Overview
Until December 31, 2020, the EU Treaties, principles of free movement of goods, services, capital and people apply in the UK, as do general principles of EU law, including those relevant to competition law (by virtue of the European Union (Withdrawal) Act 2018.
In relation to Competition Law, the UK Government, in its February 2020 document "Future relationship with the EU" affirmed the need to maintain effective competition laws covering, mergers, anti-competitive agreements and abuse of market power and claimed that "This does not require legal or regulatory alignment [with the EU]."
In relation to merger control, antitrust investigations and enforcement, legislation is already in place to "domesticate" competition laws under the Competition (Amendment etc.) (EU Exit) Regulations 2019, SI 1993 No. 93 (the Competition SI) (i.e., to transpose existing EU laws into UK law). This legislation will come into force at the end of the transition period. However, in relation to State Aid, the UK has not accepted the EU's proposal to continue to maintain the EU legal regime – leading to a current and anticipated future clash with the EU, as set out below.
Merger Control
During the current transition period, the UK broadly continues to be treated as if it were a Member State. From the perspective of merger control, the "one-stop-shop" principle continues to apply, meaning the UK turnover generated by merging parties must still be taken into account to ascertain whether the European Commission (EC) should have exclusive competence.
Towards the end of the transition period, there may be merger cases which are under review by the EC. In such cases, the EC will retain exclusive jurisdiction until a final decision is reached where a merger has been formally notified or subject to referral to the EC before the end of the transition period. However, the Competition SI revokes the application of the European merger regulation in the UK with effect from the end of the transition period, meaning that a post-transition period EC decision for or against a particular merger will not apply to the UK. As a result, if a final decision has not been reached by the EC by December 31, 2020, then, if the transaction satisfies the domestic UK merger threshold test, the CMA will have jurisdiction to investigate the proposed transaction. Parties may, therefore, be advised to consider both UK and EC notifications where there is a risk of an EC notification not being cleared before the end of the year. It should be borne in mind that the UK currently has a voluntary notification system: a merger which meets the jurisdiction thresholds for investigation is not required to be notified. However, the CMA may intervene and require the parties to refrain from implementing a qualifying transaction until after it has completed a merger review.
After the end of the transition period, mergers with a UK dimension will no longer be subject to the EU exclusive one-stop-shop principle. The EU merger regulation test is a complex multi-jurisdictional turnover test. The UK merger jurisdiction test requires there to be either an increment to share of supply in a market over 25% or a £70 million turnover for the target. This is likely to capture a substantial number of additional merger transactions. However, even after Brexit, mergers involving UK businesses which meet the criteria of the EU merger control regulation will still need to be notified to the EC for review and clearance.
Where a merger satisfied the jurisdictional thresholds of both merger regimes, the CMA and the EC may conduct parallel assessments. This will give rise to additional administrative burden and uncertainty as the two authorities may not reach the same outcome. This will also apply where there is "no deal" between the UK and the EU after the end of the transition period.
Antitrust Enforcement and Investigations
During the transition period, Articles 101 and 102 (which prohibit, respectively, restrictive agreements and arrangements and abuse of market power) continue to apply in relation to the UK. The EC may investigate suspected infringements in the UK which have effects on markets within the EU as if the UK continued to be a Member State. Concurrently, the CMA can investigate potentially infringing conduct under domestic Chapter I and Chapter II prohibitions.
Where the EC has formally initiated proceedings before the end of the transition period, the EC will continue to be competent after the end of the transition period (because the conduct took place while the UK was still a Member State). Further, after the transition period ends, the CMA may take on/acquire jurisdiction over conduct which may affect trade within the UK, the investigation of which is ongoing as at the end of the transition period. The CMA may also investigate suspected infringements of UK domestic competition law (i.e., Chapter I and Chapter II prohibitions under the Competition Act 1998, including the UK criminal sanctions - but not of violations of EC competition law, which will no longer apply in the UK).
After the end of the transition period, the separate national leniency regime applicable in the UK will remain in place, subject to any future amendment. However, conduct which infringes both UK and EC competition laws post-Brexit will continue to be subject to a separate investigation by the CMA and the EC. What will be different will be that the EC will not have the power to carry out dawn raids on a business in the UK: it will have to send a request for information (as it does to US or Asian businesses now). It is worth stressing that commercial practices conducted by companies headquartered outside Europe will continue to be subject to potential investigation by the EC, where there is an actual or potential effect on EU trade, and also by the CMA where there is an actual or potential effect on trade within the UK.
Block Exemptions
Block Exemption Regulations are a set of EU so-called "safe harbour" regulations, each with their own qualifying criteria, that exempt certain types of conduct from administrative sanction, where those criteria are satisfied. During the transition period, Block Exemption Regulations continue to apply in the UK. After the transition period, they will be adopted into UK law the with same expiry dates, but domesticated to remove EU references. As a result, agreements which currently enjoy a safe harbour under one of these parallel block exemptions will continue to do so post-transition period.
State Aid
State aid (state subsidies) is often described as the third pillar of competition law. It is one of the significant areas of disagreement between the parties in the current negotiations between the EU and the UK about their future relationship. Under EU law, the general principle is that aid (which can take any form) should not be granted without prior clearance from the EC. The policy objective is to prevent distortions in competition between Member States arising from unapproved aid granted by national governments to local industries or sectors. During the transition period, the EC has jurisdiction to review State aid applications from the UK. The EC will continue to be competent to deal with State aid granted by the UK before December 31, 2020, up to December 31, 2024. The problem lies in the post-transition period UK State aid rules.
The UK made no mention of State aid at all in its February 2020 position document. By contrast, the EU has from the outset made explicit its concern that, in the absence of adherence to the current State aid rules, the UK could provide unrestricted subsidies to British industries and thereby gain an unfair competitive advantage over EU businesses. The EU is also concerned that the UK might be tempted to bail out uncompetitive companies – a concern which is only heightened in light of the effects on business more broadly from the COVID-19 crisis. In the current negotiations, the EU is, therefore, asking the UK to continue to accept the EU State aid rules post-transition period. The EU points to the text of the Political Declaration that accompanied the Withdrawal Agreement, in which both the EU and the UK affirmed that rules applicable to various sectors (including State aid) "should uphold common high standards" in its negotiating mandate for the future EU-UK relationship, the EU states: "The envisaged partnership should ensure the application of Union State aid rules to and in the United Kingdom." The UK, on the other hand, seeks to have full autonomy as to how it should operate subsidy rules.
There are particular provisions applicable to Northern Ireland which are found in the Agreement on the Withdrawal of the UK from the EU and in the Protocol on Ireland/Northern Ireland. EU State aid rules will continue to apply to Northern Ireland (and the EC will continue to have the competence to deal with State aid cases) as long as the Protocol on Ireland/Northern Ireland is in force. This will be at least until December 31, 2024, at which point the continued application of the Protocol is subject to ‘democratic consent’ in Northern Ireland (under Article 18 of the Protocol). If such democratic consent is obtained, then the State aid rules will continue to apply for a further four years until December 31, 2028 (and so on). The State aid rules do not apply simply to aid granted directly to businesses in Northern Ireland which might distort competition between Northern Ireland the EU. There is potential for aid granted elsewhere in the UK to indirectly affect cross-border trade between Northern Ireland and the EU (by, for example, encouraging companies to divert domestic sales to the Republic of Ireland).
There may be some mood music emerging on this topic to suggest that a workable toolbox of State aid mechanisms may be found, but it has not yet been articulated. In the absence of an agreement on State aid, UK businesses may expect increased scrutiny by the EC to address perceived breaches either of any provisions of the ultimate deal on future UK-EU relations or alleged breaches of the fall-back Subsidies and Countervailing Measures (SCM) agreement under World Trade Organisation (WTO) Rules. Accordingly, UK-based businesses selling goods into Continental Europe should carefully consider the implications of a subsidies regime the UK Government may in the future offer, and notably consider the risks such a regime may create for its market position and ability to sell into the EU.
