Will the UK competition law regime change materially as a result of Brexit?
The UK competition law rules – i.e. the prohibitions on agreements that restrict competition (“by object” or “by effect”) and on abusing a dominant market position – remain unchanged following the end of the “implementation period” under the Withdrawal Agreement. These UK rules are essentially the same as the equivalent EU rules, although the UK prohibitions catch conduct affecting competition and trade within the UK, whereas the EU rules apply to competition and trade within the EU. The EU-UK Trade and Cooperation Agreement (TCA) includes a commitment by both parties to maintain effective competition laws to address anti-competitive agreements and abuses of a dominant position, essentially maintaining the status quo of the existing EU and UK competition law rules.
The underpinning ideologies for the EU and UK competition law prohibitions are globally accepted, so even absent the formal commitment that has ultimately been included in the TCA, there was expected to be a reluctance to amend the core rules. However, we foresee that over time there could be scope for divergence in their application. Following the end of the implementation period, the UK competition authorities and courts must interpret UK competition law in line with EU competition case law pre-dating the end of the implementation period (but not EU case law after that period). However, they will also have discretion to depart in certain circumstances if “appropriate”. In addition, there is no requirement for such consistency where bound by a principle or decision of a UK court or tribunal that requires them to act otherwise.
How will Brexit affect mergers and acquisitions which are assessed by the “one stop shop” provided by the European Commission?
The TCA includes a commitment to maintain effective merger control rules to address significantly anti-competitive mergers, although it was always expected that the UK would maintain its merger control regime following Brexit.
A wide range of mergers and acquisitions involving UK companies fall within the scope of the EU merger control rules. If the parties to the transaction satisfy the relevant jurisdictional thresholds under the EU Merger Regulation, the transaction must be notified to, and approved by, the Commission before it can be implemented. Generally, if a transaction falls within the scope of the EU regime, the Commission has exclusive jurisdiction over it, thereby precluding examination by the national competition authorities in the individual EU Member States.
Following the end of the implementation period (during which the UK remained within the EU merger control regime), this “one stop shop” provided by the European Commission no longer applies to the UK. Parties therefore now have to consider the possible application of the UK merger control rules in addition to any potential EU notification.
Parties falling within the scope of both regimes will consequently face the prospect of concurrent merger filings. This will lead to increased costs and complexity and pose the risk of divergent decision-making in relation to the same transaction, thereby increasing regulatory uncertainty. For the largest transactions that trigger multiple filing requirements around the world, the possibility of an additional filing in the UK to the Competition and Markets Authority (CMA) is unlikely to result in considerable inconvenience in this regard. However, the risks are greater for transactions that previously would trigger an EU notification but few if any filing requirements elsewhere.
For some transactions, whether parties’ UK turnover counts as EU turnover for the purposes of applying the EU merger control thresholds could materially affect whether a notification is required to the European Commission. UK turnover no longer counts as EU turnover for transactions being notified after 31 December 2020 – provided a relevant trigger event for establishing jurisdiction under the EU Merger Regulation did not occur before the end of 2020.
Under the Withdrawal Agreement, the Commission will retain jurisdiction over transactions notified to it during the implementation period in respect of which its review remains ongoing at the end of that period. Parties to transactions in this position therefore have comfort that the CMA cannot launch a concurrent review of their transaction now that the implementation period has ended.
To be in a position to review transactions coming within its jurisdiction following the end of the implementation period, the CMA made known that it would be monitoring potentially relevant transactions as well as engaging in early pre-notification discussions with relevant parties from early autumn 2020.
Are UK businesses free to ignore the EU competition rules following Brexit?
The short answer to this question is “no”. EU law continues to apply to UK companies trading in the EU following Brexit. However, the UK will no longer directly participate in the formation of the EU rules or jurisprudence.
Many UK companies therefore still need to take account of both UK and EU competition law. During the implementation period (i.e. until 31 December 2020), either – but not both of – the European Commission or the CMA (or possibly one of the UK sector regulators with concurrent competition law powers) would conduct any investigation in relation to a suspected anti-competitive agreement entered into by a UK company which affects trade within the EU. However, now that the implementation period has ended, both authorities may start a simultaneous investigation (although the CMA will be considering only the UK aspects). This will inevitably give rise to significant additional costs, delays and complexity for UK businesses, notwithstanding that the TCA includes a commitment that the European Commission (as well as the national competition authorities of EU Member States) and the CMA (and UK sector regulators) will endeavour to cooperate and coordinate on related investigations where appropriate and can exchange information to the extent permitted by each party’s laws, with a possible separate agreement also envisaged to further facilitate such cooperation and exchanges of confidential information.
Under the Withdrawal Agreement, the Commission retains jurisdiction over investigations it has formally initiated prior to the end of the implementation period that are ongoing at the end of that period (and dawn raids remain possible in the UK in respect of these EU investigations). Parties to such investigations will therefore generally not face the prospect of a concurrent investigation by the CMA (or a UK sector regulator) into the same conduct the Commission is investigating despite the implementation period having now ended. However, where the Commission has formally initiated an investigation before the end of the implementation period but the conduct is ongoing after that period, parties could face the prospect of a separate UK investigation into the UK aspects concerning facts post-dating the implementation period.
As a consequence of Brexit, executives and other decision makers in global companies potentially also face an increased risk of personal sanctions in the UK for serious infringements of the competition rules given the CMA will be able to investigate the UK aspects of the largest international cartels that previously the European Commission investigated alone. Whereas the EU competition regime provides for sanctions against businesses only, individuals also face personal risks under the UK regime, such as disqualification from holding directorships in the UK, personal fines and even imprisonment. The CMA is increasingly active in pursuing director disqualifications in particular.
Will the UK enact rules prohibiting aid granted by the State in favour of particular businesses and/or the production of certain goods or services?
EU law prohibits any aid which is granted directly or indirectly by an EU Member State in favour of a particular business or the production of certain goods/services and which distorts, or threatens to distort, competition and affects trade within the EU. The prohibition is intended to prevent individual EU Member States from favouring national companies and restricting competition within the EU single market. The EEA Agreement contains a similar prohibition.
The UK Business Secretary, Alok Sharma, confirmed on 9 September 2020 that the UK will follow WTO subsidy rules after the end of the implementation period as well as any international obligations on subsidies agreed under future free trade agreements. The WTO rules apply to goods and not services, ban subsidies that are dependent on how much a company exports or the use of domestic goods over imports, and provide a mechanism to resolve disputes between countries for all other subsidies. They are therefore substantially narrower in scope than the EU state aid rules.
In contrast to the WTO rules, the framework for subsidy control agreed under the TCA (which was one of the final points to be settled) largely replicates the EU state aid regime in substance, although also allows the UK considerable flexibility in adopting its new regime. The definition of “subsidy” is essentially the same as under EU state aid law, capturing a broad range of financial assistance and regarding both goods and services. Each party must have an effective system of subsidy control, ensuring subsidies respect certain key principles (e.g. proportionality) and preventing any material effect on trade or investment between the EU and UK. The TCA also sets out types of subsidies that are prohibited (e.g. unlimited state guarantees) or subject to conditions (e.g. subsidies regarding large cross-border or international cooperation projects, such as for energy), as well as certain exceptions.
The UK has agreed to establish an independent authority or body with “an appropriate role” in its regime, but subsidies do not need to be notified to that authority for prior approval. This differs to EU state aid law which requires prior notification to the European Commission, although in practice the vast majority of aid in the EU is exempted under formal block exemptions without needing to be notified. The UK is not required to adopt similar block exemptions, although this would seem helpful and the UK Government has indicated that secondary legislation may come in early 2021. New primary legislation may also follow with the Government intending to publish a broader consultation on how best to design a bespoke approach to subsidy control for the UK economy.
Interested parties will be able to challenge UK subsidies before the UK courts, with possible remedies including damages and recovery of incompatible aid. The TCA also includes mechanisms to resolve disputes between the EU and UK regarding whether particular subsidies are compatible with the agreed requirements.
It should also be noted that the Protocol on Ireland/Northern Ireland envisages that EU state aid law will continue to apply in respect of trade which affects both Northern Ireland and the EU. However, there is potential complexity around how this will work in practice and interact with the TCA subsidy control provisions.
Under the Withdrawal Agreement, for a period of four years after the implementation period ends, the European Commission will retain the ability to initiate new investigations in respect of UK aid granted before the end of the implementation period.
At EU level, there are a number of proposals for new powers to protect the EU single market against distortions caused by foreign subsidies from outside the EU. As set out in a White Paper published in June 2020 for consultation, the proposals include possible powers to remedy distortions caused by foreign subsidies, a new notification system for acquisitions of EU companies where the acquirer has benefitted from financial support from a non-EU government, and possible exclusion from procurement procedures if a bidder has received a foreign subsidy that makes the procedure unfair. These proposals could impact UK businesses if introduced, given the UK is no longer an EU Member State.
Will UK businesses have an advantage over EU and EEA businesses in UK tender procedures for public contracts?
In preparation for Brexit, the UK Government expressed its interest in becoming a party in its own right to the WTO’s Government Procurement Agreement (GPA) subject to the rights and obligations it had under the GPA as an EU Member State. In February 2019, parties to the GPA gave their final approval to UK accession in its own right after Brexit, and in October 2020 invited the UK to complete the remaining steps to achieve this. The UK acceded to the GPA in its own right on January 1, 2021 (having continued to be treated as an EU Member State for the purposes of the GPA, as well as having “observer” status, during the implementation period while in the process of acceding in its own right).
Accession to the GPA means that most publicly-tendered contracts must be open to companies from other GPA economies (which includes the EU as one member, and other developed economies such as the US, Canada, Japan and Switzerland). UK companies will also retain the ability to tender for public contracts in other GPA countries – including EU Member States. The scope of EU procurement activities covered under the GPA is narrower than under the EU procurement rules, but the procurement provisions in the TCA cover a broader range of activities than the GPA.
The provisions on procurement in the TCA are based on and extend beyond the GPA. The TCA provides for a transparent and non-discriminatory framework of rules for public procurement. UK public procurement markets covered by the TCA are open to EU bidders on an equal footing, and vice versa, including for small contracts. In addition to markets covered by the GPA, the TCA procurement provisions also apply to gas and heat distribution networks, private utilities acting as a monopoly and various additional services concerning hotels, restaurants, food service, telecoms, real estate, other business services and education.
In addition to the protections afforded by the TCA and GPA, EU and EEA businesses generally also have the option of tendering for UK contracts by either establishing a UK subsidiary or partnering with a UK-based entity.
The Withdrawal Agreement provides that applicable EU procurement rules will continue to apply to UK procurement procedures that are deemed ongoing at the end of the implementation period (including relevant framework agreements).
Finally, as mentioned above, proposals to introduce new powers to protect the EU single market from foreign subsidies include the possibility of bidders being excluded from EU procurement procedures if they have received a foreign subsidy that makes the procedure unfair. This is a development to watch with the UK outside the EU.