No deal, transitional arrangements and a potential future deal: Brexit's practical impact on competition law

Are you wondering what competition law in the UK might look like post-Brexit?

The answer differs depending on whether the UK faces a no deal scenario or whether the withdrawal agreement agreed between the UK government and European Commission ("Commission") on 14 November 2018 ("Withdrawal Agreement"), or some other similar transitional agreement, is ultimately ratified.  The position changes further if one considers the potential implications of the backstop period set out in the Withdrawal Agreement, or the future longer term UK-EU relationship and what that might look like.

In this note we consider the practical impact on competition law in the UK in the following circumstances:

• No deal scenario: the outcome where the UK leaves the EU without any transitional arrangements formally agreed and in place.
• A Withdrawal Agreement scenario: a scenario where the Withdrawal Agreement, or some other similar transitional agreement, is ratified.  Whilst it remains unclear at the time of writing whether the Withdrawal Agreement will ultimately be ratified, it is anticipated that the competition law provisions in any similar transitional agreement would remain largely the same (on the basis that the competition provisions of the Withdrawal Agreement were generally non-contentious). For the for purposes of this note, this scenario is referred to as the "Withdrawal Agreement" scenario and covers the transition period during which any such agreement applies.
• Backstop: The potential implications of the backstop period set out in the November 2018 Withdrawal Agreement.
• Future relationships: The impact of the likely future longer term UK-EU relationship, covering a few of the possibilities. 

Background

Set out below are some of the key publications which seek to shed some light on what competition law in the UK might look like post-Brexit: 

• On 19 April 2018 the House of Lords EU Internal Market Sub-Committee published a report on the impact of Brexit on UK competition and State aid law.
• On 12 July 2018, the UK government published a white paper on the future UK-EU relationship which set out the government's view of what the post-Brexit relationship should look like.
• As part of its preparations for Brexit, and in particular for a "no deal", the UK government published a series of technical notices aimed at providing UK citizens and businesses with guidance on how they can prepare for a "no deal" scenario: (a) a technical notice on State aid on 23 August 2018; (b) technical notices on merger control and antitrust on 13 September 2018
• On 30 October 2018, the CMA published three Brexit related updates on the role of the CMA in a no deal scenario, shedding some light on what UK competition law might look like should no agreement be reached with the EU by Brexit Day. These updates cover antitrust ("Antitrust Update"), merger control ("Merger Control Update"), together with a general overview. It also published an update speech by the CMA's newly appointed Director of State aid, Juliette Enser ("State aid update").
• On 14 November 2018 it was announced that the UK government and the Commission have agreed the draft wording of the Withdrawal Agreement (with a transitional period) (the "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") and an outline of the key features of what might form the future relationship between the UK and EU (the "Outline Political Declaration on the Future Relationship"). At the time of writing, the Withdrawal Agreement is still subject to ratification by the UK Parliament (having been rejected three times already), as well as other European institutions and Member States as part of the Article 50 process.  Even if ratified, it will need to be implemented into UK law through legislation.
• To accompany the Withdrawal Agreement, on 14 November 2018, the UK government issued an "Explainer" for the withdrawal agreement and the Commission issued a Factsheet on the Protocol (explaining the proposed Irish hard border backstop arrangement).
• On 22 November 2018, a fuller version of the Political Declaration on the Future Relationship was published which was agreed at negotiators' level and agreed in principle at political level, and which received the endorsement of the European Council on 25 November.
• On 21 January 2019, a draft version of the State Aid (EU Exit) Regulations 2019 (the "Draft State Aid SI") was laid before Parliament.
• On 24 January 2019, the Competition (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/93) (the "Competition SI"), a draft version of which was laid before Parliament on 29 October 2018, were published, having been made on 22 January 2019. On the same day, the final version of the accompanying explanatory memorandum was also published.
• On 28 January 2019, the CMA opened a public consultation on the draft guidance on the effects of the UK's 'no deal' exit from the European Union on the functions of the CMA. The public consultation closed on 25 February 2019.
• On 4 March 2019, the CMA opened a public consultation on the draft procedural guidance on state aid notifications and reporting. This public consultation closed on 18 March 2019.  Also on 4 March, the CMA published guidance on the CMA's state aid role if there's no Brexit deal (the "Guidance on the CMA's State Aid Role").
• On 11 March 2019, the Commission and UK government published a joint statement supplementing the Political Declaration on the Future Relationship of 22 November 2018. The joint statement covered the parties' intention to agree and bring into force the future relationship agreement as swiftly as possible (and by the end of the transition period), while working towards avoiding the application of the Irish backstop provisions in the Withdrawal Agreement.
• On 18 March 2019, the CMA published its final Guidance on the functions of the CMA after a ‘no deal’ exit from the EU ("CMA Mergers and Antirust Guidance").
• On 25 March 2019, the Commission published a Notice to Stakeholders on the Withdrawal of the United Kingdom and EU Competition Law ("Commission Notice") as part of its series of Brexit Preparedness Notices. The notice seeks to provide informal guidance on the Commission's view of the main implications that it foresees of a no deal scenario for the application of EU competition law.

Based on the above background and the guidance documents published to date, set out below is a summary of the key practical changes to the State aid, merger control and antitrust rules in the UK after Brexit Day in a no deal scenario, in a Withdrawal Agreement scenario (as it stands at the time of writing), as well as what competition law might look like as part of the proposed future relationship arrangements.

State aid

Changes to the legal framework

The UK is currently subject to the EU State aid rules, which apply with direct effect without any UK implementing legislation, and which are enforced by the Commission. State aid rules will continue to apply in both no deal and Withdrawal Agreement scenarios, except in slightly different forms.

Pursuant to the European Union (Withdrawal) Act 2018 and the Draft State Aid SI, the EU State aid rules will be transposed into domestic law and, in the event of no deal, the CMA is given the function of being the UK State aid enforcement authority, in place of the Commission, from Brexit Day.  The substance of the EU State aid framework is not materially altered under the Draft State Aid SI.

Transposing EU State aid rules into UK domestic legislation

No deal: Pursuant to the European Union (Withdrawal) Act 2018 and the Draft State Aid SI, the EU State aid rules will be transposed into domestic law on Brexit Day and the CMA will be given the function of being the UK State aid enforcement authority, in place of the Commission.  The substance of the EU State aid framework is not materially altered under the Draft State Aid SI and would apply to all sectors and include the block exemptions. 

Withdrawal Agreement: Should the Withdrawal Agreement be ratified, the UK will remain within the EU’s State aid regime for the duration of the transition period. 

At the time of writing there remains uncertainty as to whether any form of transition agreement will ultimately be ratified. Consistent with UK government policy, the CMA, together with BEIS, has been working to ensure that the new regime was ready for the original 29 March 2019 Brexit date in case there was a no deal outcome on that day.

Enforcement

No deal: The CMA would take on the role of supervision and enforcement in place of the Commission from Brexit Day.

Withdrawal Agreement: The EU State aid rules will continue to apply until the end of the transition period.  The Commission will continue to have jurisdiction over State aid issues in the UK, including receiving and assessing notifications from UK aid grantors, regarding aid granted before the end of the transition period.  The CMA will take on its new role as the UK State aid regulator only at the end of the transition period.  However, for up to four years from the end of the transition period, the Commission will be able to bring a State aid case against the UK on facts arising before the end of the transition period.  As part of its new role, it has also been mentioned that the CMA may also have competence over aid granted in the UK prior to the end of the transition period, provided that the Commission has not already taken jurisdiction in a way referred to above.

Practical issues

The CMA's State aid Update and the Guidance on the CMA's State Aid Role provide the following additional comments in relation to a no deal outcome, and potentially regarding the period after the end of the transition period, when the UK expects to adopt its own State aid regime:

What will the substance of the new regime look like? 

The UK government has laid the Draft State Aid SI before Parliament to incorporate the EU State aid rules into UK law, subject to certain technical modifications to ensure that the regime operates effectively in a domestic context. These include adopting the existing block exemptions covering all sectors of the economy and giving effect to existing Commission approvals. The CMA has stated that the expectation is that, from a substantive perspective, the regime will look very much like the EU regime. This means that aid grantors and beneficiaries can work on the basis that it will be "business as usual".

Will EU case law remain relevant post-Brexit? 

Section 6 of the European Union (Withdrawal) Act 2018 provides for the retention of the existing body of EU law, modified as necessary to take account of the new domestic context. It also provides that EU case law, as it exists on or before Brexit day, will continue to be relevant to the interpretation of retained EU law (whether or not in a modified form). Therefore the substantive body of EU case law on the interpretation of current EU State aid provisions is likely to remain important for interpreting future UK State aid rules, at least in the short term, "whatever shape [the UK's] exit from the EU might take".

The State aid Update also provides that, as part of any future agreement with the EU, the UK "may agree to remain in step with the EU state aid rules" beyond the post-Brexit transition period (see The longer term: after the transition period/ future relationship below for further insights regarding the post-transition period). The extent to which this will be the case will be determined by the continuing negotiations between the UK government and the EU, the final outcome of which remains uncertain.

What will happen to Commission approvals issued before Brexit Day?

The Guidance on the CMA's State Aid Role confirms that State aid approved by the Commission in advance of Brexit Day will not need to be approved again by the CMA. This also applies to aid given prior to Brexit Day under a block exemption.  However, the CMA will have powers to act in cases where aid granted prior to Brexit Day that has been approved or was exempted from approval is misused.

What will happen to Commission cases in mid-review on Brexit Day?

In the event of a no deal exit, State aid cases which were notified to the Commission, but on which decisions have not been made by the Commission on or before Brexit Day, will need to be re-notified to the CMA.  The CMA will accept notifications of State aid from the point at which the UK leaves the EU.  In advance of this, the CMA has clarified in the Guidance on the CMA's State Aid Role that it will engage in informal 'pre-notification' discussions with aid grantors expecting to notify State aid cases to the CMA in the first three months post Brexit Day.

How many State aid cases does the CMA expect to review? 

The State aid Update estimates that the CMA will deal with 20 to 30 cases annually across a wide range of industries. But the CMA notes that this might be a modest estimate as it is based on the UK government's traditionally conservative approach towards the granting of aid, which might change in the future.

How long will CMA's State aid reviews take? 

The CMA notes that the Commission's review process can be very slow (which it describes as a "source of frustration") and indicates that the CMA aims to reach decisions more quickly, while noting that it has a steep learning curve to overcome.

Guidance and legislation

The CMA is currently consulting on a draft procedural guidance on State aid notifications and reporting which, in particular, provides general information on the processes it intends to use when examining and investigating notified aid in the event of a no deal.  The consultation closed on 18 March 2019.  

Further, the CMA is required, under the Draft State Aid SI, to publish on or before Brexit Day a notice, on:

• the form and content of notifications;
• the form and content of complaints;
• the form, content and date for the submission of annual reports in relation to existing aid schemes, and aid which is exempt from notification; and
• the form and summary information for aid that is exempt from notification.

The ultimate adoption of a UK State aid regime mirroring that of the EU's is unsurprising as the adoption of State aid rules were always expected to be a prerequisite to any wide ranging future trade deal the UK hopes to agree with the EU (see The longer term: after the transition period/ future relationship below for further insights regarding the post-transition period). But the guidance documents published by the CMA to date should at least give UK businesses expecting to receive State aid some welcome certainty as to what the post-Brexit UK regime might look like if there is a no deal with the EU, or in a post-transition period world.

Merger control

Changes to the legal framework

The following proposed approach to the merger control rules will be applied in the event of a no deal or Withdrawal Agreement scenario: 

No substantial changes to UK merger regime

No deal: Whilst the UK will cease to be a part of the EU one-stop shop regime in a no deal scenario on Brexit Day (see below), the UK government does not propose to make any immediate changes to UK merger control in the event of a no deal outcome.  The only changes are those necessary to implement Brexit and to keep the regime running largely as it is (e.g. removing certain references in UK merger guidance to applications for mergers to be referred to or from the Commission under the EU Merger Regulation ("EUMR")).  However, the CMA has made a number of public statements regarding possible changes to the UK merger control regime which are not linked to Brexit.

Withdrawal Agreement: In a Withdrawal Agreement scenario, the current EU merger control regime will continue to apply until the end of the transition period.  No changes to UK merger control are expected to flow as a result of this during the transition period, but see The backstop arrangement under the Withdrawal Agreement of November 2018 below regarding the potential post-transition backstop period.

Jurisdiction 

No deal: The current parallel EU/UK merger control system is described as a "one-stop shop", whereby larger transactions are reviewed under the EU regime, and smaller transactions are reviewed under the UK regime. The UK regime does not currently apply where EU jurisdiction is triggered. A no deal Brexit will remove the "one-stop shop" principle so far as the UK is concerned so that EU clearance will no longer cover the UK, and transactions can be reviewed by both the Commission and the CMA. In a no deal scenario, the loss of the "one-stop shop" principle will take place on Brexit Day.  

Withdrawal Agreement: The EU merger control rules, including the "one-stop shop" principle, will continue to apply during the transition period.

Practical implications

What will happen to Commission decisions issued before Brexit Day?

No deal and Withdrawal Agreement: If the Commission has issued a decision on or before Brexit Day then, unless the Commission's decision is annulled in full or in part following an appeal to the EU courts, the UK will have no jurisdiction over the merger. Where a decision is annulled, the CMA could assert jurisdiction from the date of the European Court decision if the UK jurisdictional requirements are met.

What will happen to Commission cases in mid-review on Brexit Day? 

No deal: The CMA Mergers and Antirust Guidance states that if the Commission has not issued a decision on or before Brexit Day, then the CMA is no longer excluded by the EUMR from taking jurisdiction over the UK aspects of the merger and the provisions of UK merger control will apply, enabling the CMA to review the merger if it has jurisdiction. However, the Commission's view on when it believes it has jurisdiction, may not always align with the CMA Mergers and Antirust Guidance (see What if the parties' UK turnover determines whether the EUMR is triggered? The Commission's view on jurisdiction). 

Where merging parties anticipate that such a scenario is possible, the CMA advises parties to engage with the CMA at an early stage, particularly where the transaction may raise potential competition concerns in the UK. The CMA has suggested to merging parties that they begin pre-notification discussions with the CMA. The CMA will continue to monitor non-notified merger cases, including cases falling under the jurisdiction of the Commission over which the UK may obtain jurisdiction in relation to the UK aspects of the merger after Brexit Day.

The CMA's hold separate and unwinding powers will also apply to such mergers post Brexit Day.  Parties remain able to seek derogations from the CMA: for example, to enable the fulfilment of regulatory obligations or to facilitate the integration of the non-UK aspects of the merging parties’ business.

Withdrawal Agreement: As explained above, post-Brexit, the Commission will continue to have jurisdiction over a merger if it has been notified to the Commission before the end of the transition period. Unless the Commission's final decision in relation to any such case is annulled in full or in part following an appeal to the EU courts, the UK will have no jurisdiction over such a merger.

What if the parties' UK turnover determines whether the EUMR is triggered? The Commission's view on jurisdiction

No deal: The Commission's rules provide that the relevant date for establishing the Commission's jurisdiction over a merger is the date of the conclusion of the binding legal agreement, the announcement of a public bid or the acquisition of a controlling interest or the date of the first merger notification, whichever date is earlier.  The Commission Notice states that these rules will not be altered by a no deal Brexit. This is means that: 

• if the relevant date for establishing jurisdiction (e.g. date of signing a binding agreement) takes place after Brexit, UK turnover is not relevant for determining if the EUMR thresholds are met (because the UK would not be an EU member state at that time);
• if the relevant date for establishing jurisdiction takes place before Brexit, UK turnover is relevant for determining if the EUMR thresholds are met.

It should be noted that the Commission's approach to determining jurisdiction differs from the CMA's approach as set out in the CMA Mergers and Antirust Guidance. The Commission focuses on whether signing has taken place pre-Brexit, whereas the CMA considers whether a Commission decision has been issued pre-Brexit.  This implies that it is possible for:

• the Commission to commence a merger review just before Brexit; and 
• for the CMA to review the same transaction in parallel the day after Brexit if the Commission has not yet issued a decision. In practice, we would expect the CMA and the Commission to adopt a pragmatic approach to allocate the case appropriately in order to provide greater certainty for the parties and to avoid duplication of unnecessary work.  

Withdrawal Agreement: As explained above, the Commission's jurisdiction remains unchanged during the transition period, and so UK turnover remains relevant to EUMR thresholds during this period.

Substantive assessment

No deal: The Commission Notice confirms that in a no deal scenario the Commission will have to take account of the fact that the UK will no longer be part of the internal market. In particular, the Commission will no longer be competent to find that a planned concentration would (or would not) significantly impede effective competition in UK national or subnational markets. This may impact the Commission's competitive assessment, including the suitability and viability of any remedies.  Any such impact will be accessed on a case-by-case basis and the Commission Notice encourages merging parties to discuss those aspects with the Commission case team at the relevant time.

Withdrawal Agreement: The Commission's approach to substantive assessment and remedies will remain unchanged during the transition period.

Commission's information and search powers

No deal: The Commission will no longer be able to carry out inspections in the UK under the EUMR. However, the Commission will still be able to issue formal requests for information to parties in the UK, as it currently can in relation to undertakings in third-party countries.

Withdrawal Agreement: The Commission's pre-Brexit powers will continue during the transition period.

What happens to cases referred from the Commission to the CMA before Brexit Day? 

No deal: In instances where an Article 4(5) EUMR submission (i.e. a submission by the parties for a case to be referred to the Commission) has been made prior to Brexit and where a non-EUMR qualifying merger is capable of being reviewed in three Member States, one of which is the UK, the Commission will acquire jurisdiction if, prior to Brexit, 15 working days has elapsed without any competent Member State expressing its disagreement.  The fact that a merger is capable of being reviewed in the UK will no longer be relevant for the application of Article 4(5) for submissions made after Brexit. 

If the UK has requested an Article 22 EUMR referral (i.e. a submission by the UK/CMA for a case to be referred to the Commission), or joined a referral request by another Member State, the case will only be considered to be referred with respect to the UK if: the UK's submission was made prior to Brexit; and the Commission has decided before Brexit to examine the merger.  

Withdrawal Agreement: The usual referral mechanisms will continue to apply during the transition period.

What happens to cases referred to the Commission before Brexit Day? 

No deal: The CMA will gain jurisdiction to review the merger under the same terms as before Brexit Day if a referral is accepted by the Commission prior to Brexit Day. If a request for referral to the CMA is not accepted by the Commission before Brexit Day, then the Commission will retain jurisdiction to review the case.  However, if the Commission has not reached a decision before Brexit Day, the CMA can assert jurisdiction over the merger if the UK jurisdictional requirements are met. 

Withdrawal Agreement: The CMA will continue to apply its usual processes in Phase 1 and 2. The timetable for Phase 1 will remain at 40 working days.

Application of the referral process post Brexit Day 

No deal: Neither the Commission, the CMA, nor the merging parties will be able to make new referrals under Articles 4(4) and 9 EUMR (i.e. referrals from the Commission to the CMA), and Articles 4(5) and 22 EUMR (i.e. referrals from the CMA to the Commission) post Brexit Day.

Withdrawal Agreement: The usual referral mechanisms will continue to apply during the transition period.

Fees

No deal: The existing rules for the payment of UK merger fees will apply to mergers notified to the Commission in relation to which the CMA takes a reference or clearance decision post-Brexit.

Parallel filings 

No deal: As the EU's one-stop shop for mergers will no longer apply in the UK after Brexit Day, businesses considering a merger that has an impact on EU and UK markets will need to comply with both the EU and UK merger rules. A post-Brexit merger may therefore potentially trigger parallel filings in both jurisdictions, with potentially differing outcomes.  In addition, the Commission, CMA and merging parties will no longer be able to request/make a reference under the EUMR between the Commission and the CMA. 

Withdrawal Agreement: Post-Brexit, and during the transition period, the EUMR will continue to apply to the UK and so the one-stop shop principle will continue to apply. This means that parallel notifications will not be a feature of the transition period.

Deal timing

No deal: One of the key implications of parallel filings is that the UK and EU merger control regime review periods differ significantly.¹  There is no indication in the guidance documents published by the CMA that the CMA will harmonise the UK merger timetable with the EU process, although (as explained above) the CMA is considering reforms separately to Brexit. Accordingly, the different timescales will need to be considered by deal teams in the context of post-Brexit transactions.

Withdrawal Agreement: As explained above, parallel notifications will not be a feature of the transition period. This means that the UK-EU deal timing issue referred to above will not be relevant.

Completed mergers

No deal: The CMA has a four-month statutory deadline before it can call in a completed merger for review and refer it for a Phase 2 investigation. As the CMA will only obtain jurisdiction over mergers that would otherwise fall under the jurisdiction of the Commission after Brexit Day, the statutory four-month period will apply from Brexit Day, or from the point at which the CMA is considered to have been provided with notice of the material facts about the merger (whichever is later).  

For mergers completed post-Brexit Day, the statutory four-month period will apply from the point at which the CMA is considered to have been provided with notice of material facts about the merger.

Withdrawal Agreement: The rules relating to the four-month statutory deadline remain the same: subject to certain exceptions, the CMA can refer a merger situation for a Phase 2 inquiry at any time up to four months from the date of completion of the transaction, or from the date on which facts about the transaction became public (e.g. when it is announced, or when it receives significant press coverage in the national or trade press), whichever is the later.  

Antitrust enforcement

Changes to the legal framework

The following proposed changes to the antitrust regime legal framework are expected to take place in the event of a "no deal" no deal or Withdrawal Agreement scenario.
Changes to the antitrust regime: 

Changes to the antitrust regime

No deal: It remains the case that, as with merger control, no substantive changes to the UK antitrust regime are to be made immediately following a no deal outcome, although (as explained above) the CMA is considering reforms separately to Brexit.  This means that the UK will be treated the same as a third country, like the USA, in relation to antitrust law. 

Withdrawal Agreement: EU law will continue to apply to the UK as if it is a member state for the transition period.  Moreover, as with a no deal outcome, no substantive changes to the UK antitrust regime are expected, at least during the transition period. (However, see the section below The backstop arrangement under the Withdrawal Agreement of November 2018, in relation to the potential impact of the Withdrawal Agreement's backstop protocol after the transition period.) This means that the UK will not be treated the same as a third country during the transition period in relation to antitrust law.

Will the obligation to follow EU law end? 

No deal: Under the Competition SI, following the UK's exit from the EU, the CMA will no longer have jurisdiction to apply Article 101 of the Treaty on the Functioning of the European Union ("TFEU") on anticompetitive agreements (including cartels) and Article 102 of the TFEU on abuse of dominance (but equivalent provisions will continue to apply under the Competition Act 1998). The CMA has stated that it will inform all affected parties if the scope of an investigation involving them is affected by this development. Similarly, the Competition SI repeals section 60 of the Competition Act 1998, which requires that UK competition law should be "dealt with in a manner which is consistent with" EU competition law, including in relation to cases already opened on or before Brexit Day. Instead, a new provision, section 60A, will apply to such cases which provides that UK competition regulators and UK courts:

• will continue to be bound by an obligation to ensure there is "no inconsistency" with pre-Brexit EU competition case law when interpreting UK competition law; but 
• may depart from such pre-Brexit EU case law where it is considered "appropriate in the light of specified circumstances" (for example, differences in UK and EU law prior to Brexit, differences between EU and UK markets, developments in the form of economic activity, generally accepted principles of competition analysis, and developments in EU case law).

Section 60A will apply from the point of Brexit to all competition law investigations and UK court cases whether the facts of those cases arose before or after Brexit Day.  In other words, it will apply to any CMA or concurrent regulator investigations or UK court cases which are "live" at the point of Brexit and in relation to pre-Brexit facts.

Withdrawal Agreement: The Withdrawal Agreement provides that during the transition period, EU law will be applicable "to and in" the UK and that it must be interpreted in accordance with the same principles as those applicable within the EU.  The implications of the Withdrawal Agreement are that the UK will have to continue to interpret UK competition law in accordance with EU law, at least until the end of the transition period.  In this context, section 60 would not be repealed during the transition period.

Jurisdiction

No deal: As set out in the technical notice of 13 September 2018, the CMA and concurrent regulators will only investigate anticompetitive conduct that affects UK markets and the Commission will no longer be able to commence investigations into cases involving anticompetitive conduct in the UK. However, as set out in the Commission Notice, the Commission will continue to have the power under EU law to investigate UK firms if they engage in conduct that has effects on competition within the EU, and EU businesses operating in the UK must comply with UK competition law as they do now.

Withdrawal Agreement: The Commission will continue to have jurisdiction to enforce EU antitrust law as it does now up until the end of the transition period. As under a no deal scenario, all Commission decisions adopted under Articles 101 and 102 of the TFEU before Brexit Day will remain valid.  

What will happen to Commission decisions issued before Brexit Day?

No deal and Withdrawal Agreement: All Commission decisions adopted under Articles 101 and 102 of the TFEU before Brexit Day will remain valid, unless annulled in full or in part by the European Court after Brexit Day.

Block exemption regulations

No deal: The EU Withdrawal Act will preserve seven EU block exemption regulations² as parallel exemptions to the UK competition prohibitions. They will be retained within UK law largely unchanged, except to reflect the UK ceasing to be a Member State of the EU. The current expiry dates will be preserved. The relevant block exemption regulations are:

• liner shipping regulation expiring on 30 April 2020;
• transport regulation (no expiry date);
• vertical agreements regulation expiring on 31 May 2022;
• motor vehicle distribution regulation expiring on 31 May 2023;
• research and development regulation expiring on 31 December 2022;
• specialisation agreement regulation expiring on 31 December 2022;
• technology transfer regulation, for example intellectual property licences, expiring on 30 April 2026. The Commission guidance issued to accompany its block exemptions will also remain relevant to interpreting the block exemptions retained by the UK. 

The CMA expects to consult on the block exemptions as they expire in order to provide advice to the Secretary of State, who will have the power to amend or revoke them post-Brexit. 

Withdrawal Agreement: EU law will continue to apply to the UK as if it is a member state for the transition period.  This implies that the EU block exemption regulations will continue to apply in the UK during this period.

Practical implications

Divergence

No deal: In relation to UK competition law, because the CMA, UK courts and UK legislators will no longer be bound to follow post-Brexit EU law, over time UK competition law is likely to diverge from EU law.

Withdrawal Agreement: Because the November 2018 Withdrawal Agreement provides that EU law will continue to apply to the UK as if it is a member state for the transition period, divergence is not likely to be a feature of such an outcome, at least during the transition period.  Any material divergence is not likely to take place until after the end of the transition period, depending on the final terms of the agreement governing the future relationship of the UK and the EU. 

Parallel exemptions

No deal: Where existing UK agreements between companies have benefited from the parallel application of an EU block exemption, these exemptions will continue to apply, and companies will be able to benefit from them when they enter into new agreements that meet the relevant criteria after Brexit. 

Withdrawal Agreement: As explained above, the EU block exemption regulations will continue to apply in the UK during the transition period.

Cases where the Commission has granted a marker/accepted a leniency application before Brexit but has not formally opened an investigation

No deal and Withdrawal Agreement: The Antitrust Update states that because there is no "one-stop shop" principle which applies to leniency applications in the EU, any existing or potential applicant for leniency under the Commission's leniency programme in respect of conduct which is also covered by the CMA's leniency policy should make a separate application for leniency to the CMA (as would have been the case pre-Brexit).

No deal: Whilst prior to Brexit Day leniency applicants to the Commission can obtain a "no names" marker from the CMA pending confirmation from the Commission as to the availability of immunity from the Commission, this will no longer be possible post-Brexit Day. In addition, it will no longer be the case that the CMA can be expected to grant no action letters to the implicated employees and directors of an undertaking that has qualified for immunity by the Commission but has not also qualified for Type A immunity in the UK, for example, because another undertaking has already qualified for Type A leniency in the UK.

What happens to live cases under investigation by the Commission? 

No deal: The Competition SI prevents the CMA (and concurrent regulators) from opening investigations into infringements of UK competition law after Brexit where, before Brexit, the Commission had relieved the CMA of competence and has reached an infringement decision (which was not subsequently annulled). If a Commission decision taken before Brexit Day is annulled in full or in part by the European Court after Brexit Day, the CMA may commence its own investigation into the same conduct.

The CMA's guidance documents also state that after Brexit, the CMA may conduct investigations into breaches of the domestic prohibitions occurring before or after Brexit Day, including in cases where the CMA was relieved of its competence by the Commission, but where the Commission did not make a decision before Brexit. 

This means that the CMA can open cases in relation to any conduct in relation to which the Commission has not published a decision before Brexit, even where a Commission investigation is continuing, but had not concluded, by Brexit Day. The technical notice of 13 September 2018 recommends that businesses subject to an ongoing antitrust investigation should take legal advice on how to comply with any investigation of the Commission and/or the CMA (or the relevant UK sectoral regulator).

Where the CMA or concurrent regulators are conducting an ongoing investigation on Brexit Day which contains an EU element, they must drop the EU element and proceed on the basis of the Competition Act 1998 prohibitions only, but can continue to use evidence gathered before Brexit Day.  

Withdrawal Agreement: Post-Brexit the Commission will continue to have jurisdiction over investigating compliance with EU competition law if it has initiated proceedings before the end of the transition period.

Parallel cases

No deal: Because the Commission will not be able to conduct new investigations in relation to UK conduct, it is likely that in many circumstances (such as a pan-European-wide cartel) both the Commission and the CMA (or the relevant UK sectoral regulator) will undertake parallel investigations into the same conduct. In such cases, leniency applications and settlement considerations would need to be assessed in relation to both jurisdictions at the same time. 

Withdrawal Agreement: Post-Brexit Day, the Commission will continue to have jurisdiction over investigating compliance with EU competition law if it has initiated proceedings before the end of the transition period.  Parallel UK-EU cases will therefore not arise during the transition period.

Director disqualification orders 

No deal: The CMA and concurrent regulators will continue to be able to pursue director disqualification orders on grounds of a beach of Article 101 or 102 of the TFEU (in addition to Chapter I or II of the Competition Act 1998) before Brexit Day.  However, post-Brexit Day, the CMA can only rely on breaches of Chapter I or II.

Impact on follow-on/stand-alone claims

No deal: The CMA Mergers and Antirust Guidance provides that decisions by the Commission reached before Brexit Day can still form the basis of follow-on damages claims, including cases that have not exhausted the appeals process. However, if an infringement decision under EU law is reached by the Commission after Brexit Day, even if it relates to pre-EU Exit facts which have effect in the UK, claimants will no longer be able to rely on that decision in UK courts as a binding finding of an infringement under the Competition Act 1998. Claimants will continue to be able to rely on infringement decisions of the CMA and concurrent regulators in pursuing follow-on damages claims in the UK. 

Standalone actions can still be brought post-Brexit Day in relation to infringements of Article 101 and/or Article 102 where these infringements occurred pre-Brexit Day. The ability to bring standalone actions in relation to infringements of the Chapter I and/or Chapter II prohibitions will remain unchanged. 

The above implications on damages claims, however, is likely to be subject to the international application of English tort law.

Withdrawal Agreement: As with most areas of competition law in the UK, the position will remain unchanged during the transition period.

Commission's information and search powers

No deal: The Commission will no longer be able to carry out dawn raid inspections in the UK. However, the Commission will still be able to obtain issue formal requests for information to parties in the UK, as it currently can in relation to undertakings in third-party countries.

Withdrawal Agreement: The Commission's pre-Brexit powers will continue during the transition period.

The longer term: after the transition period/ future relationship

The backstop arrangement under the Withdrawal Agreement of November 2018

If the draft Withdrawal Agreement of November 2018 is ratified but the EU and the UK do not agree the terms of a future relationship before the end of the transition period (in particular if there would otherwise be a hard border between Northern Ireland and the Republic of Ireland), the Withdrawal Agreement provides for the implementation of a so-called "backstop" arrangement.  This is set out in the "Protocol" to the Withdrawal Agreement of November 2018. 

The backstop would remove the need for customs checks by creating a "single customs territory" between the EU and the UK.  As part of this arrangement, the UK government has committed to a "level playing field" based on open and fair competition between the EU and the UK. This would include the introduction of the following competition law-related requirements during the period for which the backstop arrangement would apply:

• In relation to State aid: the following requirements are provided for:
• the UK will harmonise with the EU's State aid rules, which means introducing its own State aid regime aligned with EU's rules (which is already envisaged by the UK government, as explained above); 
• the CMA (as the proposed UK State aid regulator) will be responsible for enforcing State aid measures that affect trade between Great Britain and the EU, and will work in close cooperation with the Commission;
• the Commission will remain responsible for enforcing State aid measures that affect trade between Northern Ireland and the EU, and will be required to keep the CMA fully and regularly informed; and
• a Joint Committee will allow both Parties to discuss matters of interest and seek commonly acceptable solutions to disagreements. In case no mutually agreed solution can be found, interim measures and an arbitration system are provided for. 
• In relation to merger control: new UK-EU merger control provisions (the "UK-EU Merger Control Rules") would be implemented, which would prohibit mergers which are notifiable to the UK, EU, or one or more Member States and which "threaten to significantly impede or to substantially lessen effective competition … in so far as they affect trade between the [EU] and the United Kingdom". This effectively seeks to combine the UK's and EU's merger control test.  
• In relation to antitrust rules: new antitrust rules which prohibit anticompetitive agreements and abuses of a dominant position in so far as they affect trade between the UK and the EU would be implemented (the "UK-EU Antitrust Prohibitions").  This means that the UK will not be treated in the same way as a third country, such as the USA, during the backstop period.
• In relation to both the UK-EU Merger Control Rules and UK-EU Antitrust Prohibitions: the EU and the UK would commit to ensuring that their respective competition laws effectively enforce these agreed rules, with the UK also committing to ensure that administrative and judicial proceedings are in place to ensure "effective and timely action against violations" of these competition rules.

The Political Declaration regarding the future UK/EU relationship

On 14 November 2018, together with the publication of the Withdrawal Agreement, the UK government and the Commission published an outline of the key features of what might form the future relationship between the UK and EU (the "Outline Political Declaration on the Future Relationship"). A fuller version, which was agreed at negotiators' level and agreed in principle at political level, was published on 22 November 2018 and received the endorsement of Member States at a special meeting of the European Council on 25 November 2018. The Political Declaration was supplemented, on 11 March 2019, by a joint Commission/UK government statement which covered the parties' intention to agree and bring into force the future relationship agreement as swiftly as possible (and by the end of the transition period), while working towards avoiding the backstop provisions in the Withdrawal Agreement. The Political Declaration is very broad, with much less detail than the Withdrawal Agreement or Protocol.  

In relation to competition law, it envisages that, as part of any future deal, the UK's competition regime will need to include State aid and competition law regimes which will "[build] on the level playing field arrangements provided for in the Withdrawal Agreement". In this regard, this might ultimately lead to:

• Continued alignment of UK and EU competition rules, such as that envisaged by the Withdrawal Agreement, potentially with section 60 of the Competition Act 1998 staying in its present form or a new form of section 60A which provides the UK with less freedom to part from EU precedent than the currently drafted section 60A would.
• Potentially similar rules to the UK-EU Merger Control Rules and UK-EU Antitrust Rules referred to above being applied. This would minimise the extent to which the UK might be treated the same as a third country, such as the USA, post the transition period.

The details are yet to be determined during the course of any future negotiations and there is therefore no certainty at this stage.

Customs union

For some period of time just before the referendum result, and shortly afterwards, there was a flurry of speculation about whether the UK's future relationship with the EU may take the form of customs union membership (the "Turkish model") or EFTA and EEA membership (the "Norway model"), or follow some other model (e.g. Swiss, Canada, Ukraine).  Since then, these models began to look increasingly less likely.  However, recent political developments in the UK have meant that of these options, the Turkish model may be the most likely alternative to the Withdrawal Agreement, with numerous MPs supporting a form of "permanent and comprehensive UK-wide customs union with the EU".

Whilst the details of any such customs union arrangement are far from clear at this stage, and would in  any event be bespoke to the UK, one might look to the EU-Turkey customs union arrangements as an indication as to how competition law might be affected.  The relevant competition law features of the EU-Turkey customs union are reflected in Decision No 1/95 of the EC-Turkey Association Council of 22 December 1995, implementing the final phase of the Customs Union between EU and Turkey on 1 January 1996 (the "CU Decision"):

• In relation to antitrust: articles 32 and 33 of the CU Decision prohibit both anticompetitive agreements (reflecting the wording of Article 101 of the TFEU) and abuses of a dominance (reflecting the wording of Article 102 of the TFEU) in so far as they may affect trade between the EU and Turkey.  Whilst these provisions do not appear to be enforced in a way that was initially envisaged by the CU Decision, an EU-UK customs union arrangement might contain equivalent provisions in relation to conduct which affect trade between the EU and the UK.  Similar provisions are already contained in the Irish backstop arrangement under the Withdrawal Agreement of November 2018 (see above).  However, the question would arise as to who would enforce any such rules.
• In relation to State aid: similarly, Article 34 of the CU Decision prohibits Sate aid granted by EU Member States or by Turkey in so far as it affects trade between the EU and Turkey.  Whilst these provisions have found their way into Turkish State aid rules, they are not in force.   But the question remains whether the EU-UK customs union arrangement might contain equivalent provisions in relation to State aid which affects trade between the EU and the UK.  As with antitrust, the question would arise as to who would enforce any such rules. 
• In relation to merger control: the CU Decision does not cover merger control, so it is less clear if this would be affected by a EU-UK customs union, for example, would the UK-EU Merger Control Rules provided for under the Irish backstop arrangements under the Withdrawal Agreement (see above) be introduced? 
• In relation to antitrust alignment with EU competition law: Turkey is under an obligation to harmonize as far as possible its laws with the EU’s legal framework in areas of direct relevance to the operation of the CU.  In relation to competition law, Article 39 of the CU Decision provides that Turkey must ensure that its competition legislation is compatible with that of the EU, and is applied effectively. This might imply that the UK might have to potentially reinstate section 60 of the Competition Act 1998 in its present form, or a new form of section 60A which provides the UK with less freedom to part from EU precedent than the currently drafted section 60A would.

It is far too early at this stage to predict with any confidence what impact any EU-UK customs union might have on competition law.  What is clear, however, is that any comparison with Turkey, or even Ukraine, must take into account that those countries have historically sought to converge towards the EU, with a view at some point to becoming members.  The UK, on the other hand, is leaving the EU. Any EU-UK customs union would have to find the right balance between the UK seeking its "independence" and having a closely aligned economic relationship with the EU.

1. (a) at Phase 1: 40 working days for the CMA, compared to 25 working days under EU rules; and (b) at Phase 2: 24 weeks for the CMA, compared to 90 working days (c.18 weeks) under EU rules, (all excluding extensions).
2. These block exemption regulations exempt certain types of agreements from the Chapter I prohibition where certain conditions are satisfied and there are benefits for consumers.