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Brexit and Competition Law: one step back

Blog Fide El Confidencial


What the TCA shows is an effort to try to ensure that the rupture affects as little as possible a system of protection of free competition, control of concentrations, and public aid.




Having finished on 31 December 2020 the transitional period provided for in the United Kingdom's Withdrawal Agreement from the European Union of January 24, 2020 (the Withdrawal Agreement), the United Kingdom ceased to have the right of accessing the European Single Market.  Likewise, European companies do not have a right of accessing the UK market as of this date. However, in the Trade and Cooperation Agreement entered into on 24 December 2020 (the TCA), the European Union and the United Kingdom have agreed not to apply tariffs or quotas to goods that originate from the other party. The TCA also foresees a good number of obligations aimed at guaranteeing a situation of a fair and open competition between the companies of both sides (i.e., respect for the so-called “level playing field” principle). This includes, among others, a number of obligations regarding the defense of competition that tend to materially link the new regime as closely as possible to the one that has applied up until now.

Thus, in terms of restrictive agreements and abuses of a dominance position, the TCA establishes the obligation of the United Kingdom to continue applying to those agreements that may affect trade between both parties a system that, in practice, does not differ materially from the one applied until now. In fact, the United Kingdom has accepted to apply and follow the case-law of the European Court of Justice (the ECJ) adopted in this regard until 31 December 2020. However, exceptionally, they may deviate from it when circumstances require it and, in any case, they will not be bound by European rules and case law adopted as of 1 January 2021.

As regards merger control, no material change is anticipated as far as the merit assessment is concerned. That said, the United Kingdom abandons the “one-stop shop” system provided in the European Union Merger Regulation. By virtue of this principle, if a concentration meets the thresholds provided in the said Regulation, the transaction is not reportable to the national competition authorities of the EU Member States, something that simplifies significantly the clearance process for this type of transaction.

The main change brought about relates to State Aids. Although the European Union reserved in the Withdrawal Agreement the possibility of examining until 2024 the State Aids granted by the United Kingdom until 31 December 2020, the truth is that the aids granted by the United Kingdom from that date onwards will not be under the scrutiny of the European Commission (and, consequently, ultimately under the review of the ECJ, either).

Although the TCA foresees that the United Kingdom has to respect a set of principles and rules very similar to those applicable under EU State Aid Law, the one who will carry out the control from now on will be the United Kingdom itself through an independent authority (presumably, the Competition and Markets Authority), subject to the judicial control of its own courts. All this without prejudice, in any case, to the European Union reserving the possibility of appearing in the corresponding proceedings before United Kingdom judges and adopting rebalancing measures in the event that the United Kingdom does not comply with these commitments.

In summary, what the TCA shows is an important effort by both sides to try to ensure that the separation affects as little as possible a system for protecting free competition, merger control and States Aids, which, with its imperfections and areas of improvement, has been working well, and in an integrated way, until last 31 December 2020.

That said, I am afraid that, nevertheless, there are several failures that emerge in the new system (or, better put, new systems), which represent a change for the worse from the pre-existing situation, overall for the United Kingdom. For example, the United Kingdom will no longer benefit from the advantages of participating in the European Competition Network. Or the fact that the Decisions issued by the European Commission in cases initiated as from 1st January 2021 cease to be binding in the UK territory, something that can certainly impact the attractiveness of the United Kingdom as a forum for the resolution of claims for damages for breaches of competition rules.
However, the main losers will be companies (both from the European Union and from the United Kingdom).

First, because of a real risk that, despite the provisions of the ATC, inconsistencies may end up emerging, from both sides, as regards the enforcement of the rules that prohibit agreements restrictive of competition or of the rules on the control of State Aids. The structure provided in the ATC is compact, but it does not guarantee that the enforcement and interpretation of these rules do not end up diverging, in the long term. This can affect the legal certainty of those companies that legitimately intend to set up an integrated and common competitive strategy for the European Union and United Kingdom markets.

Not to mention the more than foreseeable increase in merger control notifications. The fact that the United Kingdom exits the European system, will likely imply a possible increase in the number of notifications in this country (it is estimated that the number of filings analyzed annually will double).  In turn, it will also possibly have the collateral effect of increasing the likelihood of filings before the national competition authorities of the Member States of the European Union, to the detriment of the European Commission. The fact that the turnover achieved by the merging entities in the UK will not be taken into account, will make it more difficult for transactions meeting the European thresholds. This, in turn, will increase the chances of meeting the national thresholds of Member States, with the corresponding increased administrative burden for companies.

This is a clear of the damages that any separation process entails and in which those winning nothing are the companies. And that can only be mitigated by establishing, as in fact the ATC also provides, cooperation mechanisms between both sides regarding the application of competition rules that help to gradually retrace the path started with the United Kingdom's departure from the European Union.
 

Antonio Martínez

Partner at Allen & Overy Madrid. Head of the Competition and EU Law Department in Spain

Oringinally published on Fide's Blog at El Confidencial