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Brexit and Competition Law: A Changing Landscape

Matthew Levitt and Dina Jubrail (Baker Botts)

16th July 2020

Brexit presents a balance of challenge and opportunity for competition law practice and enforcement. The role of competition law will inevitably play a key part in the ongoing trade negotiations between the EU and the UK. The EU’s position is that:

“Given the Union and the United Kingdom’s geographic proximity and economic interdependence, the envisaged partnership must ensure open and fair competition, encompassing robust commitments to ensure a level playing field. … These commitments should prevent distortions of trade and unfair competitive advantages so as to ensure a sustainable and long-lasting relationship between the Parties.”

By contrast, whilst the UK recognises the “mutual importance of effective cooperation between the parties on competition law”, it rejects “legal or regulatory alignment” in this area in favour of “regulatory freedom to respond to new and emerging challenges”.

Leaving aside developments at a trade negotiation level, it is fair to say that the UK’s Competition & Markets Authority (“CMA”) stands ready to assume a greater level of regulatory oversight to develop a solid reputation amongst international antitrust enforcers.

 

UK competition law during the transition period (i.e. until 31 December 2020)

Much will remain unchanged during the transition period:

  • The same rules will apply during the transition period for matters opened prior to the UK’s official withdrawal on 31 January 2020.  Likewise, matters opened by the European Commission during the transition period will remain under its jurisdiction.
  • The CMA will increase intervention progressively towards the end of the transition period.
  • Where there is some uncertainty about whether the CMA will obtain jurisdiction over transactions notified to the European Commission before the end of the transition period, it remains within the discretion of merging parties to consider requesting an earlier referral of a case to the CMA under Article 4(4) EU Merger Regulation. Similarly, the CMA may consider whether to request referral under Article 9 EU Merger Regulation. 

 

UK competition law after the transition period (i.e., from 1 January 2021)

Following the transition period (and assuming no extension is agreed between the EU and the UK), we can expect the following changes:

  • The one-stop shop principle will no longer apply to transactions involving the UK.  The UK will become a third-party jurisdiction to be considered independently as part of multi-jurisdictional merger control assessments. Whilst the CMA’s notification regime will remain voluntary, where the target company has significant UK operations (i.e., turnover exceeding £70 million), or where the transaction will result in the creation or increase of a 25% share of supply in the UK, businesses should seriously consider a filing to avoid the consequences of non-notification if the CMA decides to investigate on its own initiative or as a result of third party complaint. Additionally, although still unconfirmed, a mandatory merger regime may be introduced for mergers above a certain threshold.
  • The CMA may assume jurisdiction for enforcing and monitoring the UK elements of commitments given by merging parties to the European Commission if the European Commission agrees to transfer responsibility.
  • The CMA will assume full responsibility for antitrust investigations with a UK dimension.
  • The European Commission will no longer have the power to conduct dawn raids on UK premises. However, UK businesses with European operations may of course still be subject to EU dawn raids if EU competition law infringements are suspected in EU Member States.

The current block exemption regulations will continue under UK law as “retained exemptions”.  This is reflected in the Competition Amendment (EU Exit) Regulations 2019 which introduced every provision of the current block exemption regulations by removing any reference to the EU or internal market. Post-transition, the retained exemptions will operate as exemptions from domestic competition law prohibitions for as long as they remain in force. The power to vary, extend or revoke the retained exemptions will lie with the Government in consultation with the CMA.

 

State aid law: dynamic alignment or a new UK regime?

EU state aid rules will continue to apply to the UK during the transition period.

In its recent Annual Plan consultation 2020/2021, the CMA noted its planning for state aid enforcement powers (subject to formal conferral). The EU’s negotiating mandate proposes that the “envisaged partnership should ensure the application of Union State aid rules to and in the United Kingdom” and that the UK should establish an authority with effective enforcement powers to work “in close cooperation” with the EU, i.e., the so-called ‘dynamic alignment’. The UK Government has, however, reportedly expressed an intention to adopt a different State aid regime.