What would a no-deal Brexit mean for competition law and state aid regulation?

As part of our Brexit series, we consider the implications of Brexit on competition law and state aid regulation which, as EU-derived laws and processes, could greatly impact upon the EU.

State aid

State aid is where a government or government entity offers support to an organisation, which may or may not be financial in nature. However, that support may not be permitted where it gives the organisation a benefit that couldn’t have been obtained on similar terms from non-government sources.

Currently, all of our state aid rules are set out in European legislation and are therefore enforceable in the UK by virtue of our EU membership. We do not have any domestic legislation in respect of state aid.

However, the Department for Business, Energy and Industrial Strategy has stated in guidance that if we have a no deal Brexit, the government is committed to creating a “UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies.”

Further, the European Union (Withdrawal) Act will embed into UK law rules which will mirror the current EU state aid rules, although these will need to be tailored for the domestic scenario. This is beneficial, as it will provide a level of certainty and stability for all parties involved. The UK remains committed to a rigorous state aid regime as the UK government believes that state aid rules assist fair and open competition between businesses.

The Competition and Markets Authority (CMA) will become responsible for regulating state aid in the UK post-Brexit, and will issue guidance explaining how it will carry out its new role and how the rules will be enforced. These rules will be applicable to all businesses with operations in the UK, not simply UK-based organisations.

If your organisation currently benefits from state aid, the only thing that should change post-Brexit is that any notifications which would previously have been made to the European Commission will, after 29 March 2019, be made to the CMA. If your business already has approval for state aid received, this will continue to apply and such acceptances by the European Commission will remain valid and will be transposed into UK law.

Competition law

Currently in the UK, we have two competition law systems which operate in parallel (although the UK rules are based on the EU system):

  • UK system; and
  • EU system.

Where the competition law issue (e.g. price fixing, merger etc.) only has an impact upon UK markets (i.e. is restricted to the UK), then the CMA has jurisdiction and the UK rules will apply. However, where the conduct has an impact on EU markets/citizens (e.g. where you participated in an EU-wide cartel or where the conduct may affect trade in the EU or the EU market), the European Commission may assert its jurisdiction and the EU rules will also apply.

After 29 March 2019, organisations which operate across the EU (as well as the UK) may be subject to the jurisdiction of both the EU and UK in relation to competition matters.

If we leave the EU without a “deal,” the UK competition regime will continue to apply and be enforced by the CMA. The CMA, however, will no longer be bound by future EU case law (issued from the European Court of Justice – CJEU and the European Commission), although we would expect such case law to be taken into account given the similarity of the underlying provisions.

The current block exemptions under the EU legislation will be transposed into UK law. Therefore, if you are currently relying on a block exemption under EU law, this will still apply until UK law changes.

What about individuals and private damages actions?

At the moment, individuals who have been the victim of anti-competitive behaviour can rely on European decisions as a basis for a follow-on private damages action in the UK against such companies.

Post-Brexit, victims will no longer be able to rely on future EU decisions as evidence of per se infringement to bring a follow-on damages action in the UK, although they can and will be introduced as persuasive evidence of such.

What happens to live cases?

In the event of a “no-deal” Brexit, it is possible that the EU and UK could fail to reach an agreement as to the jurisdiction of “live” cases being considered by the EU. Where such is the position, the EU would continue its investigations where the conduct infringed the EU rules and the CMA would need to commence investigations in relation to any UK impact.

Conclusion

There are many regulatory changes and potential jurisdiction issues that will need to be negotiated between the UK and EU prior to 29 March 2019 and much of the foregoing remains in flux.
Finally, it should be noted that European competition regulators at both national and EU level regularly exchange information through the European Competition Network, and this is likely to continue post-Brexit.

Organisations concerned about state aid and/or competition laws should seek advice in relation to their specific circumstances.

This article was co-written by Charlotte Fleming.

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