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Brexit: Implications for Competition

We cover below the prospective risks (and, where relevant, opportunities) presented by Brexit in the connected fields of Competition, Public Procurement and State Aid.

Each of these areas derive primarily from EU law (in the latter case, directly from the Treaty on the Functioning of the EU itself).

Competition Law

The purpose of competition law is to ensure that competition works properly within national and international markets.  Principally, it does this by prohibiting cartels and anti-competitive agreements between rival firms and also outlaws businesses in positions of market dominance from abusing that dominance. 

Following Brexit, competition law will continue to apply within the UK.  Currently, the UK competition regulator (the Competition and Markets Authority, or CMA) enforces both UK competition law (principally, the Competition Act 1998) and EU competition law (which is set out in Articles 101 and 102 of the EU Treaty).  Although these two sets of rules are very similar, the latter focuses more on cross-border situations whereas the former looks at markets with a purely UK dimension.

Significant Impact post Brexit

With regards to merger control, the EU currently has exclusive jurisdiction to review those mergers which meet the jurisdictional tests of the Merger Regulation.  Effectively, this means that the UK competition regulator does not have power to look at the bigger proposed corporate takeovers where these have a cross-border impact.  Following Brexit, however, the CMA’s jurisdiction over such transactions will not be ousted by the Commission, but shared with it.  That will mean that UK merger rules will become more relevant for acquisitive businesses.  We can expect to see a significantly higher number of proposed deals investigated by the CMA.   Certain takeovers will need clearance in London as well as Brussels.

Potential Significant Impact post Brexit

Currently, the CMA is a member of the European Competition Network, a network of competition law regulators from different member states, which liaise and coordinate cross border competition law cases. 

Following the UK’s departure from the EU, we see the CMA having a freer hand to choosing and applying UK competition law to those cases with a UK nexus which are of interest to it.  The regulator will be freed from the responsibility of enforcing EU competition law, with the possible consequence that it may spend more time analysing competition in local, domestic markets within the UK.  This could mean a greater number of businesses fall under its scrutiny than was previously the case.

Our advice to clients that it is more important than ever to have in place an effective compliance program.   This should cover issues such as:

  • ensuring that the company avoids any suggestion of collusive behaviour (for example, price fixing with competitors);
  • what to do in the event of an investigation by a competition regulator.  “Dawn raids” can be stressful and unpleasant.  Swift and appropriate steps must be taken to protect the company’s position and defend its interests, avoid heavy fines and ensure the business can focus on productive commercial activities;
  • avoiding anti-competitive provisions in leasing agreements.  For example, agreements to rent units in shopping centres or malls frequently grant the tenant some form of immunity from competition.  It may be for instance that a retailer would provide that no other similar types of retailer could establish there.  Such a provision could fall foul of competition law if it is unreasonable in scope or duration;
  • ensuring supply agreements are compliant.  Agreements with suppliers of raw materials for example, could risk being declared ineffective if they contain exclusivity clauses that are too long or any other term that prevents or restricts competition;
  • avoiding any abuse of dominance, for example, in local markets or in relation to “essential facilities” such as ports, air and cargo terminals and other transport hubs; and
  • commencing or defending competition law claims in the Courts.
Lower Impact post Brexit

Whilst there are challenges, increased competition policy enforcement at home could also present an opportunity for businesses.  It may be easier to draw the regulator’s attention to anti-competitive conduct which is preventing it from expanding its operations.  It could be for example that a business is locked out of areas where it would like to establish operations by exclusivity clauses in leases, national dominant businesses or long-term supply arrangements. 

Aside from providing advice on specific situations, we also provide training on competition law to our clients.  This assists in ensuring that their personnel are aware of the business’ legal obligations and avoid any behaviour that could constitute an infringement. 

 

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