Sophie Lawrance, Stephen Smith, Pat Treacy
It is difficult to think of a UK statesman who did more for European unity or was more supportive of the idea of a union amongst the states of Europe than Winston Churchill and it is hence with some hesitation that an article about the UK’s exit from the European Union should begin with one of his many quotable soundbites:
"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning".
Yet that is precisely the situation facing the UK after it woke up on 24 June to the reality that it had voted decisively in favour of leaving the European Union. This has left politicians, diplomats, business and lawyers wondering what this means in practice and what happens next. Of course the nature of the position is such that the greatest certainty today remains one of uncertainty as to what happens next – although the vote to leave was clear, there is no consensus whatsoever as to what happens next.
At one extreme, EU membership could be replaced by the UK joining the European Free Trade Association and the European Economic Area (alongside Norway, Iceland and Liechtenstein). From many perspectives, including as regards competition law, this would clearly be the most straightforward, giving rise as it would to the fewest changes. This would entail a continued financial contribution to the EU budget and requirement to sign up to free movement of persons in exchange for access to the single market. UK courts would in effect continue to be bound by EU legislation and by decisions of the European courts. So far so good, but politically it is difficult to see how this squares with a Brexit campaign that has focused so overtly on immigration and repatriation of UK funds away from Brussels.
At the other extreme, the UK could seek a total exit, falling back on World Trade Organisation (“WTO”) rules to continue trading with the EU, but without access to the single market. Under this outcome, EU law would simply become another overseas jurisdiction, persuasive, but no more to the UK authorities and the courts.
At this stage it is too early to say anything definitive on which direction might ultimately be pursued. However, now that we have moved beyond the hypothetical and the UK begins its journey into uncharted waters, there are some general points to be made whatever our final destination.
Of course most aspects of UK law will be affected to a certain extent, but competition law and policy is one area where integration is perhaps its deepest and hence forms the focus of this article. Patent law and particularly work towards creation of the Unified Patent Court is also deeply and directly affected and our thoughts on the Brexit implications for the UPC can be read here.
EU and EEA member states benefit from the ‘one-stop’ shop of the EU Merger Regulation, meaning that transactions that meet the jurisdictional criteria may be notified and assessed in Brussels to the exclusion of national regimes. If the UK joins the EEA, there will therefore be no practical change to the current system. However, a total exit would require companies to assess whether transactions need to be conditional on UK and EU merger clearances. Whilst the UK operates a voluntary notification regime, transactions giving rise to any substantive overlaps are routinely notified in advance in the interests of legal certainty.
A total exit may therefore be expected to give rise to duplication and increased costs as international transactions with a UK element fall to be reviewed under both the UK regime and in Brussels in parallel. There are also obvious resource and hence cost implications for the UK competition authority, costs which ultimately could be expected to be passed through to business.
Cartels and investigations
The main UK competition rules concerning anti-competitive agreements and abuse of dominance broadly mirror equivalent EU provisions. There is no obvious reason why the UK would choose to use a Brexit as an opportunity to undertake wholesale revision of the competition regime and hence we envisage very little in the way of practical implications as regards the implementation of UK competition law.
However, as with merger control, the biggest impact is most likely to be one of duplication – pan-European cartels and issues will probably face parallel investigations by the UK and EU competition authorities, potentially giving rise to increased fines.
State Aid and Public Procurement
If the UK were to join the EEA it would be required to comply with the EU rules on state aid and hence the position would be one of ‘no change’. However, in the event of a ‘total exit’, the UK would no longer be bound by the rules aimed at protecting the single market and the far looser rules under the WTO would apply (e.g. prohibitions on trade subsidies). Crucially, the WTO rules would not prevent the UK subsidising ‘national champions’ and hence could result in direct Government intervention to support businesses such as Tata Steel.
The situation in relation to public procurement is similar. Whilst EEA membership would bring with it a continued obligation to comply with EU rules, a total exit would leave the UK free to create its own national rules outside of the EU regime. In practice however, it seems inconceivable that any UK system would not result in similar obligations for the award of public contracts in the interests of transparency, value for money and non-discrimination as between bidders.
It is to be expected that the UK competition authorities will cease to be full members of the European Competition Network upon exit, which in the absence of separate agreements will mean a reduced UK voice in the shaping and development of competition policy at an EU level and ultimately globally. Whilst that leaves the UK free to pursue its own policy objectives, this might result over the longer term in a gradual shift away from the existing alignment with EU law as the UK regime adapts to life outside the EU. At least initially, however, we would expect any practical impact to be limited.
The position is most uncertain as regards competition litigation, particularly enforcement of damages claims. The UK had sought to position itself as a leading jurisdiction for the private enforcement of EU competition rights (alongside Germany and the Netherlands). It is to be expected that once the UK has finally left the EU, EU Commission decisions and EU law will cease to have a binding effect on the UK courts and the UK courts would consequently cease to be such an attractive forum for claimants.
But that might not be the final word – the UK remains a large market with a well-respected judicial system. Given the similarities that exist and will likely persist in the substantive provisions, it is probable that EU infringement findings will remain highly persuasive to the UK courts and hence there might actually be an increase in cases pursued in parallel in the UK and an EU court. UK courts are also adept at resolving conflict of law issues and can be expected to apply the law as it stood when the infringement took place and/or when the right to sue accrued. Hence EU competition law may continue to be of relevance in the UK Courts for some time to come, whatever the outcome on the exit negotiations.
And so we are now at the end of the beginning of the UK’s exit from the European Union.All we can say with certainty today is that the UK electorate has delivered a clear, if far from unanimous, mandate to its government to start the process of extricating the UK from the EU. But the main message to businesses operating within the UK can also be summed up by a historic cliché:‘Keep calm and carry on’.
At a very practical level the present system is likely to persist for some time. Furthermore, most businesses will remain subject to the same general restrictions and obligations as they do today, albeit with a greater risk of duplication and/or parallel reviews. Watch this space as we move from the end of the beginning to a new chapter in the UK’s relationship with the EU.