The UK left the EU at midnight CET on 1 February 2020. This event was greeted with celebration and sorrow from the two roughly equal halves of the UK population who were in favour and against. In a typically British fashion, the consensus view now is that Brexit is probably a bad idea, but the UK is obliged to go through with it having got to this point.
But what does this actually mean for competition law? The Withdrawal Agreement between the UK and EU provides that, unless otherwise set out in the Agreement, EU law applies to the UK as if it were a Member State throughout the Implementation Period (more commonly referred to as the “Transition”). The substantive competition law obligations are caught by this provision, and so the key date becomes the end of the Transition.
This Transition end date is currently scheduled for 31 December 2020, and the UK Government has made a great show about “enshrining” the date in law without the possibility of an extension. However these statements should be taken with a large measure of salt: not only is the UK Parliament incapable of passing legislation which binds itself in future, but the Withdrawal Act itself appears to contain a measure (at Section 39, buried within what is otherwise a definitions section of the Act) which could potentially be used by the Government to extend the Transition without needing to pass a new Act. For the purposes of this article however, we shall presume that the UK Prime Minister should be taken at his word, and that the Transition will end on 31 December.
Merger control- a question of timing
The UK will still count as an EU Member State until the end of 2020. In practice, this means that an undertaking’s UK turnover will count towards the EU Merger Regulation jurisdictional tests and, if a merger hitting these thresholds by virtue of its UK turnover is completed before 31 December 2020 without a filing to the Commission having been made, the European Commission (Commission) may impose a fine.
Post-2020, the Commission will continue to have jurisdiction over all mergers which were notified to it prior to 31 December. In practical terms, this means that the formal merger filing will need to have been accepted by the Commission before this date. The Commission closes for the end of the year from 24 December and does not reopen until 4 January 2021. Additionally, the Commission will only regard a filing as having been made once it has accepted it, which only happens the working day after it has been physically lodged at the registry. Accordingly, a filing being made to the Commission must be made (at the latest) by 22 December 2020 for the Commission’s analysis and clearance decision to include the UK.
This (however) is only the case for filings where the Commission has a clear jurisdiction: where the merging parties are requesting that a merger notifiable in three jurisdictions or more be reviewed by the Commission instead, at least a further 15 working days should be allowed (taking the final day to 1 December at the very latest). Bringing the deadline forward further still is the fact that, prior to any filing, pre-notification contact with the Commission should be made beforehand by the merging parties. The Commission’s own best practice guidance suggests pre-notification of at least two weeks before a filing is made (given that case allocation requests must arrive at the Commission at 12pm CET on a Friday if the case is to be picked up the following week, the 22 December filing, must be submitted for allocation by 4 December). In practice, pre-notification for complex cases will often take several months, and there may well be a last minute rush of notifications prior to the end of the Transition. Pre-notification contact with the Commission for non-straightforward cases should therefore begin in September at the latest in order for a notification to be agreed by the Commission as ready in time.
As well as the added burden of filing in an additional jurisdiction, merging parties are likely to wish to file with the Commission to avoid the merger fees charged by the UK Competition and Markets Authority (CMA), as well as avoid dealing with its merger enforcement arm in place of the Commission’s. The number of mergers referred to an in-depth review by the CMA has greatly increased over the past 18 months and the consensus view of practitioners (although officially contested by the CMA) is that the CMA has lowered the bar for what it considers to be a problematic impact on competition justifying intervention. A further disincentive for filing in the UK is the CMA’s hold-separate regime, originally put in place to prevent gun-jumping but which in practice goes beyond it in terms of the restrictions placed on the decisions merging parties can freely take during the review period.
Even if a filing is made in time, it will not necessarily be enough to avoid the CMA, which will retain its powers under the EU Merger Regulation to request that mergers be referred to it in whole (if the effect of the merger is solely within the UK) or in part (if a distinct UK market is affected). These referral requests have previously been limited to high profile markets (such as telecoms) or cases with a high potential impact on consumers’ lives, but only in the UK (such as rail franchise awards). This may change as the end of the Transition looms and the CMA seeks to ensure that the interests of UK consumers are protected.
Competition enforcement- the internet is here
For competition enforcement, the Commission will retain jurisdiction over cases where administrative proceedings have been initiated prior to the end of the Transition. The formal initiation of administrative proceedings is actually a very late stage in the Commission’s investigations of a potential breach of competition law. It does not need to take place (and in practice does not take place) before the Commission has come to a view on the facts of the matter, ceased gathering more information and made a provisional decision on whether or not to impose a fine or accept commitments. Accordingly, it does not appear particularly likely that the Commission could open a case in the UK tomorrow with the expectation of retaining jurisdiction post-Transition, although it may wish to exercise its “dawn raid” powers of investigation on UK soil in 2020, not least because of its abilities to gather information which would be privileged from disclosure to the CMA (such as legal advice from in-house lawyers).
The suggestion is that the CMA will not choose to run purely parallel proceedings with the Commission, if the end result of the latter’s investigations is likely to impose a remedy which will, by its very nature, remedy the issue in the UK as well.
With regard to competition law itself, nothing will change overnight. There will still be a prohibition on anticompetitive agreements and abuses of dominance. By default, as with all other EU jurisprudence, cases on competition law can be overruled solely by the UK Supreme Court, although there is the suggestion that the UK Government may extend this to the UK’s Competition Appeal Tribunal and the CMA itself.
What laws would change? One common suggestion is that the various “hardcore” restrictions in the vertical block exemption regulation designed to push forward the Single Market agenda (such as bans on restricting the territories into which distributors can sell) would fall by the wayside. Additionally, there appears to be scope to push back the ban on restrictions on eCommerce. The UK already has a very high penetration of internet sales, and a common concern is the “death” of the UK high street as shops are increasingly undercut by online distributors. There is a case to be made that, as far as the UK is concerned, case law such as Pierre Fabre is the wrong way round in terms of the markets that should be nurtured. Allowing suppliers to recognise the value of a physical “showroom” for products through giving a discount to products sold through that channel, or creating offline-only SKUs could help redress this balance.
State aid- plus ça change, plus c'est la même chose
As well as the State aid rules applying throughout the Transition, the Commission has authority to initiate new administrative procedures with respect to any aid granted during the Transition for a four year period after its conclusion.
Post-Transition, the UK will be able to set its own State aid rules for Great Britain. State aid Northern Ireland will, however be caught by the “backstop” provisions of the Withdrawal Agreement which prevent border checks being necessary on the UK/Irish land border. So too will State aid which may affect trade between Northern Ireland and the rest of the UK. This will have consequences for the UK’s ability to grant State aid in cases where the aid is focussed on British beneficiaries.
One example would be State aid to Flybe, a struggling UK airline granted rescue aid by the UK Government in early 2020. The suggestion has been made that the end of the Transition would make rescue aid to Flybe easier to grant. However, Flybe makes several flights each day to destinations in Northern Ireland, meaning that aid granted to it or any businesses in a similar position post-Transition would in all likelihood fall foul of the backstop provisions.
The EU has also stated that it would make State aid a condition of any free trade agreement with the UK. It is therefore no surprise that the UK Government is considering a new form of State aid (or “subsidy control”) regime which, while containing several “improvements”, appears to share the existing system’s prohibition of aid being the rule, with any grant of aid needing to benefit from an exception.
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