not left the EU yet. All rules and laws continue to apply until we actually leave the EU. Invoking Article 50 does not signal our exit from the EU, it is merely the trigger for negotiations between the UK and the EU. The UK has two years from the time Article 50 is invoked to negotiate its way out. This can be extended if the EU member states unanimously agree. If no extension is negotiated, the UK will exit the EU nonetheless when the two years are up.
  2. UK competition law rules (Chapters I and II Competition Act) are largely the same as EU competition rules (Articles 101 and 102 of the Treaty on the Functioning of the European Union) (except that they apply where there is an effect on trade in the UK). These rules have been enacted into UK statute and are likely to continue to apply where there is an effect on trade in the UK.
  3. EU competition law of course will still apply to businesses whose practices have an effect on trade between Member States– it does not matter where a company is based, the jurisdictional test relates to where the effect of the agreement / practice is felt. The effect on trade threshold is low so UK companies with trade into or between other EU Member States are likely have to consider the application of EU law to their businesses.

Implications of Brexit on competition law?

The impact on competition law will depend on which model we adopt going forward.

European Economic Area (EEA)

If we were to sign up to the Agreement on the EEA, EU competition law, state aid and public procurement rules would continue to apply. Merger control would still benefit from the one-stop-shop provided by the EU Merger Regulation. UK courts would continue to be bound by EU legislation and EU court judgments and would apply EU law. UK follow-on damages actions based on European Commission decisions could still be brought in the UK courts. However the UK would have no ability to influence decision making within the EU.

Exit from the EU completely but try to forge a bespoke deal with the EU / rely on WTO rules

UK competition law will still apply to companies where there is an effect on trade in the UK. EU competition law will still apply to UK companies whose operations have an effect on trade between EU Member States. They can still get fined or sanctioned as they can today.

However, depending on any agreement reached between the UK and the EU, the UK courts will not necessarily be bound by EU court judgments and EU legislation (although they may still decide to have regard to it as persuasive law). EU state aid and public procurement law would not apply but state subsidies would be subject to the WTO anti-subsidy obligations. This could lead to a gradual divergence of approach between the application of EU competition law and UK competition law. Such differences could increase competition compliance costs for businesses operating in the UK. English may no longer be an official language of the EU, meaning that companies subject to European Commission decisions and EU Court judgments may need to translate or have their lawyers translate these documents before they can understand their full impact.

The one-stop-shop of EU merger control would be unlikely to apply to transactions involving businesses with sales into the UK. A merger satisfying the EU and the UK merger thresholds could be simultaneously be reviewed by the UK Competition and Markets Authority (CMA) and the European Commission. This would mean two sets of filing fees, two sets of information gathering processes and, potentially, two different outcomes. This would increase cost, time and regulatory uncertainty for business.

Unless the UK recognises the jurisdiction of the European Commission decisions, follow-on damages actions based on European Commission findings of infringement will no longer be brought in UK courts and claimants will have to seek redress in foreign courts. The Brussels I Regulation on jurisdiction, recognition and enforcement of judgments in civil and commercial matters may no longer apply potentially leading to litigation over choice of jurisdiction.

The UK will have no direct influence in the EU legislative process and would have no obligation to align its approach to the application of EU competition law by EU institutions and courts, so there may, over time, become increased divergence in approach between the UK and the EU in relation to competition law issues. Companies operating in the EU and the UK will therefore need to seek advice from competition lawyers on the UK and EU competition law regimes and the differences between them that may impact on their businesses.

Comment

The impact of Brexit on competition law is, of course, hard to predict at present and will very much depend on what is negotiated between the UK and the EU member states. What is clear, however, is that EU and UK competition law will still apply to your businesses where they respectively have an effect on trade between EU member states or an effect on trade in the UK. For now, EU competition law still applies where there is an effect on trade between the UK and other EU member states. What is most likely is that there will be some divergence between EU and UK competition law in the years to come, increasing compliance costs for business and requiring the advice of competition lawyers with knowledge of both UK and EU competition law.

We will be working closely with Redeker Sellner Dahs, our German alliance firm and their Brussels office to ensure a seamless service to our clients. In the meantime if you would like to have an informal chat about any of the above competition law issues which are of concern to you, we would be happy to help.