Sophie Lawrance, Stephen Smith, Pat Treacy
As the dust begins to settle on the momentous events that unfolded in the early hours of Friday 24 June, focus inevitably turns to the practical implications of what happens next. Many articles have already been written on this subject and no doubt many more will follow. The honest position today is that no-one can predict precisely what the long-term future holds for the UK because there is still no clarity as to which Brexit path will ultimately be chosen. At this stage however, we can narrow the most likely options down to the following five:
- Leave the EU, but remain a member of the EEA (often referred to as the ‘Norwegian model’);
- Leave the EU, rejoin EFTA, but stay outside the EEA (often referred to as the ‘Swiss model’);
- Leave the EU, but join an EU customs union (often referred to as the ‘Turkish model’);
- Leave the EU, but negotiate individual trade terms (often referred to as the ‘Canadian model’); or
- Leave the EU and fall back on WTO trade terms.
Which of these routes prevails in the long-term will determine to what extent (if at all), the EU competition rules continue to apply in the UK. Broadly speaking, Option 1 would result in no change to the status quo as regards competition law, whereas all the others would result in greater autonomy for a UK regime, potentially operating entirely separate from, but in parallel to, the EU regime.
However, the immediate consequence of the Prime Minister’s decision to resign, initiate a leadership election and to leave the decision as to when to invoke the EU’s timetable for exit under Article 50 to his successor, has given everyone a certain breathing space with which to survey the options. Unspoken amongst these is the possibility that a UK general election will follow in the autumn, which could mean that all bets are off, including potentially even Brexit itself.
Q. What is the immediate impact of the Brexit vote on UK competition law
A. Nothing is likely to change at all in the short or medium term. The prevailing national UK and EU competition regimes will remain in full force.
Q. What about longer-term?
A. Again, in practice, the short answer is likely to be that very little will change. That is of course the case should the UK remain with the EEA. Beyond that, the UK competition rules will remain in full force, operating in parallel to the EU regime. Businesses with international operations will continue to be bound by EU rules as regards their trade within the EU.
Q. Business relies on the legal certainty and guidance arising from the EU’s system of block exemptions. What will happen to these assuming EU law no longer applies?
A. The UK no longer has any national block exemptions, relying instead on the application of ‘parallel exemptions’ meaning that the EU block exemptions result in parallel exemptions from UK competition law prohibitions in addition to the EU prohibitions. Assuming a total exit from the EU competition regime, these would no longer automatically apply and the UK would need to consider implementing new national exemptions. Where the UK is no longer part of the single market, this could well have the result that certain limitations in the application of the block exemptions are removed (i.e. those dealing with territorial restrictions aimed at protecting parallel trade and the single market).
Q. What happens to merger notifications?
A. The UK’s existing merger control regime is likely to remain, although it is possible that in the longer term its voluntary nature may come under increasing pressure. There are, however, likely to be two main effects arising directly from Brexit should EU law no longer apply in the UK. First, there will be an increase in mergers being notified to the UK as it will no longer be possible to rely on the one-stop shop principle inherent in the EU merger regulation regime. Mergers raising any substantive issues in the UK that would previously have fallen under the exclusive jurisdiction of Brussels will therefore require parallel notification in the UK. Second, it is to be expected that there may be a fall in the number of mergers notified in Brussels because UK turnover will no longer count towards the EU jurisdictional criteria. As one of the EU’s largest economies, the removal of UK turnover may therefore be expected to have a non-negligible impact.
Q. What happens to UK competition litigation concerning EU infringements?
A. In the short term, we see little or no change. The doctrine of acquired rights will mean that the UK courts will continue to apply the law as it applied at the relevant time - for competition damages litigation, this will be the time of the infringement giving rise to the cause of action for damages. In future, Brexit will have implications for the implementation of the Damages Directive dealing with follow-on actions – however, given that the deadline for implementation is 27 December 2016, it seems most likely that the UK will still be a full member of the EU and hence that this will be implemented. As with all EU legislation given effect by national implementing legislation, the UK will need to consider whether and how to adopt and/or amend. As regards follow-on damages, it remains to be seen how the UK legislature and courts will treat EU infringement decisions for the purposes of establishing liability.
Q. What steps should business take now to ensure continued compliance?
A. Understandably, businesses operating in the UK will be concerned to ensure not only that they remain fully compliant with whatever legal obligations arise as a result of Brexit but also that compliance costs can be kept to a minimum. Pragmatically, and whatever the final outcome, the message today is one of ‘no change’. The EU regime remains in full force for the foreseeable future and whatever the decisions that will be taken over the course of the next few months, it seems highly unlikely that substantive alterations will be made to the base rules of the game when it comes to competition compliance.
Read our previous article on Brexit here: Brexit – What next? A competition law perspective