United States: Observations On "Brexit" And The EU/UK Competition Law Regime

Rightly considered to be a "once in a generation decision," the UK electorate will on 23 June 2016 have a chance to vote on whether the UK should remain a member of the European Union ("EU").

This upcoming referendum has resulted in emotional rhetoric and heated discussions in the media (and no doubt around dining tables throughout the UK and elsewhere) on which way to vote, and why. However, what is striking to us is the relative lack of focus on the legal implications of so-called "Brexit," including on EU and UK competition law.

Why is this striking? First, die-hards in both camps have been vocal about the issue of "sovereignty" and yet the issue of the EU's "exclusive competence" in the important economic area of EU competition law (which means in certain circumstances that national authorities do not have the "final say" over certain transactions and conduct that affect market conditions in their country) has gained hardly any traction. Secondly, EU competition law is an important pillar of, and tool used by the European Commission to achieve, the coalescence and functioning of EU internal markets – arguably, the raison d'être for the EU – which is a concept that is so abhorrent to those who rail against a "one size fits all" approach. Thirdly, a departure from the EU with a model that means that the acquis communautaire (i.e. EU law) is no longer applicable to the UK would allow the UK to forge its own competition law policy and pursue objectives, such as state aid and other forms of protectionism for UK markets and companies, which it is currently handcuffed from doing, and which would arguably be a more tantalising prospect and easy "siren call" for those with more nationalistic tendencies (reference is made to the current disintegration of the domestic steel industry under the weight of Chinese imports).

So what do we think might be the impact of Brexit on the EU competition law regime? We do not envisage that Brexit would directly result in any substantive legal changes or policy changes on the European Commission's part, except for a possible change to the jurisdictional thresholds for notifications under the EU Merger Regulation (in light of the departure of a significant Member State). The corollary of this would of course be fewer notifications to the European Commission but a major increase in transactions falling under the jurisdiction of the UK's Competition and Markets Authority. The practical consequence of this would be that competition lawyers and their clients would have one more filing to consider when the jurisdictional thresholds for an EU filing are met.

Rather, we would expect the impact of Brexit to be felt more keenly on the UK competition law regime and even then, in the medium to long-term, rather than the short term.

We say this because the UK will need to invoke Article 50 of the Treaty on European Union ("TEU") at some point following any decision to withdraw. This would trigger a period of negotiation regarding its future relationship with the EU and in respect of which an agreement would need to be reached (see Article 50(2) TEU). The effect of this would ultimately be that EU law would no longer apply from the date of the UK's agreement with the EU on withdrawal or two years after the date the UK properly notified the EU of its intention to withdraw, unless this period of negotiation is extended in line with Article 50(3) TEU. But these negotiations could take some time and in the meantime, given that UK's national competition law regime mirrors the EU regime, and that Article 60 of the UK's Competition Act 1998 means that UK competition law cannot be applied in a way that is inconsistent with EU competition law, there should be no impact on the UK regime in the immediate or short-term (however long that might be!).

The impact in the medium to long-term will depend on the model of cooperation chosen with the EU, which would fall into one of two categories: (i) a model where EU law applies or must be followed; or (ii) a model where EU law does not apply or need to be followed. Current forms of cooperation being bandied around are models based on a series of bilateral treaties between the UK and the EU bloc or membership of a continent-wide free trade area (the "Albanian model") with a "distinctly British" arrangement. Other models discussed were a "Canada-like" free trade agreement and the Norwegian EEA model.

In the event that a model in category (ii) is chosen the impact is likely to include:

  1. The eradication of the "one-stop-shop" principle, resulting in parallel merger control investigations as well as cartel and other behavioural investigations in the UK and EU, which would result in increased costs and potential delays for businesses.
  2. Substantive legal divergence (particularly in relation to anti-competitive conduct and the abuse of a dominant position) which would be the natural consequence of possible legal and policy experimentation by the relevant UK authorities/courts over the longer term.
  3. Claimants in follow-on damages actions for EU-wide infringements not being able to rely on findings of anti-competitive conduct by the European Commission. In the longer term, claimants may also not benefit fully from certain principles laid down in the EU Damages Directive, to the extent that UK law takes a different direction in this area.

In conclusion, the knock-on effect of Brexit is a period of uncertainty for practitioners and businesses, potentially followed by a new order with increased regulatory costs and parallel EU and UK investigations.

The decision that will be made by the UK electorate on the 23 June 2016 is a serious one in relation to which competition law should be given the adequate level of attention in light of its importance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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