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UK review of the retained Vertical Block Exemption Regulation: Will the UK and EU competition regimes diverge on supply and distribution arrangements?

February 25, 2021

The UK Competition and Markets Authority (CMA) is reviewing the version of the EU Vertical Block Exemption Regulation (VBER) retained in UK law following the end of the Brexit implementation period. This review, which had been expected, was confirmed by the CMA and the Department for Business, Energy and Industrial Strategy (BEIS) on February 10, 2021. The review should ensure UK competition analysis of vertical agreements (i.e. supply and distribution arrangements) is better adapted to up-to-date business practices and e-commerce – but businesses active in both the EU and the UK face greater complexity if the approach to vertical agreements under EU and UK competition law starts to diverge.

The CMA will run a series of roundtables this spring for interested stakeholders as part of its review – businesses that rely heavily on the VBER, or trade associations whose members do so, would be well-advised to express interest in taking part (there is a dedicated email address to do so – see here). A formal consultation is then expected over the summer prior to the CMA presenting its final recommendations to the Business Secretary in the autumn.

The VBER is an important tool for business – vertical agreements that meet the criteria set out in the VBER (which include that the parties’ relevant market shares do not exceed 30 per cent, and the agreement does not contain certain “hard-core” restrictions) are automatically exempted from competition law, whereas other agreements require more careful assessment to determine whether they are compatible with the competition rules. The European Commission has also published detailed Guidelines on Vertical Restraints to aid this assessment.

The European Commission is itself already consulting on how both the EU version of the VBER and its related Guidelines on Vertical Restraints should be amended before finalising new versions that will apply after May 31, 2022 – when the current VBER is due to expire. The new versions are expected to better reflect online business models given the vast growth in e-commerce since these documents were last updated in 2010.

Following the end of the Brexit implementation period the VBER has been retained in UK law but with limited changes to correct Brexit-related deficiencies (e.g. references to Euros have been changed to Pounds Sterling, the internal market is now the UK etc). Meanwhile, the related EU Guidelines have the status of relevant statements of the European Commission to which the CMA, UK sector regulators with competition law powers and UK courts must have regard after December 31, 2020. The treatment of vertical agreements under the EU and UK competition regimes therefore remains aligned for now, but the concurrent EU and UK reviews introduce potential for divergence.

Like the EU version, the VBER retained in UK law also expires in May 2022, and therefore it always seemed likely the CMA would conduct a similar review to that already being undertaken by the European Commission (and there had been noises from the CMA in recent weeks that a review was coming). The CMA has indicated that it intends to draw on the European Commission’s own review, which seems sensible and suggests the outcome will not be wholesale divergence between the EU and UK approaches.

The scope for divergence is arguably greater regarding the Guidelines than the VBER itself – the VBER is a relatively short document and we would expect the CMA and European Commission to remain broadly aligned on, for example, criteria around the types of anti-competitive conduct that cause an agreement to fall outside the VBER. In contrast, the Guidelines are much more detailed, and any new UK version of the Guidelines is unlikely to replicate the EU Guidelines word-for-word. There is particular interest in how the CMA decides to tackle issues relating to restriction of cross-border trade, post-Brexit.  However, the extent of any divergence is likely to become clearer when the CMA launches its formal consultation over the summer.

This is the second Brexit-related consultation concerning UK competition law announced in recent weeks. On February 3, 2021, BEIS launched a consultation on how best to design the UK’s new subsidy control regime (see here), with the UK now outside the EU state aid regime (subject to certain exceptions, including under the Northern Ireland Protocol). Under the EU-UK Trade and Cooperation Agreement (TCA) the UK has committed to a framework for subsidy control that largely replicates the EU state aid regime in substance, while also retaining considerable flexibility in adopting its new regime. The subsidy control consultation is therefore an important step in finalising the UK’s new subsidy control regime – although the outcome will need to be compatible the UK’s commitments under the TCA, it other relevant trade agreements and the WTO rules.

For more on the European Commission’s review of the VBER and Guidelines on Vertical Restraints, watch our recent webinar available here where members of our antitrust and competition team discuss this. You can also read more about the impact of Brexit on antitrust and competition in our Q&A here.