08 Jul 2016
(by Andreas Stephan) The UK’s decision to leave the European Union has come as a shock to markets, politicians and indeed to many ‘Brexiteers’. Although protests demanding a reversal of the outcome and legal wrangling over Art 50 (the process for leaving the EU) continue, mainstream politicians have almost universally accepted the result (the obvious exception being in Scotland) and there is since the vote, despite accusations of a dishonest and misleading campaign by the ‘Leave’ camp. It is therefore almost certain that the UK will cease to be a full member of the EU. of Brexit for competition policy in an earlier blog, but here I suggest that much may remain the same regardless of what the UK’s new relationship with the EU ends up being.
The European Economic Area (EEA) and The European Free Trade Association (EFTA)
These represent the closest relationship the UK could have with Europe without being an EU member. The EEA (Iceland, Lichtenstein and Norway, plus EU member states) allows members full access to the single market, while EFTA (EEA members plus Switzerland) facilitates free trade and is accompanied by a series of bilateral agreements with the EU on access to the single market. These options may allow UK financial services to retain their cherished ‘passporting’ rights, which allow firms in one EU country to provide services to clients elsewhere in the single market. The problem with these two arrangements is that they require free movement of people (indeed Norway is in the Schengen passport free area), restrictions on which are considered central to honouring the Brexit vote by vying to replace David Cameron as Prime Minsiter.
An EEA or EFTA arrangement would make surprisingly little difference to the relationship between UK and EU competition law. Articles 53 and 54 of the EEA agreement mirror Article 101 and Article 102 TFEU and can be enforced by either the European Commission or the (the body that monitors compliance). The EEA agreement includes rules on State Aid and sets out co-operation between members. As Articles 53 and 54 follow the jurisprudence of the Court of Justice of the European Union, EEA members’ national antitrust rules must in effect be compatible with EU competition law.
One notable difference is that the UK, as an EEA member, would not be under an obligation to apply EU Competition Law alongside national competition law under Regulation 1/2003 and would no longer be a member of the European Competition Network, whose role it is to oversee the allocation of cases between EU Member States. Interestingly it appears there would be nothing to prevent the UK’s Competition and Markets Authority (CMA) from investigating competition law cases alongside a European Commission investigation. This is significant because it has a greater arsenal of sanctions when it comes to cartels, including the Criminal Cartel Offence and . In the realm of Mergers, EEA members tend to leave EU wide cases to the Commission but can be involved where they raise competition concerns in their jurisdictions.
Switzerland’s EFTA arrangement is looser than this, but in practice its laws largely mirror EU provisions. The Swiss and EU competition authorities have a special arrangement for information sharing and cooperation, as Switzerland is not party to the EEA agreement.
Free Trade Agreement or WTO rules
While it is possible that the UK and the EU may agree a new kind of relationship, failure to accept some form of free movement of people under an EEA or EFTA arrangement, may result in the UK settling for either a negotiated Free Trade arrangement on specific goods and services or (and this is hopefully an unlikely outcome) reverting to WTO rules. This last option would involve trade tariffs and probably be the most damaging outcome for the UK and the EU in economic terms. Both of these outcomes would involve a severing of legal ties between the UK and the EU. The UK would have to enter into a bilateral agreement with the European Commission on cooperation, information exchange and cases invoking both UK and EU competition laws.
However, even in this scenario it is unlikely that the two regime’s competition laws would significantly diverge. UK Competition Law is based on substantive rules and procedures of EU Law and it is likely to continue being guided by the decisions of the European Courts, even if it will no longer be bound by them. The UK was one of the driving forces behind neo-liberalism and the move towards greater effects based competition law enforcement. So long as political interference in the UK or the EU does not pull competition law in a new direction, the two regimes should remain very similar.
Even in the event of a complete severance between the UK and the EU, the CMA may choose not to replicate much of the antitrust enforcement or even some of the merger analysis undertaken by the European Commission. The Commission’s decisions in terms of fines and deterrence will benefit the UK because of the strong overlaps between UK and EU markets. The CMA could instead focus on employing the cartel offence, as a complement to EU cartel enforcement, in relation to the most serious cartel infringements. Ironically, this is something that is not possible at present because it would involve the Commission holding up an investigation while criminal proceedings in the UK are concluded. The CMA will want to avoid duplication to the greatest extent possible, as their caseload will inevitably increase significantly in size if the Commission’s jurisdiction no longer includes UK markets.
Perhaps the biggest loser in the event of ‘Total Brexit’ would be private enforcement. In recent years London has been built up as the forum of choice for launching private actions for damages – especially in connection with cartels investigated by the European Commission. In the absence of an EEA type arrangement it is unlikely that claimants would continue to enjoy standing (the right to sue) in connection with transactions not directly involving UK markets or customers.