The United Kingdom left the European Union ("EU") with effect from 11 pm on Friday 31st January 2020. Following its departure, the UK government has agreed a transition period of 11 months ("Transition Period"), during which time the Competition and Markets Authority ("CMA") will continue to operate as it does currently. The terms of the UK's departure from the EU are set out in the European Union (Withdrawal Agreement) Act 2020 ("WAA"), which received royal assent on 23 January 2020.
However, from 1 January 2021 the CMA will take on an enhanced role in respect of competition enforcement and investigation, with greater powers and responsibilities.
The CMA published guidance to explain how Brexit affects its powers and processes for competition law enforcement and merger control during the Transition period, towards the end of that period and after it ends.
During the Transition Period, EU law will continue to apply in the UK as if the UK were still a member state under the terms of the WAA. The Treaty on the Functioning of the European Union ("TFEU") and other key EU and UK implementing legislation, such as the European Communities Act 1972 ("ECA"), will therefore continue to apply during the Transition Period.
The European Commission will continue to have jurisdiction to investigate infringements of EU competition law and will retain jurisdiction to investigate mergers with an EU dimension. This means that any UK turnover generated by merging parties will still need to be considered when establishing whether a merger satisfies the EU merger control thresholds ("EUMR"). Under current EU rules, such mergers must be notified to the European Commission, who has the power to exclusively deal with any investigation under the one-stop shop principle.
Article 101 TFEU (prohibition on anti-competitive agreements) and Article 102 (prohibition on abuse of a dominant position) will also continue to apply during the Transition Period. In addition, the current EU state aid rules (which prohibit EU member states from granting aid to specific businesses subject to certain exemptions) will continue to apply.
From 1 January 2021 the ECA will be repealed. However, this is not as drastic as it sounds, as most EU legislation, regulations and other EU-derived UK legislation will continue to apply. In addition, any 'live' merger investigations currently under review by the European Commission will continue to be dealt with by the European Commission, as will any 'live' investigations under Article 101 and Article 102 TFEU. The CMA will however have a right to obtain jurisdiction over elements of such proceedings which may affect UK trade, meaning there is a possibility of parallel investigations in such cases.
From 1 January 2021:
- The turnover of parties in the UK will no longer be relevant for determining whether a merger satisfies the EUMR thresholds.
- The CMA will be able to investigate mergers which satisfy EUMR thresholds, meaning that mergers may face scrutiny in both the UK and EU.
- The CMA will take over from the European Commission in investigating the effects within the UK of any mergers. The European Commission will continue to have jurisdiction to review the impact of a transaction involving a UK company on other EU member states.
- The CMA will only investigate suspected infringements of UK domestic competition law contained in the Competition Act 1998, not Articles 101 and 102 TFEU.
- The European Commission will no longer have the power to carry out so-called 'dawn raids' in the UK.
- EU infringement decisions will no longer be binding on the UK courts, meaning that claimants pursuing damages claims in the UK courts will no longer be able to rely on EU infringement decisions as evidence of a breach of the Competition Act 1998.
It is expected that the CMA will take over the enforcement of State, previously under the sole remit of the European Commission, under new UK rules on State aid to be drawn up before this time. It is currently anticipated that at least at first these new rules will largely replicate the existing EU rules, but in a UK context. Further updates on this will be provided separately.
It is clear that the initial impact of Brexit on the competition law framework (at least during 2020) will be limited and 'Brexit' itself will be fairly anti-climactic in terms of immediate changes. Indeed, it is unlikely that the long-term competition law framework will change drastically post-Brexit if the UK intends to maintain a close trading relationship with the EU, and either way, Prime Minister Boris Johnson has stated publicly that the UK will not engage in any "race to the bottom" in terms of standards and enforcement in these areas.
Additionally, it should be borne in mind that EU competition law rules will still apply to arrangements by or with UK businesses that operate or have an effect within the EU, and the EU Commission will continue to have jurisdiction to investigate and penalise any breaches of EU competition law.
However, any potential mergers on the horizon over the next few years should be planned carefully to allow for a possible increase in costs and timeframes. This is because of the likelihood of parallel reviews where a merger satisfies both EUMR and domestic thresholds, and the fact that the timeframes for reviewing both phase 1 and phase 2 decisions are longer for the CMA than for the European Commission. Additionally, in theory at least, it is possible that a merger could be blocked by the EU but permitted by the UK (and vice versa).
For live transactions currently under review by the European Commission, the government has published guidance recommending that merging parties engage with the CMA at an early stage, particularly where a merger may raise potential competition concerns in the UK. In particular, the government warns that failure to engage until after the end of the Transition Period is likely to result in the final outcome of any investigation being delayed, as the 'one-stop shop' system will no longer exist.
On the other hand, mergers likely to complete post-transition may no longer qualify for review under the EUMR thresholds once UK attributable turnover is disregarded. Parties involved in such transactions may wish to consider delaying until after 1 January 2021.