The Consequences of Brexit on Consumers and Businesses in UK Competition Law.

The Consequences of Brexit on Consumers and Businesses in UK Competition Law.
Author: Chi Hoe Tang
Queen’s University, Belfast

This essay constitutes a critical analysis of the consequences of Brexit in the area of competition law with respect to consumers and businesses in the UK. It is submitted that Brexit’s consequences will be ‘negligible’ to businesses and consumers in the event that the draft Withdrawal Agreement on Brexit [1] is ratified, but not if the UK faces a ‘no deal’ scenario. This proposition is predicated on two working assumptions. Firstly, Theresa May’s commitment to her vision of a post-Brexit scenario in which the UK fully withdraws from the European Economic Area (EEA) and the Internal Market will be realised. [2] Such a scenario lends itself well to discourse because a post-Brexit scenario where the UK remains a member of the EEA would have little effect on consumers and businesses in terms of competition law as EU competition law provisions are mirrored in the EEA Agreement. [3] Secondly, it is assumed that the trajectory of UK competition law post-Brexit will be as it was pre-Brexit based on the history of its development. Due to the expansive scope of competition law, this essay will be limited to a discussion of potential changes Brexit will bring to the subareas of antitrust and mergers. A comparison will be made of the similarities and contrasts between the current competition framework in the aforementioned areas and the potential post-Brexit changes in order to appreciate the consequences of these alterations on UK consumers and businesses.

Brexit – Withdrawal Agreement or ‘No Deal’?

On 29 March 2017, the UK Government (‘the Government’)  invoked Article 50 of the Treaty on European Union by formal notice to terminate its membership of the EU following the results of the June 2016 EU referendum. [4] The European Union (Withdrawal) Act 2018 was enacted to repeal the European Communities Act 1972 [5] and incorporate EU law into domestic law while allowing Government the ability to amend the retained EU law to mitigate deficiencies resulting from Brexit. [6] After a period of lengthy and fraught discussions, UK and EU negotiators agreed to a draft Withdrawal Agreement, the text of which was published by the European Commission on 14 November 2018. [7] The draft Withdrawal Agreement addresses a host of key issues relating to the aftermath of Brexit, the most pertinent to competition law being the arrangements concerning the ‘transition period’, during which the UK will effectively be treated by the EU as a Member State but without the right to take part in its policy-making. [8] The lack of UK involvement in EU-wide competition policy will diminish the UK’s ability to influence EU competition policy to continue reflecting its ‘neoliberal’ history of market-opening, corporatisation, deregulation and privatisation of public enterprises. [9] This would adversely impact British consumers and businesses in the event certain EU Member States decide to pursue more protectionist policies as a means of protecting their own national interests.

It should be noted from the outset that the implementation of the transition period is contentious and entirely dependent upon ratification of the draft Withdrawal Agreement by both UK and EU Parliaments. [10] To suggest that the draft Withdrawal Agreement was not well received by all would be an understatement in light of the resignation of two UK Cabinet ministers in protest following its announcement. [11] Failure to ratify would result in a ‘no deal’ Brexit where the UK would cease to be a member of the EU on 29 March 2019 (‘Brexit Day’) with no transition period in place. [12]

The consequences of Brexit on consumers and businesses in the area of competition law will vary depending on whether the draft Withdrawal Agreement is ultimately ratified and a transition period is implemented, or whether the UK faces a ‘no deal’ scenario with no transition period. This essay will examine the consequences of both scenarios.

Antitrust

In brief, the current pre-Brexit competition law framework is as follows. Under domestic competition law, the key provisions on antitrust are contained in the Competition Act 1998 (‘CA 1998’). [13] Chapter I prohibits anticompetitive agreements whereas Chapter II prohibits abuse of a dominant market position. [14] These provisions are substantively similar to Articles 101 and 102 of the Treaty on the Functioning of the European Union (‘TFEU’), differing only with regard to territorial scope. [15] Articles 101 and 102 TFEU apply in circumstances where trade between EU Member States is affected. The alignment of domestic competition law with EU competition law is further reinforced by Section 60 of CA 1998 which requires the provisions of the 1998 Act to be interpreted consistently with EU law [16] as affirmed in Walt Wilhelm v Bundeskartellamt. [17] Domestic antitrust prohibitions are enforced by the Competition and Markets Authority (‘CMA’). [18] The European Commission is responsible for enforcing prohibitions under Articles 101 and 102 TFEU. [19] Its decisions may be appealed to the Courts of Justice of the European Union (‘CJEU’). Private claimants, such as businesses and consumers, may rely on a European Commission decision finding infringement of the aforementioned Articles to pursue a follow-on claim.[20] The CMA is also empowered to enforce Articles 101 and 102 TFEU. [21] Decisions of the CMA with regard to antitrust infringements under TFEU may be appealed to the Competition Appeal Tribunal (‘CAT’). [22]

Any change to this integration of EU and UK antitrust law and enforcement will invariably have consequences on both businesses, who must conform to antitrust legislation; and consumers, who have the right to bring a private action against companies in breach of antitrust provisions. However, a study of the draft Withdrawal Agreement and the Political Declaration drafted alongside it reveals that there will likely not be any substantive or procedural change to current antitrust laws should the draft Withdrawal Agreement be ratified, at least not during the transition period. This is because EU law will continue to apply in the UK until the end of transition period on 31 December 2020 [23] as per Article 127 of the draft Withdrawal Agreement. [24] The European Commission will therefore still be empowered to enforce EU antitrust law with the same investigative powers as outlined in Council Regulation (EC) 1/2003. [25] The continued application of EU law also implies the continued application of ‘parallel exemptions’ under Section 10 of CA 1998, whereby any agreement benefitting from EU Block Exemption Regulations, or a Commission exemption will be automatically exempt from the Chapter I prohibition. [26] Block exemptions adopted by the Commission are exempt from being caught under Article 101(1) TFEU by virtue of Article 101(3) TFEU. [27] Article 127(3) of the draft Withdrawal Agreement states that ‘During the transition period, the Union law applicable … shall be interpreted and applied in accordance with the same methods and general principles as those applicable within the Union’. [28] This would require the CMA and CAT to interpret UK antitrust law to be consistent with EU competition law during the transition period. In addition, Section 60 of CA 1998 would have to be retained in order to give effect to the provision.

At the end of the transition period, the Government has the choice of pursuing one of two options; extending the transition period subject to mutual agreement, or implementing the backstop solution as codified in the draft Withdrawal Agreement Protocol on Ireland and Northern Ireland (‘the Protocol’). [29] The antitrust framework during the extended transition period will be as discussed above.  Article 6 of the Protocol creates a ‘single customs territory’ between the UK and EU. [30] The enforcement of this single customs territory will require the Government to implement new antitrust laws as stipulated in the Protocol [31] to maintain a ‘level playing field’. [32] Again, the pre-Brexit antitrust framework will be maintained throughout the backstop period given that the antitrust laws listed under the Protocol use similar wording to the prohibitions under Articles 101 and 102 TFEU. [33] It is therefore argued that, in the scenario where the draft Withdrawal Agreement is ratified, the consequences to businesses and consumers will indeed be negligible as the antitrust framework during the transition and backstop periods would be largely unaltered from the existing framework.

In the event of a ‘no deal’ Brexit, the discussion on post-Brexit competition law and policy must be framed bearing in mind the Government’s desire for ‘a smooth and orderly exit’ from the EU. [34] Hence, it is likely that no fundamental change in the UK’s competition law regime will be made to reflect this based on the Government’s response to the House of Lords EU Internal Market subcommittee report on the impact of Brexit on the UK competition law framework. [35]  As EU law will cease to apply on Brexit Day, Section 60 of CA 1998 which binds the CMA and CAT to act consistently with EU competition law would have to be repealed. With regard to block exemptions, the Government intends to incorporate EU Block Exemptions Regulations until their expiration by way of the European Union (Withdrawal) Act 2018. [36] The implementation of new Block Exemption Orders to mirror Regulations enacted by the Commission after Brexit Day will be at the discretion of the Government under Section 6 of CA 1998. [37] Hence, businesses currently enjoying the benefits of EU block exemptions will continue to be able to do so, at least until their expiration.

The discussion above, premised on Government publications on the future of the UK’s antitrust framework, firmly indicates that there will be no drastic change to substantive domestic antitrust provisions bar a few tweaks such as the potential replacement of section 60 of CA 1998 to ensure antitrust legislation remains operational in a post-Brexit environment. This means little change in the way businesses must conform to antitrust legislation. As for the potential consequences for consumers, the private enforcement of antitrust law must be examined in the event the draft Withdrawal Agreement is ratified, or whether a ‘no deal’ scenario occurs. If ratification occurs, EU competition law continues to apply as discussed and there will be no impact on consumers in regard to private enforcement. In the case of a ‘no deal’ scenario, guidance on how private enforcement of antitrust law may be gleaned from the Government’s explanatory memorandum to the Competition (Amendment etc.) (EU Exit) Regulations 2019. [38] The aforementioned statutory instrument was drafted, in accordance with the European Union (Withdrawal) Act 2018, [39] to amend domestic competition legislation to omit references to EU law and duties relating to EU obligations, neither of which will apply as a result of a ‘no deal’ Brexit. [40] As clarified in the explanatory memorandum, Section 60 of CA 1998 will be replaced with Section 60A which provides that:

Competition regulators and UK courts will continue to be bound by an obligation to ensure no inconsistency with pre-exit EU competition case law when interpreting UK competition law, but that they may depart from such pre-exit EU case law where it is considered appropriate in the light of specified circumstances. [41]

Section 60A will apply regardless of whether the infringement occurred before or after Brexit Day. [42] The provision allows the CMA and CAT to adhere to EU competition case law while allowing for the possibility of future divergence between the competition case law of the two jurisdictions. It is therefore submitted that this preserves legal certainty for businesses and consumers who wish to bring claims for antitrust infringements. In addition, follow-on claims based on Commission decisions may only be heard in English courts if the decision was made before Brexit Day. [43] However, follow-on claims may still be made based on CMA decisions under UK law. [44] Since substantive competition case law of the UK is similar to that of the EU as divergence in competition case law has not yet had the opportunity to occur, it is submitted that the English courts will likely take EU competition case law into account even though they are not bound to do so in order to ensure legal certainty for businesses and consumers in the short-term.

            Another aspect to consider in relation to post-Brexit antitrust enforcement is the jurisdiction of the Commission, specifically its investigatory powers. If the draft Withdrawal Agreement is ratified, the Commission’s broad powers of investigation into antitrust matters will remain as they are under Council Regulation 1/2003 so long as the Commission initiates proceedings before the end of the transition period given the fact that EU law will cease to apply in the UK when the transition period ends. In a ‘no deal’ Brexit, the Commission’s powers to conduct investigations on UK business premises will be removed. [45] The CMA will be able to investigate antitrust breaches which occurred before and after Brexit Day, provided the Commission had not made a decision on the breach before Brexit Day. [46] In other words, the CMA may commence an investigation in relation to conduct the Commission is investigating, but has not published a decision by Brexit Day. Parallel investigations into the same conduct by the Commission and CMA may require settlement considerations and leniency applications to be considered in both jurisdictions simultaneously. A ‘no deal’ Brexit would therefore diminish the incentive of a cartel member to apply for leniency because the individual would now have to apply for leniency in multiple jurisdictions for protection. Prior to Brexit, the individual would have been protected in the UK by applying for leniency in any Member State of the EU. [47] It is submitted that the diminished effectiveness of leniency programmes would adversely affect consumers by reducing competition in the UK.

Merger Control

            Any potential change to the merger control regime in the UK post-Brexit will be of primary concern to businesses considering a merger transaction. Consumers also have an interest in there being a strong merger control regime to fulfil the purpose of preventing mergers which ‘significantly impede effective competition in the … market’ [48] which would be detrimental to them. Mergers in the UK are governed by the Enterprise Act 2002 (‘EA 2002’) which provides the CMA with decision-making powers to mitigate or prevent mergers expected to result in a ‘substantial lessening of competition’. [49] The EA 2002 currently gives effect to the EU Merger Regulation (‘EUMR’), most notably the provision establishing the ‘one-stop shop’ merger control regime in which the Commission has exclusive competence to review mergers that meet certain turnover thresholds. [50] A Brexit following ratification of the draft Withdrawal Agreement would have no immediate effect on consumers and businesses in the sphere of merger control because EU law, including the EUMR, will continue to apply throughout the transition period. [51]

In a ‘no deal’ scenario, the Government will revoke the EUMR and amend the EA 2002 by way of statutory instrument under the European Union (Withdrawal) Act 2018.^[1] The amendments will be made only insofar as to ‘render the statute book functional’ to remove references to EU law and institutions. [53] A palpable consequence of this is the loss of the ‘one-stop shop’ for UK companies. The CMA would be able to investigate all mergers affecting the UK market regardless of whether the same transaction is being investigated by the Commission. [54] If the Commission has not issued a decision by Brexit Day, the CMA would have jurisdiction to review the transaction. [55] As such, businesses are advised in the Government’s technical notice to seek early engagement with the CMA and the Commission if they anticipate that it is likely the Commission will be unable to issue a decision by Brexit Day. [56] Businesses considering a merger post-Brexit that would affect both the UK and EU would have to conform to the merger rules of both jurisdictions which would incur a greater financial burden. Moreover, it is argued that parallel filings to the CMA and the Commission may result in great inconvenience for businesses should CMA decide not to synchronise its merger review timetable with that of the Commission, which it has no obligation to do. The increased merger review work that the CMA would have to undertake would force it to divert its resources from its other functions such as antitrust enforcement and market investigations. As a result, consumers would be adversely affected by any reduction in competition as a result of weakened antitrust enforcement resulting from the loss of the ‘one-stop shop’.

Conclusion

It has been shown that substantive antitrust law and the merger control regime in the UK will remain largely familiar to businesses and consumers regardless of whether the draft Withdrawal Agreement is ratified. If ratification occurs, the effects of Brexit on businesses and consumers in these subareas of competition law can indeed be said to be ‘negligible’ throughout the transition period in which EU law will continue to apply. The same cannot be said in a ‘no deal’ scenario. In relation to antitrust, the CMA and CAT would no longer be bound by Commission decisions, [57] consumers and businesses would not be able to make follow-on claims based on Commission decisions made after Brexit day, [58] and leniency applications would become less attractive as discussed above. In relation to mergers, the loss of the ‘one-stop shop’ would incur greater financial cost for businesses and indirectly harm consumers by diverting the CMA’s resources to review mergers. Nevertheless, it is hoped that the CMA and UK courts will take EU competition case law into account in the interest of legal certainty for businesses and consumers, and that sufficient resources will be allocated to the CMA to reflect its increased scope to diminish the adverse effects of a ‘no deal’ Brexit.

1. European Commission, ‘Draft Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as Agreed at Negotiators’ Level on 14 November 2018’ TF50 (2018) 55 – Commission to EU27.
2. Theresa May, ‘PM Statement on Leaving the EU: 9 Oct 2017’ (Prime Minister’s Office, 9 October 2017) <https://www.gov.uk/government/speeches/pm-statement-on-leaving-the-eu-9-oct-2017> accessed 18 November 2018.
3. Agreement on the European Economic Area [1994] OJ L001, arts 53-64.
4. ‘Brexit – Article 50 Has Been Triggered: What Now?’ (BBC, 29 March 2017) <https://www.bbc.co.uk/news/uk-politics-39143978> accessed 19 November 2018.
5. European Communities Act 1978.
6. European Union (Withdrawal) Act 2018 (EUWA 2018), ss 3 and 8.
7. European Commission (n 1).
8. Ibid.
9. Niamh Dunne, ‘Competition Law and Policy after Brexit’ (Department of Law, The London School of Economics and Political Science, March 2017) <http://eprints.lse.ac.uk/71721/1/5%20Dunne_LSE%20Law%20-%20Policy%20Briefing%20Papers%20Brexit%20Special_Competition%20law%20and%20policy%20after%20BreBre.pdf> accessed 21 November 2018.
10. ‘European Commission Recommends to the European Council (Article 50) to Find that Decisive Progress has been made in Brexit Negotiations’ (European Commission – Press Release, 14 November 2018) <http://europa.eu/rapid/press-release_IP-18-6424_en.htm> accessed 21 November 2018.
11. Lizzy Buchan, ‘What is the Brexit Deal? Theresa May’s Controversial Agreement with the EU Explained’ (The Independent, 16 November 2018) <https://www.independent.co.uk/news/uk/politics/brexit-deal-what-is-theresa-may-draft-agreement-irish-border-uk-citizens-cabinet-eu-a8635081.html> accessed 21 November 2018.
12. Billy Perrigo, ‘Britain is Preparing for a “No Deal” Brexit. Here’s What That Means’ (Time, 6 August 2018) <http://time.com/5358452/britain-no-deal-brexit/> accessed 21 November 2018.
13. Competition Act 1998 (CA 1998)
14. ibid, chapters I-II
15. Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C326 (TFEU), arts 101-102.
16. Competition Act 1998, s 60.
17. Case 14/68 [1969] ECR 1.
18. Enterprise and Regulatory Reform Act 2013, s 27(1).
19. Richard Whish and David Bailey, Competition Law (8^th edn, OUP 2015) 56-57.
20. Competition Act 1998, s 47A.
21. The Designation of the Competition and Markets Authority as a National Competition Authority Regulations 2014, SI 2014/537, reg 2.
22. Competition Act 1998, s 46(3)(a) and (b).
23. European Commission (n 1) art 126.
24. European Commission (n 1) art 127.
25. Council Regulation (EC) 1/2003 on the Implementation of the Rules on Competition laid Down in Articles 81 and 82 of the Treaty (Text with EEA relevance) [2003] OJ L001.
26. Competition Act 1998, s 10.
27. TFEU (n 15) arts 101(1) and 101(3).
28. EUWA 2018 (n 6) art 127(3).
29. European Commission (n 1) Protocol on Ireland/Northern Ireland
30. European Commission (n 1) Protocol on Ireland/Northern Ireland, art 6(1).
31. European Commission (n 1) Protocol on Ireland/Northern Ireland, Annex 4, arts 16-24. 
32. European Commission (n 1) Protocol on Ireland/Northern Ireland, art 6(1).
33. European Commission (n 1) Protocol on Ireland/Northern Ireland, Annex 4, arts 17-18.
34. Department for Business, Energy & Industrial Strategy, Merger Review and Anti-competitive Activity if There’s No Brexit Deal (Technical Notice, 2018).
35. Andrew Griffiths, Government Response the House of Lords EU Internal Market Subcommittee Report on the Impact of Brexit on UK Competition and State Aid (Government Response, 2018).
36. Ibid.
37. Ibid.
38. The Competition (Amendment etc.) (EU Exit) Regulations 2019 (Competition SI 2019).
39. EUWA 2018 (n 6) s 8(1).
40. Department for Business, Energy and Industrial Strategy, ‘Explanatory Memorandum to the Competition (Amendment Etc.) (EU Exit) Regulations 2019 No. XXXX’ (2018) <http://www.legislation.gov.uk/ukdsi/2019/9780111173930/pdfs/ukdsiem_9780111173930_en.pdf> accessed 28 November 2018.
41. ibid.
42. ibid.
43. Department for Business, Energy & Industrial Strategy (n 34).
44. ibid.
45. Ibid.
46. Ibid.
47. Liza Lovdahl Gormsen, ‘FAQ: Brexit and UK Competition Law’ (British Institute of International and Comparative Law, 2017) <https://www.biicl.org/documents/1581_faq_-_competition_law_and_brexit.pdf?showdocument=1> accessed 28 November 2018.
48. Case T-102/96 Gencor v Commission [1999] ECR II-753, para 106.
49. Enterprise Act 2002, pt 3.
50. Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations between Undertakings (the EC Merger Regulation) (Text with EEA Relevance) [2004] OJ L24/1, arts 8 and 10.
51. European Commission (n 1) art 127.
52. EUWA 2018 (n 6) sch 4, para 1(1).
53. Department for Business, Energy and Industrial Strategy (n 40), s 2.12.
54. Department for Business, Energy and Industrial Strategy (n 34).
55. ibid.
56. ibid.
57. Competition SI 2019 (n 38) s 60A.
58. Department for Business, Energy & Industrial Strategy (n 34).

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[1] EUWA 2018 (n 6) sch 4, para 1(1).