The implications of Brexit for UK and EU competition policy and law enforcement

A response to the BCLWG Issues Paper from Sir Philip Lowe, former Director General for Competition and for Energy in the European Commission.

November 22, 2016

You can download a full response to the BCLWG Issues Paper from Sir Philip Lowe, former Director General for Competition and for Energy in the European Commission, below.

Summary of conclusions

  1. Although UK and EU competition laws policies are strongly aligned, there is every reason to believe that the CMA post-Brexit will be able to maintain and strengthen its position as one of the leading competition authorities in the world.
  2. Because of their international dimension, a significant number of mergers, cartels and cases linked to abuse of market power by large firms have been dealt with by the European Commission, rather than by national competition authorities within the EU(On the basis that it can take a Europe-wide view and negotiate on a par with major jurisdictions such as the US and China). Post-Brexit, these cases will also be subject to investigations by the CMA, in parallel to those of the Commission. This can only enhance the influence of UK in the handling of competition issues on world-wide markets.
  3. At the same time, outside the EU, the UK (the CMA) is bound to have less direct impact on the development of EU competition policy, which is likely to revert to being more influenced by German and formalistic antitrust traditions. The UK can nevertheless continue to exploit the potential for international convergence in the substances and process of competition policies through the work of the OECD Competition Committee and the International Competition Network.
  4. The substantially increased responsibilities of the CMA and related UK institutions post-Brexit, will require a correspondingly substantial increase in its staff resources. It is unrealistic to imagine that the increased workload can be dealt with significantly by a change in the CMA’s enforcement priorities. With unchanged staff numbers, its future involvement in international mergers, cartels and antitrust cases could well eliminate any possibility for it to engage in market enquiries and consumer protection work.
  5. The need for the CMA to scrutinize transactions and agreements that are currently handled by European Commission, on behalf of the EU as a whole, also implies an increase in the costs and administrative burden imposed on companies, whether UK- or foreign-based. This will not necessarily be a decisive factor in decisions by companies as to where and how much they invest. But business will be keen to see the UK and EU-27 converge their rules and cooperate together as much as possible (See scope for a UK-EU Cooperation Agreement on Competition below).
  6. Detailed transitional arrangements will be needed to deal with pipeline cases where timetables straddle the formal date of withdrawal from the EU. It makes sense for the CMA to handle all cases post this withdrawal date. However, it would make equal sense for investigations and decisions on cases relating to pre-Brexit conditions for the UK to acknowledge both the validity of EU case law and the role of the European Courts. For cases post-Brexit, there should also be the opportunity for UK authorities to invite evidence and opinion from EU institutions, just as US courts are frequently willing and interested to have amicus curiae submissions from EU bodies.
  7. For the longer term, there is every interest in negotiating an UK-EU cooperation agreement in the competition field, on the lines of the EU agreements reached with the USA and Switzerland, but arguably a much more comprehensive one, given the proximity of UK to continental EU markets and the longstanding close cooperation between UK competition authorities on the one hand, and the Commission and other EU national competition authorities on the other. This agreement should focus on: –
    • Maintaining and strengthening convergence in policies and processes;
    • Facilitating parallel investigations and negotiation of remedies for mergers and antitrust cases;
    • Cooperation on cartel investigations and the handling of leniency applications.
  8. Withdrawal of the UK from the EU single market in goods, transport, energy and services could well reduce competitive pressure on UK domestic firms and lead to more calls not only for CMA intervention but also for regulation. Every effort should be employed to ensure that the trade and regulatory environment post-Brexit ensures domestic markets are still open for competition.
  9. European regulation to liberalize network industries such as transport, telecoms and energy, has been, and continues to be, of significant benefit to the UK, in particular in terms of opening up continental markets for UK-based firms to compete. But UK consumers can also benefit from increasing integration of UK and continental markets. The obvious example is energy, where because of very low levels of interconnection, consumers of electricity and gas in the UK are not benefiting from lower prices and better security of supply from markets in the rest of the EU. For these reasons and also those advanced under point 7 above, continued application of EU sectoral regulations, at least during a transitional period, could be of mutual benefit to the UK and EU-27
  10. There is increasing concern in the USA and in Europe about the impact of foreign takeovers on the domestic economy. Brexit will make it easier for the UK to impose stricter national controls on these transactions to because no EU-wide agreement will be necessary to get them adopted. However, as the CMA has emphasized in its recent submission on broadening the ‘public interest’ test for mergers, any widening of the criteria has advantages and disadvantages, not just for businesses but also for governments and consumers. It should not be entered into lightly.