Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Brexit: what would it mean for the UK competition law landscape? Introduction “Negative, negative. Incredibly negative”1. This was the view of one City lawyer on the potential impact of the UK leaving the EU. Whilst this comment was in the context of the impact on the whole legal sector, the effect on competition law cannot be underestimated. EU law provides for specific rules on anti-competitive activity, mergers and procurement. Without the EU, the UK competition law landscape would look quite different, and it is difficult to find many positives in such a scenario. The exit options Much commentary has been devoted to the various exit options for the UK, and it is not necessary for this essay to explore these in depth. Broadly speaking, the options are: European Economic Area (EEA): the UK leaves the EU but remains a part of the EEA. The “Swiss” model: the UK becomes part of the European Free Trade Association (EFTA) and negotiates treaties individually. Moving towards a complete exit: the UK leaves the EU and either enters into a customs union with the EU, a Free Trade Agreement, or simply relies on its membership of the World Trade Organisation as a basis for trade. It is difficult to predict what effect an exit from the EU would have without knowing what form the exit would take. Rather surprisingly, the polarised nature of the “in/out” debate has lacked any real focus on the terms of any exit. Accordingly, it is impossible to declare authoritatively what the effect of the UK’s exit on competition law would be without knowledge of the exit option. The two are inextricably linked. For example, if the UK were to remain a part of the EEA, it would still be bound by EU competition law and the effect of an exit would be less profound. Similarly, EU rules on procurement by public bodies would continue to apply. Much of the analysis in this essay assumes that the exit option would mean that the UK is no longer directly bound by EU competition law. Dual investigation Currently, the UK’s membership of the EU provides that EU law prevails over national law. It is a well-established principle that a Member State’s participation in the EU “carries with it a clear limitation of their sovereign right upon which a subsequent unilateral law, incompatible with the aims of the Community, cannot prevail”2. EU law provides for this directly with regard to competition law. Article 3(1) of Regulation 1/2003 states that where Member States apply national law to anti-competitive agreements, decisions by associations of undertakings, concerted practices or abuses of dominant position, they must also apply EU law. 1 The Law Society of England and Wales (2015),EU and the Legal Sector, available from nd http://lawsociety.org.uk/news/press-releases/the-future-of-britain-in-europe-legal-services/ [Accessed: 2 November 2015] 2 Costa v ENEL (6/64) [1964] E.C.R 585; [1964] C.M.L.R 425 If the UK was to leave the EU, the national authorities would no longer be obligated to apply such supremacy to EU law. However in reality, even if the UK was no longer directly bound by EU competition law, the fundamental principles of competition law would remain the same. Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) would still be covered by the Competition Act 1998, which effectively mirrors the equivalent EU law. That is not to say that the effect on competition law would not be appreciable if the UK left the EU. An exit from the EU would undoubtedly result in a dual investigation system in the UK, where a claim would have to be considered by both the Competition and Markets Authority (CMA) and the Commission. For example, cases involving abuse of dominant market positions would infringe both jurisdictions, resulting in claimants and defendants having to run two cases simultaneously. Notwithstanding the inconvenience of running two claims, the resulting increase in costs would significantly impact affected parties. Furthermore, the CMA would be faced with a huge increase in workload, which would have to be adequately resourced and funded. The potential for conflicting judgments issued by the Commission and the CMA would confuse the position on competition law, and make it difficult both for clients to ensure compliance, and for legal advisers to give clear advice. Damages In a ‘Brexit’ scenario, the UK courts would no longer be bound by EU decisions on anti-competitive activity. Currently, a vast number of claims are brought on the basis of EU decisions in order to obtain follow-on damages. This course of recovery would all but cease to exist, given the number of claims which directly relate to or rely upon EU decisions. Claimants would have to prove their claim in the UK courts as well. Similarly, there would be no ability to rely on a decision to award damages in another Member State in the UK courts. This would mean an extra hurdle for claimants to surmount to recover losses as a result of decisions in the European courts. This will no doubt force claimants to try and bring claims in other jurisdictions that are able to rely on this principle. This would result in a loss for those practicing in the UK, as clients looked elsewhere for recovery. Merger control Currently the European Commission acts as ‘one-stop shop’ for EU merger control3. Transactions that have a ‘Community dimension’ must seek prior approval from the Commission. Where EU law does not apply, transactions may be caught by national merger control rules. Notification to the Commission is mandatory and the transaction cannot take place until approval has been given. In the UK, transactions that are not notifiable to the Commission are governed by the Enterprise Act 2003, as amended by the Enterprise and Regulatory Reform Act 2013. This is a voluntary notification process, and approval does not need to be sought prior to the transaction taking place. EU legislation governing mergers applies to all mergers, regardless of where the companies are based. If the UK left the EU, clearance would have to be sought both under the national regime and by the Commission if a ‘Community dimension’ was present. The ‘one-stop shop’ principle would 3 Regulation (EC) 139/2004 on the control of concentrations between undertakings, art 21(1) cease to apply and the burden on companies to run a dual approval process would increase time and management costs. It would potentially affect M&A activity in the UK, given that an EU-based company might make a more attractive target if there is no need to seek such dual approval. Whether the UK regime would continue to be voluntary and retrospective would be an issue for legislators to consider, as it might be seen as too lenient if the EU rules ceased to supersede the national rules. State aid One potential advantage of the UK leaving the EU would be the removal of EU state aid rules. To date, state aid rules have restricted investment in large projects, such as Hinkley Point4. In a ‘Brexit’ scenario, the government would be free to intervene in business. It will be interesting to note whether this is used by Eurosceptic and left-wing campaigners ahead of the referendum to encourage an exit. However, the UK would still be subject to WTO rules in this area even if it did completely exit the EU. Influencing legislation and policy What is clear from an analysis of how a ‘Brexit’ would affect competition law is that much of the UK’s economic activity would still be governed by EU law. In a global market, it is impossible and undesirable to only operate at a national level, and so the influence of EU law will still be felt strongly by businesses in the UK. Particularly under the EEA/EFTA models, the UK would still largely be governed by EU competition law. In fact, the biggest change would be that the UK would no longer have a say in the law-making process, and would lose the ability to influence legislation and EU policy. The UK would be subject to laws it has no say in. The perception that a ‘no’ vote in the referendum would afford more legislative control to the UK is a myth; rather, it would only serve to extinguish the UK’s ability to have a say in the laws it must comply with. A study examining 125 pieces of EU legislation showed that the UK’s position was on average the fourth closest to final policy outcomes5, a higher position than any other large EU Member State. If the UK loses its ability to influence policy, there is a risk that the outcome could move further away from the UK’s desired position and more towards the position of other influential Member States. Working relationships Many of the UK’s largest law firms have offices in Brussels, with the offices working closely together on competition law matters. Every law firm ranked in bands 1 to 4 of the Chambers & Partners guide to competition law6 has a Brussels office and enjoys the ability to move lawyers across offices, and work flexibly across both jurisdictions. Many City firms offer a seat in Brussels to their trainees, to enable them to work in the de facto capital of the European Union. Such experience is invaluable for learning about competition law. Easy access to the European Commission and the Council of the European Union is vital for competition lawyers. 4 (Case T-356/15) Austria v Commission [2015] Robert Thompson (2011), Resolving Controversy in the European Union, Cambridge University Press 6 CHAMBERS & PARTNERS, Competition Law (London Firms), available from: http://www.chambersandpartners.com/11814/2529/editorial/1/1 [accessed 3rd November 2015] 5 An exit from the EU would mean an end to such flexible arrangements. Whilst this is not a problem unique to competition lawyers, the nature of the work makes it very common for competition lawyers to travel across the EU. The requirement to obtain a visa or any other restriction on travelling to Brussels would discourage such flexibility, and make it harder for UK competition lawyers to work in Brussels. Similarly, the ability to offer clients legal services across the internal market would be restricted. The knowledge-sharing and co-operation that currently takes place between UK and Brussels offices would be harder to achieve, and would be to the detriment of competition law in the UK. Furthermore, at a time when UK firms are seeking to employ the brightest and most able graduates from across the EU, a ‘Brexit’ scenario would make the UK a less attractive option if graduates could not work across the EU as easily. This would disadvantage competition law in the UK, as it may be more difficult to attract top talent to work in UK (particularly City) firms. Impact on legal sector A recent Law Society report estimates that the annual loss for the legal sector in the event of an exit could be as much as £1.7 billion; the equivalent of the current combined annual UK revenue of Linklaters, Freshfields Bruckhaus Deringer, Clifford Chance and Allen & Overy7. Although the report does not break down the strong negative effects by sector, they would of course be felt by competition law departments. The scale of the impact felt by the legal sector would depend on which ‘Brexit’ scenario was adopted, but the research acts as a warning call to those working in law. It is clear that leaving the EU would have a deeply detrimental effect on revenue. Competition lawyers may feel the effects more strongly than other departments, given that much of their work involves advising clients across the single market. A client looking for advice in relation to all of its trade in the EU would inevitably seek to instruct a firm in the jurisdiction, and carve-out only its UK-specific work for those in the UK. Practical considerations Article 50 of the Treaty on European Union states that “any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”8. Should the result of the referendum result in an exit from the EU, the UK would have to give two years’ notice to the European Council. During that time, an exit agreement would have to be negotiated. Unless an extension was agreed, the UK would leave the EU at the end of the notice period or upon the conclusion of the exit agreement. Practically therefore, an exit would be a lengthy process and the competition law landscape would not change overnight. However, law firms and their clients would no doubt see an initial uplift in work due to the uncertainty caused by the result and the need to prepare in advance of the eventual exit. Conclusion 7 The Law Society of England and Wales (2015), The UK Legal Services Sector and the EU, an analysis by Oxford Economics, commissioned by the Law Society of England and Wales, available from: th http://lawsociety.org.uk/news/stories/the-uk-legal-services-sector-and-the-eu/ [accessed 29 October 2015] 8 Consolidated Version of the Treaty on European Union [2008] OJ C115/13, art 50 Prime Minister David Cameron’s promise to hold an EU referendum by the end of 20179 has ignited the debate over a decision that could result in the biggest political change in decades. An exit from the EU would have far-reaching political, economic and social consequences. However, even in restricting the analysis to just UK competition law, it is clear that the effect of an exit would be profound. Competition law presents some unique challenges. Although the substantive law would largely remain unchanged, as the equivalent UK law is derived from its principles, there are a number of practical difficulties which would arise. Exiting the EU does not remove its influence. UK businesses wanting to trade in the EU would be subject to its rules, including those on competition. . The myth that exiting the EU would allow the UK more flexibility in its legislation needs to be addressed. Practically, an exit would increase the burden on those trading in the EU and increase the cost of trading in the UK for businesses. An analysis of the effect of a ‘Brexit’ on competition law highlights very few positives. The potential changes to the competition law landscape are overwhelmingly negative, and seem to punish those wishing to trade in the single market. Competition lawyers are right to be worried about a “no” vote in the referendum. Although there would likely be a surge in short-term work, with clients seeking advice on the ramifications of an exit on their business, this would not be sustainable. In the long term, there is a real risk that competition law work would be less lucrative, as clients look elsewhere for advice on the single market, and M&A activity moves to other jurisdictions which can take advantage of the EU’s ‘onestop shop’ approach. Finally, the competition law landscape in already changing in anticipation of the referendum. The uncertainty surrounding the referendum is making it necessary for businesses to seek the advice of their competition lawyers now to manage risk and plan for the future. The success (or failure) of the government’s negotiations with the EU prior to the referendum will be the biggest indication of whether the landscape will be irrevocably changed in 2017. Jasminder Chaytor Trainee Solicitor, Berwin Leighton Paisner LLP 9 GOV.UK (2013) EU Speech at Bloomberg, available from: https://www.gov.uk/government/speeches/euspeech-at-bloomberg [Accessed: 20th October 2015]