Brexit will give the UK the chance to be more 'innovative and responsive' on competition law matters, say peers

Out-Law News | 05 Feb 2018 | 4:48 pm | 3 min. read

The UK's forthcoming exit from the EU will enable the country to adopt a "more innovative and responsive" approach to the way in which competition law is enforced and mergers regulated, a UK parliamentary committee has said.

The EU Internal Market Sub-Committee said Brexit will allow the UK to diverge from the approach taken in the EU to competition law matters, although it said that "ongoing consistency with the EU’s approach to competition policy – at least in the short-term – could help to provide stability and predictability for UK businesses".

"Brexit does provide an opportunity for the UK to develop a more effective competition enforcement regime," the committee said. "With the repatriation of responsibility for enforcement decisions previously taken by the European Commission, the UK will have the freedom to take a more innovative and responsive approach to antitrust enforcement and merger control, including in relation to fast-moving digital markets and dominant online platforms."

The committee said, however, that it would be in the UK and EU's interest to put in place a "formal cooperation agreement, covering both antitrust and merger case investigations and enforcement actions" for application post-Brexit. The agreement would reflect the fact that it is likely that major competition law cases and merger reviews "will have effects in both markets", it said.

"Any such agreement should enable reciprocal evidence-sharing (including of confidential information) which would not be possible under informal cooperation arrangements without express consent from the undertakings involved," the committee said. "We note that parties to mergers would be more likely to provide this consent to ensure that merger transactions can go ahead as quickly as possible."

In its report, the committee said that it does not believe any "significant changes" should be made to the 'public interest' criteria used for determining when the UK government can intervene in proposed merger deals in light of Brexit.

Alan Davis, competition specialist at Pinsent Masons, the law firm behind, who appeared as a witness before the EU Internal Market Sub-Committee to give evidence to its inquiry, said that the conclusions and recommendations of the committee were "sensible" and "reflect the general view of competition law practitioners that Brexit does not of itself require and should not constitute a basis for substantive changes to the competition law regime in the UK".

Davis also welcomed the recommendation that an agreement between the UK government and the EU on a transition or implementation period should address competition cases and that early clarification on this should be given to businesses which may already be planning future merger transactions and investments.

However, Davis said that Brexit would present challenges for the UK's competition authority, the Competition and Markets Authority (CMA).

"The biggest challenge for the CMA appears to be the need for sufficient funding and resourcing to do all the additional parallel merger and enforcement work in relation to international cases but also continue doing the more domestic national and regional work," Davis said. "The Committee's recommendation to government to confirm its resourcing plans for the CMA is therefore welcome."

The report also addressed issues relating to the EU's state aid rules. The committee acknowledged that there have been some frustrations raised in the UK about the EU's state aid regime, but concluded that the rules had "not been the decisive factor in limiting state aid in the UK, during the time it has been an EU member state".

It said it is "highly likely" that the UK will have accept "some form of controls on state aid" post-Brexit if it wants to participate in a free trade agreement with the countries remaining in the EU.

Even if no trade deal is reached with the EU, the UK would continue to face some restrictions on the amount of state aid it could provide to businesses under World Trade Organisation (WTO) rules, the committee said.

The committee also suggested that the UK should establish its own internal state aid controls to prevent major differences emerging in the level of subsidies and other advantages provided to businesses in different parts of the country.

"Outside the EU, a UK-wide state aid framework will be necessary to avoid the risk of domestic subsidy races and distortions of competition between various parts of the UK," the committee said. "A UK state aid authority may also be required in some form, whether by extending the remit of an existing authority or creating an entirely new entity."

"In developing this framework, the government should take into account calls from local authorities for a less complex and burdensome approval process than under the current EU regime. The government should also involve and secure the support of the devolved administrations in this process, including in agreeing the terms of reference, remit and priorities of any new UK State aid authority. It was made clear to us that any approach where the UK government was perceived to be both ‘rule maker’ and ‘rule taker’ would probably be unacceptable to local and devolved governments," it said.

State aid specialist Caroline Ramsay of Pinsent Masons said the recommendation in the report was necessary to account for devolution of powers in Scotland, Wales and Northern Ireland.   

"If state financial support is not controlled in different parts of the UK, in the same way that intra-EU state support is, we risk ending up like the US where different states fiercely compete for business relocations," Ramsay said. "The US state incentive regime can lead to workforce transience and insecurity and this is something which a post-Brexit Britain needs to avoid."