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How will Brexit affect competition law in the UK?

Posted: 14/07/2016

Competition law in the UK currently comprises EU competition laws (mainly Articles 101 and 102, the EU Merger Regulation and State Aid laws) and UK competition laws (the Competition Act 1998 and the cartel offence, merger control and market investigation provisions of the Enterprise Act 2002).

EU competition laws will cease to apply in the UK when, but only when, the UK actually leaves the EU (likely to be at least two years’ time). At that point the UK’s Competition and Markets Authority and the UK courts will cease to apply EU competition laws in relation to future activities, but they will continue to apply these laws in respect of conduct that took place before the exit date, possibly for many years. Of course UK companies will still be bound by EU competition laws in relation to their activities in the remaining 27 states of the EU, just as US companies are today, but these laws will be enforced by the EU authorities.

If the UK remains part of the EEA (with Norway, Iceland and Liechtenstein) then the EU competition laws will be replaced in the UK by virtually identical provisions in the EEA Agreement, but the laws will be applied and interpreted by the EFTA Surveillance Authority and the EFTA Court instead of the European Commission and European Courts. Apart from this jurisdictional change, a move to the EEA would mean that very little would change at all.

Whether the UK remains part of the EEA or negotiates another arrangement, the current UK laws will continue to apply. The laws on anti-competitive agreements and abuse of a dominant position are very similar to the EU laws from which they were derived, and currently they have to be interpreted in line with decisions of the European courts. Unless we stay in the EEA, this requirement is unlikely to survive, and so the UK versions are likely over time to diverge from their EU counterparts, not least because much of EU competition law is concerned with EU market integration, which will no longer be relevant to the UK. The UK Government will also have to enact new block exemptions to exempt specific categories of agreements, since EU block exemption regulations will cease to have parallel application in the UK.

Enforcement of competition laws will no longer be coordinated between the EU and UK authorities, so that companies active in both the UK and the EU will be faced with the possibility of parallel enforcement and doubling of fines. Leniency applications will also become more complex and risky. Breaches of EU laws will cease to be actionable in the UK.

In merger control, UK turnover will no longer be taken into account in the jurisdictional tests for application of the EU Merger Regulation. Given the importance of the UK in the European M&A scene, this will mean fewer large mergers will be caught by the Regulation in the first place, but it will also mean that many of those mergers that are caught will be separately investigated by the UK authorities, giving rise to increased cost and delay. 

EU State Aid laws will cease to apply in the UK after Brexit, unless the UK remains in the EEA. However, even outside the EEA, trade agreements entered into by the UK will require the UK to accept some form of restriction on state subsidies, including as a minimum those required by the WTO Agreement on Subsidies and Countervailing Measures.

Although not part of competition law, EU public procurement laws will also cease to apply in the UK after Brexit, unless we remain in the EEA. However it is likely that the UK will adopt similar provisions as part of any new arrangements negotiated with the EU and other countries, in order that UK companies can continue to have access to government procurement markets in those countries. One likely route for the UK is to continue to be bound by the WTO’s Agreement on Government Procurement (GPA), entailing very little change to the current regime, which is already compliant with these rules.

Many commercial agreements entered into by companies doing business in the UK will have been drafted on the assumption that EU competition laws will continue to apply in the UK, and in particular on the basis of compliance with existing block exemption regulations. These include licences of intellectual property rights, distribution agreements, supply agreements, collaboration agreements and joint venture agreements. Many of these are long-term agreements that are likely still to be in force when Brexit takes effect. Once we have a better idea of what the post-Brexit relationship with the EU will look like, these agreements should be reviewed and if necessary renegotiated.

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