Response from Tony Metcalfe

A response to the BCLWG Provisional Conclusions and Recommendations from Tony Metcalfe, a former DTI and BIS official

May 23, 2017

I commend the group for its work. I agree with many of the conclusions and I am sure they will command wide support in the competition law community.

I offer below some comments on three aspects of competition law and policy in the light of Brexit: on the criminal cartel offence; on moving to a prosecutorial model for antitrust enforcement; and on the CMA’s role on the wider legal and regulatory reform that Brexit will require. The theme is that, whilst the reforms to the laws and procedures which the group identifies are important and necessary, it seems to me the group should encourage the Government to be more ambitious for competition law and policy post-Brexit. I do not for a moment underestimate the challenge the Government and the civil service face in delivering Brexit, not just in this but in innumerable other areas, and realistic post-Brexit scenarios also point to even greater pressure on public finances. It is this picture which appears to have persuaded the group towards a rather minimalist approach to change – and, as the paper says, this no doubt will be the Government’s approach in the short term. Whilst I acknowledge the pressures there will be in this direction, in my view present circumstances argue for a renewed emphasis on competition policy as a driver of productivity.

To make just two points which illustrate the threat to competitive pressures in the economy arising from Brexit. First, the UK has long had an open economy and the creation of the Single Market especially has enhanced cross-border trade. This openness has undoubtedly made the task of the competition authorities easier, by making it more difficult, in many sectors,  for domestic firms to dominate the market. It is hard to envisage a post-Brexit future which, in the short and medium term at the very least, doesn’t increase barriers to international trade and therefore reduces competitive pressures in the UK economy. We know that most analyses of the effect of Brexit point to other difficulties faced by the economy. In such circumstances it seems to me to be even more vital to promote competition, especially, perhaps, in the face of pressures there may well be to move towards protectionism both domestically and internationally.

Second, Brexit will require substantial reform of UK laws which will provide opportunities for vested interests to pursue anti-competitive outcomes.   Replacement of the CAP for the UK is an obvious and important example which I expand upon below. I believe it is important for the CMA to be positioned and equipped to provide a strong pro-competition voice in the debates on these matters.

It is against this background that I turn to the group’s views on the cartel offence and antitrust enforcement; and I then turn to the question of regulation and competition which, for reasons I understand, the group’s paper does not discuss.

The criminal cartel offence

Rather strangely, paragraph 2.4 of the paper suggests that, “[p]ost-Brexit, any constraint on prosecuting that [criminal cartel] offence in order to avoid impacting the European Commission in its civil enforcement of the competition rules would fall away. The criminal cartel offence may therefore become a more prominent enforcement tool for the CMA”. This is odd because the offence was deliberately designed to avoid, largely, any such constraint arising. On the contrary, those provisions of the offence which were put in place for that purpose become unnecessary on Brexit, and since they themselves make the offence more difficult to prosecute (as well as introducing a degree of uncertainty for the prosecutors, those potentially caught by the offence, and their advisers) it is reform and simplification of the offence which will make it a more useable tool for the CMA.

The offence sits in an odd position in the light of Brexit. It presumably will fall outside the scope of the Great Repeal Bill since, despite it being a classical anti-cartel provision, it was designed, by a number of features, not to be part of EU competition law (the Bill might also be inappropriate since this is a criminal provision). It was so designed to allow individuals involved in a cartel case which was being investigated by the European Commission under civil law to be prosecuted: were the offence to be an aspect of competition law, the EU system of case allocation would have prevented the UK from taking action. Particular features of the offence and its operation (e.g. the CMA’s prosecutorial guidance) were also designed  to prevent the situation arising of an individual being prosecuted for behaviour that was lawful under the EU competition rules.

But this peculiar position lead the Government to include provisions in the offence which I am sure it would never normally have contemplated. For example, the defence the provision provides for those who have obtained legal advice.  Whilst I am in no doubt that the revised offence is an improvement on what was originally enacted in the EA02, it does have problematic aspects which make enforcement more difficult. Whilst, as I say, reform would appear to fall outside the scope of the Great Repeal Bill, I would hope the group could identify the opportunity to reform it which Brexit will bring and invite the Government to give some priority to it. I doubt that extensive provision would be needed; nor the intellectual muscle that went into its original enactment and amendment.

Antitrust enforcement

Consistent with its rather minimal approach to reform, the group’s paper recommends no change to the antitrust procedures. Paragraph 1.7 makes reference to the possibility of moving to a prosecutorial system but speaks of radical proposals being mooted and rejected in 2012. I think this misunderstands the nature of the decision the Government took then; and it seems to proceed oblivious to section 47 of the Enterprise and Regulatory Reform Act 2013.

That section requires the Secretary of State to review the operation of the antitrust regime and to report the outcome of his review to Parliament by 1 April 2019. Coincidentally, this is almost exactly the date by which the UK must leave the EU (unless an extension is unanimously agreed by the Member States).

It seems to me incredible (and possibly unlawful) for the Secretary of State to carry out this statutory duty without having regard to Brexit and to the possibility of reforming the regime since significant changes will anyway be necessary because of that. This is especially the case because the very purpose of section 47 (as plainly set out in paragraphs 6.17 – 6.30 of Growth, Competition and the Competition Regime: Government response to Consultation (March 2012)) was to examine whether the so-called enhanced administrative model could (as the OFT had promised) deliver improvements to match those which the Government expected to flow from moving to a prosecutorial model (a model which had particular attractions to the Government). The consultation response document even set out in some detail the improved performance which the OFT expected the CMA to deliver, so this could be tested against reality. The clear expectation was that we would move to a prosecutorial model (which incidentally could be done by secondary legislation even without Brexit) if the review concluded that was indeed the better model.

In these circumstances it seems to me the right approach, procedurally, is for the group is to recommend commencement of this review by BEIS. But procedure apart, I would also emphasise in the context of Brexit that if, as many distinguished respondents to the consultation argued, a prosecutorial approach would significantly improve the ability of the CMA to detect, punish and deter antitrust infringements, then such an improvement becomes ever more vital if, as I argued earlier, Brexit puts a premium on enforcement of competition law.

I will not otherwise dwell here on the advantages of a prosecutorial system (but am happy to do so if asked) except to say this, more by way of comment because there are other and much better arguments. The administrative model is in some ways an aberration in a common law system such as ours. It is not the way we prosecute other infringements; nor is it the way other common law jurisdictions such as Australia and the USA prosecute antitrust cases (as it happens, very successfully). I have a sense it will never really be regarded as legitimate in some quarters here. Whilst of course EU law would permit us to enforce the EU prohibitions under a prosecutorial system, I find it a little surprising that the report does not draw attention to the opportunity of Brexit to return to our common law traditions. It is something which I would expect to appeal to certain Ministers – and as such, a counter to the argument for doing the minimal changes to the regime necessary (an argument I do understand).

Regulation and Competition

Over the last 15 years or so, although there have been some disappointments such as in pharmacies and taxis,  the OFT and the CMA have done some important work in challenging regulations. This has included some excellent guidance to Government Departments on the need to assess the competition implications of regulations and how to do so. Brexit will require a vast raft of legislation to be revisited. It is clear that efforts will likely be made to deregulate – to reduce the burden of regulation. Whilst many of us may have doubts about some aspects of that approach, the point I would emphasise is that in this process it is important not only to consider the deadweight costs of regulation but also, perhaps more importantly, the dynamic effects – the way regulation can impose barriers to entry, distort competition etc. Given the scale of the task, I believe the Government should be pressed to ensure the CMA has resources for this, as well as the other priorities post-Brexit.

An important new tool is the revision to section 7 of the EA02 made by the Small Business, Enterprise and Employment Act 2015 which gives the CMA an enhanced role in making recommendations to Ministers about the potential effects of regulations on competition in the UK.

I understand that existing EU law will initially be incorporated into UK domestic law largely unchanged with significant adjustments happening later, which would reduce the initial burden on the CMA. But some significant new regulation will presumably be necessary at the point of Brexit. A notable example would appear to be a replacement for the Common Agricultural Policy for the UK.

Reform here is one of the few areas where Brexit should lead to better (certainly more competitive and pro-consumer) outcomes for the UK than had we remained in the EU. However, it would probably be unwise to underestimate the power of the farmers’ lobby. This is not at all a trivial issue. I think it would be helpful if the group could point to CAP reform as an  example of an area where it is important for the CMA to have a role in discussions. Incidentally, whilst the group’s paper is surely right in thinking that the exclusion of certain agricultural agreements in Schedule 3 to the CA98 would appear naturally to fall on Brexit, I would expect there to be pressure to replicate its effect.