01 Jul 2014

(by Andreas Stephan) On 18 September 2014 Scottish residents will be asked whether Scotland should be an independent country. A discussion was held at the recent (held by the University of Oxford’s Centre for Competition Law and Policy) regarding competition policy in an independent Scotland. This blog piece focuses on the impact independence would have on competition enforcement in Britain.

The current devolved Scottish government (the Scottish National Party) is campaigning for a Yes vote and envisages an independent Scotland establishing a single authority responsible for both competition enforcement and sector regulation. Scotland already has a separate to the rest of the UK. In its report,  (Feb 2013) the Scottish Government promises to deliver regulation focused on Scottish interests, but makes no mention of the enforcement of antitrust powers.

The most obvious grievance Scotland may have with the Competition and Markets Authority (CMA, formerly the Office of Fair Trading and Competition Commission) as part of the UK, is that its activities are too focused on the South East of England, possibly at the expense of purely Scottish competition issues. Since the Competition Act 1998 came into force the UK authority has completed three cases within Scotland (the unilateral case of Aberdeen Journals and two collusion cases involving Roofing Contracts). In a Lord Curry, the Chairman of the UK’s CMA, identified Scotland as a key focus for the authority, announcing an expanded regional office in Edinburgh and a number of ongoing cases primarily concerning Scotland.

A new competition authority within an independent Scotland with EU membership will constitute a designated national competition authority for the purposes of Regulation 1/2003. It will be under an obligation to apply Article 101 TFEU alongside national competition law where agreements and practices ‘may affect trade between Member States’ (Article 3).Thus practices that affect both Scotland and the post-independence UK will engage EU competition law.

The Scottish authority’s freedom to enforce competition law will be constrained by the way in which commerce has developed throughout the UK as a truly single market since the 1707 Acts of Union. Markets overlap between England and Scotland to an extent far greater than the UK and Republic of Ireland, for example. All but the most local of anti-competitive conduct will therefore fall under EU Competition Law, creating a major overlap between the work of the Scottish authority and the UK’s Competition and Market’s Authority.

Regulation 1/2003 states cases should be ‘dealt with by the most appropriate authorities’ (emphasis added) within the European Competition Network. It allows for an authority to close a case where it is also being dealt with by another authority, ‘the objective being that each case should be handled by a single authority’ (Recital 18), but does not set out criteria for case allocation. According to the Commission’s Notice on Cooperation within the Network of Competition Authorities (2004/C101/03) cases may be allocated in three ways: (1) a single NCA dealing with the case; (2) two or more NCAs dealing with a case in parallel; or (3) the Commission dealing with the case. The Commission is unlikely to take up a case unless the practices ‘have effects on competition in more than three Member States’ (para 15), leaving the Scottish and UK authorities to pursue all relevant cases.

The notice envisages the authority receiving the complaint or being first to launch an investigation as the one most likely to take charge of the case, but goes on to set out three factors that determine which authority is best placed to deal with a case. Cumulatively, these are: (1) substantial actual or foreseeable effects on competition within the authority’s territory; (2) authority is able to effectively bring entire infringement to an end; and (3) the authority is able to gather the evidence required to prove the infringement. The notice states that parallel action by NCAs may be appropriate where ‘the action of only one authority would not be sufficient to bring the entire infringement to an end and/or to sanction it adequately’.

Given that the vast majority of sales affected by competition infringements in Britain are likely to have taken place in England, the CMA will still be the most appropriate authority to investigate them, despite Scottish independence. The Scottish authority would require significant cooperation from the CMA in order to investigate infringements that span the whole of Britain. There would also be significant duplication of work and costs associated with two parallel investigations of the same infringement. So as a separate Member State that is not represented at Westminster, an independent Scotland could actually have less control over enforcement against the lion’s share of infringements affecting Scottish consumers. This loss of influence will be accompanied by significant costs, such as setting up the authority and significant costs to the business community. All undertakings operating in England and Scotland (regardless of where they are based), will have to adjust to a dual enforcement regime and face practical uncertainties such as submitting two leniency applications (in the context of cartel cases), in case an infringement is not investigated by the CMA but is picked up by the Scottish authority.

The CMA’s dominance can be seen as an advantage in one respect. Scotland can leave the cross border cases to the UK authority, which will investigate and bring the infringements to an end (at the cost of UK taxpayers), leaving the Scottish authority free to pursue infringements within Scotland and possibly cases that the CMA chooses not to take up. However, there is no guarantee that a Scottish authority would uncover infringements where the CMA currently finds none. The new authority would also lack the CMA’s experience and the limited number of cases will make it difficult to recruit and retain the best staff.

The CMA is clearly doing more to engage with competition policy on a regional level. In addition to its office in Edinburgh, it now maintains a one person presence in Cardiff and Belfast too. However the dominance of economic activity in London and the South East of England affects other regions too. Initiatives aimed at engaging the devolved nations should also extend to regions of England where the CMA in London feels equally distant.