Government publishes regulations to reform the UK competition regime in the event of a ‘no deal’ Brexit

30 Oct 2018

The Government has this afternoon laid regulations before Parliament to reform the UK competition regime in the event of a ‘no deal’ Brexit. The Competition (Amendment etc.) (EU Exit) Regulations 2019 (“Competition SI”), are accompanied by an Explanatory Memorandum and various pieces of short guidance from the CMA on its post-Brexit role (consolidated here).

Before anyone gets too excited, bear in mind that many of these changes may never be implemented if the Government (as hoped) manages to negotiate a deal with the EU. If there is a deal, there will be a transition period during which everything will pretty much remain as it is now and the Government may commit to keeping the UK and EU antitrust regimes aligned over the longer term.

But given that a ‘no deal’ scenario now appears more likely than previously anticipated, the Government’s plans are of considerable interest.

The various documents were only published this afternoon and there is a lot of material. A more detailed analysis will only be possible in the coming days, but below are a handful of headline points based on a (very) quick review.

Section 60 CA98

The most striking point is perhaps that the Competition SI will repeal s.60 of the Competition Act 1998 (“CA98”) in its entirety. Section 60 currently requires the Chapter I and Chapter II prohibitions to be interpreted so far as possible consistently with the approach under Articles 101 and 102. A number of groups (including the Brexit Competition Law Working Group) had recommended that s.60 be maintained in an amended form, for example so that it only required the CMA and UK courts to ‘have regard to’ the equivalent approach under EU law. A major benefit of this would have been to make it more likely that UK and EU competition law would continue to develop broadly in parallel, minimising the dual regulatory burden imposed on UK firms.

Under the Competition SI, however, s.60 is repealed in its entirety and replaced with a new s.60A which relates exclusively to EU court judgments and Commission decisions that pre-date exit day. There will be no legislative obligation on UK courts and decision makers to have regard to EU judgments or decisions that post-date exit day. In practice UK courts and the CMA might nonetheless choose to have regard to how equivalent issues continue to be treated under EU law, but they will need to reach decisions about the extent to which that is desirable for themselves.

Where UK courts are obliged to follow EU judgments that pre-date exit day, but not those that post-date exit day, an obvious problem arises, namely how UK courts should proceed when EU law has developed since the date of Brexit. This is a general issue under the EU (Withdrawal) Act 2018 (“Withdrawal Act”) which is not limited to the competition law field. New s.60A(7) proposes a solution, as it provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria, one of which is a post-Brexit development in EU law.

The other criteria include differences between UK and EU markets, developments in economic activity, generally accepted principles of competition analysis or the particular circumstances under consideration. These criteria are both wide-ranging and broadly expressed, and their interpretation is likely to be the subject of considerable debate in court. The Explanatory Memorandum is perhaps somewhat optimistic in stating that this provision “will provide UK courts and competition regulators with clarity as to how Chapter I and II are to be interpreted after exit”.

Other significant points

Other key points include the following:

  • EU Commission decisions making infringement findings will no longer be binding after exit day for the purpose of follow-on actions in the UK courts. An important exception is that the transitional provisions will provide that the binding effect of Commission decisions that pre-date Brexit will be maintained, even if any appeals against them are only concluded after Brexit.
  • A specified list of current EU block exemption regulations will be retained (renamed as ‘Retained Block Exemption Regulations’) but new EU block exemptions introduced after Brexit will not automatically be incorporated into EU law. The CMA and Secretary of State could potentially choose to copy across any new EU block exemptions into UK law using their powers under s.6 CA98.
  • The default position under the Withdrawal Act is that substantive EU law in force the day before exit day will continue in force. However, the Competition SI will immediately revoke, among other provisions, Articles 101 and 102 and the EU Merger Regulation (“EUMR”).
  • One consequence of this is that the CMA will have merger jurisdiction (where the domestic merger thresholds are met) even where the European Commission is investigating a merger under the EUMR.
  • As a result of this, and also the need for additional action by the CMA to enforce the antitrust and state aid rules, the CMA is anticipating that it will need to carry out a lot more work, in particular on more complex cases. It is working with the Government on secondary legislation that will facilitate this and is increasing its headcount.
  • As you might expect, there is a mass of transitional provisions.

As noted above, detailed consideration of these and the many other reforms in the Competition SI will need to wait. One initial observation, though, is that the Government’s power to make legislative amendments to the CA98 derives from s.8 of the Withdrawal Act – which confers powers on Ministers to remedy situations where retained EU law will not operate effectively or will be otherwise deficient after Brexit.

Precisely what counts as a deficiency is elucidated in s.8(2) of the Withdrawal Act, and thought will need to be given as to whether all of the amendments set out in the Competition SI fall within the scope of that provision. Based on this particular statutory instrument, however, the Government appears to be interpreting the scope of s.8 quite broadly. The Government has previously justified its broad s.8 powers on the basis that they are required to address situations where legislative provisions would ‘fall down’ on exit day – such as where they attribute roles to EU institutions that will no longer be co-operating with the UK post Brexit.

Many of the amendments in the Competition SI are broader than that. It would have been technically possible, for example, to retain s.60 CA98 unamended. There is no technical reason why UK courts and decision-makers could not remain under an obligation to interpret UK competition law consistently with EU competition law. One can see that might not be considered appropriate from a political and policy perspective post-Brexit, but interventions based on considerations of appropriateness could extend far beyond those required to remedy obvious legislative deficiencies.

This is far from an academic point, as s.8 of the Withdrawal Act will provide the legal basis for hundreds of Brexit related statutory instruments that will be placed before Parliament over the coming weeks and months. So far legal challenges relating to Brexit have largely concerned issues of high constitutional principle. We are about to descend into detailed legal thickets in every area touched by EU law.

Julian Gregory is an EU and competition law practitioner who assisted the Brexit Competition Law Working Group (including Jon Turner QC) with its report on the implications of Brexit for competition law.