Menu

Brexit: Implications for competition law

backlit business people around a table Print publication

24/06/2016

Introduction and the alternatives to EU Membership

This note examines the impact of the decision to vote for Brexit on competition law.

The effect on Brexit will depend on how the UK defines its post-Brexit relationship with the EU. The most commonly proposed models for the UK’s post-Brexit relationship with the EU are:

  • Apply to join the European Economic Area (EEA) – the Norwegian option: The UK might apply to join the EEA (which includes the 28 Member States plus Iceland, Liechtenstein and Norway) to participate in the internal market without the obligation to participate in EU policies on agriculture, foreign policy etc. To do so, the UK would also have to join the European Free Trade Association (EFTA). Under this model, all the single market rules (including competition law) would still apply after a Brexit.
  • Apply to join the EFTA – the Swiss option: Switzerland is a member of the EFTA, but not the EEA. Accordingly, the UK might join the EFTA but not remain within the EEA, and negotiate a series of bilateral agreements with the EU to secure (some) single market access. Switzerland has negotiated about 100 bilateral agreements with the EU, although none of these concern financial or other services. In areas covered by bilateral agreements, Switzerland has had to incorporate EU law and make a financial contribution to the EU. However, the EU is unhappy with the Swiss model, partly as a result of recent Swiss restrictions on freedom of movement, and is trying to negotiate a new stricter agreement as a quid pro quo for Swiss access to the single market. Consequently, the current Swiss model may not be available to the UK.
  • Total exit from the EU and EU single market: The UK could either rely on the rules of the World Trade Organisation to continue trading with the EU or seek to negotiate a new free trade agreement (similar to that recently negotiated between the EU and Canada).

How a Brexit could affect competition law

For the purposes of this note, we are assuming that the UK pursues a Brexit option which gives it significant freedom from existing EU competition rules. On that basis, a Brexit could affect competition law in the following ways:

  • Merger control: The EU Merger Regulation (EUMR) introduced a so-called one-stop-shop regime, under which a transaction that qualifies under the EUMR is no longer subject to the merger control regime(s) of the relevant Member State(s) (subject to some exceptions). If the UK is no longer a Member State, the EUMR and UK merger control regimes could run in parallel. A transaction that qualifies under the EUMR may be subject in addition to UK merger control post-Brexit (provided the jurisdictional threshold for UK merger control is met). This could add a burden and cost for businesses, in particular in view of the UK merger fee (ranging from £40,000 to £160,000 depending on the UK turnover of the enterprises acquired) and the longer time frames for UK merger control clearance.
  • Competition compliance: One of the main consequences of a Brexit is that the UK Competition and Markets Authority (CMA) and UK courts would no longer be bound by EU competition jurisprudence. Over time, this may result in increasing divergence in the application of UK and EU competition rules. In turn, this may increase the cost of competition law compliance for companies active in both the UK and EU markets.
  • Competition investigations: Currently, the European Commission (EC) has jurisdiction to investigate potential competition law infringements that have an impact in the EU or EEA, and if it does so, the CMA can not investigate the matter. Following a Brexit, companies could face parallel investigations. The EC would investigate the conduct of a business affecting trade within the EU, while the CMA investigates conducting affecting trade within the UK. This would lead to separate fines and additional costs for the parties, as well as uncertainty as to the outcome (the EC and CMA could produce inconsistent decisions).
  • Legal privilege: At present, advice given by EEA qualified lawyers is privileged for the purpose of EU competition law. After a Brexit, advice to clients from external UK-qualified lawyers (who are not qualified elsewhere in the EEA) will not be protected by privilege and can be read/copied by the EC when investigating companies.
  • State aid: The state aid rules prohibit Member States from distorting competition by granting aid to specific businesses. There is no equivalent provision in UK competition law. The obligations only apply to Member States, so the UK outside the EU would be able (subject to World Trade Organisation rules) to provide aid to businesses in the UK without fear of EU action. Conversely, the UK would have no scope to oppose the grant of unlawful aid by other Member States.
  • Private enforcement: Follow-on damages actions for breach of competition law, in which the claimant relies on an existing infringement decision, are increasingly common in the UK. Following a Brexit, EU infringement decisions will cease to have a binding effect on the UK courts. This may affect the ability of UK claimants to bring follow-on damages in the UK in reliance of an EU infringement decision, although follow-on claims will still be possible following a UK infringement decision.
  • Single market: The EU competition rules are designed to remove, as far as possible, national barriers to cross-border trade (e.g. exclusive territorial protection and restrictions on purchasing parallel traded products). Following a Brexit, UK businesses may have more scope to ring-fence the UK market from EU competitors through contractual provisions and commercial practices.
  • Competition policy: The CMA is an active member of international bodies such as the ICN and the OECD and is committed to cooperation with competition agencies around the world. Therefore, after a Brexit the CMA would be likely to continue to cooperate with DG Competition and the competition authorities of EU Member States in enforcing the UK competition rules. However, that cooperation would not be as close as that which currently takes place within the ECN, from which the UK will be excluded. Divergent enforcement policies and priorities could well emerge as the UK fashions its own competition policy outside the EU structure and processes.

Conclusion

To conclude, the impact of a Brexit will depend on the terms of any final agreement reached by the UK Government with the EU. If the UK were to join the EEA and have a status similar to Norway, it is likely that UK businesses would be more affected by EU competition law decisions, but without the UK being involved in the institutional process leading to these decisions being adopted. One area where the UK is likely to enjoy greater freedom is in the area of state aid control. But even this might be limited under the terms of an eventual agreement between the UK and EU.

Contacts